Amendment of Real Estate Transfer T

On 25 July 2018, a law was issued amending Article (42) of Income Tax Law No. 91 of 2005, which imposes a 2.5% tax on the transfer of property. The property transfer tax in its current rate has existed under the law since its issuance in 2005. The recent amendment to the Law removed the exemption of inherited property from the application of the 2.5% tax and mandated notary public offices and public utility companies to refrain from providing services unless proof of payment of the transfer tax is submitted.  

Background

A real estate transfer tax is a type of tax that is levied on the transfer of title to property from one person to another. It is therefore only payable at the time that a transaction occurs for the sale of real estate, regardless of profit and loss calculations. Real estate transfer tax should not be confused with tax on real estate property in itself, which is payable by the owner of real estate and levied based on a calculation involving the property’s rental value - as assessed every five years by the Real Estate Tax authority - regardless of whether or not the property is actually leased. In Egypt, a property transfer tax has been imposed since the passing of the Income Tax Law in 2005, by virtue of Article (42) under Book II of the Law, which regulates income taxation for individuals. It imposed a tax at a flat rate of 2.5% of the sale proceeds of real estate that is located within the boundaries of a city, regardless of whether the sale is with respect to the whole property or part thereof, and whether construction on the property is owned by the seller or others. In 2013, an amendment was passed to the Income Tax Law, which included the amendment of Article (42). The imposition of the 2.5% rate was to be levied on built property and land “that is for building” in general – except in villages. The amendment also added that the property transfer tax will be levied, whether or not the property is notarized, and mandated notary public offices to collect and remit the tax to the Tax Authority, whereas the obligation previously was for these offices to merely notify the Tax Authority of transactions of transfer of title within 30 days of their conclusion.  The 2013 amendment also stipulated that the seller is obliged to pay the 2.5% within 30 days from the date of the transaction or be subject to delay fines. It is worth noting that since its passing in 2005 and until the recent amendment, two exceptions from the application of the 2.5% tax existed. One is with respect to inherited real estate that is transferred by an heir in the state that it was inherited in, which is exempted from the transfer tax, and the other is the use of real estate as an in-kind capital contribution in joint stock companies – given that the shares issued against the property are not transferred for a period of five years.

The Recent Amendment

Passed by Law No. 158 of 2018[1] at the end of July, the amendment only pertains to Article (42) of the Income Tax Law. The amendment removes the first exception under Article (42) which was with respect to the transfer of inherited real estate. This means that that transfer of inherited property by an heir will now be subject to the 2.5% tax on sale proceeds. In addition, the amendment adds a stipulation that notary public offices, utility companies, municipal administration units, and other authorities refrain from notarizing or servicing the property unless proof of payment of the transfer tax is submitted.   [1] Law No. 158/2018 amending certain provisions of Income Tax Law No. 91/2005, Official Gazette, Issue No. 29 (bis) (h), 25 July 2018.