Egypt approves new 10% capital gains tax on profits from stocks

Reuters/CairoEgypt has approved the introduction of a 10% capital gains tax on profits made on the stock market, the country’s Finance Minister Hany Dimian told Reuters yesterday. The tax is part of the first phase of income tax reforms in the country expected to bring in 10bn Egyptian pounds ($1.40bn), Dimian said. He said the tax will not be retroactive and will be implemented once a law is issued. “The council of ministers agreed to impose a 10% tax on net capital gains that individuals make at the end of the tax year,” Dimian said. “A tax of 10% was also imposed on cash dividends and bonus shares.” Profits from stock market transactions are currently tax free. Egypt is keen to encourage investment but also find additional sources of revenue after more than three years of economic and political turmoil since a popular uprising ousted Hosni Mubarak in 2011. Growth expectations for this financial year are between 2%-2.5%, the finance ministry has said. To help to encourage direct investment there will be a reduction in the tax on cash dividends and bonus shares for those holding strategic investments of more than 25% in companies listed on the stock market, Dimian said. “The percentage is decreased to 5% if the participation level is more than 25%, which would encourage direct investment,” he said. Dimian said there would also be an exemption from the tax for parent or holding companies that receive dividends from their affiliates if their stake is no less than 25% of the capital in those firms for at least two years. Dimian said a 0.001% stamp tax on stock market transactions will be cancelled. He also said the new tax would not have adverse effects on foreign investment. “With regard to foreign investors there will be no change in their tax burdens because the tax they pay in Egypt will be discounted in their countries.”