03 February

Annual Leaves Tax Exemption

Posted by cxxsx

First of all, we shall introduce the monetary annual leaves tax exemption for the employees and the number of annual leaves in accordance with Egyptian Law, Which are mentioned in particular in the Income Tax Law No. 91 of 2005, Law No. 232 of 1996 regarding the exemption from all taxes and fees of amounts paid to the Employee on the occasion of reaching retirement age or the end of his service or paid to beneficiaries in case of his death, Circular No. 22 of 2015 regarding the unification of the rules and foundations for examining the salary tax, and Labor Law No. 12 of 2003.

Monetary Annual Leaves Tax Exemption

In accordance with the Income Tax Law No. 91 of 2005 and its amendments, article 9 Regarding the monetary annual leaves tax exemption stipulated that:

“Tax applies to salaries and the like as follows:

All earnings by a taxpayer resulting from work for third parties, with or without a contract, on a regular or irregular basis, regardless of such dues names, forms, or reasons, whether they are for works performed in Egypt or abroad, and the consideration thereof was paid from a source in Egypt, including wages, bonuses, incentives, commissions, grants, additional payments, allowances, dividends, or shares in profits and cash and in-kind benefits of all types;
All earnings by a taxpayer from a foreign source for work performed in Egypt;
Salaries and remunerations of non-shareholding chairpersons and board members of public sector and public business sector companies;
Salaries and remunerations of chairpersons, board members, and managers of corporations in return for their administrative work.

The Executive Regulation of this law shall determine the basis for estimating the value of in-kind benefits.”

Article 10 from the abovementioned Law stipulated that:

“Revenues included in the taxable base shall be determined for each part of a year in which any taxable revenue was earned in proportion to a year, based on the monthly revenue after transferring it to annual revenue.

If a change occurs in the taxable base, the calculation of the base shall be adjusted from the date of change based on the new or old base, whichever is less, after transferring such to annual revenue. An adjustment must be made every year according to the procedures and rules specified by the Executive Regulation of this law.

Block salaries, wages and the like paid in a single payment in a specific year must be apportioned among the years of entitlement, after excluding payments in lieu of vacations. Income included in the tax base must be recalculated for each year, and the tax due shall be adjusted accordingly”.

According to the provisions of Law No. 232 of 1996, Article (1) stipulated that:

“All amounts paid to permanent and temporary employees with comprehensive bonuses in the state’s administrative apparatus, local administration units, public bodies, public institutions, public sector companies, or public business sector companies, and to state employees whose employment affairs are regulated by special laws or regulations or those with public positions and fixed wages, and to employees in the private sector, on the occasion of reaching retirement age or the end of service, as well as all amounts paid to the worker’s family in the event of his death, shall be exempt from all types of taxes and fees”.

In accordance with Circular No. 22 of 2015, it is noted that leave allowances and its likes are not subject to salary tax. In accordance with the ruling of the Supreme Constitutional Court issued in Case No. 2 of 21 Supreme Constitutional Court in the session of 6/5/2000, that this allowance is compensation and not wages, and thus it is outside the scope of salaries, which was stipulated in article (9) from Income Tax Law No. 91 of 2005 and its amendments, and was mentioned in article (1)0 from the same Law stipulated that “Revenues included in the taxable base shall be determined for each part of a year in which any taxable revenue was earned in proportion to a year, based on the monthly revenue after transferring it to annual revenue.

The summary of the abovementioned articles:

Accordingly, in regard to the implementation of the aforementioned articles and provisions, it is clear that the monetary annual leave balance settled with the employee is not subject to tax, as it is considered compensation for leave that was not used by the employee and not a wage.

Annual leave

According to the Labor Law No. 12 of 2003, in regard to the number of annual leave days, article (47) stipulated that “the period of the annual leave shall be 21 days with full pay for those spending one complete year in the service. The leave shall be increased to thirty days once the worker spends ten years in service with one or more employer. The leave shall be for a period of thirty days per year for those over the age of fifty years. The holidays, the official occasions days off, and the weekly days off shall not be counted as part of the leave days.

If the service of the employee is less than one year; he shall be entitled to a leave in proportion to the period he has spent in work, providing he has spent six months in the service of the employer.

In all cases the period of the annual leave shall be increased by seven days for the workers engaged in hard, dangerous, and unwholesome works, or in the remote areas to be determined by virtue of a decree of the concerned minister after consulting with the concerned authorities”.
Subject to the provision of paragraph of article (48) of the aforesaid law, the worker shall not give up his leave.

In accordance with the ruling of the Court of Cassation in Appeal No. 11375 of 88, Labor Division, “the legislator has relied in determining the duration of the annual leave due to the worker on his age and the full period of his service, whether in the service of one employer or more, so that the duration of the annual leave is one month for those who have reached the age of fifty years, and for those whose service has reached ten years, 21 days for those whose service has reached one year.”, The legislator also introduced a new provision under Article (48) referred to, stating that the employer shall not be released from the monetary of the annual leave due to the employee unless he provides writing evidence of the employee refusal to take the leave.”

According to article (48) from Law No. 12 of 2003 stipulated that “The employer shall determine the dates of the annual leave according to work needs and conditions. He shall not interrupt the leave except for strong reasons necessitated by work interest. The worker shall go on leave on the date and for the period determined by the employer. If the worker refuses in writing to go on leave, he shall forfeit his right to collect their equivalent in wage terms.

In all cases, the worker shall obtain an annual leave of fifteen days, including at least six continuous days, and the employer shall settle the balance of leaves or the wage computed against that balance at most every three years, If the work relationship expires before the employee uses the balance of his annual leave, he shall be entitled to the wage computed against that balance.

The leave may not be divided, joined, or postponed with regard to the juveniles”.

The summary of the abovementioned relevant articles and provisions:

The annual leave tax exemption in Egypt represents a crucial step in supporting employees’ financial well-being and work-life balance. By exempting a portion of unused annual leave from taxes, this policy not only rewards employees for their dedication but also encourages them to take necessary time off to recharge. As tax regulations continue to evolve, it’s essential for both employers and employees to remain aware of the latest updates to fully benefit from these provisions. Ultimately, this exemption reflects Egypt’s commitment to fostering a healthier, more productive workforce while contributing to broader economic stability.