TAX ACCOUNTING

5.3.2. Deductible expenses (for Non-Commercial Professions

supported with Proper Accounts only)

First Type: Amounts

Second Type: Amounts
deducted from taxable
deducted from net profit
revenues (Required costs
of profession practice)

First type: Amounts deducted from taxable revenues

The following conditions must be met prior to the deduction of the required
costs for profession practice:
▪ Costs must be for profession practice and not related to the taxpayer
personally.
▪ Accounts must be kept by the taxpayer on a regular basis (keeping
proper books& accounts).
▪ The costs must be actual and documented, except for the costs which
customarily have no supporting documents.
Total annual taxable revenues ××
(-) Expenses required for the profession’s practice:

1. Rent paid for the place used for exercising the ××

profession.
Note:
• If this place is owned, the rent is non-deductible, only
the tax paid and related depreciation are deductible.

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• Rent deposit (insurance) & electricity meter deposit

are not deductible because both of them are refundable.
2. Salaries, wages and the like paid to employees, (the total ××
salary before any deductions)
Note:
• Salaries paid for employing relatives and family
members must be within limits of equivalents.
• Employees’ loans from the employer are not
deductible because they are refundable.
3. Travelling and transportation expenses for the ××
taxpayer or his staff members for professional activity
purposes.
4. Miscellaneous general expenses including expenses of ××
electricity, water, telephone, telegraph, and stamp tax,
Custom Duties in addition to subscription fees at
professional syndicates, costs of publications, stationery,
books, references, journals and scientific periodicals,
Know-how royalties paid to Microsoft company, … etc.
5. Office Insurance premiums against profession risks, ××
fire, breach of faith, etc. according to the nature of each
profession.

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6. costs and expenses not supported by documents: ××

▪ Domestic transportation expenses,
▪ Cafeteria expenses,
▪ Cleaning expenses,
▪ stamps necessary for the firm’s operations workflow,
▪ Ordinary maintenance expenses,
▪ Daily, weekly, or monthly newspapers or magazines, if
these are necessary for the profession),
it should not exceed 7% of office expenses supported by
documents.

Given costs
and expenses 7% × (all the above expenses1+2+3+4+5)
not supported (All these amounts from the tax return)
by documents ××

(The lower amount is the deductible amount)

7. Fixed assets depreciation such as machine, furniture
Depreciation expenses = Asset historical cost × depreciation
rate × Period
8. Capital loss resulting from the disposal (sale) of the ××
assets of the profession wholly or partially.
Capital loss = Asset selling price - (asset’s historical cost
- Accumulated depreciation)

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9. Joint expenses related to assets which are owned to the ××

taxpayer and used in both personal and work purposes.
The deductible amounts are the amount of two thirds only
of the operating costs. such as:
- Cars,
- Mobile phones (cellular), or
- Property expenses (Electricity and water bill … etc.)
in case the taxpayer performs his activity in a property
of which his private residence constitutes a part.
(××)
= Net profit before deducting donations ××
It should be Noted that:
• Expenses, to be deducted, must be actually paid during the year
according to the cash basis, except for certain expenses that may be
considered from the costs, even if they are not paid in cash, such as
fixed assets depreciation.
• The tax-deductible depreciation expenses based on historical cost is
calculated for each item as follow:

- For old assets

Depreciation exp.= Historical cost × dep. Rate × period (year)
- For new assets
Depreciation Exp. = Historical × dep. Rate × period from the additions
or purchase date to the
cost end of the year

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- For sold (disposed) assets

Depreciation Exp. = Historical × dep. Rate × period from the beginning
cost of the year to the selling or
disposal date

Example (6):
A private office has the following payments during year 2017:
• 28,000 salaries &allowances for the assistants in his office,
• 3,700 subscriptions to the Syndicate of Commerce of which 1,500 was
paid as a subscription to a sports club,
• L.E. 15,000 the price of selling a professional asset at the beginning of
the year, which he had bought and used for two years at the cost of L.E.
40,000 (annual depreciation is 25%).
• 13,200 fixed assets depreciation,
• 19,000 miscellaneous general expenses,
• 800 expenses not supported with documents.
• 10,000 Customs paid on imported private equipment.
• 15,000 Travelling expenses for his vacation abroad.
Required:
Determine the deductible costs and expenses for him for the year ended
Dec. 31, 2017.

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Solution.
Deductible Expenses:
Salaries &Allowances for the assistants 28,000
Subscription to the Syndicate of Commerce 2,200
Capital loss from disposal of professional 5,000
asset =15,000- (40,000- (40,000× 25%×2) =
(5,000)
Fixed assets depreciation 13,200
Miscellaneous general expenses 19,000
Expenses without documents
800 or 7% × (28,000+ 2,200+19,000)
Lower value 800

68,200
Notes:
1. Subscription paid to the sporting club is not deductible, representing private
expenses.
2. Customs paid on imported private equipment are not deductible, representing
private expenses.
3. Travelling expenses for his vacation abroad are not deductible, representing private
expenses.

Second type: Amounts deducted from net profit:

Upon identifying the net profit from professions and non-commercial
activities on an actual basis (in case there are proper accounts of documents)
or on an arbitrary basis (by calculating all costs required to be deducted from

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total revenues at the rate of 10% in case there are no proper accounts or
documents), the following amounts shall be deducted:
(a) Donations.
(b) Amounts paid by the taxpayer to his syndicate in accordance with its pension
system.
(c) Life and health insurance premiums paid.
(d) Previous 5 years’ losses.
= Net profit before deducting donations ××
(-) Donations (××)
= Net profit after deducting donations ××
(-) Amounts paid by the taxpayer to his syndicate in ×× (××)
accordance with its pension system. ××
(-) Life and health insurance premiums paid (On condition
that the total deductions do not exceed L.E. 3,000 annually).
= ××
(-) previous 5 years loss (××)
= Taxable net profit (loss) ××

a) Donations (3 Types)

(1) (2) (3)

Donations paid to: Donations and Donations paid to

• Government, assistance paid to: individuals as:
• Registered • Poor people,
Nongovernmental • Political parties,

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• Local Organizations • District children,

Administrative (NGOs), and
Units, and • Educational • Building a
• Public Legal institutes and mosque in the
Persons hospitals under neighborhood
governmental
supervision, and
• Scientific research
institutes.
Deductible Deductible Non-deductible

The deductible The deductible

amount shall not amount shall not
exceed the net exceed 10% of net
annual income. annual income.

Notes:
- If the annual result is loss, these donations are not deductible.
- Donations paid abroad are not deductible in Egypt.

b) Amounts paid by the taxpayer to his syndicate in accordance with its

pension system.
c) Life and health insurance premiums paid by the taxpayer for his own
benefit, or for the benefit of his wife and minor (dependent) children only.
Note:
The total amount of items (b) and (c) together shall not exceed L.E 3000
annually.
d) Previous years’ losses:
If the account of a year is closed in a Loss (a debit balance), the loss shall
be deducted from the succeeding year's profits. However, if part of the loss
remains, it shall be carried forward to the succeeding years up to the fifth,
after which no loss can be carried forward.

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Example (7):
Following are the revenues and expenses of the engineering office of an Eng.
according to his accounts & books for 2017:
First: Revenues:
• L.E. 50,000 fees of designing buildings in Egypt, noting that another
L.E. 10,000 is still due and was not collected yet.
• L.E. 70,000 fees of supervising constructing buildings in Egypt,
including L.E. 20,000 as an advance payment for operations planned to
be carried out in 2017.
• L.E. 5,000 monthly fees of offering engineering consultancies to one of
the companies in Egypt, noting that December fees were not received
yet (due).
• L.E. 3,000 monthly fees of monitoring engineering constructions for
one of the companies in Egypt, noting that the fees of January and
February 2018 have already been received.
• L.E. 100,000 fees of engineering in UAE of which half has been
collected during the current year and the other half will be collected
during the following year.
• L.E. 35,000 selling price of engineering machines which had been
bought for L.E. 80, 000 on 01/01/2015 and sold on 30/06/2017 (annual
depreciation 25%).
• L.E. 30,000 a reward for scientific research on architectural
engineering.
Second: Expenses:
• L.E. 9.100 salaries of office staff including one-month loan for
employees.

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• L.E 7,800 the office rent including one-month advanced deposit.

• L.E. 5,000 documented administrative and general expenses.
• L.E. 20,000 the cost of purchasing engineering machines at the
beginning of the year (machines depreciation 25% per year).
• L.E. 6,000 expenses and depreciation of the car used for his personal
and professional purposes.
• L.E. 1,000 insurance premium on the office against fire for the period
from 01/10/2017 to 30/09/2018.
• L.E. 14,500 expenses of taxpayer’s travel to and his accommodation
expenses in UAE to deliver his professional services.
• L.E. 15,000 donations, including L.E. 4,000 for building a mosque
owned by the Egyptian Ministry of Awkaf (Endowments), L.E. 8,000
for building a mosque owned by a registered Egyptian charity and the
remaining amount for constructing a mosque in the neighborhood.
• L.E. 4,000 life insurance premium for his own benefit and his mother
in equal shares.
• L.E. 5,900 losses carried forward from last year.
Required:
First: Determine the net profit subject to the income tax of natural persons
from self-employed professions and calculate the due tax. Then choose the
best answer for the following questions.
Second: Determine taxable net profit in case the taxpayer does not keep
proper books and accounts.

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Solution.
First: Determine the net revenue subject to the income tax of natural persons
from self-employed professions revenues.
Taxable revenues:
Fees of designing buildings in Egypt 50,000
Fees of supervising constructing buildings in Egypt 70,000

Fees of offering engineering consultancies to a 55,000

company in Egypt (5,000 × 11 months)

Fees of monitoring engineering constructions for a 42,000

company in Egypt (3,000 × 14 months)
Fees received from engineering designs in UAE. 50,000

Capital gain from selling professional assets 5,000

35000- (80,000 – (80,000× 25%× 2.5))
Taxable revenues 272,000
Depictable expenses

Salaries and the like (without employees’ loan) 8,400

9,100 x 12/13 months

Rent (without rent insurance) 7800 x 12/ 13 months 7,200

General and administrative expenses 5,000

Depreciation of engineering machines 15,000
(sold machines = 80,000×25%× 6/12= 10,000
+ new machines = 20,000×25%× 12/12=5,000)
⅔ Car expenses and depreciation (6000 x ⅔) 4,000

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Insurance on the office against fire 1,000

Expenses of travel and stay in UAE 14,500
(55,100)
= Net profit 216,900
(-) A donation for building a mosque owned by the (4,000)
Egyptian Ministry of Awkaf (in full)
(-) A donation for building a mosque owned by a
registered Egyptian charity. (8000 as it is less than
10% of the net revenue = 216,900× 10% = 21,690) (8,000)
Net profit after deducting the donations 204,900
(-) An insurance premium on his life for the benefit 2,000
of himself only (4,000 ÷ 2)
= L.E. 2,000 since it is less than L.E. 3,000 (2,000)
202,900
(-) Losses carried over from last year. (5,900)
Taxable net profit 197,000

2) The Tax Return of the Total Income of a Natural Person

for 2017

1- Salaries and the like 0

2- Net profit (loss) of the commercial and industrial 0

activity

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3- Net profit (loss) of the non-commercial 197,000

profession

4- Net profit of the real estate 0

Total net income 197,000

Deduct: The exempted bracket (21,000)

Tax base (shall be rounded to the nearest lower ten 176,000

pounds)

The due tax can be calculated as follows:

1rst 21,000 exempted

2nd 9,000 × 2.5% = 225

3rd 15,000 × 10% = 1500

4th 15,000 × 15% = 2,250

5th 137,000 × 20% = 27,400

= Tax amount 31,375

Second: Determining the net professions revenue subject to the income

tax of natural persons in case the taxpayer does not keep appropriate
accounting books and accounts.
Taxable revenue 272,000
(-) Expenses are estimated at the rate of 10% (27,200)
of the taxable revenues since the taxpayer does
not keep appropriate books and account
272,000 × 10%

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Net profit 244,800

(-) A donation for building a mosque owned (4,000)
by the Egyptian Ministry of Endowments (in
full)
(-) A donation for building a mosque owned (8,000)
by a registered Egyptian charity to the extent
of 10% of the net revenue = 244,800 × 10% =
24,480
Taxable net profit 232,800
Example (8):
An Eng has an engineering office of which revenues and expenses during
2017 were as follows:
Receipts:
L.E. 15,000 Fees of engineering designs
L.E. 7,000 Fees of engineering consultancies
L.E. 17,000 Selling price of engineering instruments on 1st of Jan. 2017, it
had bought in 1st July. 2014, its historical cost L.E. 40,000 (25%
annual depreciation).

L.E. 15,000 Fees of designing a villa in Saudi Arabia

L.E. 6,000 Shared designing fees with another engineer, 50% each.

Expenses:
L.E. 500 Depreciation of engineering instruments
L.E. 300 Customs duties on personal baggage
L.E. 2,400 Salaries of the office staff

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L.E. 1,500 Office rent

L.E. 600 Car expenses and depreciation
L.E. 200 General and out-of-pocket expenses
L.E. 100 Subscription to the Engineer Syndicate
L.E. 1,000 Donation to Ambulance Association
Required:
• First: Determine net profit from non-commercial professions that are
subject to the income tax of natural persons during 2017, noting that the
taxpayer’s balance of revenues and expenses during 2016 had a debt of
L.E. 2,000 and that the taxpayer keeps appropriate accounts and books.
• Second: Determine the taxable profit from non-commercial professions,
in case the taxpayer does not keep appropriate accounts.
Solution.
First: In case, there are appropriate accounts books:
Fees of engineering designs 15,000
Fees of engineering consultancies 7,000
Designing fees with another engineer 6,000 × 50% 3,000
Fees of designing a villa in Saudi Arabia 15,000
Capital gain of selling engineering instruments 2,000
17,000 – ((40,000 – (40,000×25% ×30/12)
42,000
Depreciation of engineering instruments 500
Salaries 2,400
Rent 1,500

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Two thirds of car operating expenses 400

General and out-of-pocket expenses 200
Subscription to the Engineer Syndicate 100
5,100
Net profit before donations
= Taxable net profit before donations 36,900
(-) Donation to Ambulance Association (less than
10% of net revenue) (1,000)
= Taxable net profit after donations 35,900
(-) Carried forward last year’s loss (2016) (2,000)
= TNP 33,900
Second: In case, there are no appropriate accounting books:
Taxable revenue (the same) 42,000
(-) Expenses are estimated at the rate of 10% of taxable (4,200)
revenues since the taxpayer does not keep appropriate
books and accounts.
= Net profit before deducting donations 37,800
(-) Donations paid to the Ambulance Association ( do not (1,000)
exceed 10% of the net profit)
= Taxable profit 36,800

Example (9):
Net income of Mohamed office for the year ended Dec. 31, 2017, was L.E
8,000, suppose that:

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Case 1: L.E 400 insurance premiums for the benefit of his dependent
children, L.E 2,500 Contributions to syndicates special pensions fund.
Case 2: L.E 700 Annual insurance premium on his life for his interest and
the interest of his wife and minor (dependent) children, L.E 2300
Contributions to syndicates special pensions fund.
Case 3: L.E 4,000 His life insurance premium for the benefit of his wife
and mother equally.
Case 4: L.E 2,000 Life insurance for the benefit of his wife and son, who
is a university student aged 22 years, L.E 2500 Contributions to syndicates
special pensions fund.
Case 5: L.E 4,000 Life insurance premiums for the benefit of his parents.
Required: Determine the taxable income for each case separately.
Solution.
Case 1:

Net annual income 8000

(-)

(b) life and health Insurance premiums 400

(c) Contributions to syndicates special 2500

pensions funds

The total Maximum

paid amount
amount

2900 3000

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The lower amount is deductible (2900)

Taxable income 5100

Case 2:

Net annual income 8000

(-)

(b) life and health Insurance premiums 700

(c) Contributions to syndicates special pensions 2300

funds

The total paid Maximum

amount amount

3000 3000

The lower amount is deductible (3000)

Taxable income 5000

Case 3.

Net annual income 8000

(-)

(b) life and health Insurance premiums 2000

(c) Contributions to syndicates special pensions 0

funds

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The total paid Maximum

amount amount

2000 3000

The lower amount is deductible (2000)

Taxable income 6000

Notes: insurance premium for the benefit of his mother is not deductible.
Case 4.

Net annual income 8000

(-)

(b) life and health Insurance premiums 1000

(c) Contributions to syndicates special pensions 2500

funds

The total paid Maximum

amount amount

3500 3000

The lower amount is deductible (3000)

Taxable income 5000

Note: Life insurance for the benefit of his son, who is a university student
aged 22 years is not deductible, as he is no longer minor.

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Case 5.

Net annual income 8000

(-)

(b) life and health Insurance premiums 0

(c) Contributions to syndicates special pensions funds 0

The total paid Maximum

amount amount

0 3000

The lower amount is deductible (0)

Taxable income 8000

Note: Life insurance premiums for the benefit of his parents are not
deductible.
Example (10):
The following are the results of exercising the free profession of a taxpayer
during the years shown below:
Case 1.
2012 2013 2014 2015 2016 2017
L.E (80,000) 14,000 10,000 30,000 12,000 10,000
Loss Profit Profit Profit Profit profit
Case 2.
2012 2013 2014 2015 2016 2017

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L.E (3,000) (1,000) (14,000) (4,000) (3,000) 20,000

loss Loss loss loss loss profit

Required: explain tax treatment of the loss in each case separately.

Solution.
Case 1.
The taxpayer can deduct the losses of year 2011 from profits realized during
the following five years, not exceeding the profits realized during these years
as follows:
2013 2014 2015 2016 2017
Net annual income 14,000 10,000 30,000 12,000 10,000
(-) 2012 loss (14,000) (10,000) (30,000) (12,000) (10,000)
Taxable income 0 0 0 0 0
Case 2.
losses realized in year 2012 cannot be carried forward to the years 2013-2016,
since these years' results are also losses.

2017

Net annual income 20,000

(-) 2012 loss (3,000)

(-) 2013 loss (1000)

(-) 2014 loss (14,000)

(-) a part of 2015 loss (2,000)

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Taxable income 0

5.4. Tax Exemptions on the revenues of non-commercial profession.

The following shall be tax exempt:
1. Educational Institutes:
This exemption has been cancelled by Law 114 of 2008, when the state
found out that they are gaining enormous profits for their owners.
2- Revenues from Editing and Translation:
Revenues of editing and translating books and religious, scientific,
cultural and literary articles, except for proceeds from the sale of printed
work or translation with a view to producing it in an audio or visual format.
3- Revenues from University Books Editing:
Revenues received by teaching staff at universities and institutes for their
books and teaching notes authored for distribution among students
according to the regulations and prices set by the universities and institutes.
Based on the above, books produced by teaching staff for distribution
mainly among students shall be taxable in case the prices determined by
the universities and higher institutes are not met.
4- Profits of Fine Artists (Applied or formative Artists):
Revenues of members of the Formative Artists Syndicate pursuing the
production of photography, sculpture and engraving art works.
5. Novice Self-Employed Professions Holders (Beginner
professionals):
• The revenues they realize shall be tax exempted but only for three
years from the date of practice. The period of exemption will be limited

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to one year for whoever practices the profession for the first time if
fifteen years have elapsed since graduation.
• However, Law (11) of 2014 amended this provision to limit the
exemption to L.E. 50,000 annually throughout the exemption period.
Therefore, if the taxpayer’s net revenues exceed L. E. 50,000 annually
throughout the exemption period, then this increase shall be taxable.

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Questions
A) Indicate whether the following phrases are true or false, and correct
the false phrases:
1. A profession is that work done by someone frequently and professionally
with the intention of gaining profits, and thus it entails that the person
should be only practically qualified.
2. Capital is considered a main factor in carrying out Self-employed
professions.
3. Capital represents an essential factor in gaining profit in the commercial
activities.
4. The professions will be subject to tax in case net revenues have resulted
from the practice of the profession or activity in Egypt, as well realized
abroad in case the taxpayer has headquarters for his professional activity
in Egypt.
5. Self-employed professions are related to the professions need practical
efficiency, and the resulting yields (earnings) come from the work
element mainly.
6. Revenue received by intellectual property rights’ holders from selling or
using their rights are non-taxable.
7. Independency in practicing a profession means that the taxpayer carries
out his professional activity for others’ benefit.
8. Work must be the main element in practicing the profession or the
activity which is included among revenues from non-commercial
professions.

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9. Income tax of natural persons is imposed on profits realized by the

taxpayer through practicing a self-employed or non-commercial
profession individually without participating with others.
10. Educational Institutes are tax exempted from 2005 until now.
11. Revenues of editing and translating books and religious, scientific,
cultural and literary articles are tax exempted, including proceeds from
the sale of printed work or translation with a view to producing it in an
audio or visual format.
12. Books produced by teaching staff for distribution mainly among
students shall be non-taxable in case the prices determined by the
universities and higher institutes are not met.
13. Revenues of members of the Formative Artists Syndicate are taxable.
14. The revenues realize by novice self-employed professions holders shall
be tax exempted but only for 5 years from the date of practice.
15. The period of exemption will be limited to one year for whoever
practices the profession for the first time if 10 years have elapsed since
graduation.
16. If the novice self-employed professions holders ’s net revenues exceed
L. E. 50,000 annually throughout the exemption period, then this increase
shall be taxable.
B) A doctor has a private clinic in Cairo, handed you the following statement
of his revenues and expenses for 2017:
First: Revenues:
L.E. 5,000 surgical operations fees, L.E. 4,600 examination fees at his clinic,
L.E. 2,460 home visits examination fees, L.E. 3,090 profit from selling used

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medical instruments and L.E. 3,000 fees from surgical operations which he
carried out in Kuwait. L.E. 10,000 revenues of translating scientific book.
Second: Expenses:
L.E. 500 is the paid clinic rent, L.E. 600 cost of books and journals, L.E. 700
general expenses, L.E. 6,000 cost of instruments and apparatuses for the
clinic, E.L. 1,000 new furniture for the clinic, L.E. 3,000 salaries of his
assistants, L.E. 200 customs duties on personal baggage, L.E. 200 donations
to poor neighbors, and L.E. 300 an annual life insurance premium for his
benefit and the benefit of his wife and his minor children.
Other Data:
– Surgical operations fees include L.E. 500 as fees of a surgical operation
performed last year, and L.E. 200 as a payment in advance for a surgical
operation he will perform next year.
– The monthly rent of the clinic is L.E. 50, and the salaries of his assistants
are L.E. 200 per month.
– Depreciation rate for Instruments and furniture is 25% per year.
The annual car cash operating expenses is L.E. 600, and car depreciation is
L.E. 1,800 annually.
Required:
Determine the non-commercial professions revenue subject to income tax of
natural persons and calculate the due tax for 2017.

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