Value-Added Tax (VAT) in Egypt

Value-Added Tax (VAT) is an indirect tax imposed on the import and supply of goods and services at all stages of production and distribution, with certain exceptions. VAT is a consumption tax that is collected and paid at each stage of the supply chain, from the purchase of raw materials by the manufacturer to the final sale of the product by the retailer to the consumer.

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Obligations of Taxpayers Dealing in VAT-Liable Goods:

Taxpayers subject to VAT are required to follow specific procedures, including:

1. Collecting VAT from customers on every taxable sale based on the defined rate.
2. Paying VAT to suppliers for taxable goods or services purchased.
3. For every sale or service provided, VAT is charged at 14% (assuming the standard rate applies) and added to the final sale price.

Taxable individuals calculate the 14% collected from sales separately from their revenues and remit it later to the Tax Authority.

• The tax collected from sales is referred to as Output Tax.
• The tax paid on purchases is referred to as Input Tax.

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VAT Rates in Egypt

VAT in Egypt is applied at different rates depending on the type of goods and services, as defined by Law No. 67 of 2016, with certain exceptions.

1. General VAT Rate

• 14%:
• Applied to most goods and services subject to VAT.
• Imposed at all stages of the supply chain, from production to final sale.

2. Reduced Rate

• 5%:
• Applied to machinery and equipment used for industrial or service purposes, whether imported or locally purchased.
• This rate aims to support local industries and encourage investment.

3. Zero Rate (0%)

• Applies to specific cases to promote trade and investment, such as:
• Exported goods and services.
• Projects in free zones and special economic zones, whether for imported or exported goods and services needed for activities in these zones.
• Goods and services exported abroad from free zones and economic cities.

Advantages of the Zero Rate:

• Allows registered taxpayers to reclaim the input VAT paid on such goods and services.

4. Schedule Tax (Special Tax)

Schedule tax is applied to specific goods and services as per the VAT Law. These goods differ in how the tax is imposed, being charged only once upon the first sale or import, unless there is a change in their condition.

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Schedule Goods and Their Types

Schedule goods are certain goods and services subject to special tax provisions under Law No. 67 of 2016.

Types of Schedule Goods:

1. Goods Subject to Schedule Tax Only:

• These goods are only liable to schedule tax and not VAT.
• Examples:
• Tobacco and its products (e.g., cigarettes and shisha tobacco).
• Petroleum products and vegetable oils.

1. Goods Subject to Both Schedule Tax and VAT:

• These goods are liable to schedule tax in addition to VAT.
• Examples:
• Soft drinks.
• Air conditioning units.
• Mobile phone communication services.

Notes on Schedule Tax Application:

• Schedule tax may be applied at fixed or percentage rates, depending on the type of goods or services.
• The tax is imposed on the first sale within the local market or upon importation.
• It is not re-imposed unless there is a change in the condition of the goods (e.g., remanufacturing or modification).

Objectives of Schedule Tax:

• To impose additional taxes on luxury or non-essential goods.
• To strike a balance between tax revenues and protecting consumers of essential goods.

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VAT Registration Provisions

1. Mandatory Registration:

• Sales Exceeding Registration Threshold:
• Any individual or entity exceeding EGP 500,000 in sales over 12 months is required to register.
• From Business Start:
• Importers must register regardless of sales volume.
• For Non-Residents:
• Non-resident individuals/entities selling goods or services in Egypt without a permanent establishment must register under the simplified supplier registration system.

2. Voluntary Registration:

• Individuals or entities below the registration threshold may apply if:
• Their dealings exceed EGP 150,000 within 12 months.
• Their paid-up capital is at least EGP 50,000.

3. Taxpayers Not Required to Register:

• Producers, importers, service providers, and traders dealing solely in exempt goods or services.
• Traders dealing only in schedule tax goods.
• Natural persons not engaged in the sale of goods or provision of services.

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VAT Input Deduction:

Input VAT deduction is a fundamental principle of the VAT system, ensuring no cumulative tax burden across the supply chain. It allows registered taxpayers to deduct VAT paid on their purchases (Input Tax) from VAT collected on their sales (Output Tax).

Mechanism of Input Deduction:

• Input Tax:
• VAT paid on goods or services purchased for production or service provision.
• Output Tax:
• VAT collected from customers on the sale of taxable goods or services.

Deduction Process:

• Deduct Input Tax from Output Tax.
• If Input Tax exceeds Output Tax, taxpayers can claim the difference from the Tax Authority or carry it forward to subsequent periods.

Types of Deductible Inputs:

1. Direct Inputs:

• Goods and services directly involved in production (e.g., raw materials).

1. Indirect Inputs:

• General operating expenses, such as:
• Energy (electricity, gas).
• Transportation services.
• Administrative expenses (e.g., rents, office supplies).

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VAT Exemptions:

1. Exempt Entities:

• Embassies.
• Diplomatic and consular members.

1. Basic Necessities:

• Essential food items (57 groups of goods).
• Core services, such as education, land transport, and healthcare.

1. Economic Exemptions:

• Financial and banking activities, including:
• Banks.
• Insurance companies.
• Real estate financing.
• Stock exchanges and capital markets.
• Pharmaceuticals (per Egyptian Drug Authority decisions).
• Sale and leasing of land and buildings.

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VAT is one of the most significant indirect taxes that contribute to financing Egypt's state budget. With economic developments, the government is expected to enhance tax system automation, expedite tax refunds, and adapt to changes to achieve tax stability , To view all legal texts and amendments related to value added tax click here