Would a private equity fund vehicle formed in your jurisdiction be subject to taxation there with respect to its income or gains? Would the fund be required to withhold taxes with respect to distributions to investors? Please describe what conditions, if any, apply to a private equity fund to qualify for applicable tax exemptions.
Generally speaking, a private equity fund that is legally resident in Egypt is subject to corporate income tax (CIT) in Egypt at the rate of 22.5 per cent. The taxable income is calculated by adjusting the results of the profit and loss account as required by the Income Tax Law (ITL). However, the ITL exempts the following from being subject to CIT in Egypt:
- dividends received by investment funds from the investee companies, after adding 10 per cent of the receipted dividends to the investment fund’s taxable income;
- returns from investing in cash investment funds;
- returns from bonds listed on the Egyptian Stock Exchange (EGX) other than treasury bonds;
- profits of investment funds that limit their investments in money only;
- distributions received by companies - resident in Egypt - from investment funds established under the Capital Markets Law No. 95 of 1992 provided that at least 80 per cent of the fund’s investments are in securities and debts instruments; and
- distributions received by companies - resident in Egypt - and made by holding investment funds provided that the latter’s investments are confined to the investment funds mentioned in (i).
As for personal income tax, distributions received by individuals resident in Egypt from private equity funds (resident or non-resident) will be subject to personal income tax in Egypt at the progressive rates provided in article 8 of the ITL.
Generally speaking, companies as well as private equity funds resident in Egypt are under obligation to withhold a tax on dividend distributions at the rate of 10 per cent. The tax withheld by the companies can be reduced to 5 per cent provided that:
- the recipient owns more than 25 per cent of the distributing entity; and
- the shares are held for a period of not less than two years.
This applies to dividends distributed to individuals and companies regardless of being resident or non-resident.Local taxation of non-resident investors
Would non-resident investors in a private equity fund be subject to taxation or return-filing requirements in your jurisdiction?
The general treatment and the conditions for exemptions as provided in question 17 apply regardless of the distributions’ recipient being a resident or a non-resident.Local tax authority ruling
Is it necessary or desirable to obtain a ruling from local tax authorities with respect to the tax treatment of a private equity fund vehicle formed in your jurisdiction? Are there any special tax rules relating to investors that are residents of your jurisdiction?
A taxpayer wishing to conclude a transaction having ‘significant’ tax effects can file an advance ruling to the head of the Egyptian Tax Authority (ETA) to understand the latter’s position regarding the aforementioned transaction. In practice, filing advance rulings requires the preparation of a long set of supporting documentation explaining the nature and the parties of the transaction. Additionally, the process takes a long time before getting a reply from the ETA.Organisational taxes
Must any significant organisational taxes be paid with respect to private equity funds organised in your jurisdiction?
Private equity funds take the form of joint-stock companies and are subject to the taxes regular joint-stock companies are subject to (with an exemption from the taxes payable on the profits). Private equity funds do not attract additional taxes.Special tax considerations
Please describe briefly what special tax considerations, if any, apply with respect to a private equity fund’s sponsor.
Being a private equity fund sponsor or founder does not attract additional taxes. A requirement to consolidate the financial statements may only be applicable depending on the domicile and structure of the sponsor or founder.Tax treaties
Please list any relevant tax treaties to which your jurisdiction is a party and how such treaties apply to the fund vehicle.
Egypt has in place 56 double tax treaties, the application of which differs depending on the prevailing circumstances and the relevant articles of the double tax treaty.Other significant tax issues
Are there any other significant tax issues relating to private equity funds organised in your jurisdiction?