Egypt's FDI Responds To Tax Cuts

by Jason Gorringe, Tax-News.com, London

18 October 2005

Egyptian tax reforms have encouraged immediate increases in FDI, said Amr Abdel Azim, Vice-Chairman of Egypt’s General Authority for Investment and Free Zones in London last week.

British companies are expected to contribute substantial foreign direct investment (FDI) to Egypt over the coming months, said Egyptian government officials.

“The UK is Egypt’s largest investment partner, with a longstanding record of business success in the country,” said Mr Azim. “From investment in industrial concerns, construction and financial interests, UK yearly investment in Egypt rose by over EGP100 million in the last year, and we expect the contributions will only increase as Egypt continues on its path toward greater economic reform,” he added.

Egypt is already showing signs of progress as government economic reform programmes begin to take effect. Foreign direct investment rose by 146% in 2004/05, and company-issued capital from Egyptian and international sources almost tripled between 2002/03 and 2004/05. Its GDP grew by 4.9% in 2004/05, with inflation declining from 12% in 2004 to 4.8% in the fourth quarter of 2004/05. Market capitalization doubled between June 2004 and June 2005, and the Capital Market Index increased 860 points during 2004/05.

Ian Gray, CEO of Vodafone Egypt, who attended the London roundtable, said: “The improving business environment has been supported by ongoing reforms in the government’s tax, customs, regulatory, financial services, and privatisation policies. With Egypt’s strategic location and skilled resources, the opportunities for Vodafone are hugely exciting.”

Egypt introduced sharply lower rates of corporate and personal taxation from 1st July. Under the new code, most companies will pay 20% tax on their profits. Under the previous tax system, industrial and export firms paid 32%, while most other companies paid 40%. The new tax code preserves tax exemptions for profits from stock exchange investments, on dividends paid to shareholders and on interest payments from banks and bonds. Current exemptions given to companies in free trade zones and industrial zones will be abolished, however, at least for new entrants.

For individuals, the maximum tax rate is now 20% instead of 40% and the thresholds for each tax bracket have been raised. Individuals will pay 10% tax on income between 5,000 and 20,000 Egyptian pounds ($862 and $3,448) a year, 15% on income between 20,000 and 40,000 pounds a year and 20% on any income above 40,000 pounds. Under the previous system, the maximum rate of 40% kicked in at a threshold of 16,000 pounds.

Finance Minister Youssef Boutros Ghali says that the tax cuts will cost the treasury 3.5 billion to 3.6 billion pounds a year but that the money would be recovered through increased economic activity.

Recommended