Cairo GMT +2
EY
Cairo Ring Road
Rama Tower, First Floor El-Katameya
Block No. 10A, beside Bavarian Auto Group P.O. Box 20 El-Katameya 11936 Cairo Egypt
Indirect tax contacts
Ahmed El Sayed +20 (2) 2726-0260 ahmed.el-sayed@eg.ey.com
Hossam Nasr +20 (2) 2726-0260 hossam.nasr@eg.ey.com
A. At a glance
Name of the tax Value-added tax (VAT)
Local name
Al Dareeba Ala el Qema Al Modafa (ض.ق.م)
Date introduced 7 September 2016
Trading bloc membership Greater Arab Free Trade Area (GAFTA)
Pan-Arab Free Trade Area (PAFTA)
African Continental Free Trade Area (AfCFTA)
Common Market for Eastern and Southern Africa (COMESA) Administered by Ministry of Finance (www.mof.gov.eg)
VAT rates
Standard 14%
Reduced 5%
Other Zero-rated (0%), special table tax rates and exempt
VAT number format 123/456/789
VAT return periods
Monthly Thresholds
Registration threshold: EGP500,000 annual turnover
Recovery of VAT by non-established businesses: No
B. Scope of the tax
All local and imported goods and services are subject to VAT except those specifically exempted. Services are defined in the law as any work that is imported or performed locally that is not clas sified as goods.
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
C. Who is liable
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.
Exemption from registration. The VAT law in Egypt does not contain any provision for exemption from registration.
Voluntary registration and small businesses. The VAT law in Egypt does not contain any provision for voluntary VAT registration or special VAT registration rules for small businesses.
Group registration. Group VAT registration is not allowed in Egypt.
Non-established businesses. If a non-established business (whether a natural person or legal entity) that is not registered with the Egyptian tax authority (ETA) renders a service that is sub ject to VAT in Egypt to a person who is not registered in Egypt, the non-established business 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 representatives. If a non-established business (both natural and legal) is not registered with the ETA and renders a service subject to VAT in Egypt to a person not registered for VAT in Egypt, this person is obliged to appoint a representative or an agent in Egypt to fulfill all the obligations due on the non-established business, as provided by law (including registration, payment of VAT, the additional tax and any other taxes due according to the VAT law).
If the non-established business does not appoint a representative or agent in Egypt, the Egyptian resident receiving the service is obliged to remit the VAT within 30 days from making the pay ment, and any other tax due according to the VAT law, to the tax authority without breaching its right to reimburse the tax payments made from the non-established business.
If a non-established business not registered with the ETA renders a service to a taxable person not necessary for their VAT taxable activity to a governmental entity or a general authority or an economic authority, then the service recipient should account and remit the VAT due to the ETA within 30 days from the date of sale if the non-established business does not appoint a tax rep resentative or agent on its behalf. Taxable persons that 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.
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. The taxable person that paid the VAT due on the services received from a non-established business is entitled to deduct this input tax if all conditions and rules stated in Article 22 of the law are fulfilled.
Reverse charge. If an Egyptian taxable person 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 non-established business that is not registered with the ETA renders a service to a taxable person 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 ETA within 30 days from the date of sale, if the non-established business does not appoint a tax representative or agent on its 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 taxable person that has paid the VAT due on the services received from a non-established busi ness is entitled to deduct this input tax if all conditions and rules stated in Article 22 of the law are fulfilled.
Domestic reverse charge. There are no domestic reverse charges in Egypt.
Digital economy. There are no special measurements relating to VAT on digital supplies of goods, services or e-commerce. As such, normal VAT rules apply to digital goods and services.
For business-to-business (B2B) e-commerce supplies, the registered customer must account for VAT by way of the reverse-charge mechanism.
For business-to-consumer (B2C) e-commerce supplies, the non-established business must regis ter and account for VAT in Egypt. This is done by appointing a tax representative or an agent in Egypt to be responsible for carrying out all the taxable person obligations, including the registration with the tax authority and paying the tax. For further details, please see the Non-established businesses subsection above.
There are no other specific e-commerce rules for imported goods in Egypt.
Online marketplaces and platforms. The online marketplaces/platforms are subject to VAT, where the tax is due upon selling the commodity or rendering the service by the supplier or online mar ketplace (which will issue an invoice) at all stages of circulation thereof, regardless of the method of selling or rendering or circulation, including the electronic means.
Registration procedures. The taxable person must fill in a hard copy registration form, attaching copies of the entity tax card, commercial register and import card. The originals should be pro vided for reviewing.
The registration form may be submitted by the entity representative with a power of attorney.
The documents required to be submitted with the VAT registration application are as follows:
• Tax card
• Commercial registration
• National ID or passport for foreigners
• Company’s premises rental agreement
• Article of association
• Power of attorney for the representative
The VAT registration application must be made in person at the ETA.
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.
Changes to VAT registration details. The taxable person is obliged to notify the ETA where there is a change in its VAT registration details within 21 days as of the date of the change. The noti fication can be online, on paper or in person.
D. Rates
The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of VAT, including the zero rate.
The VAT rates are:
• Standard rate: 14%
• Reduced rate: 5%
• Zero-rate: 0%
The standard rate of VAT applies to all supplies of goods or services unless a specific measure provides for a reduced rate, the zero rate or an exemption.
Examples of goods and services taxable at 0%
• Exported goods and services
Examples of goods and services taxable at 5%
• Machinery and equipment used in producing taxable or nontaxable goods or rendering ser vices
The VAT law has two types of tables attached, stating certain goods and services are subject to certain VAT rates, other than the general VAT rate (i.e., special rates). This list is known as “table tax.”
Examples of goods and services subject to table tax
Special rates apply to a number of goods and services, as follows:
• 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 (14%), with a right to deduct the input tax up to the application of VAT at the general rate:
• Soda water, 8%+14% (**)
• Nonalcoholic drinks, 8%+14% (**)
• Alcoholic drinks
• Beer (alcoholic and nonalcoholic)
• Aromatic preparations (skin or hair care), 8%+14% (**)
• TVs larger than 32 inches, refrigerators larger than 16 feet
• Air conditioning units and their independent devices
• Golf carts and similar vehicles, 10%+14% (**)
• Passenger cars
• Communications services through cellular phone networks
(**) Rates provided as illustrative example
The term “exempt” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
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. The option to tax exempt supplies is not available in Egypt.
E. 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
Deposits and prepayment. A deposit 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).
Continuous supplies of services. If services are supplied continuously, a tax point is created each time the vendor issues an invoice.
The following are considered to be services of a continuous nature:
• Communication and facsimile services
• Contracting services of construction and building
• Cleaning and guarding services
• Transport services of goods and materials
Goods sent on approval for sale or return. The time of supply for goods sent on approval for sale or return is the transfer of the ownership of goods or the services rendering from the supplier to the buyer, even if the supplier is the importer. According to the provisions of the VAT Act, the following is considered to be the transfer of ownership, and the time of supply is whichever is earliest:
• Issuing the invoice
• Delivery of the goods or rendering of the service
• Payment of the good’s price or the service charge, whether wholly or partially or on credit, or by any other means of payment, in accordance with the different conditions of payment
If the goods are sold but are returned to the seller, the supplier upon originally calculating and paying across the VAT is entitled to deduct the VAT due on the value of its sales, the VAT previ ously paid or calculated in respect of its returned sales with the following terms and conditions:
• The supplier may only deduct the VAT that has already been paid on the returned goods.
• The returned goods should be in a resalable condition, with the respective information includ ed in the regular books and records of the supplier, including confirmation that its value has been refunded to the customer including the VAT or adding it to its account in the supplier’s books and records.
• The supplier must issue a dated addition/discount notice with a serial number including the data of both the supplier and customer.
Where the goods are not sold but are not returned, no VAT implications apply.
Reverse-charge services. There are no special time of supply rules in Egypt for supplies of reversecharge services. As such, the general time of supply rules apply (as outlined above).
Leased assets. According to VAT law, a lease payment is considered as a payment for a service subject to the general rate of 14% provided that the legal title of the asset does not pass to the lessee.
Imported goods. The VAT on imported goods is due on customs clearance.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is VAT charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is VAT due 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 reversecharge 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.
In Egypt, VAT is accounted for on a monthly basis, and taxable persons have the right to recover input tax on a monthly basis.
The time limit for a taxable person to reclaim input tax in Egypt is five years. This time limit is from the date of the invoice.
Nondeductible input tax. Input tax may not be recovered on purchases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepre neur). Input tax may also not be recovered on table tax. Input tax incurred in relation to exempt supplies also cannot be recovered.
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 goods (i.e., via a credit note)
• 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 Act
Partial exemption. Input tax incurred on exempt supplies of goods or services is not allowed to be deducted by the taxable person.
If some of the sales of goods and services by the registered person are taxable, and some others are tax exempt or subject to the schedule tax during the tax period, deductions must be made in the following manner:
• The total tax on inputs relating to the sale of a commodity or provision of a service subject only to the tax is deducted, whether the sale is made during or after the tax period.
• The tax on inputs that are only used for sales that are tax exempt or that are subject only to the schedule tax cannot be deducted, whether the sale is made during or after the tax period.
• The tax on inputs that are used in the sales of which some are subject to the tax and some oth ers are tax exempt or are subject only to the schedule tax are deducted based on the ratio of the taxable sales to the total sales.
Approval from the tax authorities is not required to use the partial exemption standard method in Egypt. Special methods are not allowed in Egypt.
Capital goods. The general input tax recovery rules apply to input tax incurred on capital goods purchased for trading purposes. However, some special rules apply for the recoverability of VAT incurred on capital goods, as follows:
• If the capital goods are subject to VAT at the general rate of 13%/14%, the input tax can be deductible immediately upon issuing the first VAT return.
• If the capital goods that are subject to table tax (the table rates attached to the VAT law), the tax able person cannot deduct the input tax but can claim for input tax refund after six respective months (six respective VAT returns).
• If the capital goods are exempted from VAT, no input tax deduction or refund is allowed.
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 is not 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 provi sion of a taxable service upon submission of the first VAT return (except for buses and pas senger 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 taxable person to deduct the tax or refund the same.
The ETA has amended the VAT refund process and clarified all steps to curb delays in applying for a VAT refund. The steps for applying for VAT refunds are as follows:
1) Submit application and receive response to application
2) Internal correspondence between the investigating departments and other tax departments involved
3) Execution of local entries, documents and export certificates
4) Processing VAT refund applications
5) Clarification of the calculation of the production rate
6) Clarification for refunds in cash or by back transfer
Pre-registration costs. The registrant can deduct the value of the general sales tax (which should be deducted as indicated by the credit balance before the application to be registered for VAT) and the amount that was not fully deducted or refunded of the general sales tax incurred on machinery, equipment, parts and spare parts, as well as the tax previously paid on returned items of sales.
The following conditions and controls must be observed:
• Keep proper accounting books and records.
• Hold original copies of tax invoices or customs procedures certificate and the receipt evidenc ing the payment of the general sales tax at the customs house.
• Inputs should be previously declared in tax returns filed by the registrant person for the periods in which purchases were made. For the tax paid on machinery, equipment, parts and spare parts, the books and records must reflect the tax paid at purchase and the remaining balance after excluding the amounts in monthly returns.
• The amount of the general sales tax should not have been included in the cost.
For the tax previously paid on sales tax returns, only the amounts already paid on the returned goods can be deducted.
Bad debts. Output tax accounted for on supplies that do not get paid by the recipient (i.e., a bad debt) cannot be recovered in Egypt.
Noneconomic activities. Input tax incurred in relation to noneconomic activities is not recoverable in Egypt.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses in Egypt is not recoverable. H. Invoicing
VAT invoices. Invoices must be issued before or after the sale. Sales invoices must be serially num bered and include the VAT registration number, address and contact details of the supplier. Based on the instructions issued by the ETA, a taxable person must maintain the original invoices for approval by the ETA for inspection at a later date.
Credit notes. Credit notes are mainly required for sales returns and can be deducted within the following VAT returns. A VAT credit note may be used to reduce the VAT charged and reclaimed on a supply. It must be cross-referenced to the original VAT invoice.
Electronic invoicing. Electronic invoicing is allowed in Egypt, but not mandatory. Electronic invoic ing rules and conditions are as follows:
• ERP (enterprise resource planning) to be integrated with the new e-invoicing system of the ETA
• Digital signature
• GS1 coding system to translate the invoice description
• Mandatory invoice structure
Simplified VAT invoices. Simplified VAT invoicing is not allowed in Egypt. As such, full VAT invoices are required.
Self-billing. Self-billing is not allowed in Egypt.
Proof of exports. Exports are proved on the customs clearance certificate (Customs form 13). This evidence is needed to support the seller to charge VAT at the zero-rate on the export sale.
Foreign currency invoices. As well as issuing invoices in the domestic currency (which is the Egyptian pound (EGP)), invoices can be issued in a foreign currency for supplies made between local entities. Foreign currency invoices are permitted for supplies made by non-established businesses. It is recommended to include the same information as given above for VAT invoices.
Supplies to nontaxable persons. There are no special invoicing rules for supplies to nontaxable persons. As such, full VAT invoices are required.
Records. A taxable person is required to maintain proper books and records to record its transactions. Examples of records that must be kept include invoices, accounting books and records, and any related documents to the transactions. Hard copies must be kept locally. Electronic archiving can be kept locally in Egypt or abroad.
Record retention period. A taxable person 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 archiving. Records can be kept and archived electronically.
I. Returns and payments
Periodic returns. 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.
Periodic payments. The payment should be filed within two months from the month end and be transferred to the tax authority’s bank account through authorized banks.
Electronic filing. Electronic filing is mandatory in Egypt for all taxable persons. VAT returns must be filed electronically online (https://eservice.incometax.gov.eg).
Payments on account. Payments on account are not required in Egypt.
Special schemes. No special schemes are available in Egypt.
Annual returns. Annual returns are not required in Egypt.
Supplementary filings. No supplementary filings are required in Egypt.
Correcting errors in previous returns. Correction of errors can be made online through amended VAT returns. However, all amended returns are subject to a special charge, with the first amended return at EGP500, the second return at EGP1,500, the third return at EGP2,500 (and adding EGP1,000 to the charge per return onward).
Digital tax administration. There are no transactional reporting requirements in Egypt.
J. Penalties
Penalties for late registration. In the case of transactions that have taken place before VAT registration and such transactions reach the stated threshold, the taxable person’s errors will be treated as evasion. The taxable person is required to pay the VAT due, plus 1.5% of the VAT due for each month the registration is late, or part of it, plus 100% of the total due amount. Where the taxable person has not resolved or finalized the evasion status with the Egyptian tax authority, it shall be penalized by imprisonment for a minimum of three years and a maximum of five years and a fine of a minimum of EGP5,000 and a maximum of EGP50,000, or one of these two penalties.
Penalties for late payment and filings. For late payment of VAT, an additional payment is due for each month or part of the month starting from the tax payment deadline until the date of payment.
Penalties for errors. In Egyptian VAT law, errors mean the difference in tax calculations. As such, the penalties for errors are the same as those for late payment and filings.
No specific penalties apply for the failure to notify the ETA for changes in a taxable person’s VAT registration details.
Penalties for fraud. Tax evasion sanctions include the following:
For the taxable person:
• 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
For the tax advisor:
• Ceasing the accountant from practicing its profession for one year
• Penalty between EGP10,000 to EGP50,000
• In case of repetition, penalties and sanctions are folded
Personal liability for company officers. In certain legal entity structures, company officers can be held personally for VAT errors. Penalties would be equal to the VAT/remaining VAT due.
Personal liability for company officers. The statute of limitations in Egypt is five years. The tax authority can examine transactions up to five years from the date of transaction/invoice.