Tax Accounting

Tax on profit of Juridical Persons

 Chapter 2
Determination of Tax Base
Learning Objectives
Determination of tax base of Juridical persons by:

Determination of Expenditures charged in the income statement but

01 not allowable for tax purposes

Determination of Revenues not credited in the income statement but

02 taxable under tax law

Determination of Expenditures not charged in the income statement

03 but allowable for tax purposes

Determination of Revenues credited in the income statement but not

04 taxable under tax law
 Determination of tax base of juridical persons, is shown in the following exhibit:
L.E L.E
Net profit (or losses) according to income statement: XX
Add:
1. Expenditures charged in the income statement but not allowable for tax purposes X
2. Revenues not credited in the income statement but taxable under tax law X XX
Total Taxable Profit (Loss) XXXX
Deduct:
1. Expenditures no charged in the income statement but allowable for tax purposes X
2. Revenues credited in the income statement but not taxable under tax law X (XX)
Adjusted Taxable Net Profit (Loss) XXXX
Deduct:
1. Contributions and Subsidies X
2. Losses carried forward X (XX)
Tax Base Befor Exemptions XXXX
Deduct:
Exemptions (XX)
Net Tax Base (Taxable Net Profit) XX
01
Non-Deductible
Costs
 Non-Deductible Costs
1. Costs and expenses not customarily demonstrated by
documents.
2. Debit Returns (Returns of Loans).
3. Reserves and provisions.
4. Sums paid to shareholders for attending the general assemblies.
5. Sums received by chairman and members of boards of directors.
6. Accounting Depreciations of fixed assets.
7. Accounting capital losses.
8. Sums deductible to favor of special funds.
9. Contributions and subsidies.
 Non-Deductible Costs (cont.)
10. Bad debts that not satisfied the deductible conditions.
11. Fines, Compensations and financial punishments.
12. Losses resulting from dealing in securities.
13. Foreign losses realized outside Egypt.
14. Losses of long contract not related to tax period.
15. Income Tax.
16. Cost of financing and investment.
1/1: Costs and expenses not customarily
demonstrated by documents:
❑ Such as: gratuities, internal transportation

expenses, buffet expenses, cleaning

expenses, ordinary and syndicate stamps,
maintenance expenses, and news papers &
magazine that are necessitated to the
nature of the activity.
❑ These costs and expenses are deductible

provided that not exceed 7% of the total

general and administrative expenses
supported by documents.
1/2: Debit Returns (Returns of Loans):

❑ The debit returns are cosidered deductible

costs except the following:
a) The return paid on loans which exceed twice
the credit and discount rate declared by the
central bank.
b) The return on loan and debts of different
types paid to non-taxable natural persons or
exempted from it.
c) The returns on loans not used in the activity.
d) The return paid on loans in excess of 4 times
the average of owner’s equity.
1/3: Reserves and provisions:

❑ Different types of reserves and provisions are

not deductible. However, the following
provisions must be deduct from the tax base:
a) Provisions which were returned among
revenues in the income statement.
b) Provisions which were used during the year to
face deductible costs.
c) 80% of the provisions for loans that bank are
committted to form.
d) Technical provisions which insurance
companies are obliged to form.
1/4: Sums paid to shareholders for
attending the general assemblies:

❑ The attendance allowance which charged

on the income statement are not
deductible costs because it is not
previously subject to tax.
1/5: Sums received by chairman and
members of boards of directors:

❑ Membership remuneration and allowances

obtained by the chairman and members of
the boards of directors which charged in
the income statement are not deductible
costs because it is not previously subject
to tax.
1/6: Accounting Depreciations of fixed
assets:

❑ The value of depreciations of fixed assets

(whether tangible or intangible) which were
charged in the income statement, and
which calculated according to accounting
basis, is not considered deductible costs.
❑ On the other hand, The value of
depreciations of these fixed assets
calculated according to Tax basis, are
considered deductible costs.
1/7: Accounting capital losses:

❑ Capital losses resulting from the sale of

fixed assets depreciated by accounting
depreciation basis systems, are not
deductible costs.
1/8: Sums deductible to favor of special
funds:
❑ To be deductible, it should have special
conditions:
a) The fund should have a special account with
banks.
b) The fund are invested to its own account.
c) His books separately from accounts of the
firm.
d) The annual amount should not exceed 20%
of total salaries and wages of the employees.
The excess must be added to accounting
profit.
1/9: Contributions and subsidies:
❑ Contributions paid to government, unit of local
administration, & other public juridical persons,
are deductible costs whatever their value.
❑ But contributions and subsidies paid to the
Egyptian non-government societies and
institutions registered according to the
provisions of their regulating laws, the
eductional institutions and hospitals that are
subject to the governement supervision, are
deductible costs at a maximum rate of 10% of
the annual net profit. The excess of 10% is not
deductible costs.
1/10: Bad debts that not satisfied the
deductible conditions:

❑ The conditions are:

a) The company shall keep regular accounts.
b) he debt shall be related to the activity of
company.
c) The amount of debt shall have been previously
included in accounts for the company.
d) The company shall have taken serious
procedures for recovery of the debt, and have
been unable to collect it after 18 months from
its due date.
1/11: Fines, Compensations and financial
punishments:

❑ Fines, financial punishments &

Compensations that the company paid as a
result of non-contractual liabilities.
❑ Such as: violations of tax laws and price
ceilings.
1/12: Losses resulting from dealing in
securities:

❑ Losses resulting from dealing in securities

registered in the Egyptian stock Exchange
are not deductible costs.
❑ These losses are calculated by the
difference between actual sale price and
cost purchase of securities.
1/13: Foreign losses realized outside Egypt:

❑ Foreign losses realized outside Egypt are

not deductible costs.
1/14: Losses of long contract not related to
tax period:

❑ Losses of long contract which charged in

the income statement during the tax period
and not related to tax period.
1/15: Income Tax:

❑ The income tax pays by the firm according

to the law is not deductible costs because
it is the share of the government in profit.
1/16: Cost of financing and investment:

❑ Cost of financing and investment related to

the revenues exempted from the tax, is not
considered deductible costs.
02
Revenues Not
Credited in
Income
Statement But
Taxable
 Revenues Not Credited in Income Statement But
Taxable

1. Taxable capital gain.

2. The amounts was posted directly to owner’s equity in the
balance sheet according to the Egyptian accounting standards.
2/1: Taxable capital gain:

❑ Taxable capital gain resulting from selling

fixed assets which were depreciable by
nature (except fixed assets subject to
depreciation basis), and which computed
according to rules mentioned in the tax law,
are taxable.
❑ These fixed assets include buildings,
constructions, outfit, ships, aircraft and
intaingible assets.
2/2: The amounts was posted directly to
owner’s equity in the balance sheet:

❑ Such as :
a) Credit differences resulted from
correcting accounting errors.
b) Credit evaluations differences resulted
from changing accounting policies.
c) Credit differences resulted from
investments evaluation.
03
Deductible
costs Not
charged in
Income
Statement
 Deductible costs Not charged in Income Statement:

1. Tax depreciation.
2. Taxable capital losses.
3. The amounts was posted directly to owner’s equity in the
balance sheet according to the Egyptian accounting standards.
3/1: Tax depreciation:

❑ The vlue of tax depreciations calculated

according to the percentages mentioned in
the tax law, including accelerated
depreciation of machines and equipements
used in the industrial production.
3/2: Taxable capital losses:

❑ Taxable capital losses resulting from selling

fixed assets which were depreciable by
nature (except fixed assets subject to
depreciation basis), and which computed
according to rules mentioned in the tax law,
are deducted from the tax base.
3/3: The amounts was posted directly to
owner’s equity in the balance sheet:

❑ Such as :
a) Debit differences resulted from correcting
accounting errors.
b) Debit evaluations differences resulted
from changing accounting policies.
c) Debit differences resulted from
investments evaluation.
04
Revenues
credited in the
income
statement but
not taxable
 Revenues credited in the income statement but
not taxable

1. Accounting Capital gains.

2. Profits resulting from dealing in securities.
3. Returned provisions previously subject to tax.
4. Provisions used to face deductible costs.
5. Collected bad debts.
6. Compensations.
4/1: Accounting Capital gains:

❑ Capital gains resulting from the sale of

fixed assets depreciated by accounting
depreciation basis systems, are not subject
to tax.
4/2: Profits resulting from dealing in
securities:

❑ Gains resulting from dealing in securities

registered in the Egyptian stock Exchange
are not subject to tax.
❑ In case of re-evaluation of these securities
on the basis of the market value, or cost or
the market value whichever is less, profits
of re-evaluation are subject to tax .
Therefore, they are not deduct from tax
base.
4/3: Returned provisions previously subject
to tax:

❑ Returned provisions previously subject to

tax, and not used, and included among the
income statement, are deducted from tax
base.
4/4: Provisions used to face deductible
costs:

❑ The provisions used during the year which

liable to the conditions of deductible costs,
are deducted from tax base, provided that
these provisions were previously subject to
tax when formed.
4/5: Collected bad debts:

❑ Collected bad debts which credited in the

income statement, not subject to tax if the
tax o ce had not approved nullifying such
debts in the previous years.
4/6: Compensations:

❑ The accrued compensations to favour the

company are not taxable.
❑ Compensations subject to tax on cash
basis.
Revenues Exempted from The Tax:
These revenues must be deducted from adjusted net profit, the important revenues
exempted from the tax are:
1. Profits and dividends of investment funds established according to the capital market
law no. 95 of 1992.
2. The returns of bonds that are registered in the o cial schedules of the stock exchange.
3. Returns of securities and certificates of deposit issued by the Egyptian central bank or
revenues from the transactions involving them.
4. Dividends, profits and shares, which resident juridical persons receive for their
participation in other resident juridical persons.
Thanks!
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