Egypt’s commitment to nurturing entrepreneurship and fostering innovation has reached new heights with the recent announcement by President Abdel Fattah El-Sisi. The government has unveiled a comprehensive plan designed to propel startups in the country, offering them a generous 5-year tax exemption. This groundbreaking initiative is expected to provide a significant boost to Egypt’s startup ecosystem. However, it is essential to note that certain conditions are attached to this tax incentive.
In light of this, Dr. Hala Abu Al-Saad, the Undersecretary of the Small and Medium Enterprises Committee in the House of Representatives, has highlighted the anticipation of significant legislative amendments to the existing Small and Medium Enterprises Law (Law №152 of 2020). Dr. Al-Saad intends to present a draft law to the House of Representatives, aiming to revise specific provisions that will better accommodate startups. These proposed amendments seek to introduce special facilities, including a 5-year tax exemption period, while simultaneously implementing a flat tax rate structure for these projects. A flat rate tax for startups is a simplified tax system where all startups, regardless of their size or financial performance, pay the same fixed tax rate or amount. This eliminates complex calculations based on profits or revenue, providing a level playing field and allowing startups to anticipate and plan for a consistent tax obligation. The goal is to simplify the tax process and promote fairness among startups.
Moreover, the proposed amendments, according to Dr. Al-Saad will address other critical aspects, such as providing lands for small projects through the usufruct system. This move will effectively reduce additional financial burdens on startups, allowing them to focus on growth and development.
Acknowledging the vital role startups play in driving economic growth, the Egyptian government has also allocated a substantial budget of EGP 1.5 billion ($48M) to support medium and small projects in the upcoming fiscal year. Dr. Al-Saad equally confirmed this financial commitment, emphasizing the government’s objective of fortifying the startup sector. Currently, startups already contribute over 40% to Egypt’s gross domestic product, making them a crucial driver of the economy.
The Egyptian Ministry of Planning projects a remarkable gross domestic product of 11.8 trillion pounds for the next fiscal year, a significant increase from the current fiscal year’s 9.8 trillion pounds. This ambitious target demonstrates the government’s unwavering determination to drive economic expansion through the promotion of startups.
Sherif Lokman, the Deputy Governor of the Central Bank of Egypt for Financial Inclusion, has emphasized the dominance of medium, small, and micro companies in the private sector, accounting for an impressive 98% of all economic activity in Egypt. These enterprises play a vital role in the country’s economy, contributing approximately 43% to the gross domestic product. Egypt boasts an impressive entrepreneurial landscape, with 3.4 million micro-enterprises, 2,200 medium-sized enterprises, and 217,000 small enterprises.
Despite a slightly lower growth rate projection for the next fiscal year (4.1% compared to the expected growth of 4.2% in the current fiscal year), the Egyptian government firmly believes that medium, small, and micro enterprises hold the key to boosting growth rates and generating employment opportunities. These enterprises solidify their importance in the national economy, showcasing the government’s commitment to their success.
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Egypt’s unveiling of a 5-year tax exemption program for startups with certain conditions represents a significant milestone in the country’s journey towards fostering entrepreneurship and innovation. With strategic legislative amendments, financial support, and a steadfast focus on the growth potential of startups, Egypt is set to position itself as a thriving hub for entrepreneurial endeavors in the coming years.
5-year tax startups Egypt 5-year tax startups Egypt
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert.
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard