Egypt's Small and Medium Enterprises (SMEs) are benefiting from tax incentives provided by the MSMEs Law

1.      Medium Projects: This category includes projects with an annual turnover between 50 million and 200 million pounds. It also covers newly established industrial projects with paid-up or invested capital ranging from 5 million to 15 million pounds, or newly established non-industrial projects with paid-up or invested capital between 3 million and 5 million pounds.

2.      Small Projects: Small projects have an annual turnover less than 50 million pounds. For industrial projects, the paid-up or invested capital should be between 50 thousand and 5 million pounds. For non-industrial projects, the paid-up or invested capital should be between 50,000 and 3 million pounds.

3.      Micro Projects: Micro projects are defined as those with an annual turnover less than 1 million pounds. Additionally, newly established projects with paid-up or invested capital below 50,000 pounds are considered micro projects.

4.      Newly Established Projects: This refers to projects that have not been established, registered, or engaged in their activities for more than two years.

Based on the number of employees, micro firms have 10 to 49 employees, medium firms have 50 to 249 employees, and large firms have over 250 employees.

Small enterprises in Egypt have faced challenges due to a lack of a clear and specific definition, resulting from different perceptions regarding planning, implementation, statistics, and finance.

To address this issue, the Small Enterprise Development Law (SME) was enacted in 2004, providing a legal framework for such projects. SMEs are defined based on criteria such as the number of workers and capital size. A company or individual enterprise engaged in economic activity, with paid capital between 50 thousand and 1 million pounds, and no more than 50 workers, is considered a small establishment. If the capital is less than 50,000 Egyptian pounds, it can be classified as a micro-enterprise.

The role of SMEs varies depending on the level of development in each country. In the Economic Cooperation and Development organization area, SMEs represent around 99% of all firms, providing about 70% of jobs on average and contributing significantly to value creation. In emerging economies, SMEs contribute up to 45% of total employment and 33% of GDP. Taking into account informal businesses, SMEs contribute to more than half of employment and GDP in most countries, regardless of income levels.

Considering the potential benefits, these projects can contribute to economic and social development in the following ways:

1.                  Developing and increasing export volume: SMEs play a crucial role in export development and reducing trade deficits due to their ability to access foreign markets with diverse and cost-effective products.

2.                  Employment contribution and increased opportunities: Small enterprises are known for their ability to provide employment opportunities, especially in developing countries with lower savings rates. These projects can absorb employment efficiently due to their low job creation costs.

3.                  Regional development: Small enterprises can spread geographically across all regions, contributing to the development of rural areas. Their flexibility in choosing locations and utilization of simple technologies make them important factors in regional development and may help reverse migration.

4.                  Incubators of skills and innovation: SMEs, particularly in Arab and Islamic countries, serve as a platform for forming administrative structures and preparing the workforce. They provide valuable experience for people to learn and train in project management.

5.                  Social and political stability: SMEs contribute to increasing citizens' incomes, raising their standard of living, and enhancing satisfaction levels, thereby promoting social and political stability.

6.                  Support for large industries: SMEs play a crucial role in providing support services to large industries through subcontracting relationships. Small and medium industries serve as feed industries for sustaining larger industries.

The MSMEs Law offers unprecedented tax and non-tax incentives to MSMEs and facilitates the work of organizations supporting their ecosystem. It has led to the establishment of the MSMEs Development Agency, which supports, oversees, and facilitates funding for SMEs, helping in the legalization process of MSMEs and informal economy projects.

The law includes various tax incentives applicable to all MSMEs and informal economy projects, regardless of their industry. These incentives are as follows:

•                    MSMEs and informal economy projects applying for a license to legalize their status receive a 5-year exemption from stamp duty tax and notary public fees, starting from the date of filing with the commercial registry.

•                    MSMEs benefit from a fixed tariff of 2% on all imported equipment and tools.

•                    Exemption from the Capital Gains Tax is granted on the disposal of assets or machinery if the gains realized from such disposal are used to purchase new assets or machinery within one year from the date of disposal.

•                    MSMEs may also be exempt from taxes on built properties owned by such enterprises.

The law introduces special tax rates and treatment exclusively dedicated to MSMEs:

•                    For Micro Enterprises, the annual revenues determine the tax amount:

o  Annual revenues less than EGP 250,000 require a tax payment of EGP 1,000.

o  Annual revenues between EGP 250,000 and 500,000 require a tax payment of EGP 2,500.

o  Annual revenues between EGP 500,000 and 1,000,000 require a tax payment of EGP 5,000.

•                    For SMEs, the annual revenues determine the income tax rate:

o  Annual revenues between EGP 1 million and 2 million are subject to a tax rate of 0.5%.

o  Annual revenues between EGP 2 million and 3 million are subject to a tax rate of 0.75%.

o  Annual revenues between EGP 3 million and 10 million are subject to a tax rate of 1%. However, this special tax rate is applicable for a period of five years only.

The law also exempts MSMEs from submitting their books and financial records when filing tax returns, a requirement under Income Tax Law No. 91 of 2005.

These are just some of the provisions outlined in the law. If you require further information, please feel free to contact us.