Salaries and Wages Tax: A Comprehensive Analysis According to Law No. 91 of 2005 and its Latest Amendments
The Salaries and Wages Tax is a fundamental pillar of the Egyptian tax system and represents one of the most important types of direct taxes contributing to the state's tax revenue. It is governed by the Income Tax Law No. 91 of 2005 and its successive amendments—the latest of which is Law No. 7 of 2024—which aimed to achieve tax fairness and alleviate the burden on low-income earners. This tax is imposed on all income received by an employee in exchange for their work, whether monetary or in-kind, regular or irregular.
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First: What is the Definition of Salaries and Wages Tax?
It is a tax imposed on income resulting from a subordinate employment relationship, meaning when an employee performs work under the supervision and management of the employer and receives a wage in return.
The taxable income includes:
- Basic and Variable Salary.
- Bonuses, incentives, commissions, and percentages of profits.
- Allowances and increments (unless specifically exempted by law).
- In-kind benefits granted to the employee (such as housing, a vehicle designated for personal use, or private medical insurance).
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Second: Who is Subject to the Tax? (Tax Liability)
- The Taxpayer (Subject to the Tax): This is the worker or employee who receives the income.
- The Obligated Party for Execution (The Employer): This is the entity paying the wage (company – institution – sole proprietorship), and it is legally responsible for:
- Calculating the tax.
- Withholding it at the source (on account of the tax).
- Remitting it to the Tax Authority within the specified deadlines.
Note: The employee does not deal directly with the Tax Authority regarding this tax, as the employer bears the full responsibility for the deduction and remittance.
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Third: Scope of Tax Application
The Salaries Tax applies to every person who receives income from work within Egypt, and includes the following cases:
- Employees in the state's administrative apparatus, public bodies, and public sector/public business sector companies.
- Employees in the private sector, whether in joint-stock companies or sole proprietorships.
- Employees working abroad if the source of their income is an employer within the Arab Republic of Egypt.
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Fifth: Current Tax Brackets (According to Law No. 7 of 2024)
The salary and wage tax is calculated progressively after deducting the allowable exemptions, according to the following updated brackets:
Progressive Principle:
The income tax is applied on each portion of income according to its corresponding bracket — not as a single rate on the total income.
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Sixth: Step-by-Step Tax Calculation (Updated Example)
Let’s assume an employee has an annual taxable income (after insurance deductions) of EGP 120,000.
Personal exemption: EGP 20,000
→ Taxable income = 120,000 − 20,000 = EGP 100,000
Distribute the EGP 100,000 among the tax brackets:
Total annual tax: 9,750 EGP
Monthly tax: 9,750 ÷ 12 = 812.5 EGP
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Seventh: Employer’s Obligations (Article 11 of the Executive Regulations)
Employers are legally required to:
- Monthly calculation:
- Accurately compute each employee’s due tax every month.
- Withholding and remittance:
- Deduct the tax before salary payment and remit it to the Egyptian Tax Authority within the first 15 days of the following month.
- Annual forms:
- Submit Form 4 (Salaries and Wages) annually, showing total salaries paid and taxes withheld.
- Record keeping:
- Maintain detailed payroll and deduction records for all employees.
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Eighth: Penalties and Fines for Non-Compliance
Failure to remit tax or submit the required forms on time may result in:
- Fines: Ranging from EGP 3,000 to EGP 50,000.
- Late payment interest: 1.5% monthly on any unpaid tax.
- Tax evasion cases: Deliberate manipulation or concealment may lead to criminal prosecution.
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M1 Group Payroll & Tax Compliance Services
At M1 Group, we provide integrated payroll and tax management services to ensure full legal compliance, including:
- Payroll preparation in line with the latest tax and insurance updates.
- Accurate application of exemptions and deductions.
- Electronic filing of payroll-related tax forms (Forms 2, 4, and 6).
- Annual reconciliation to ensure no discrepancies in employee taxation.
- Continuous tax advisory to minimize liabilities legally and efficiently.
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Frequently Asked Questions (FAQ)
Are bonuses and allowances subject to tax?
Yes, they are considered taxable income if granted in exchange for work.
Is medical insurance taxable?
Group or work-related medical insurance is generally exempt, while private or additional coverage may be reviewed by the Tax Authority.
What’s the difference between the personal exemption and total exemption?
The personal exemption (EGP 20,000) is fixed for all employees, while the total exemption (EGP 60,000) includes the personal exemption plus the zero-rate bracket (EGP 40,000).
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Full compliance with payroll tax rules under the Income Tax Law No. 91 of 2005 and its latest amendments (Law No. 7 of 2024) reflects an organization’s professionalism and transparency.
To avoid penalties and ensure accuracy, rely on M1 Group’s tax experts to manage your payroll obligations efficiently and lawfully.