Amendments to the Real Estate Tax L
Amendments to the Real Estate Tax Law
In a development that could contribute to an increase in State revenues, a Presidential Decree-Law was issued on 17 August 2014 putting into force the Real Estate Tax Law as well as introducing amendments thereto (the "Decree").[1] This Decree represents a serious attempt to overcome the obstacles encountered by the Real Estate Tax Law since its enactment in 2008. Successive amendments in the years 2010, 2011, and 2012 had postponed the start of the period in which the Law would be put into effect.
Source: Ministry of Finance
[1] Presidential Decree-Law No. 117/2014 amending certain provisions of the Real Estate Tax Law, Official Gazette, Issue No. 33 (bis) (a), 17 August 2014.
Value of the Real Estate Tax and Who Pays It?
The new Decree clarifies the legislative steps that followed the release of the original Law in 2008, and tackles many of the issues criticised in the previous versions, such as the impact of the Law on middle- and low-income persons. This Decree has exempted the single housing unit resided in by a person and his family (the taxpayer and spouse and minors) and which serves as their primary housing. This primary housing unit will be exempt from the tax as long as the value of annual rent remains below EGP 24,000. Any amount beyond that threshold will be taxable. It is worth mentioning that the tax exemption only applies to one housing unit; an individual who owns another property - either for themselves or for their family - cannot claim the same exemption, even if the property satisfies the other criteria. The Minister of Finance clarified in a statement that the above rental value shall be considered the equivalent of a real value of EGP 2,000,000 for owned properties. In addition, the Decree exempts single units utilised for commercial, industrial, administrative, or professional purposes with a maximum annual rent of EGP 1,200. The Minister of Finance also clarified in his statement that this value would be considered the equivalent to a real value of EGP 100,000 for owned properties of these types. The Decree has kept the tax rate, or percentage payable, at 10% of the value of the annual rent of the real estate, to be paid in two installments, calculated after excluding about a third of that value for maintenance and other auxiliary expenses (30% for properties used for housing purposes and 32% for those used for non-housing purposes). The Law further stipulates that payment of the Real Estate Tax will be at the tax headquarters in the proprietor’s respective Governorate or district, without the State being involved in demanding the tax from each of the properties where the tax is payable. It is worth mentioning that the Real Estate Tax applies only to proprietors or beneficiaries of the property. It will not apply to lessees, unless it is within the rental amount and the lessees have been notified of such. Following these provisions, a residential property which collects an annual rent of EGP 34,000 can only be taxed in the amount of EGP 10,000 as this is the value that surpasses the EGP 24,000 threshold. After deducting 30% for maintenance and other auxiliary fees, the amount chargeable becomes EGP 7000. The 10% tax means that the Real Estate Tax payable on a property with an annual rent of EGP 34,000 is EGP 700. According to the Decree, the first tax collection will be calculated from July 1st 2013, and will then be due at the 1st of January each year. This amends the 2012 rule which stated that the tax would be collected from 1 January 2013. The head of the Real Estate Tax Authority stated that the outstanding taxes can be paid in three installments, as citizens are not at fault for the delay; this decision has been criticised as inadequate. In addition, the move to collect the Real Estate Tax in July has faced criticism because of its incompatibility with the rest of the taxes that are due at the beginning of the calendar year in January. With regards to those in violation of the Real Estate Tax Law, the penalties and fines are set in accordance with the original Law, which states that from the first year following the year the tax was due, a “delay penalty” is calculated on the basis of Central Bank discount rate plus 2%. A fine ranging from EGP 200 to EGP 2,000 will be levied in the event that a proprietor declines to submit or submits incorrect data affecting more than 10% of the payable tax. A fine of EGP 1,000 to EGP 5,000 will be levied in the event that incorrect documents are presented to the Tax Evaluation Committee which impact their decision-making, or in the event that a proprietor relies on an exemption without just cause to do so. It should be noted that these sanctions do not replace any harsher penalties prescribed by the Penal Code or any other valid Law.Calculating Rental Value and Appeal Procedures
Rental values shall be calculated in order to determine the tax payable on the property. Calculations shall take place once every five years by the “Tax Evaluation Committees" of the Ministry of Finance. The amendment clarifies that the original rental evaluations shall remain valid until the end of December of 2018. The amendment allows for future clarification of the details of the formation of such Committees in normal circumstances, and in the evaluation of the conditions of special facilities, such as industrial plants, touristic properties, and those properties related to other services. The Decree does not change the evaluation criteria used by the Committee in its evaluation of the rental value, some of which – such as geographical location and related facilities – are set out in the Executive Regulations of the Law. It is worth mentioning that the Law and Executive Regulations stipulate that the Committees shall determine rental value in accordance with the laws concerning the organisation of the relationship between lessor and lessee; for example, in instances where a proprietor is leasing to a tenant a property for less than market value, the tax demanded will be for that value, even if the real or potential market price for that property is found to be higher. This point has been raised with regards to the obligations of landlords in some upscale neighborhoods where the tenants are paying a smaller rental amount than the market price. Conversely, the Law requires every proprietor responsible for paying taxes to present an annual report detailing any major changes to the real estate, any changes emerging following adoption of the five-year real estate evaluation, and any changes including the relationship between the lessor and lessee, or termination thereof. The Decree further stipulates the way in which the Appeals Committee will be formed. Tax-paying proprietors will have the right to appeal the evaluation of rental values, provided the appeal is presented within 60 days of the notification of the evaluation. The Decree also decreases the size of the Committee from five members to three; to include a representative from the Ministry of Housing, a consultant engineer, and an expert in real estate evaluation. A statement from the Ministry of Finance has stated that the head of the Appeals Committee will be assisted by legal counsel from one of the State’s Judicial Authorities. As stipulated in the original Law, Appeals Committees shall commit to providing a final decision within 30 days of submission of the appeal. In cases where the Tax Evaluation Committees are charged with assessing properties related to industry, tourism, or petroleum sectors, or other services sectors, a representative appointed by the Industries Union or one of the specialized Chambers shall join the Evaluation Committee. This same condition shall apply to the Appeals Committees as well, provided that the appeal has been submitted from a proprietor owning real estate related to one of the above sectors. The Amendment does not stipulate the guidelines to be followed by the Tax Evaluation Committee when ascertaining the value of properties related to these sectors; these guidelines are anticipated to be provided within three months of the passing of the Amendment. It is noteworthy that the Official Gazette included an amendment to Article V of the Law, but the amended article is identical to the original text, which restricts increases in the five-year rental value evaluation of more than 30% for residential real estate, and restricts increases of more than 45% for non-residential real estate. The wording of the Law ensures that the Real Estate Tax applies to all types of completed buildings, including those buildings that are unoccupied and those occupied without consideration; this can be seen as an attempt to deal with cases in which the proprietor retains ownership without leasing the property, or where the proprietor is leasing the property in the absence of formal contractual agreements with the tenant. Furthermore, the Law does not require the presence of buildings in all cases; the Real Estate Tax may also apply to undeveloped areas of land, even if unattached to other premises or inadequately fenced. In addition, the Law contains a list of properties that are exempt from the Real Estate Tax. The new amendment guarantees that this exemption extends to many of the buildings owned by the Armed Forces, such as clubs, hotels, and arsenals; this was objected to by the State Council in its official analysis of the bill.The Importance of the Real Estate Tax Law
In addition to sending a strong message regarding how seriously the government intends to enforce of the Law, other moves from the government point to how important it considers the Real Estate Tax Law itself. One day following the promulgation of the Law, the Minister of Finance issued a Decree forming 60 Appeals Committees, as provided for in the amendment. Less than one week later, on August 24th, 2014, the Ministry of Finance issued a statement confirming that the Real Estate Tax Authority has already begun to send letters to residential units notifying proprietors that market value had been determined. The statement of the Ministry of Finance also announced the decision to establish a technical office at the headquarters of the Real Estate Tax Authority in Cairo in order to unify the legal and technical principles to be adopted by the Appeal Committee's membership, which shall be comprised of four senior advisers from the Judiciary together with a number of experts in the field of real estate evaluation. The government is anticipating revenues from the Real Estate Tax to reach up to EGP 3.5 billion in the current fiscal year (2014/2015). According to statements made by Ministry of Finance officials, one of the key features of the amended Law is that it applies to all properties built in the country, unlike the previous Law (issued in 1954) which only applied to property located within city boundaries, and therefore did not include many outlying urban communities and new industrial areas. In addition, the data provided and statements made by the government emphasize the dependence on the proceeds stemming from the Real Estate Tax to carry out large development projects, particularly in low-income areas; the Law has allocated 25% of proceeds to such projects, while another 25% will be directed the Governorates budget, with the remaining 50% of the proceeds going to the public treasury.Table Showing Real Estate Tax on Additional Residential Units (in EGP)
| Market Value for Residential Unit | Annual Tax | |
| 100,000 | 126 | |
| 200,000 | 353 | |
| 300,000 | 378 | |
| 400,000 | 504 | |
| 500,000 | 630 | |
| 600,000 | 756 | |
| 700,000 | 882 | |
| 800,000 | 1008 | |
| 900,000 | 1134 | |
| 1,000,000 | 1260 | |
| 1,500,000 | 1890 | |
| 1,750,000 | 2205 | |
| 2,000,000 | 2520 | |
| 2,500,000 | 3150 | |
| 3,000,000 | 3780 | |
| 3,500,000 | 4410 | |
| 4,000,000 | 5040 | |
| 4,500,000 | 5670 | |
| 5,000,000 | 6300 | |
| 5,500,000 | 6930 | |
| 6,000,000 | 7560 | |
| 7,000,000 | 8830 | |
| 8,000,000 | 10080 | |
| 9,000,000 | 11340 | |
| 10,000,000 | 12600 | |
In a development that could contribute to an increase in State revenues, a Presidential Decree-Law was issued on 17 August 2014 putting into force the Real Estate Tax Law as well as introducing amendments thereto (the "Decree").[1] This Decree represents a serious attempt to overcome the obstacles encountered by the Real Estate Tax Law since its enactment in 2008. Successive amendments in the years 2010, 2011, and 2012 had postponed the start of the period in which the Law would be put into effect.
Source: Ministry of Finance
[1] Presidential Decree-Law No. 117/2014 amending certain provisions of the Real Estate Tax Law, Official Gazette, Issue No. 33 (bis) (a), 17 August 2014.
Value of the Real Estate Tax and Who Pays It?
The new Decree clarifies the legislative steps that followed the release of the original Law in 2008, and tackles many of the issues criticised in the previous versions, such as the impact of the Law on middle- and low-income persons. This Decree has exempted the single housing unit resided in by a person and his family (the taxpayer and spouse and minors) and which serves as their primary housing. This primary housing unit will be exempt from the tax as long as the value of annual rent remains below EGP 24,000. Any amount beyond that threshold will be taxable. It is worth mentioning that the tax exemption only applies to one housing unit; an individual who owns another property - either for themselves or for their family - cannot claim the same exemption, even if the property satisfies the other criteria. The Minister of Finance clarified in a statement that the above rental value shall be considered the equivalent of a real value of EGP 2,000,000 for owned properties. In addition, the Decree exempts single units utilised for commercial, industrial, administrative, or professional purposes with a maximum annual rent of EGP 1,200. The Minister of Finance also clarified in his statement that this value would be considered the equivalent to a real value of EGP 100,000 for owned properties of these types. The Decree has kept the tax rate, or percentage payable, at 10% of the value of the annual rent of the real estate, to be paid in two installments, calculated after excluding about a third of that value for maintenance and other auxiliary expenses (30% for properties used for housing purposes and 32% for those used for non-housing purposes). The Law further stipulates that payment of the Real Estate Tax will be at the tax headquarters in the proprietor’s respective Governorate or district, without the State being involved in demanding the tax from each of the properties where the tax is payable. It is worth mentioning that the Real Estate Tax applies only to proprietors or beneficiaries of the property. It will not apply to lessees, unless it is within the rental amount and the lessees have been notified of such. Following these provisions, a residential property which collects an annual rent of EGP 34,000 can only be taxed in the amount of EGP 10,000 as this is the value that surpasses the EGP 24,000 threshold. After deducting 30% for maintenance and other auxiliary fees, the amount chargeable becomes EGP 7000. The 10% tax means that the Real Estate Tax payable on a property with an annual rent of EGP 34,000 is EGP 700. According to the Decree, the first tax collection will be calculated from July 1st 2013, and will then be due at the 1st of January each year. This amends the 2012 rule which stated that the tax would be collected from 1 January 2013. The head of the Real Estate Tax Authority stated that the outstanding taxes can be paid in three installments, as citizens are not at fault for the delay; this decision has been criticised as inadequate. In addition, the move to collect the Real Estate Tax in July has faced criticism because of its incompatibility with the rest of the taxes that are due at the beginning of the calendar year in January. With regards to those in violation of the Real Estate Tax Law, the penalties and fines are set in accordance with the original Law, which states that from the first year following the year the tax was due, a “delay penalty” is calculated on the basis of Central Bank discount rate plus 2%. A fine ranging from EGP 200 to EGP 2,000 will be levied in the event that a proprietor declines to submit or submits incorrect data affecting more than 10% of the payable tax. A fine of EGP 1,000 to EGP 5,000 will be levied in the event that incorrect documents are presented to the Tax Evaluation Committee which impact their decision-making, or in the event that a proprietor relies on an exemption without just cause to do so. It should be noted that these sanctions do not replace any harsher penalties prescribed by the Penal Code or any other valid Law.Calculating Rental Value and Appeal Procedures
Rental values shall be calculated in order to determine the tax payable on the property. Calculations shall take place once every five years by the “Tax Evaluation Committees" of the Ministry of Finance. The amendment clarifies that the original rental evaluations shall remain valid until the end of December of 2018. The amendment allows for future clarification of the details of the formation of such Committees in normal circumstances, and in the evaluation of the conditions of special facilities, such as industrial plants, touristic properties, and those properties related to other services. The Decree does not change the evaluation criteria used by the Committee in its evaluation of the rental value, some of which – such as geographical location and related facilities – are set out in the Executive Regulations of the Law. It is worth mentioning that the Law and Executive Regulations stipulate that the Committees shall determine rental value in accordance with the laws concerning the organisation of the relationship between lessor and lessee; for example, in instances where a proprietor is leasing to a tenant a property for less than market value, the tax demanded will be for that value, even if the real or potential market price for that property is found to be higher. This point has been raised with regards to the obligations of landlords in some upscale neighborhoods where the tenants are paying a smaller rental amount than the market price. Conversely, the Law requires every proprietor responsible for paying taxes to present an annual report detailing any major changes to the real estate, any changes emerging following adoption of the five-year real estate evaluation, and any changes including the relationship between the lessor and lessee, or termination thereof. The Decree further stipulates the way in which the Appeals Committee will be formed. Tax-paying proprietors will have the right to appeal the evaluation of rental values, provided the appeal is presented within 60 days of the notification of the evaluation. The Decree also decreases the size of the Committee from five members to three; to include a representative from the Ministry of Housing, a consultant engineer, and an expert in real estate evaluation. A statement from the Ministry of Finance has stated that the head of the Appeals Committee will be assisted by legal counsel from one of the State’s Judicial Authorities. As stipulated in the original Law, Appeals Committees shall commit to providing a final decision within 30 days of submission of the appeal. In cases where the Tax Evaluation Committees are charged with assessing properties related to industry, tourism, or petroleum sectors, or other services sectors, a representative appointed by the Industries Union or one of the specialized Chambers shall join the Evaluation Committee. This same condition shall apply to the Appeals Committees as well, provided that the appeal has been submitted from a proprietor owning real estate related to one of the above sectors. The Amendment does not stipulate the guidelines to be followed by the Tax Evaluation Committee when ascertaining the value of properties related to these sectors; these guidelines are anticipated to be provided within three months of the passing of the Amendment. It is noteworthy that the Official Gazette included an amendment to Article V of the Law, but the amended article is identical to the original text, which restricts increases in the five-year rental value evaluation of more than 30% for residential real estate, and restricts increases of more than 45% for non-residential real estate. The wording of the Law ensures that the Real Estate Tax applies to all types of completed buildings, including those buildings that are unoccupied and those occupied without consideration; this can be seen as an attempt to deal with cases in which the proprietor retains ownership without leasing the property, or where the proprietor is leasing the property in the absence of formal contractual agreements with the tenant. Furthermore, the Law does not require the presence of buildings in all cases; the Real Estate Tax may also apply to undeveloped areas of land, even if unattached to other premises or inadequately fenced. In addition, the Law contains a list of properties that are exempt from the Real Estate Tax. The new amendment guarantees that this exemption extends to many of the buildings owned by the Armed Forces, such as clubs, hotels, and arsenals; this was objected to by the State Council in its official analysis of the bill.The Importance of the Real Estate Tax Law
In addition to sending a strong message regarding how seriously the government intends to enforce of the Law, other moves from the government point to how important it considers the Real Estate Tax Law itself. One day following the promulgation of the Law, the Minister of Finance issued a Decree forming 60 Appeals Committees, as provided for in the amendment. Less than one week later, on August 24th, 2014, the Ministry of Finance issued a statement confirming that the Real Estate Tax Authority has already begun to send letters to residential units notifying proprietors that market value had been determined. The statement of the Ministry of Finance also announced the decision to establish a technical office at the headquarters of the Real Estate Tax Authority in Cairo in order to unify the legal and technical principles to be adopted by the Appeal Committee's membership, which shall be comprised of four senior advisers from the Judiciary together with a number of experts in the field of real estate evaluation. The government is anticipating revenues from the Real Estate Tax to reach up to EGP 3.5 billion in the current fiscal year (2014/2015). According to statements made by Ministry of Finance officials, one of the key features of the amended Law is that it applies to all properties built in the country, unlike the previous Law (issued in 1954) which only applied to property located within city boundaries, and therefore did not include many outlying urban communities and new industrial areas. In addition, the data provided and statements made by the government emphasize the dependence on the proceeds stemming from the Real Estate Tax to carry out large development projects, particularly in low-income areas; the Law has allocated 25% of proceeds to such projects, while another 25% will be directed the Governorates budget, with the remaining 50% of the proceeds going to the public treasury.Table Showing Real Estate Tax on Additional Residential Units (in EGP)
| Market Value for Residential Unit | Annual Tax | |
| 100,000 | 126 | |
| 200,000 | 353 | |
| 300,000 | 378 | |
| 400,000 | 504 | |
| 500,000 | 630 | |
| 600,000 | 756 | |
| 700,000 | 882 | |
| 800,000 | 1008 | |
| 900,000 | 1134 | |
| 1,000,000 | 1260 | |
| 1,500,000 | 1890 | |
| 1,750,000 | 2205 | |
| 2,000,000 | 2520 | |
| 2,500,000 | 3150 | |
| 3,000,000 | 3780 | |
| 3,500,000 | 4410 | |
| 4,000,000 | 5040 | |
| 4,500,000 | 5670 | |
| 5,000,000 | 6300 | |
| 5,500,000 | 6930 | |
| 6,000,000 | 7560 | |
| 7,000,000 | 8830 | |
| 8,000,000 | 10080 | |
| 9,000,000 | 11340 | |
| 10,000,000 | 12600 | |