Deductible and non-deductible expenses under Egypt's Income Tax Law

Executive summary

• A cost is deductible only if it meets two conditions: it is linked to the business's activity and necessary for it, and it is real and supported by its document (article 22, Income Tax Law No. 91 of 2005).
• Since article 22(2) was replaced by Law No. 30 of 2023, the accepted document has been an electronic invoice from July 2023 and an electronic receipt from January 2025.
• Costs not customarily documented are excepted from that condition, capped at 7% of total documented general and administrative expenses (article 28 of the executive regulations).
• Article 23 lists ten items deductible in particular (Law No. 151 of 2026 added the tenth), some capped: donations to registered charities up to 10% of net profit, the taxpayer's own insurance premiums up to EGP 3,000 a year, and private savings-fund contributions up to 20% of payroll.
• Article 24 lists six items that are not deductible however well documented, chiefly reserves and provisions, income tax itself, and loan interest exceeding twice the Central Bank's credit and discount rate.
• Bad debts (article 28) and the cap on deducting interest on loans and advances measured against average equity (article 52) have their own rules, both amended by Law No. 151 of 2026.

The general conditions for deducting a cost

Article 22 sets taxable net commercial and industrial profit as gross profit after deducting the costs necessary to earn it, on two conditions.

First, the cost must be "linked to the business's commercial or industrial activity and necessary for pursuing it" (article 22(1)). A cost unconnected to the business's activity is not deductible, however real it is and however well it is documented.

Second, the cost must be real and supported by its document. Law No. 30 of 2023 replaced this condition's wording: the accepted document became an electronic invoice from July 2023 and an electronic receipt from January 2025. The Minister may extend either deadline by up to a year, as the executive regulations provide; both deadlines, and the longest extension allowed, have passed. The Minister may also exempt certain costs from the electronic invoice or receipt requirement.

The electronic invoice, and what is excepted from it

The condition falls on the buyer, not only on the supplier: a cost not supported by a valid electronic invoice from a supplier obliged to issue one is disallowed on audit even if it was actually paid, because the document is a condition of the deduction, not merely proof of payment.

The legislator expressly excepted "costs and expenses not customarily documented" (article 22(2)). The executive regulations define them as costs that by nature usually cannot be proved by external documents and are backed by internal payment vouchers or price statements, and give as examples: internal transport, buffet expenses for hosting the business's clients on its premises, cleaning, ordinary and syndicate stamp duties needed to run the business, ordinary maintenance, and newspapers and magazines the profession or activity requires (article 28 of the executive regulations). These costs, including gratuities, may not exceed 7% of total documented general and administrative expenses.

Deductible costs and their limits

Article 23 lists the following as deductible in particular:

For a savings fund's money to count as independent of the business's own, a condition for deducting contributions to it, it needs its own bank account, its funds invested on its own account, and its own books and accounts (article 30 of the executive regulations).

Costs that are not deductible

Article 24 lists six items that are not deductible, however well documented:

• Reserves and provisions of every kind.
• Fines, financial penalties and compensation imposed on the taxpayer for a felony or an intentional misdemeanour committed by the taxpayer or a subordinate.
• Income tax itself, due under this law.
• "Interest paid on loans to the extent it exceeds twice the credit and discount rate announced by the Central Bank at the start of the calendar year in which the tax period ends" (article 24(4)).
• Interest on loans and debts of every kind paid to natural persons not subject to tax or exempted from it.
• The cost of financing and investment related to income legally exempt from tax, an item Law No. 11 of 2013 added to article 24.

The fourth item needs checking every year because the rate changes. Article 31 of the executive regulations computes this ceiling on the rate announced on 1 January or the first working day of the calendar year, and the Egyptian Tax Authority has announced that the rate on 1 January 2026 was 20.50% (Circular No. 1 of 2026, issued for computing late-payment charges and the return on advance payments). The ceiling for deducting loan interest for a tax period ending in 2026 is therefore twice that rate.

Debts proven uncollectible, and the cap on deducting interest on loans and advances measured against average equity, sit in their own articles (28 and 52), not articles 23 or 24, and both were amended by Law No. 151 of 2026. The detail is in the income tax amendments under Law No. 151 of 2026.

What this requires

• Confirm that every expense is linked to the business's activity and necessary for it before posting it.
• Make the electronic invoice a contractual condition with suppliers, rather than only asking for it at the point of posting.
• Keep undocumented expenses to costs that by their nature cannot be proved by an external document, each backed by an internal payment voucher or price statement, and within 7% of documented general and administrative expenses.
• Check the ceilings in article 23 (donations, insurance premiums, savings contributions) before they are exceeded.
• Compute the loan-interest deduction ceiling from the Central Bank rate announced on 1 January of the calendar year in which the tax period ends, not the rate on any other date.
• Add the article 24 items back to profit when computing the tax base in the return, even where they were booked as an expense.

The firm's Tax Department reviews costs and expenses before the tax return is filed, examines their documentation, classifies them as deductible or non-deductible, and computes their effect on the tax base.

Mahmoud Nassef — Chartered Accountant (Egyptian Register), Founder Partner

Member, Egyptian Society of Accountants & Auditors
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation

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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.