VAT, GST and Sales Tax in Egypt

Summary

Name of the tax Value-Added Tax (VAT)
Local name Al Dareeba Ala el Qema Al Modafa
Date introduced 7-Sep-16
Trading bloc membership None
Administered by Ministry of Finance (www.mof.gov.eg)
VAT Rates
Standard 13% until 30 June 2017 (14% effective 1 July 2017)
Reduced 5% on machinery and equipment.
Other 0% on Exported goods and services.
Table tax rates due on certain goods and services
Number format 123/456/789
Return periods Monthly
Thresholds
Registration threshold: EGP500,000 annual turnover
Recovery of VAT by Non-established businesses Not applicable in Egypt

Scope of the tax

All local and imported goods and services are subject to VAT except those specifically exempted (see Section D VAT rates). Services are defined in the law as any work that is imported or performed locally that is not classified as goods.

Table tax. The VAT law provides a table with tax rates that are applicable to certain goods and services (either instead of the general VAT rate or in addition to the general VAT rate):

Goods and services subject to table tax rates only

Goods and services subject to table tax rate in addition to the VAT rate

Details are provided below.

Who is liable

Any natural person or legal entity that sells goods or provides services subject to VAT whose gross sales of taxable and exempt­ed goods and services equals or exceeds EGP500,000 within the 12 months preceding the date of the VAT law enforcement, is obliged to register with the Egyptian Tax Authority within 30 days from the date of the enacted law.

Any natural person or legal entity whose gross sales value reaches the registration threshold after the date of enforcement law in any financial year or part of it, must register with the tax authority within 30 days from the date of exceeding the threshold.

Group registration. Not applicable.

Non-established businesses. If a nonresident person (whether a natural person or legal entity), that is not registered with the Egyptian Tax Authority renders a service that is subject to VAT in Egypt, to a person who is not registered in Egypt, the nonresident person is obliged to appoint a representative or an agent in Egypt to fulfill all its obligations due under the law including registra­tion, payment of VAT, the additional tax and any other taxes due according to the VAT law.

Tax withholding. If the nonresident supplier does not appoint a representative or agent in Egypt, then the Egyptian resident receiving the service is obliged to remit the VAT and any other tax due according to the VAT law to the tax authority without breaching his right to reimburse the tax payments made from the nonresident vendor.

Reverse charge. If an Egyptian VAT registrant imports a service that is necessary for its VAT taxable activity, the Egyptian regis­trant is considered to be an importer and the supplier of the ser­vice, at the same time.

If a nonresident person, who is not registered with the Egyptian Tax Authority renders a service to a VAT registrant that is not necessary for its business activity, or to a governmental entity or to a general authority or an economic authority, the service recipient should account and remit the VAT due to the Egyptian Tax Authority within 30 days from the date of sale, if the non­resident supplier does not appoint a tax representative or agent on his behalf.

If the VAT is not paid within the legal deadline, an additional tax will be payable with and through the same procedures of the original tax payment.

A VAT registrant who has paid the VAT due on the services received from a nonresident person is entitled to deduct this input tax if all conditions and rules stated in Article 22 of the law are fulfilled.

Digital economy. Normal VAT rules apply to digital goods and services.

Registration procedures. The taxpayer must fill in a hard copy registration form, attaching copies of the entity tax card, com­mercial register and import card. The originals should be pro­vided for reviewing.

The registration form may be submitted by the entity representa­tive with a power of attorney.

Late-registration penalties. Penalties for late registration range from EGP500 to EGP5,000 in addition to 1.5% monthly addi­tional tax on the tax due.

Deregistration. An entity wishing to deregister should submit a request in writing to the tax authority along with documentation proving the submission of the tax registration document and the cancellation of the entity in the commercial register.

VAT rates

The general VAT rate is 13% for the fiscal year ending 30 June 2017. Effective 1 July 2017, the general VAT rate increases to 14%.

Examples of supplies of goods and services taxable at 5% Machinery and equipment used in producing taxable or nontax­able goods or rendering services are subject to a 5%.

Examples of goods and services taxable at 0% Exported goods and services are subject to a zero VAT rate.

Examples of goods and services subject to table tax Special rates apply to a number of goods and services listed in the tables attached to the VAT law, as follows:

Goods and services subject to the table rates only

  • Tobacco and tobacco products
  • Petroleum products
  • Vegetable oils — 5% (*)
  • Animal oils and tallow, partially or wholly hydrogenated — 5% (*)
  • Crackers and flour products — 5% (*)
  • Processed potatoes
  • Fertilizers, agricultural pesticides
  • Gypsum
  • Contracting work, and construction (supply and installation) — 5% (*)
  • Soap industrial detergents for home use
  • Air-conditioned means of transportation, such as buses and trains between the governorates
  • Professional and consultancy services
  • Media and program production — 5% (*)

(*) rates provided as an illustrative example

Goods and services subject to the table rates and the VAT gen­eral rate (13%), with a right to deduct the input VAT up to the application of VAT at the general rate:

  • Soda water, 8%+13% (**)
  • Nonalcoholic drinks, 8%+13% (**)
  • Alcoholic drink
  • Beer (alcoholic and nonalcoholic)
  • Aromatic preparations (skin or hair care), 8%+13% (**)
  • TVs larger than 32 inches, refrigerators larger than 16 feet
  • Air conditioning units and their independent devices
  • Golf carts and similar vehicles, 10%+13% (**)
  • Passengers cars
  • Communications services through cellular phone networks

(**) rates provided as illustrative example

Examples of exempt supplies of goods and services

A table lists 57 exempted goods and services (with no right to deduct input tax) including:

  • Tea, sugar and coffee
  • Banking services
  • Medicines and active substances
  • Health care services
  • Production, transfer, sale or distribution of electric current
  • Education, training and research services
  • Sale and rental of land and residential and nonresidential build­ings
  • Free services that broadcast through radio and television

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The basic tax point under Egyptian law is the time when the transfer of the ownership of the goods or the rendering of service to the buyer takes place, including if the supplier is an importer.

The following are treated as the time of sale, whichever happens the earlier:

  • Issuing the invoice
  • Delivery of the goods or rendering the service
  • Payment of the price for goods or the service charge, whether wholly or in part

Continuous supplies of services. If services are supplied continu­ously, a tax point is created each time the vendor issues an invoice. The definition of continuous or ongoing services, will be clarified in the executive regulations.

Imported goods. The VAT on imported goods is due on customs clearance.

Deposits and prepayment. A deposits or prepayment, is consid­ered to be the tax point if payment takes place before issuing the invoice or the delivery of goods or the rendering the services as explained above in (time of supply).

Reverse-charge services. If a nonresident person (both natural and legal), not registered with the ETA renders a service subject to VAT in Egypt, to a person not registered in Egypt:

This person is obligated to appoint a representative or an agent in Egypt to fulfill all the obligations due on the nonresident, as provided by the law, including registration, payment of VAT, the additional tax and any other taxes due according to the VAT law.

If the nonresident party does not appoint a representative or agent in Egypt, then the Egyptian resident receiving the service is obli­gated to remit the VAT and any other tax due according to the VAT law to the tax authority without breaching his right to reim­burse the tax payments made from the nonresident vendor.

If a nonresident person, who is not registered with the ETA ren­ders a service to a VAT registrant not necessary for their activity, to a governmental entity or a general authority or an economic authority, the service recipient should account and remit the VAT due to the ETA within 30 days from the date of sale in case the nonresident party does not appoint a tax representative or agent on his behalf.

VAT registrants who import a service necessary for their VAT-taxable activity are considered as an importer and a supplier of the said service at the same time.

In case the VAT is not paid within the legal deadline, an addi­tional tax will be payable with and through the same procedures of the original tax payment.

The VAT registrant who paid the VAT due on the services received from a nonresident person is entitled to deduct this input tax if all conditions and rules stated in Article 22 of the law are fulfilled.

Leased assets. According to the VAT law, a lease payment is considered as a payment for a service subject to the general rate 13% (14% starting from 1 July 2017) provided that the legal title of the asset does not pass to the lessee.

Recovery of VAT by taxable persons

A VAT registrant may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. A VAT registrant generally recovers input tax by deducting it from out­put tax, which is VAT charged on supplies made. Where input tax exceeds output tax in any period, the taxable person will receive a refund.

Input tax includes VAT charged on goods and services supplied in Egypt, VAT paid on imports of goods including machines and equipment, and VAT self-assessed on the acquisition of reverse-charge services, provided it is related to selling taxable goods or rendering a taxable service.

A valid tax invoice or customs document must generally accom­pany a claim for input tax.

Nondeductible input tax.

Examples of items for which input tax is nondeductible

  • Table tax whether on goods and services subject to this tax or inputs of goods and services subject to this tax
  • Input tax included as part of the tax deductible cost of an item for the purposes of the annual corporate income tax return
  • Exempted goods and services

Examples of items for which input tax is deductible
(if related to taxable business use)

Input tax is the VAT incurred or charged to the registrant upon purchasing or importing goods and services, including machin­ery and equipment, whether directly or indirectly related to the sale of goods and services subject to VAT.

When calculating the tax, the following should be deducted from the tax due on the sales value:

  • Tax paid or accounted for returned sales
  • Tax charged on inputs, including the tax charged to the goods and services sold by the registrant through all distribution phases according to the conditions and situations that will be provided by the executive regulations relating to the VAT law

Partial exemption. The concept of partial exemption is not appli­cable according to the Egyptian VAT law. Inputs for an exempted good or service are not allowed to be deducted. At the time of preparation of this chapter, the specific rules relating to pur­chases relate to activities that are exempt and taxed activities had not yet been published. It is anticipated that these rules will be clarified when the Executive regulations governing the VAT are issued.

Capital goods. Sale and renting of vacant and agricultural lands, buildings, residential and nonresidential units.

Refunds. A refund of VAT is permitted in the following situa­tions:

  • The tax previously collected or charged to exported goods and services. This applies whether exported in its original state or included as a component in other goods and services. The refunded tax should not exceed the credit balance provided that the value of the exports will be paid to a bank under the super­vision of the Central Bank of Egypt according to the rules it specifies or pursuant to any of the payment methods or other methods of settlements specified in the Executive Regulations, provided that the value of exports shall not be less than the inputs value thereof.
  • Tax is collected by mistake.
  • A credit balance results after more than six consecutive periods have lapsed.
  • Tax is paid on machinery and equipment used in the production of a taxable good or in provision of a taxable service upon sub­mission of the first VAT return (except for buses and passenger cars), unless their usage relates to the business that the com­pany is licensed to practice.

In all cases of applying for a refund, a certificate signed by a chartered accountant must be one of the documents signifying the right of the VAT registrant to deduct the tax or refund the same.

Preregistration costs. At the time of preparation of this chapter, specific rules relating to purchases incurred prior to VAT regis­tration had not been published. It is anticipated that the position will be clarified when the Executive Regulations governing the VAT are issued.

Recovery of VAT by non-established businesses

Egypt does not refund VAT to non-established businesses. To recover VAT paid in Egypt, a non-established business must ren­der taxable supplies and be a registered entity with the Egyptian government (see Section C Who is liable?).

Invoicing

VAT invoices and credit notes. No special rules apply to VAT invoices or credit notes. However, according to practice, the invoice should include the following information:

  • Invoice number
  • Invoice date
  • Entity’s name
  • Tax ID number
  • Commercial registration number
  • Address
  • Invoice currency
  • Invoice amount
  • A clear description for the services provided

Sales invoices must be serially numbered and include the VAT registration number, address and contact details of the supplier. Based on the instructions issued by the Egyptian Tax Authority, a taxable person must maintain the original invoices for approval by the Egyptian Tax Authority for inspection at a later date.

A VAT registrant is also required to maintain proper books and records to record its transactions. It must retain such records together with copies of the invoices for five years following the end of the fiscal year when the entries are made.

Electronic invoicing. Electronic invoices are permitted.

Foreign-currency invoices. Invoices indicating foreign currency are not allowed for supplies made between local entities. However, foreign currency invoices are permitted for supplies with the nonresident entities. It is recommended to include the same information as given above for VAT invoices.

Proof of export. The amount of export goods is proved on the customs clearance certificate (Customs form 13). This evidence is needed to support the seller not charging VAT on the export sale.

Bad debts.. The VAT law does not provide any provision for bad debts.

VAT returns and payments

  • VAT and table tax returns are generally submitted monthly.
  • A monthly tax return for the VAT and table tax, or either one of them, should be filed within two months, from the month end.

The April tax return should be filed before 15 June.

  • A VAT return, should be filed even if no taxable sales of goods or services are achieved during the tax period.
  • Non-submission of the VAT return within the due dates entitles the tax authority to make a deemed assessment. The tax author­ity will be liable to provide the basis of this deemed assessment.

Electronic filing and archiving. Not applicable. Electronic filing is not applied by the Egyptian government.

Annual returns. Not applicable.

Penalties

An additional payment is due for each month or part of the month starting from the tax payment deadline until the date of payment. The additional payment is 1.5% of the unpaid VAT and the table tax amount, including the tax resulting from amendments to the tax return.

Sanctions for breaching the procedures set out in the VAT law include:

  • A penalty between EGP500 and EGP5,000
  • Payment of the VAT, table tax and additional tax
  • Penalties are doubled if the offense is repeated within three years

Tax evasion sanctions.

  • Prison terms from three to five years
  • Penalty payment from EGP1,000 to EGP10,000
  • Payment of the VAT, table tax and additional tax
  • Prison duration to be folded if repeated within three years
  • Tax evasion considers person breaching honor and honesty
  • Ceasing the accountant from practicing his profession for one year
  • Penalty between EGP10,000 to EGP50,000
  • In case of repetition, penalties and sanctions are folded

Tax reform

Egypt issued VAT Law no. 67 of 2016 replacing the Sales Tax Law No. 11 for the year 1991, which has been cancelled.

The VAT Law no. 67 of 2016 was published on 7 September 2016 in the Official Gazette and entered into force on 8 September 2016.