1. Tax Accounting
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2. 11/15/2018
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3. Chapter 3: Tax on Salaries and the Like
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4. Contents Introduction. Taxable Revenues. Tax Bracket determination.
Tax Rates.
Tax Exemption.
Tax Calculations.
Tax Collection.
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5. (1) Introduction
The tax is imposed on revenues from work for others and under their supervision and control.
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6. (2) Taxable Revenues The tax applies to:
(1) All earning due to the taxpayer resulting from his/her work with third parties:
with or without contract,
periodically or non-periodically,
whatever the names forms or reasons of those earnings,
and whether they are for works performed in Egypt or abroad and paid by a source in Egypt.
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7. (2) Taxable Revenues All earnings include:
(a) wages. (b) remunerations. (c) incentive.
(d) commissions. (e) grants. (f) overtimes.
(g) allowances. (h) shares and portions in profit.
(i) The monetary privileges and allowance in-kind of all types.
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8. (2) Taxable Revenues
(2) Earnings due to the taxpayer from a foreign source for works performed in Egypt.
(3) Salaries and remunerations of chairmen and members of the boards of directors in the public sector companies and the public business sector companies, who are not shareholders.
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9. (2) Taxable Revenues
(4) Salaries and remunerations of chairmen and members of the boards of directors in the associations of capital in return for their administrative work.
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10. (2) Taxable Revenues Important notes:
(1) Salaries revenues which are subjected to the tax should be paid by the Egyptian Public Treasury.
(2) Payments by companies, establishments and individuals in term of revenues, with the exception of pensions, are subjected to tax in only two cases, namely:
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11. (2) Taxable Revenues
(a) If payment has been effected to person residing in Egypt for services rendered in Egypt or abroad.
(b) If payment has been effected to person residing abroad for services rendered in Egypt.
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12. (3) Tax Bracket determination
Taxable revenues are divided into several categories, namely:
(1) Salaries, wages and the like.
(2) Bonuses (remuneration).
(3) Cash and in kind benefits.
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13. (3) Tax Bracket determination
First: Salaries, wages and the like.
Salaries and wages represent receipts by employees and workers in return for performing work for others under their supervision.
The reason behind the legislator having added the term ”and the like” is the desire that the context would be global so that no revenue evades tax.
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14. (3) Tax Bracket determination
Second: Bonuses (remuneration).
Bonuses mean those amounts paid to workers and employees, in excess of salary or wage, in return for performing some additional work, which are considered as complementary to the original work.
For example, the bonus for overtime working hours.
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15. (3) Tax Bracket determination
Note that: the end of service bonus is not considered a part of the taxable revenues.
The tax will not imposed on the amounts received against the vocation spent on work.
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16. (3) Tax Bracket determination
Third: Cash and in kind benefits.
(A) Cash benefits
It is meant all that is acquired by the employee from his employer under work contract, whether these amounts have been disbursed periodically or occasionally, paid by the employer or third parties and whether they were mandatory or optional.
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17. (3) Tax Bracket determination
To subject cash benefits to tax, they must have been granted to the employee as an advantage reflecting some personal benefit upon him, such as the full time devotion allowance paid to engineers and doctors.
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18. (3) Tax Bracket determination
As for allowances paid to employees which are necessary for them to perform their work properly, or against actual expences, those are not subjected to tax.
For example: Travel and transportation allowances, residence and boarding allowances, clothes allowances.
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19. (3) Tax Bracket determination
Example 1: An employee in a company acquires the following amounts:
L.E. 700 overtime wages for working overtime hours.
L.E. 300 travel and transportation allowances.
L.E. 600 clothing allowance.
L.E. 200 full time allowance.
Required: Indicate the extent to which the above amounts are taxable.
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20. (3) Tax Bracket determination
Solution:
(A) L.E. 700 overtime wages for working overtime hours.
Subjected to tax on salaries and wages revenues
(B) L.E. 300 travel and transportation allowances.
Not subjected to tax on salaries and wages revenues
(C) L.E. 600 clothing allowance.
(D) L.E. 200 full time allowance.
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21. (3) Tax Bracket determination
Third: Cash and in kind benefits.
(B) In kind benefits
It is meant all that is provided by the entity or the firm to its employees in the form of free services, in addition to salaries.
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22. (3) Tax Bracket determination
Examples are:
Housing
Travel permits
Meals
Car use
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23. (3) Tax Bracket determination
For the in –kind benefits to be taxable, those benefits must be granted to the employee for free and the aim is to reward the employee in person.
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24. (3) Tax Bracket determination
In-kind benefits are not subject to tax if the employer collects compensation for them from the employee or if the in-kind benefits are granted as a work necessity.
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25. (3) Tax Bracket determination
Example 2:
A company provides an employee a lodging to live in, its monthly rental value amounts to L.E.200 against a monthly deduction of L.E. 3 from his salary. It also provides him a car for transportation which costs the company L.E.280 monthly free of charge.
Required: Indicate the taxable in-kind benefits.
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26. (3) Tax Bracket determination
Solution
(A) The lodging provided by the employer L.E. 200
Is not taxable:
As this housing facility is not granted free of charge.
(B) The cost of the car L.E. 280
Subject to tax:
Because that stands as in-kind benefit granted to him free of charge.
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27. (3) Tax Bracket determination
Third: Cash and in kind benefits.
The law has indicated some cases in which tax does not apply to some in-kind benefits, as follows:
(1) Tax does not apply to the housing allowance (as a cash benefit) or to the house facility (as an in-kind benefit) for foreign experts as well as to Egyptians in the fields of rehabilitation and land reclamation.
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28. (3) Tax Bracket determination
(2) Tax does not apply to the amounts received by representatives of the regional offices of the foreign companies and establishments in Egypt, for their activity in Egypt only.
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29. (3) Tax Bracket determination
Third: Cash and in kind benefits.
The law has stipulated some estimations for the following in-kind benefits:
(1) Company motor cars put at full personal disposal of the employee:
The benefit shall be fixed at 20% of the amount of fuel, insurance, and periodic maintenance, whether the car is owned or rented.
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30. (3) Tax Bracket determination
Third: Cash and in kind benefits.
(2) Call phones (Mobiles):
The benefit shall be fixed at 20% of their costs throughout the whole year.
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31. (3) Tax Bracket determination
(3) Loan and debts rendered by employer:
Any loan rendered by the employer must exceed the salary of the employee through the last 6 months prior receiving the loan.
And we have two cases:
First: If the loan is without interest
The benefit shall be considered 7%.
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32. (3) Tax Bracket determination
(3) Loan and debts rendered by employer:
Second: If the loan is less than 7% interest:
The benefit shall be considered (7% - the loan interest).
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33. (3) Tax Bracket determination
Example :
One employer renders an employee a loan. Its value amount is:
L.E 20,000 with interest 8%.
L.E. 25,000 with no interest
L.E 30,000 with interest 6%
Suppose that what the employee gained during the last 6 months was L.E.24,000
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34. (3) Tax Bracket determination
Required: Indicate the taxable treatment.
Solution
(A) The loan does not exceed the 6 months salary (24,000): Therefore this loan not represents a benefit and then is not subjected to the tax.
(B) The benefit = (25,000-24,000) × 7% = L.E.70 and this amount is subjected to the tax.
(c) The benefit = (30,000-24,000) × (7%-6%) = L.E.60 and this amount is subjected to the tax
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35. (3) Tax Bracket determination
(4) Insurance policies on the life the employee, his family or properties:
The benefit shall be valued on the basis of premium amount caused by the employer and paid during the year.
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36. (3) Tax Bracket determination
(5) Company shares granted at a value lower than the market price of the share:
The value shall be determined on the basis of the difference between the market value of the share at the date of its acquisition and the amount invoiced to the employee.
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37. Tax Rates
The first slice: More than L.E up to 30000: the rate 10%.
The second slice: More than L.E up to 45000: the rate 15%.
The third slice: More than L.E up to : the rate 2%.
More than : the rate 22.5%.
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38. Tax Rates
Foreign experts are subjected to tax at the rate of 10% on the total amount they receive without any deduction for costs or family charges provided their employment duration does not exceed 183 days per year, continuous or interrupted.
If exceeds that, they become taxable after deduction costs and family charges.
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39. Tax Rates
Similarly, the amounts received by employees from an entity other than their original work entity become taxable without any reduction for costs or family charges, differently from the amounts they acquire from their original place of work.
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40. Tax Rates
Example 3:
An employee in a public sector company has an annual salary of L.E. 3000, has been seconded for a teaching position at the faculty of commerce, receiving a total bonus amounting to L.E.2500 other than his original salary from his original place of employment.
Required: Indicate the taxable treatment.
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41. Tax Rates
Solution:
(1) The annual salary L.E will subject to salary tax after excluding the amounts which the legislator stipulated their exemption from tax (L.E.4000 for personal exemption, and L.E.5000 for family charges).
(2) The secondment bonus will subject to salary tax without any deduction (as the amount received from an entity other than his original employment entity).
Tax on secondment bonus = 2500 ×10%= L.E.250
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42. Tax Exemption It is fixed amount L.E.7000 annually.
(1) Personal exemption
It is fixed amount L.E.7000 annually.
(2) Workers’ share in the profit
(3) Sums received by foreign diplomatic and consulate members and international organizations.
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43. Tax Exemption (4) Social insurance subscriptions
The employee’s contribution to social insurance on basic salary differ from those on variable salary as follows:
(a) 14% of the basic salary plus the periodical raises and the special raise decreed, the maximum basic wages limit of subscriptions shall be L.E annually (1120 monthly).
(b) 11% of the overall elements of variable wage, with a maximum limit of L.E annually (1825 monthly).
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44. Tax Exemption The major type of the variable wages are:
(1) Overtime wages (2) Incentives.
(3) Social insurance. (4) Distributed benefits quotas
(5) Allowances except which are necessary for employee to meet actual expenses, such as: transportation, clothing or car allowances.
(6) Special increments which are not added to basic wage.
(7) Compensation for exceptional efforts.
(8) Collective grants and bonuses.
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45. Tax Exemption
When calculating the social insurance contributions on variable wages, there are some notices:
(1) Some allowances are not included in the variable wage (housing, clothing, car, secondment, transportation and meeting).
(2) The social insurance subscription is calculated on the overall elements of the variable wage (with a maximum limit of L.E annually).
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46. Tax Exemption Example :
One employee in one company gained the following amounts for January 2010:
(1) L.E 850 basic salary (including L.E. 150 special raise).
(2) Total variables wages = L.E. 500
Required:
Calculating the amount of social insurance subscription.
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47. Tax Exemption Solution: Monthly basic salary = L.E. 850
Maximum limit = 13440/12 = L.E. 1120
(1) The monthly social insurance subscription for the basic salary = 800 ×14% = L.E. 112
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48. Tax Exemption Variables wages = 600
Maximum limit = 21900/12 = L.E. 1825
(2) The monthly social insurance subscription for the variable salary = 500 ×11% = L.E. 55
Total deductions = = L.E. 167
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49. Tax Exemption
(5) Special insurance funds subscription by the employees.
(6) Life insurance premiums
The insurance should cover the life of the employee in his own favour or in favour of his wife or minor children.
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50. Tax Exemption
According to items (5 and 6) above, There are two conditions which must be fulfilled in order to exempt them from being subjected to tax, namely:
(1) The total exemption accorded to the taxpayer shall not exceed 15% of the net income or L.E.10000, whichever is more
(2) They should not have been previously deducted from any other revenues apart from the salaries revenues or the like.
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51. Tax Exemption
Example: One taxpayer subscribes with private insurance company for his life. Required: Determine the exempted amount in these cases: (1) The taxpayer paid L.E and the 15% of net income is L.E.8000 (2) The taxpayer paid L.E and the 15% of net income is L.E.10000
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52. Tax Exemption
(3) The taxpayer paid L.E and the 15% of net income is L.E Solution:
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53. Tax Exemption (1) Actual paid 2500 Compared with
Then choose the less (2500) and this is exempted amount
2500
Compared with
15% (8000)
Fixed amount (10000)
The largest
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54. Tax Exemption (2) Actual paid 13500 Compared with
Then choose the less (10000) and this is exempted amount
13500
Compared with
15% (10000)
Fixed amount (10000)
The largest
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55. Tax Exemption (3) Actual paid 15000 Compared with
Then choose the less (12000) and this is exempted amount
15000
Compared with
15% (12000)
Fixed amount (10000)
The largest
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56. Tax Exemption (7) Collective fringe benefits
The following collective fringe benefits are exempted from the tax:
(1) Free meal (2) Collective transportation of workers.
(3) Health or medical care.
(4) Tools and uniforms necessary for performing the work.
(5) Tenements provided by the employer to the workers for performing their work owned by him or rented and are necessary for the nature of the work.
(Any sums to meet actual expenses and related to perform of work)
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57. Tax Exemption
All the previous items are exempted by the Egyptian tax law (91 for 2005).
There are other exempted items by Especial laws:
(1) Special increment.
(2) Social increment.
(3) Some allowances: such as:
(a) Representative allowances.
(b) Universities allowances.
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58. Tax Calculation
In order to calculate the tax on salaries and settle it, the following three steps should be adopted:
First: Calculation of the social security subscription and saving contribution.
14% of the basic wage plus the periodical increment and the special raise decreed on with a maximum limit L.E annually (L.E monthly).
11% of the overall elements of the variable wage with a maximum limit of L.E Annually (L.E monthly).
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59. Tax Calculation Second: Calculation of the annual tax bracket.
This can be done based on the following steps:
(1) The basic wage plus the periodical raise ××
(the special raise (increment) exempted).
(2) The variable wage subjected to taxation ××
The total basic and variable wage (1+2) ××
(3) Excluding the deduction (××)
(4) Deduct personal exemption (7000)
The net revenues ××
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60. Tax Calculation Notice:
(5) Deduct the tax-payer’s life insurance premiums (××)
(6) Deduct the family charges (6500)
The net taxable revenue (the bracket) ××
Notice:
If the employee receives a bonus, a grant, or profit, then the tax is to be recalculated after addition of those amounts.
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61. (tax bracket × the tax rate)÷12
Tax Calculation
Third: Calculation of the monthly tax due.
The monthly tax =
(tax bracket × the tax rate)÷12
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62. Tax Calculation
Example: Mohamed is an employee in a governmental unit, gets the following during 2008:
L.E.2000 per month as basic salary (of which L.E.100 special increment).
Total variables wages L.E. 500.
L.E. 10 as a social increment.
L.E. 50 as transport allowance (related to work).
L.E.60 as special increment not added to the basic salary.
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63. Tax Calculation L.E.600 as representation allowance.
He pays insurance premium of L.E.20 per month on his life in favor of his wife and his minor sons.
Required:
Compute the due tax per month.
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64. Tax Calculation Solution: First: Calculation of social insurance:
On basic salary
(a) 14% ×
On variable wages:
(b) 11% ×
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65. Tax Calculation Second: Calculation of the annual tax bracket
L.E L.E.
(1) The basic wage (2000×12)
(2) The variables wages (500 ×12)
Total annual revenues
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66. Tax Calculation Allowable deductions:
(1) Sums exempted by special laws: L.E L.E.
Social increment (10 ×12)
Special increment (160×12)
Representation allowance (600 ×12)
(2) Sums to meet actual expenses and related to perform of work:
Transportation allowance (50×12)
(3) Personal exemption
(4) Social insurance contribution
(21316)
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67. Tax Calculation L.E. L.E. Net revenue 8684
(5) Deduct life insurance premiums:
1724 ×15% =1302
Fixed sum = 10000
Actual pay (20×12) = (240)
(6) Deduct family charge (6500)
The net taxable revenue (tax bracket)
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68. Tax Calculation Third: Calculation of the tax due:
Per year = 1944× 10% = L.E
Per month = 194.4÷ 12 = L.E.16.2
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69. Tax Calculation
Example: Ahmed is an employee in a private sector company, gets the following during 2009:
L.E.700 per month as basic salary (of which L.E.150 special increment).
L.E.400 representation allowance.
L.E.300 per month as a work nature allowance.
L.E. 10 as a social increment.
L.E.300 as special increment not added to the basic salary.
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70. Tax Calculation L.E.1500 as an encouragement reward on August 2009.
He pays insurance premium of L.E.450 per month for life insurance policy.
He pays subscription for special insurance funds amount L.E.50 per month.
Required:
Compute the due tax for August 2009.
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71. Tax Calculation Solution: First: Calculation of social insurance:
On basic salary
(a) 14% ×
On variable wages:
Work nature allowance
Representation allowance
Social increment
Social increment not added
Total variable wages
(b) 11% × 500(maximum variable wage)
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72. Tax Calculation Second: Calculation of the annual tax bracket
L.E L.E.
(1) The basic wage (700×12)
(2) The variable wage:
Representation allowance (400×12)
Work nature allowance (300×12)
Social increment (10×12)
Special increment not added( 300×12)
Total variable wage
Total annual revenues
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73. Tax Calculation Allowable deductions:
(1) Sums exempted by special laws: L.E L.E.
Social increment
Special increment (450×12)
Representation allowance
(2) Sums to meet actual expenses
(3) Personal exemption
(4) Social insurance contribution (153×12) 1836
(16156)
Net revenue
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74. Tax Calculation L.E. L.E. (5) Deduct life insurance premiums:
4364 ×15% =654.6
Fixed sum = 3000
Actual pay (500×12) = (3000)
(6) Deduct family charge (5000)
The net taxable revenue (tax bracket) (3636)
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75. Tax Calculation Third: Calculation of the tax due: No Tax
Fourth: Calculation the tax due on the reward:
1500 × 10% = L.E. 150
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76. Tax Calculation
Example: Youssef is an employee in a private sector company, gets the following during 2010:
L.E.800 per month as basic salary (of which L.E.300 special increment).
L.E.500 per month as an overtime wage.
L.E. 10 as a social increment.
L.E.100 as special increment not added to the basic salary.
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77. Tax Calculation
On first of July 2010, he got a periodical raise of L.E.100.
At the end of the year, he received an incentive bonus amounting to L.E.1200.
He pays insurance premium of L.E.80 per month on his life in favor of his wife.
Required:
Compute the monthly tax due for 2010.
Compute the tax due on the incentive bonus.
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78. Tax Calculation Solution: (1) Compute the monthly tax due for 2010
The first period (January –end of June)
First: Calculation of social insurance:
On basic salary
(a) 14% ×
On variable wages:
Special increment
Social increment
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79. Tax Calculation (b) 11% × 500(maximum variable wage) 55 153
Overtime wage
Total variable wages
(b) 11% × 500(maximum variable wage)
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80. Tax Calculation Second: Calculation of the annual tax bracket
L.E L.E.
(1) The basic wage (800×12)
(2) The variable wage:
Special increment ( 100×12)
Social increment (10×12)
Overtime wage (500×12)
Total variable wage
Total annual revenues
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81. Tax Calculation Allowable deductions:
(1) Sums exempted by special laws: L.E L.E.
Social increment
Special increment (400×12)
(2) Sums to meet actual expenses
(3) Personal exemption
(4) Social insurance contribution (153×12) 1836
(10756)
Net revenue
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82. Tax Calculation L.E. L.E. (5) Deduct life insurance premiums:
6164 ×15% =924
Fixed sum = 3000
Actual pay (80×12) = (960)
(6) Deduct family charge (5000)
The net taxable revenue (tax bracket)
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83. Tax Calculation Per year = 204 × 10% = L.E. 20.4
Third: Calculation of the tax due:
Per year = 204 × 10% = L.E. 20.4
Per month = 20.4÷ 12 = L.E.1.7
This tax is payable for each of the months from January till end of June.
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84. Tax Calculation The Second period (July –December)
First: Calculation of social insurance:
The same L.E. 153
Second: Calculation of the annual tax bracket
L.E L.E.
(1) The basic wage {900( )×12}
(2) The variable wage
Total annual revenues
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85. Tax Calculation Allowable deductions:
(1) Sums exempted by special laws: L.E L.E.
Social increment
Special increment (400×12)
(2) Sums to meet actual expenses
(3) Personal exemption
(4) Social insurance contribution (153×12)
(10756)
Net revenue
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86. Tax Calculation L.E. L.E. (5) Deduct life insurance premiums:
7364 ×15% =1105
Fixed sum = 3000
Actual pay (80×12) = (960)
(6) Deduct family charge (5000)
The net taxable revenue (tax bracket)
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87. Tax Calculation Third: Calculation of the tax due:
Per year = 1404 × 10% = L.E
Per month = 140.4÷ 12 = L.E.11.7
This tax is payable for each of the months from July till December.
(2) : Calculation the tax due on the incentive bonus:
1200 × 10% = L.E. 120
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88. Tax Calculation Lump Tax
Tax applies at the rate of 10% without any reduction to meet any costs against the following revenues:
(1) Amounts received by persons residing in Egypt from other than their original work (the place from which the employee gets his basic salary).
Example: An employee was delegated to share in faculty of Commerce examinations of May His remuneration amounts to L.E.900.
Required:
Calculate the tax due on the amount received.
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89. Foreign experts are subjected to tax at the rate of 10% on the total amount they receive without any deduction for costs or family charges provided their employment duration does not exceed 183 days per year, continuous or interrupted.
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90. Tax Calculation Lump Tax
Solution:
Tax due on his remuneration shall be:
900 × 10% = L.E.90
(2) Amounts received by foreign expert who residing in Egypt for a period less than 183 days continuous or interrupted.
Example: A company of the Egyptian public sector concluded an agreement with a foreign expert to work in Egypt during the year of The terms of his employment includes the following:
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91. Tax Calculation Contract period is 3 months.
He shall receive in Egypt an amount of L.E per 3 month.
The company will pay the costs of his residence in one of the Egyptian hotels for an amount of L.E.2000 per month.
Required:
Calculate the tax amount due.
Solution:
Since the period of the foreign expert employment in Egypt not exceeds 183 days, therefore the foreign expert is considered not resident in Egypt.
The tax due = × 10% = L.E.2200
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92. Tax Calculation Lump Tax
Example: A company of the Egyptian private sector concluded an agreement with a foreign expert to work in Egypt during the year The terms of his employment includes the following:
Contract period is 7 months.
He will receive an amount of L.E per month in Egypt.
An amount of $ 2000 per month will be transferred to his account abroad.
The company will meet costs of his residence in one of the Egyptian hotels against an amount of L.E.3000 per month. It was needed to perform the job.
11/15/2018
Dr. Amr Nazieh

93. Tax Calculation Lump Tax Required: Calculate the tax due. Solution:
Since, the period of the foreign expert employment in Egypt exceeds 183 days, therefore, he considered resident in Egypt.
The tax due is calculated as follows:
11/15/2018
Dr. Amr Nazieh

94. Tax Calculation Sums paid in Egypt (10000×7) 70000
L.E L.E.
Sums paid in Egypt (10000×7)
Sums transferred abroad ($2000×7×L.E.6)
Total
Deduction from it
Personal exemption (4000×(7/12)) (2331)
Annual Tax base
11/15/2018
Dr. Amr Nazieh

95. Tax Calculation First 5000 exempted 15000 ×10% = 1500
Calculation of tax:
First exempted
15000 ×10% =
20000 ×15% =
×20% =
Tax due
In kind benefit is exempted.
11/15/2018
Dr. Amr Nazieh