In Egypt, legislation moves at a pace that even the Nile might envy. In 2023, President Abdel Fattah El-Sisi championed a sweeping plan to bolster startups, promising them a generous five-year tax exemption as part of legislative amendments to the existing Small and Medium Enterprises Law (Law №152 of 2020). These proposed reforms aimed to simplify taxation, offering a flat tax rate structure alongside the exemption. The idea was to create a nurturing environment for startups — at least on paper.
Fast forward nearly two years, and while the law has trudged its way through Egypt’s bureaucratic maze, startup founders have become well-acquainted with the difference between business ambition and political reality. Multiple meetings with the Prime Minister have offered them valuable lessons — though not necessarily the ones they had hoped for.
Simplified Tax System Passes — For Some
This week, Egypt’s House of Representatives approved a draft law establishing a simplified tax system for small and medium-sized enterprises (SMEs). Under this framework, companies with an annual turnover of up to EGP 15 million ($298,000) will pay a fixed tax, ranging from EGP 1,000 to EGP 225,000, depending on their revenue. In response to inflation and the devaluation of the pound, MPs adjusted the threshold for tax exemptions, raising it to EGP 20 million ($400,000).
The legislation includes a package of incentives for SMEs, such as exemptions from the state financial resources development fee, stamp duty, registration fees, and taxes on land registration and credit facility contracts. Notably, capital gains from the disposal of fixed assets, machinery, and production equipment are exempt from taxation, and dividends from these enterprises are not subject to distribution taxes.
Additionally, lawmakers introduced an amnesty window for businesses that failed to file tax returns between 2020 and 2023, allowing them to submit overdue filings without facing the previously mandated one-million-pound fine. To modernize tax administration, the House of Representatives also passed a separate law aimed at settling tax disputes accumulated by the Egyptian Tax Authority before transitioning to an electronic tax system.
A Startup Boom Without a Tax Break
Yet, amid these sweeping tax reforms, one glaring omission stands out: Egypt’s startups have been left in the lurch. The much-anticipated five-year tax exemption for startups — once touted as a game-changer — has vanished from the final legislation. While SMEs benefit from streamlined taxation and incentives, startups, the very entities that drove Egypt’s investment boom in recent years, remain excluded from any preferential treatment.
Between 2019 and 2020, venture funding in Egypt remained modest, averaging around $600,000 per deal. Then came the explosion: in 2021, Egyptian startups closed 200 deals in a single year, pushing total funding from a mere $100 million annually to a staggering $607 million. The momentum continued in 2022, with startups raising $810 million across 212 deals, and average check sizes swelling to $3.8 million. Startups became an undeniable pillar of Egypt’s economic growth — yet, under the new tax system, they receive no special considerations.
A ‘Reality Check’ for Lobbying Too Much
While the government’s move to formalize SMEs and broaden the tax base may appear pragmatic, the omission of startup-specific incentives raises questions. Egypt’s startup ecosystem has fueled job creation, technological advancement, and foreign investment. By sidelining them in the latest tax reforms, policymakers risk stifling this momentum.
The government’s intent may be to prioritize revenue generation, especially in light of economic headwinds. However, in a region where competing markets, such as Saudi Arabia and the UAE, aggressively court startups with generous incentives, Egypt’s decision could drive entrepreneurial talent elsewhere. Meanwhile, startup founders, having spent years lobbying for favorable policies, might be left wondering if their time would have been better spent securing funding overseas instead of navigating Egypt’s legislative labyrinth.
For now, Egyptian startups must continue operating under the existing tax framework, their exemption hopes dashed — at least until the next legislative cycle. As the House of Representatives sends the bill to the President for final approval, founders might reflect on a hard-earned lesson: in Egyptian policymaking, patience isn’t just a virtue; it could be costly.