New tax incentives in Law No. 6 of 2025 for small businesses

As part of the Egyptian government’s efforts to develop the tax system and strike a balance between revenue targets and the promotion of investment, Law 6 of 2025 (“Law”) introduces a package of tax incentives for Small and Medium-sized Enterprises (SMEs) with an annual turnover not exceeding twenty million Egyptian pounds. This Law reflects a recent legislative trend aimed at streamlining procedures, reducing tax and administrative burdens, and creating a more stable and flexible legal environment to support the growth of these projects, which are key pillars of economic development.

Through this Law, lawmakers adopted a simplified tax system based on clear and specific principles. This helps to promote voluntary compliance, reduce tax disputes, and encourage entities operating in the informal economy to comply with regulations and join the formal sector.

Law 6 of 2025, therefore, represents an important legislative step towards building a more balanced and trusting relationship between taxpayers and the tax authorities. This will support the sustainability of economic activity and enhance the Egyptian investment climate.

Scope of Application and Beneficiary Groups:

The Law applies to businesses with an annual turnover not exceeding EGP 20 million, whether they are already established and registered for tax purposes or operate outside the formal sector and wish to comply with regulations. The Law also allows businesses to benefit from the simplified tax regime for commercial, industrial, service, and professional activities, subject to specific conditions.

Turnover standards for projects subject to Law provisions and eligible for tax incentives are as follows:

1. Details of the project’s most recent tax return, which has been filed with the Tax Authority and for which no tax has been assessed as of the date the law came into force.

2. Details of the project’s most recent final tax return filed with the Tax Authority up to the date the Act came into force.

3. Details of the tax return submitted by the project stating that it is registered for tax purposes after the date on which this Law comes into force.

4. Data available via the e-invoicing or e-receipt system.

Tax Relief Requirements and Regulations:

1. Compliance with tax registration requirements and the submission of tax returns by the statutory deadlines.

2. Registering with the Egyptian Tax Authority’s online system, including for e-invoicing or electronic receipts, in accordance with the phases of mandatory implementation set out in a decision issued by the Director General of the Authority, and issuing the prescribed invoices or receipts.

Projects not subject to the Law are as follows:

1. Professional consultancy firms where at least 90% of annual turnover is derived from providing professional consultancy services to one or two clients.

2. Projects involving any act or conduct with the intention of wrongfully coming under the scope of this Law, including the division or fragmentation of an existing business without economic justification. The burden of proof in this regard lies with the Authority.

Projects subject to the Law may not withdraw their application to benefit from the Law before five years have elapsed from the day following the submission of the application.

The main tax incentives and reliefs granted to projects subject to the Law:

1. Exemption from the State Financial Resources Development Levy and stamp duty.

2. Exemption from notarisation and registration fees for contracts relating to the incorporation of companies and establishments, credit facility agreements, and mortgages associated with their business operations. This also includes other forms of security provided to secure financing.

3. Land registration contracts required for the establishment of such projects shall be exempt from tax and fees.

4. Capital gains arising from the disposal of fixed assets, machinery, or production equipment of projects subject to the provisions of this Law shall be exempt from the tax due on such gains.

5. Dividends arising from the activities of projects subject to the provisions of this Law shall not be subject to the tax levied on such dividends in accordance with the Income Tax Law.

6. Exemption from the deduction scheme or advance payments on account of tax.

7. Exemption from the requirement to keep accounting records and books.

Simplified Tax System under Law 6 of 2025:

Law 6 of 2025 stipulates that tax rates for SMEs shall be determined based on annual turnover, in accordance with the following categories:

1. (0,4%): For projects with an annual turnover not exceeding EGP 500,000.

2. (0,5%): For projects with a contract value of between EGP 500,000 and 2,000,000.

3. (0,75%): For projects with a contract value of between EGP 2,000,000 and 3,000,000.

4. (1%): For projects with a contract value of between EGP 3,000,000 and 10,000,000.

5. (1,5%): For projects with a contract value of between EGP 10,000,000 and 20,000,000.

• These rates form part of the simplified tax system, which allows SMEs to benefit from tax relief and simplifies tax compliance without the need for complex accounting.
• If the project’s annual turnover exceeds EGP 20 million in any year during the five years following the date of the application to benefit from the Law, by no more than 20% and on a one-off basis, the project shall continue to benefit from the 1.5% tax rate.
• If projects exceed the prescribed limit by 20% or more, or if such exceedances are repeated, they will be required to opt out of the simplified scheme and be subject to the general tax scheme.

Tax Accounting and Tax Returns for Businesses Subject to the Law:

- These projects must submit a separate form for the annual tax return relating to commercial, industrial, or professional activities, using the form specified by the Ministry of Finance (MOF). The return must be submitted by the statutory deadlines set out in the Unified Tax Procedures Law.

- These projects shall submit VAT returns every three months using the prescribed form, during the month following the end of that period, together with payment of the tax.

- With regard to payroll tax and equivalent taxes (employment income), such businesses shall submit an annual tax return and pay the tax due in accordance with the provisions of the Unified Tax Procedures Law.

- The tax returns for these projects are audited five years after the application date to benefit from the provisions of Law 6 of 2025, in respect of both income tax and VAT.

In conclusion, Law 6 of 2025 represents an important legislative step towards improving the business environment for SMEs in Egypt by streamlining tax procedures, reducing financial and administrative burdens, and encouraging them to join the formal economy. The Law reflects a clear vision to support the growth of these projects as a cornerstone of economic development. It also strengthens trust between taxpayers and the tax authorities, thereby contributing to the sustainability of economic activity and stimulating investment.

In this context, Sadany & Partners Law Firm plays a pivotal role, providing specialist legal and tax advice to businesses wishing to take advantage of the provisions of the Law. We help them comply with legal regulations and requirements, and guide them towards best practices to ensure the stability of their operations and enable them to maximise the benefits of the available tax incentives and reliefs.