Tax Accounting
Final Revision
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Page: Vision Academy Egypt
1
A- What is meant by tax accounting?
- Tax Accounting measures the base to which the tax rates are applied to
determine the amount to be collected from the taxpayer.
B- What is meant by tax?
- Tax can be defined as payment to support the cost of government without
receipt of a specific benefit.
- From This definition, we can say: Tax differs from fees
Tax (Public benefit), Fees (Private benefit)
C- What are the objectives of tax accounting? OR Why we imposed tax?
1- Taxes are levied for raising resources of government to support the cost of its
services such as education, Housing, and Health. (Financial objectives)
2- Tax plays an important role to achieve economic objectives by providing
incentives and exemption for certain activities.
3- Taxes are levied to achieve social objective by redistributing the wealth in
the society. (Low income pays little tax)
D- Explain Process of tax accountability?
- Measuring the taxable income: Comparing revenues subject to tax and
expenses (costs) according to tax regulations.
- Tax assessment: Determine the exemptions to be excluded from taxable
income (deducting exemptions).
- Tax collection: The taxes must be collected front the taxpayer on specified
dates according to the Tax Law.
2
E- What are Classifications of taxes?
1) Direct and indirect taxes
Direct taxes
✓ Imposed directly on income.
✓ Taxpayer cannot shift the burden to another person.
✓ Imposed on stability element (ex. Salary).
Indirect taxes
✓ Imposed on income on utilization.
✓ Taxpayer can shift the burden to other. (Through the price)
✓ It is more suitable to taxpayer.
2) Personal and in-kind taxes:
Personal taxes
✓ Single.
✓ Married without support.
✓ Married with support.
✓ Unmarried with support.
✓ Take into consideration some exemption such as the cost of minimum living limit
exemption.
In-kind taxes
✓ Imposed on total income regardless the cost of minimum living limit, and the
social condition of the taxpayer.
F- What is the Egyptian tax structure?
1- Agriculture land tax (ALT)
✓ It is imposed on all agricultural land actually cultivated or not on the basis of a rental
value. (Tax rate 14%)
2- Build realities tax (BRT)
✓ It is imposed on all bill realities whatever their construction material.
✓ Completely contracture or not, or rather than occupied but not completely
contracture, and regardless of the purpose of the usage, the place in which it built, or
obtaining return from it. this tax is levied at the rate of 10% on the basis of yearly
rental value.
3- Income tax (IT), these taxes are divided into:
Income tax of natural person:-
- Income tax of natural persons: this tax is imposed on the net income of
natural persons which realized from the following revenues:
✓ Salaries and like
✓ Revenues of commercial
✓ Revenues of non- commercial
✓ Revenues of real state wealth
First slice : From Zero to L.E 15,000 Exempted
Second slice : From L.E. 15,000 up to L.E. 30,000 10%
Third slice : From L.E. 30,000 up to L.E. 45,000 15%
Fourth slice : From L.E. 45,000 up to 200,000 20%
Fifth slice : From L.E 200,000 Up to LE 400,000 22.5%
Sixth slice : More than LE 400,000 25%
Income tax of juridical persons
- This tax is imposed on the total net profit of partnerships, limited
partnerships, corporation and other moral persons. This tax is lived at the rate
of 20% with two exceptions:
✓ 40% for Suez Canal & central bank.
✓ 40-55% for oil and gas companies.
3
A- Introduction:-
- The tax on salaries, wages and the like revenues is imposed on revenues from
work for others and under their supervision and control.
B- Natural of revenue:-
- Natural of revenue: this revenue is results from which is performed by a
person (employee) for the account of another and under his supervision and
control.
C- Conditions for imposing tax:-
1- An employment contract (under which the employee is subjected to
supervision and control of the employer).
2- Law and regulations (the relationship between the employee and the
employer) establishing for the former certain right and duties
D- The details if the tax:-
- The details of the works: the employer should fix the details of the work
such as the work time, place and penalties.
Taxable revenues:
- Salaries & like (Salaries, pays, wages)
- Salaries, pays (taxable) there is no difference between them:
✓ Paid periodically (often monthly)
✓ Paid for mental work
✓ Render to government, Banks…
- Wages:
✓ Paid daily or weekly
✓ Paid for manual work
✓ Render to private sector, co …
4
E- What is tax treatment about?
1- Salaries (Taxable)
-Paid periodically (Monthly).
- Paid for mental work.
Render to government & banks, …
2- Wages (Taxable)
- Paid daily or weekly.
- Paid for physical work.
- Render to private sector, company,…
3- Rewards (Taxable)
- Rewards: they mean amount paid to workers in addition to salary for
business, they carried out for the enterprise such as rewards for overtime,
teaching rewards, …..
Q: All rewards subjected to tax True or False (X)
Correct: Rewards subjected to tax except rewards of leaving service مكافأة نهاية
( الخدمهwhy) because it is a capital payment paid once for ending the service.
4- Pension (Taxable)
- Pension: they amount are paid monthly to the workers, after ending his
service.
- These pensions are not subjected to tax …
5- Like salary (Tips) (Taxable)
- Like salary: this expression includes any amount subjected to tax on salaries
such as tips (taxable)
6- Incentives (Taxable)
- Incentives: they mean amount paid to workers in return for increasing
production, sales, or raising the level of services. (taxable)
7- Commissions (Taxable)
- Commissions: this term means what workers get in addition to salaries for
efforts made and had influence on size of activity of entity such as sales
commissions (taxable)
8- Grants & Overtime (Taxable)
- Grants & overtime: all grants paid to employees and overtime wages for extra
work hours. (Taxable)
7- Allowances ( البدالتTaxable)
- Allowances: they mean amount granted to the workers as a advantage
reflecting some personal benefit upon him, such as allowances paid to doctors,
engineers (taxable)
5
F- Calculation of tax due per month:-
- Employers are required to hold monthly tax due, and turned it to tax office
within the first 15 days of the following month.
Tax due per year/ 12- monthly tax
- If any change in the taxable revenue accurse, calculating of the revenue shall
be adjusted from the date of this change.
- A governmental employee gets per month:
L.E 900 As basic salary (of which 100 special increment)
L.E 350 As work nature allowance
L.E 600 As representation allow
L.E 10 As social increment
L.E 50 As transport allowance
L.E 60 As special increment (not added to basic salary)
- So if you learn that he pays insurance premium of L.E
150 per month on his life and his minor son.
- Social Insurance L.E 153 per month.
Required
To calculate tax due per month
6
1- Determination of annual tax base :
Total Revenues:
- Basic salary (900x12) 10,800
Variables (Extra)
- Work nature allowance (350x12) 4,200
- Representation allowance (600x12) 7,200
- Social increment (10x12) 120
- Transportation (50x12) 600
- Special increment [not added to basic
allowance] (60x12) 720
12,840
Total Revenues
23,640
Deducted from it:
1- Sums exempted by special law :
- Special increment [(100+60) x12]
1,920
- Social increment (10x12)
120
- Representation allowance (600x12)
7,200
2- Sums to meet actual expenses:
- Transportation expense (50 x 12) 600
3- Personal exemption (Fixed amount) 9,000
4- Share of employee in social Insurance: 1,836
(153x12)
(20,676)
Net revenue
Less: 5- Life insurance premiums: 2,964
- 2,964 × 15% = LE 444.6 ------------ Lowest
- Fixed sum = LE 10,000
-Actually paid (150x12)=1,800
(444.6)
Net Taxable Revenue 2,519.4
(2) Calculation of tax due :
(a) Per year = (2,510 – 15,000) = Zero × 10 % = L.E Zero
(b) Per month = Zero ÷ 12 = L.E Zero
7
- An employee in a private sector company gets per month
the following:
L.E 700 As basic salary (of which 150 special increment)
L.E 300 As work nature allowance
L.E 400 As representation allow
L.E 10 As social increment
L.E 300 As special increment (not added to basic salary)
- So if you learn that:
1- He receives a reward of L.E 1,500 on August 2005.
2- He pays insurance premium of L.E 450 per month for
his life to his wife.
3- He pays subscription in a special insurance fund of L.E
50 per month.
4- Social Insurance L.E 153 per month.
Required
- To calculate tax due per month
8
1- Determination of annual tax base :
Total Revenues:
- Basic salary (700x12) 8,400
- Variables:
- Work nature allowance (300x12) 3,600
- Representation allowance (400x12) 4,800
- Social increment (10x12) 120
- Special increment [not added to basic 3,600
allowance] (300x12) 12,120
Total Revenues
20,520
Deducted from it:
1- Sums exempted by special law :
- Special increment [(300+150) x12] 5,400
- Social increment (10x12) 120
- Representation allowance (Private sector) --
2- Sums to meet actual expenses:
- Transportation expense (Private sector) --
3- Personal exemption 9,000
4- Share of employee in social Insurance: 1,836
(153x12) (16,356)
Net revenue
4,164
Less: 5- Life insurance premiums:
- 4,164 × 15% = LE 624.6 --------------- Lowest
- Fixed sum = LE 10,000
-Actually paid [(450+50)x12] = LE 6,000
(624.6)
Net Taxable Revenue 3,539.4
(3) Calculation of tax due:
(a) Per year = (3,530 – 15,000) = Zero × 10 % = LE Zero
(b) Per month = Zero ÷ 12 = LE Zero
(4) Calculation of tax due on reward:
1,500 x 10% fixed tax rate = LE 150
9
I- Lump tax:-
- The tax applies at the rate of (10%) without any reduction to meet any costs
against the following reasons: -
1- Sums received by person residing in Egypt rather than the original work.
Ex: A government employs delegated to examination work in Ain-Shams
University for a reward of L.E 200.
2- Sums received by persons not resident in Egypt (Whether Egyptian or
foreigner) regardless of the enterprise with employs them.
- A company concluded an agreement with a foreign
expert to work in Egypt during 2006:
- The contract period is 4 months.
- The wage shall be 30,000 monthly.
- The company shall meet costs of his residence in
the hotel within 3,000 per month.
Required
- To calculate tax due?
- Since the period not exceed 183 days or (6 months), then the
foreign expert considered not resident in Egypt.
Tax due = [30,000 + 3,000] x 4 months’ x 10% = L.E 13,200
10
- A company concluded an agreement with a foreign
expert to work in Egypt during 2006:
- The contract period is 9 months.
- The wage shall be LE 1,000 monthly and $ 2,000
per month transferred to his account abroad.
- The company shall meet costs of his residence in
the hotel within 3,000 per month.
Required
- To calculate tax due if you learn that $1= L.E6?
- Since the period exceed 183 days or (6 months), then the
foreign expert considered resident in Egypt.
-Calculation of Tax base:
Total revenue
In Egypt =LE 1,000 × 9 months 9,000
Abroad =$2,000 x L.E 6 x 9months 108,000
Total Revenue 117,000
Deduct from it
✓ Personal exemption (9,000x 9/12) (6,750)
Tax base 110,250
11
J- Tax settlement:-
- The employer will make a settlement at the end of each year to determine
differences between tax due according to settlement list and the amount of tax
deducted from the employee during the year.
- If the employee paid during the year more than the tax due according to
settlement list, the difference should be refunded to the employee.
- A company concluded an agreement with foreign expert
to work from 1st October 2005 until 15th of July 2006.
- He shall receive in Egypt $500 per day.
Required
Note
- To calculate tax due if you learn that $1= L.E6? Feb. /4 = 29 days
1- During 2005: April - June - Sep. –
31 October + 30 November + 31 December = 92 days
Nov. (30 days)
- Then the expert is considered not resident in Egypt Remain 31 days
- Thus,
92 days’ x $ 500 per day x LE 6 exchange rate = L.E 276,000
- Tax due = 276,000 x 10% = LE 27,600
2- During 2005:
31 Jan + 28 February + 31 March + 30 April + 31 May + 30 June + 15 July
= 196 days
- Then the expert is considered resident in Egypt
- Thus,
Total revenue
In Egypt =196 days × $500 x 6 588,000
Deduct from it
✓ Personal exemption (9,000x 196/365) (4,832.8)
Tax base 583,160
12
A- Nature of revenue:
- This revenue results from work which is prepared by a person for his own
account and under his own responsibilities.
- The element of capital represents an important weight in this profession in
the form of tools of high cost, but technical experience is still the base.
B- Taxable revenue:
- Revenues of free professor (Accountant, lawyer,) and non-commercial
profession (Transaction, singing,…)
- Revenues from sale or exploitation & copy right.
- Revenues resulting from cash profession or activity not mentioned in tax
no.91 of 2005.
C- Tax exemptions:
1- Revenues of writing books and translation shall be exempted provided that
they are not produced in form visual.
2- Revenues of books teaching staff members of the university. These revenues
are exempted from tax provided that these books are provided to students and
the price specified by the university.
3- Revenues of artists. These revenues are exempted from tax provided that the
artist should be member of syndicate in (Photography- artwork…..)
4- Revenues of new members of free professions at the beginning of their
career, the law exempted them for a period of 3 years from date of practicing
the profession (at the maximum of L.E 50,000 each year). The period of
exemption is reduced to one year when the member practices profession for
the first time after lapse of a period exceeding 15 years of his graduation.
13
- The following are revenues and expanses of accountant
(for 2006) revenues (Regular Books):
Revenues:
L.E 20,000 Fees – 6,000 Fees belong to 2007 – 10,000
Fees from Libya – 30,000 Capital gains.
Expenses:
L.E 10,000 salaries – 2,000 rents – 600 car expenses
(30% personal) – 200 duties registration in syndicate
– 300 books – 200 subscription in pension Fund –
3000 insurance premium on his life to his minor son –
10,000 contributions (1,000) to government and the
rest to El-Helal El-Ahmar – 4,000 Depreciation.
Required
- To determine net revenues of non-commercial profession?
14
Taxable Revenues:
1- Fees (Cash basis) 20,000
2- Fees belong to 2007 6,000
3- Fees from Libya 10,000
4- Capital gains 30,000
Total taxable Revenues 66,000
Deducted from it:
1- Cost for practice :
✓ Salaries 10,000
✓ Rent 2,000
✓ Car expenses (600 x 70%) 420
✓ Duties of registration in syndicate 200
✓ Books 300
✓ Depreciation 4,000
Total
(16,980)
Net revenue before contribution
49,020
Contribution to:
✓ Government
✓ El-Helal El-Ahmer Paid (49,020x10%) 1,000
4,902
(5,902)
Net revenue after contribution
Pension & Insurance:
- Paid = 3,200 44,118
- Fixed sum = 3000
Lowest 3000 (3,000)
Tax base 41,118
Comment:
• All what he gets subjected to tax during the year according to cash basis?
• Although the fees belong to 2007 but we imposed tax on the some because it's collected during 2006.
• Fees collected outside Egypt not subjected to tax.
• capital gains subjected to tax economic- Expansion
• Expansions, all expenses related to with the profession detectable cost such as, salary, wage, rent, car expenses,
references, syndicate and Deprecation.
• Contribution to government full detection but contribution to El helal El ahmar detected with limit 10% constant.
• Pension and life insurance for his minor son and wife only with the limit 3000 constant.
15
- Revenues of an accountant were estimated for 2006 at
L.E 100,000, so if you learn that (Non Regular Books):
He sold tools in his office 30,000 (Its book value
10,000).
He pays annually a life insurance premium 2,000 to
his life.
He won a prize 10,000 and donates from it to aid
social 4,000.
Required
- To determine net revenues of non-commercial
Taxable Revenues:
1- Revenues 100,000
2- Capital gain (30,000 – 10,000) 20,000
Total taxable Revenues 120,000
Deducted from it:
1- Cost for practice :
✓ 120,000 x 10% fixed rate (12,000)
Net revenue before contribution 108,000
Contribution to:
✓ Paid = 4,000
✓ 108,000 x 10% = 10,800 (Lowest) (4,000)
Tax base 104,000
16
Revenues of alienations of realities
Revenues of alienations of realities are subjected to tax at the rate of
2.5% of the total revenues without any deduction or exemption.
A - Alienations subjected to tax
1-Alienations in built realities and lands within the city cordon except
for villages.
2-Alienations by donation to other than ascendants or descendants.
3- Usufruct to realty or lease for a period exceeding (50) years.
4- Alienations of the heir in the inherited realities in their state at
inheritance.
B - Alienations not subjected to tax
1- Offering the reality as a share in kind for contribution in capital of a
shareholding Co. provided that shares are not disposed for (5) years.
2- Forced sales or public utility.
3- Donation to the Government.
The office of real estate registration should collect the tax from the
disposer and pay it to tax department according to the law within (30)
days from the date of registration
What is the tax treatment about the following?
1- An individual sold a building to another for LE 2,000,000.
This alienation subjected to tax on the value at 2.5% {2000,000 x 2.5%} = 50,000
2- An individual granted a building to his daughter or grandfather.
Not subjected to tax because she is one of the descendants or he is one of the
ascendants.
3- an individual assigned of usufruct to build owned by him to another for 60
years Subjected to tax 2.5%.
4-An individual sold an inherited reality in the state at heritance for 3,000,000
subjected to tax because it is sold in the state at inheritance.
5-An individual offered a built reality as a share in shareholding CO. He
received 50000 shares of common stock L.E 10 par value and L.E 30 market
value.
This alienation is not subjected to tax provided that not disposed for 5 years but if he
sold the shares he will subjected to tax .(market value )
6- Any forced sale or public utility or donation to government not subjected to
tax.
17
- An individual owns a built reality composed of 11 flats,
its building tax is L.E 2,000 per year, He residents in one
of them and rents the others according to law 4 of 1996 at
a monthly rent of L.E 3,500 per flat.
Required: Calculate taxable revenue.
Note: The flat for the residence of the taxpayer is not taxable.
Taxable revenue = Actual rent x 50%
Taxable revenue = (3,500 per month x 10 flats x 12 months) x 50%
Taxable revenue = 210,000
- An individual owns a building in Alexandria composed
of 5 flats, its building tax is L.E 2,000 and its rental value
yearly is L.E 4,000. He rented the flats as furnished during
the summer for 4 months at a monthly actual rent of L.E
6,000 each.
Required: Calculate tax base.
Taxable revenue = Actual rent x 50%
Taxable revenue = (6,000 per month x 5 flats x 4 months) x 50%
Taxable revenue = LE 60,000
Tax Base = Taxable revenue – Building tax
Tax Base = 60,000 – 2,000 = LE 58,000
