Navigating the complexities of payroll and employment taxes is a critical aspect of operating in Egypt. The Egyptian tax system, overseen by the Egyptian Tax Authority (ETA), imposes specific obligations on employers regarding income tax withholding and social security contributions. Understanding these requirements is essential for compliance, avoiding penalties, and ensuring smooth operations whether you are establishing a local entity or employing individuals remotely.
Employers in Egypt are responsible for correctly calculating, withholding, and remitting various taxes and contributions on behalf of their employees. This includes income tax based on progressive rates and mandatory social security contributions that fund benefits like pensions, healthcare, and unemployment. Staying updated on the relevant rates, thresholds, and procedural requirements is key to managing payroll effectively and compliantly within the Egyptian legal framework.
Employer Social Security and Payroll Tax Obligations
Employers in Egypt are required to contribute to the social security system on behalf of their employees. These contributions cover various benefits, including old-age pensions, disability, death, work injury, sickness, and unemployment. The contribution rates are applied to the employee's total insurable salary, up to a specified maximum limit.
The standard social security contribution rates for employers are typically a percentage of the employee's insurable salary. While rates can be subject to change, the general structure involves a significant employer contribution.
- Employer Contribution Rate: Approximately 18.75% of the employee's insurable salary.
- Employee Contribution Rate: Approximately 11% of the employee's insurable salary (withheld by the employer).
- Maximum Insurable Salary: There is an upper limit on the salary amount subject to social security contributions, which is updated annually. Contributions are calculated based on the actual salary or the maximum insurable salary, whichever is lower.
Beyond social security, employers are also responsible for managing and remitting the income tax withheld from employee salaries.
Income Tax Withholding Requirements
Employers are mandated to withhold income tax from the gross salaries and wages paid to their employees on a monthly basis. This Pay As You Earn (PAYE) system requires employers to calculate the tax liability for each employee based on the progressive income tax rates applicable to individuals. The tax calculation considers the employee's total taxable income, including basic salary, allowances, bonuses, and any other benefits, after permitted deductions and exemptions.
The income tax rates for individuals in Egypt are progressive, meaning higher income levels are taxed at higher rates. The tax brackets and rates are subject to annual review and potential adjustment. For 2025, assuming current structures persist, the rates are applied to annual net taxable income as follows:
| Annual Net Taxable Income (EGP) | Tax Rate (%) |
|---|---|
| Up to 15,000 | 0 |
| 15,001 to 30,000 | 2.5 |
| 30,001 to 45,000 | 10 |
| 45,001 to 60,000 | 15 |
| 60,001 to 200,000 | 20 |
| 200,001 to 400,000 | 22.5 |
| Over 400,000 | 25 |
Employers must perform the monthly calculation based on the annualized income and apply the corresponding tax rate to each portion of income falling within a specific bracket. The total annual tax is then divided by 12 to determine the monthly withholding amount.
Employee Tax Deductions and Allowances
Employees in Egypt are entitled to certain deductions and allowances that reduce their taxable income. The primary deduction is a personal exemption allowance, which is a fixed amount deducted annually from the gross income before applying the tax rates. This allowance is intended to provide a basic tax-free threshold.
- Personal Exemption Allowance: A fixed annual amount (e.g., EGP 15,000, though this amount can be updated). This is applied automatically by the employer during the monthly tax calculation.
Additionally, employees may be able to deduct their share of social security contributions from their taxable income. Other potential deductions or exemptions might apply based on specific circumstances or changes in tax law, but the personal exemption and social security contributions are the most common.
Tax Compliance and Reporting Deadlines
Employers have strict obligations regarding the reporting and payment of withheld income tax and social security contributions.
- Monthly Reporting and Payment: Employers must file a monthly tax return (Form 4) detailing the salaries paid and the income tax withheld for all employees. The withheld tax amount must be paid to the Egyptian Tax Authority by the 15th day of the month following the month in which the salaries were paid.
- Monthly Social Security Payment: Social security contributions (both employer and employee portions) must also be paid monthly to the National Organization for Social Insurance (NOSI) by the 15th day of the following month.
- Annual Reconciliation: Employers are required to file an annual salary tax reconciliation return (Form 6) by the end of April of the following year. This return summarizes the total salaries paid and taxes withheld during the previous calendar year and reconciles them with the monthly payments made.
- Employee Tax Cards: Employers must issue tax cards or statements to employees detailing their annual income and the tax withheld.
Failure to comply with these deadlines and reporting requirements can result in significant penalties, including fines and interest on late payments.
Special Tax Considerations for Foreign Workers and Companies
Foreign individuals working in Egypt are generally subject to Egyptian income tax on their Egyptian-sourced income, regardless of their residency status. If a foreign individual is employed by an entity in Egypt or performs work physically within Egypt, their salary is typically subject to the same income tax withholding and social security contribution rules as Egyptian nationals.
- Income Tax: Foreign employees earning income from an Egyptian source are subject to the progressive income tax rates. Employers must withhold tax from their salaries.
- Social Security: Foreign employees working for an Egyptian entity are generally required to contribute to the Egyptian social security system, unless an applicable bilateral social security agreement between Egypt and the employee's home country provides for an exemption or alternative arrangement.
- Tax Treaties: Egypt has entered into double taxation treaties with numerous countries. These treaties may provide relief from double taxation or specify which country has the primary right to tax certain types of income, which can be relevant for foreign employees and foreign companies operating in Egypt.
- Permanent Establishment: Foreign companies operating in Egypt may trigger a permanent establishment (PE) status, which subjects them to corporate income tax in Egypt. The activities of employees in Egypt can be a factor in determining PE status. Managing the tax implications for foreign workers and understanding PE risks requires careful consideration of Egyptian tax law and relevant tax treaties.
