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New Amendments to the Executive Reg

New Amendments to the Executive Regulations of Real Estate Tax Law
The Ministry of Finance has issued a new amendment to the executive regulations of the Real Estate Tax Law issued by Ministerial Decree No. 493 of 2009. The Executive Regulations provide details for important matters such as the means of calculation of real estate tax, the five-year re-estimation process, maximum tax increase, tax exemptions, and the consequences of failure to pay tax dues. The new amendments complement the extended series of legal and executive changes regarding this tax, the enforcement of which faces several difficulties.
Introduction
The Ministry of Finance issued Decision No. 119 of 2016 (the "Decision")[1] amending the executive regulations of the Real Estate Tax Law No. 196 of 2008[2] promulgated by Ministerial Decree No. 493 of 2009.[3] These continuous amendments accumulated to five concerning the Law No. 196 of 2008, while its executive regulations have experienced two amendments including the above mentioned one. Although some of these amendments are procedural, the changes were mostly related to the tax’s essence, calculation, dues, and remittance. The continuous amendments highlight the difficulty of enforcing this tax, thus postponing its application since its promulgation in 2008.
Means of Tax Calculation
By reviewing the Decision’s details, we recognize its interpretation of the latest amendment of the Real Estate Tax Law as per the Presidential Decree No. 117 of 2014.[4] One of the notable amendments was linked to the means of tax calculation upon residential and non-residential units. The law and the latest executive regulations amendment imposed a tax of 10 percent upon the annual rental value of units’ subject to tax. This tax shall apply after the deduction of 30 and 32 percent of the annual rental value in cases of residential and non-residential units respectively, in exchange for all expenses borne by the taxpayer including maintenance costs. The latest executive regulations amendment reflected the exemption provided under the above mentioned law regarding residential units in case their net annual rental value is less than EGP 24,000, while the taxpayer exploits it as his family’s private principal housing. In case of non-residential units, the exemption shall apply upon all units below EGP 1,200 regardless of the purpose whether commercial, industrial, professional or administrative. Therefore, this exemption shall be added to values deducted in exchange for taxpayer’s borne expenses. To simplify it, please review the following equation demonstrating the means of tax calculation:
  • Real Estate for Residential Purposes:
    • Rental Value = (Market Value x 60% x 3%)
    • Taxable Amount = (Rental Value x 70%) – 24,000
    • Tax Amount = Taxable Amount x 10% (Tax Rate)
  • Real Estate for Non-residential Purposes:
    • Rental Value = (Market Value x 60% x 3%)
    • Taxable Amount = (Rental Value x 68%) – 1,200
    • Tax Amount = Taxable Amount x 10% (Tax Rate)
Plants Market Value shall be calculated as follows: Plant Area x 60% x Price per Square Meter.
Five-Year Re-Estimation Process
The second amendment adjusts the wording since it did not allow raising the rental values in cases of five-year re-estimation above 30 percent for residential units or 45 percent for non-residential units. This paragraph benefits taxpayers for two reasons. First, it protects them from possibilities of overstatement by valuation committees in some cases. Hence, these committees’ authority of re-estimation shall be restricted. The second reason is that the increase ceilings disregard the impacts of inflation along with renovation activities that may raise the unit’s rental value more than the above set limits. Thus, the legislator obligated taxpayers to provide annual declarations in case there is new property or additions or adjustments to previously valued property changing its features and significantly influencing its rental value. 
Exemptions
The third amendment was associated with Article (18) of the executive regulations regulating procedurally requests for exemption application in accordance to Article (18) of the Law. The Law exempted state owned property, property customized for religious practices, courtyards and cemeteries, buildings owned by registered associations utilized in performing its purposes and its administration, educational institutions, hospitals, clinics, shelters, non-profitable charities, political parties and syndicates premises, youth and sport centers, real estate owned by foreign governments on conditions of reciprocal treatment and non-profit houses set for social events. In addition to social clubs, hotels, military medical centers, hospitals, and clinics. Based on such amendment, the taxpayer shall submit an exemption request to the competent Real Estate Tax Commission within thirty days from receiving the Commission’s notification regarding the tax due. The Commission in turn refers the request to the competent department for examination. In the same context, the Article confirmed the non-extension of exemption in case proven buildings were used by the above-mentioned entities in profitable purposes. Profitable activities shall subject such buildings to tax in similar application to taxing non-residential units.
Delay in Performing Tax Due
The last amendment addressed the dates of taxes due, since its remittance shall be on two equal instalments. The first falls due until the end of June, while the second is due until end of December. In case of failure to comply with remittance dues, a delay fine shall apply starting from January of the following year, where the tax is due. The delay fine is calculated using the Central Bank’s credit rate at that date added to it 2 percent. Tenants within their due fare shall be jointly liable with the taxpayer to remit the tax due. Furthermore, all dues in accordance to that Law including delay fine are considered as tax debts.
Commentary
These amendments confirm the difficulty of enforcing this tax, the application of-which has been suspended since 2008. The widening of budgetary deficit and the continuous verification of its enforcement in all governmental programs and statements, highlight the government’s insistence on proceeding with its execution. Possibly, this amendment maybe the last one to guarantee a stable enforcement of this newly born tax. These are our hopes to avoid conflicts, ambiguity and several changes affecting taxpayers and generally the investment climate.   [1] Ministry of Finance's Decision No. 119/2016 amending the executive regulations provisions of the Real Estate Tax Law No. 196/2008, Official Gazette, Issue No. 66 (cont.), 20 March 2016. [2] Presidential Decree-Law No. 196/2008 issuing the Real Estate Tax Law, Official Gazette, Issue No. 25 (bis) (c), 23 June 2008. [3] Minister of Finance's Decision No. 493/2009 enacting the Executive Regulations of the Real Estate Tax Law No. 196/2008, Official Gazette, Issue No. 182 (cont.) (a), 6 August 2009. [4] Presidential Decree-Law No. 117/2014 amending the Real Estate Tax Law No. 196/2008 Provisions, Official Gazette, Issue No. 33 (bis) (a), 17 August 2014.
The Ministry of Finance has issued a new amendment to the executive regulations of the Real Estate Tax Law issued by Ministerial Decree No. 493 of 2009. The Executive Regulations provide details for important matters such as the means of calculation of real estate tax, the five-year re-estimation process, maximum tax increase, tax exemptions, and the consequences of failure to pay tax dues. The new amendments complement the extended series of legal and executive changes regarding this tax, the enforcement of which faces several difficulties.
Introduction
The Ministry of Finance issued Decision No. 119 of 2016 (the "Decision")[1] amending the executive regulations of the Real Estate Tax Law No. 196 of 2008[2] promulgated by Ministerial Decree No. 493 of 2009.[3] These continuous amendments accumulated to five concerning the Law No. 196 of 2008, while its executive regulations have experienced two amendments including the above mentioned one. Although some of these amendments are procedural, the changes were mostly related to the tax’s essence, calculation, dues, and remittance. The continuous amendments highlight the difficulty of enforcing this tax, thus postponing its application since its promulgation in 2008.
Means of Tax Calculation
By reviewing the Decision’s details, we recognize its interpretation of the latest amendment of the Real Estate Tax Law as per the Presidential Decree No. 117 of 2014.[4] One of the notable amendments was linked to the means of tax calculation upon residential and non-residential units. The law and the latest executive regulations amendment imposed a tax of 10 percent upon the annual rental value of units’ subject to tax. This tax shall apply after the deduction of 30 and 32 percent of the annual rental value in cases of residential and non-residential units respectively, in exchange for all expenses borne by the taxpayer including maintenance costs. The latest executive regulations amendment reflected the exemption provided under the above mentioned law regarding residential units in case their net annual rental value is less than EGP 24,000, while the taxpayer exploits it as his family’s private principal housing. In case of non-residential units, the exemption shall apply upon all units below EGP 1,200 regardless of the purpose whether commercial, industrial, professional or administrative. Therefore, this exemption shall be added to values deducted in exchange for taxpayer’s borne expenses. To simplify it, please review the following equation demonstrating the means of tax calculation:
  • Real Estate for Residential Purposes:
    • Rental Value = (Market Value x 60% x 3%)
    • Taxable Amount = (Rental Value x 70%) – 24,000
    • Tax Amount = Taxable Amount x 10% (Tax Rate)
  • Real Estate for Non-residential Purposes:
    • Rental Value = (Market Value x 60% x 3%)
    • Taxable Amount = (Rental Value x 68%) – 1,200
    • Tax Amount = Taxable Amount x 10% (Tax Rate)
Plants Market Value shall be calculated as follows: Plant Area x 60% x Price per Square Meter.
Five-Year Re-Estimation Process
The second amendment adjusts the wording since it did not allow raising the rental values in cases of five-year re-estimation above 30 percent for residential units or 45 percent for non-residential units. This paragraph benefits taxpayers for two reasons. First, it protects them from possibilities of overstatement by valuation committees in some cases. Hence, these committees’ authority of re-estimation shall be restricted. The second reason is that the increase ceilings disregard the impacts of inflation along with renovation activities that may raise the unit’s rental value more than the above set limits. Thus, the legislator obligated taxpayers to provide annual declarations in case there is new property or additions or adjustments to previously valued property changing its features and significantly influencing its rental value. 
Exemptions
The third amendment was associated with Article (18) of the executive regulations regulating procedurally requests for exemption application in accordance to Article (18) of the Law. The Law exempted state owned property, property customized for religious practices, courtyards and cemeteries, buildings owned by registered associations utilized in performing its purposes and its administration, educational institutions, hospitals, clinics, shelters, non-profitable charities, political parties and syndicates premises, youth and sport centers, real estate owned by foreign governments on conditions of reciprocal treatment and non-profit houses set for social events. In addition to social clubs, hotels, military medical centers, hospitals, and clinics. Based on such amendment, the taxpayer shall submit an exemption request to the competent Real Estate Tax Commission within thirty days from receiving the Commission’s notification regarding the tax due. The Commission in turn refers the request to the competent department for examination. In the same context, the Article confirmed the non-extension of exemption in case proven buildings were used by the above-mentioned entities in profitable purposes. Profitable activities shall subject such buildings to tax in similar application to taxing non-residential units.
Delay in Performing Tax Due
The last amendment addressed the dates of taxes due, since its remittance shall be on two equal instalments. The first falls due until the end of June, while the second is due until end of December. In case of failure to comply with remittance dues, a delay fine shall apply starting from January of the following year, where the tax is due. The delay fine is calculated using the Central Bank’s credit rate at that date added to it 2 percent. Tenants within their due fare shall be jointly liable with the taxpayer to remit the tax due. Furthermore, all dues in accordance to that Law including delay fine are considered as tax debts.
Commentary
These amendments confirm the difficulty of enforcing this tax, the application of-which has been suspended since 2008. The widening of budgetary deficit and the continuous verification of its enforcement in all governmental programs and statements, highlight the government’s insistence on proceeding with its execution. Possibly, this amendment maybe the last one to guarantee a stable enforcement of this newly born tax. These are our hopes to avoid conflicts, ambiguity and several changes affecting taxpayers and generally the investment climate.   [1] Ministry of Finance's Decision No. 119/2016 amending the executive regulations provisions of the Real Estate Tax Law No. 196/2008, Official Gazette, Issue No. 66 (cont.), 20 March 2016. [2] Presidential Decree-Law No. 196/2008 issuing the Real Estate Tax Law, Official Gazette, Issue No. 25 (bis) (c), 23 June 2008. [3] Minister of Finance's Decision No. 493/2009 enacting the Executive Regulations of the Real Estate Tax Law No. 196/2008, Official Gazette, Issue No. 182 (cont.) (a), 6 August 2009. [4] Presidential Decree-Law No. 117/2014 amending the Real Estate Tax Law No. 196/2008 Provisions, Official Gazette, Issue No. 33 (bis) (a), 17 August 2014.