Extension of Real Estate Tax Valuat

On 7 February 2019, the Official Gazette published an amendment[1] to the Real Estate Tax Law extending the timeline for the new valuation of property for tax purposes from December 2018 to December 2021. The Ministry of Finance had proposed said amendment to Parliament at the end of last year, citing the need to develop the Real Estate Tax Authority’s capacity for implementing the Law. The extension comes amid talk of replacing the 2008 Real Estate Tax Law altogether or introducing extensive amendments thereto.

Background

Law No. 196 passed in 2008 on the Taxation of Built Property (the “Real Estate Tax Law”)[2] applies a tax on real estate for all built property at a rate of 10% of the annual rental value of the property, after deducting 30% in expenses for residential property, and 32% for non-residential property. The obligation to pay the tax rests on the property owner or those who have a right of usage thereof. The Real Estate Tax Law had originally stated that the tax applies on January of each year, but that date was then amended to the first of July 2013, provided that the due tax is to be levied from the first of January every year after that. Excluded from the scope of the Real Estate Tax Law is agricultural land (except buildings on said land), public and religious buildings, buildings owned or used by registered NGOs or for educational or medical purposes, political party headquarters, professional unions, properties owned by sporting clubs and centres or foreign governments, and buildings used for social occasions with no intention to realize profit, and military facilities. Practically, the most controversial aspect of the Law remained in the determination of rental value. The Real Estate Tax Law stated that valuation committees formed by the Ministry of Finance in each Governorate would determine rental value according to a formula based on a qualitative classification of the property, its location, and available amenities. Once the rental value – and therefore the tax – has been determined, it remains fixed for five years, following which, a new valuation is to take place, provided that the increase cannot exceed 30% for residential units and 45% for non-residential units. Several amendments were introduced to the Real Estate Tax Law over the years, which postponed deadlines for implementation and attempted to clarify some vague provisions.  Most importantly, an amendment in 2014 exempted housing units resided in by a person and their family as a primary home from tax up to an annual rental value of EGP 24,000, while units utilized for commercial, industrial, administrative, or professional purposes with a maximum annual rent of EGP 1,200 were also exempted, provided that values above these thresholds would be taxed. Originally, the Real Estate Tax Law had stated that real estate tax becomes due on the first of January every year. This provision was subsequently amended so that according to the latest amendment in 2014 it read: tax becomes due following the first valuation as of 1 July 2013; tax is then due on the first of January every year, provided that this valuation shall apply until the end of December 2018.

The Latest Amendment to the Real Estate Tax Law

The House of Representatives had passed the most recent amendment to the Real Estate Tax Law in December 2018, but the amendment was not published in the Gazette until last week. The amendment, requested by the Ministry of Finance, extends the deadline of the valuation of rental value from December 2018 to December 2021. In a statement, the Ministry of Finance cited allowing an opportunity for the Real Estate Tax Authority to carry out an inventory of built-up property and determine the new five-year estimate for these values. The statement also cites the Ministry’s keenness on upgrading the Real Estate Tax Authority, improving its performance, automating tax administration, as well as developing and training of Authority employees within the two-year extension.[3] It is worth noting that the most recent extension comes amid the Ministry of Finance’s announcement that it is working on wide sweeping amendments that it will present to Cabinet following discussions with stakeholders, as a step prior to submitting the draft amendments to the House of Representatives for deliberation.   [1] Law No. 4/2019 amending certain provisions of Law No. 196/2008 on the Taxation of Built Property, Official Gazette, Issue No. 6 (cont.), 7 February 2019. [2] Law No. 196/2008 on the Taxation of Built Property, Official Gazette, Issue No. 25 (bis) (c), 23 June 2008. [3] Ministry of Finance, “The proposed amendments to the Real Estate Tax Law is to be completed soon in order to be presented to the Cabinet of Ministers and the House of Representatives”, available through this link (in Arabic).