August 19, 2020

New Law in Egypt Mandating 1% Salary Tax to Contain Adverse Consequences of COVID-19

A new law was issued on 13 August 2020 under no. 170/2020 deciding solidarity contribution obligation on private and public sector employees and managers to face the adverse economic consequences of pandemics and natural disasters including COVID-19 (the “Law”).

Pursuant to the Law, the net monthly salaries of all employees will be subject to a mandatory deduction of 1%, and pensions will subject to a deduction of 0.5%.

These deductions will be made for the purpose of supporting the national economy to confront the negative implications of pandemics and natural disasters.

Who does the Law apply to?

The Law applies to all employees in the private and the public sectors as well as chairman and board members of all public and private entities.

The Law will apply whether the relevant employee or person occupies a permanent or temporary position or acts as an expert, consultant or in any other capacity.

Which salary component is subject to the law?

The 1% salary deduction will be imposed on the “aggregate net salary”. This means that both fixed and variable salary elements will be subject to the deduction (including allowances, commissions, incentives, bonuses, overtime payments) after payment of payroll taxes and social insurance contributions.

Who is exempted from the Law?

The following categories will not be subject to the Law:

  • Employees whose net monthly salary does not exceed EGP 2,000.
  • Pension recipients whose net monthly pension does not exceed EGP 2,000.
    The Prime Minister may exempt (fully or partially) other employees who work in sectors which are negatively affected by the pandemic or the disaster.

What is the duration of the deduction?

The deductions determined under the Law will continue for a period of 12 months starting from the effective date of the Law, which is 14 August 2020. The Prime Minister has the authority to reduce or lengthen this duration.

How will the collected amounts be used?

The amounts collected under the Law will be dedicated to support the national economy during pandemics and natural disasters. Such support can take, among others, the following forms:

  • Providing financial support to affected companies and projects and their employees.
  • Providing financial and in-kind grants to affected individuals and families.
  • Funding medical research and improving and maintaining health care system.

What are the deductions and collection mechanisms?

The Ministry of Finance will open a bank account with the Central Bank of Egypt. Entities and employers who are addressed by the Law will make the relevant deductions and deposit the deducted amounts into this bank account.

The Ministry of Finance, the Central Auditing Authority and the Egyptian Tax Authority will have the power to inspect and confirm whether or not relevant entities and employers have deposited the required deductions.

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