Modification of the VAT rate on machinery, equipment, and production lines.

On March 2, 2023, the Minister of Finance issued Decree No. 115 of 2023 regarding the amendment of the Value Added Tax (VAT) rate applied to machinery, equipment, and production lines purchased from the local market or imported from abroad for use in the production of goods or the provision of services, with a VAT rate of 5%. However, this is subject to the condition that the producer of the goods or the service provider presents documents confirming their business activity. These documents include:

A) A document approved by the relevant technical authority of the producer of the goods or the service provider, indicating that these machines, equipment, or production lines are used in the production of goods or the provision of services.

B) A registration certificate of the producer of the goods or the service provider with the Egyptian Tax Authority (Value Added Tax) or a tax card.

The decree also stipulates that for the 5% tax rate to be applied to machinery, equipment, or production lines, the customs authorities must be able to verify, in case of imported equipment, that these items are indeed machinery, equipment, or production lines. In case of any discrepancy, a tax rate of 14% is imposed as a deposit until the tax settlement is completed. If dismantled or disassembled equipment is purchased from different local suppliers, a 14% tax is imposed until the tax settlement is finalized.

The decision has established specific guidelines for conducting tax settlements. These settlements are carried out by a joint committee consisting of representatives from the Tax Authority and the Customs Authority. The committee’s responsibility is to verify whether the mentioned machinery, equipment, or production lines are indeed disassembled or disassembled and represent machinery, equipment, or production lines. This process is initiated by submitting a written statement from the relevant authority, confirming that the previously paid amount (14%) as a deposit represents machinery, equipment, or production lines. The tax settlement is then conducted according to the following criteria:

1. 1- Refund the previously paid tax as a deposit (14%) if it is proven through inspection that these pieces of equipment were used in industrial production during the tax payment suspension period.
2. 2- Refund 9% and settle 5% as a fixed percentage if it is proven through inspection that these pieces of equipment were used in industrial production after the tax payment suspension period has expired.
3. 3- Refund 9% and settle 5% as a fixed percentage if it is proven through inspection that these pieces of equipment were used for producing goods other than industrial production or for providing services.
4. 4- Settle the tax from the deposit amount of 14% as a fixed percentage if it is proven through inspection that these pieces of equipment were used for purposes other than those specified above.

• The decision also distinguishes between the guidelines that must be followed when using machinery, equipment, and production lines for trading purposes as opposed to industrial production, as follows:
• Trading Purpose: If this equipment are imported for trading purposes, the importer must provide documents indicating the supply to the product’s manufacturer or service provider, as mentioned above. In addition, the supply order issued by the product manufacturer or service provider to the importer, or the contract between them, must be endorsed by the relevant authority.
• Failure of the importer to provide these documents exposes them to paying a tax at a rate of 14% as a guarantee. Upon submission of these documents, a tax settlement is conducted after the sale and inspection.

• Industrial Production Purpose: Tax payment on machinery, equipment, and production lines is suspended in accordance with the provisions of the Value Added Tax Law and its executive regulations. In addition to the requirement to provide documents indicating the supply to the product’s manufacturer or service provider; the buyer has the right to request from the seller or the relevant customs authority not to suspend the tax due on them and to pay it at a rate of 5%, provided that the Tax Authority verifies their use for the intended purpose.

If these equipment are used in the production of non-industrial goods, a tax of 5% is levied on local purchases, and they are subject to the standard VAT rate or specific VAT categories, or both, when used in the production of goods or the provision of services.

To conclude, this article aims to highlight that this decision contributes to improving the business environment in Egypt and increasing trust between investors and companies. By providing a more effective and transparent system for Value Added Tax applied to machinery, equipment, and production lines, it promotes economic activity and stimulates investment.

Should you have any further questions about this alert, please feel free to reach out to one of our experts.

Contact Us