Value Added Tax (VAT) in Egypt: Overview of Rates and Exemptions

The value-added tax (VAT) in Egypt is an indirect charge applied to the importation and supply of goods and services at every stage of production and distribution, with certain exceptions. This tax on consumption is paid and collected at each point in the supply chain, starting from the manufacturer’s purchase of raw materials and ending with the sale of the final product to the consumer by the retailer.

Obligations of Taxpayers Dealing in VAT-Applicable Goods: Individuals Subject to Value-added Tax Must Adhere to the Following

• Collect VAT from their customers on each taxable sale according to the determined tax rate.
• Pay VAT to suppliers from whom they have received goods or services—if any—on each taxable purchase, equivalent to the specified tax rate. When VAT-registered individuals sell a product or provide a service, they must impose a tax of 14%, assuming that the basic rate applies to those supplies. This tax is added to the final sale price. These VAT-registered individuals must calculate the 14% tax they receive from taxable sales separately from their revenues, to be later paid to the tax authority. The VAT collected by registered individuals on their sales is called output tax.
• The purchases made by VAT-registered individuals also include a 14% VAT on the goods and services they buy, assuming the basic rate applies. The VAT paid to their suppliers is known as input tax.

VAT Rate

The general tax rate on goods and services is 14%, except where a specific provision in the law states otherwise. Currently, there are no plans or studies to increase the tax rate.

(Countries often seek to increase tax revenue by raising tax rates, which may not be well-received by investors, leading to concerns, withdrawal of investments, or shifting investments to other countries. However, it is possible to increase tax revenue without raising tax rates by opening new doors for investments and creating a conducive environment for it. This includes building trust between investors and the state and combating tax evasion while establishing a permanent mechanism for resolving tax disputes).

• To encourage industry, the state has reduced the general tax rate to 5% on machinery and equipment imported from abroad or purchased locally, provided they are used solely for industrial production or service purposes.
• In pursuit of expanding and intensifying international trade and investments, a zero-rate VAT has been imposed in the following cases:
• Goods and services exported outside the country.
• Projects in free zones, cities, and special economic areas for goods and services imported from abroad or the local market, necessary for conducting the licensed activity within these areas, excluding passenger cars.
• Free zones, cities, and special economic areas for goods and services exported outside the country.

This is all subject to certain conditions specified in the executive regulations, which must be observed to qualify for the zero-tax rate.

VAT Registration Provisions

1. Mandatory Registration:

• Registration When Taxable Sales Exceed the Registration Threshold: The VAT law encompasses every natural and legal person who sells a taxable good or provides a taxable service, with sales exceeding EGP 500,000 over twelve months. These persons must apply to the authority for registration.
• Mandatory Registration from the Start of Activity: Importers of taxable goods and services, regardless of the purpose of importation.
• Special Registration Provisions: Non-residents who sell goods and services to an unregistered person in Egypt and do not engage in business through a permanent establishment in Egypt fall under the simplified supplier registration system. A registration number is issued to the non-resident, and a registration certificate in the VAT Model 3 is issued.

(The simplified supplier registration system was established to ensure tax collection and protect the state’s budget rights. The scope of tax refund was expanded to include the establishment of rules and procedures for refunding taxes to non-resident suppliers, affirming that Egypt offers the highest levels of credibility and transparency at both local and regional levels).

2. Voluntary Registration:

The law offers significant flexibility to taxpayers, allowing those who have not reached the registration threshold to apply for registration, provided they meet certain conditions, most importantly:

• The volume of their transactions over the twelve months should not be less than EGP 150,000, or their paid-up capital should not be less than EGP 50,000.

3. Taxpayers Not Required to Register for VAT:

The VAT law excludes specific cases from mandatory registration, such as:

• Producers, importers, service providers, and traders whose activity is limited to exempt goods and services.
• Traders whose activity is limited to goods and services subject only to the schedule tax.
• Non-obligated natural persons who do not engage in the sale of goods or the provision of services, even if their sales exceed the registration threshold.

VAT Input Deduction

The VAT deduction philosophy is not limited to direct inputs only; it also extends to indirect inputs (indirect production and operation costs, sales and distribution costs, and general and administrative expenses).

By expanding the deduction mechanism, a key pillar of the VAT law, the state has created a favorable investment climate, aligning with global taxation systems and reinforcing the principle of tax fairness.

VAT Exemptions

The law provides broad tax exemptions to encourage investment, which can be categorized as follows:

• Exemptions for Specific Entities: The VAT law exempts certain entities due to their significant and effective roles for the state, such as embassies and diplomatic and consular members.
• Exemptions for Essential Goods and Services: This exemption applies to basic food commodities for citizens (57 essential commodity groups) and essential services such as education, healthcare, and land transportation, easing the burden of living since the final consumer bears the VAT.
• Exemption for Banking, Financial, and Financing Activities: To encourage investment in Egypt, the law exempts financial, financing, and banking activities, including:
• Banks
• Insurance and Reinsurance Companies
• Mortgage Financing
• Factoring
• Securitization
• Futures Exchanges
• Capital Markets
• Exempts medicines and the materials used in their production based on a decision issued by the Egyptian Drug Authority.
• Sales and leases of vacant land, agricultural land, and residential and non-residential buildings and units are also exempt.
• Other exemptions will be discussed in more depth in future articles.

It is noteworthy that tax exemptions resulted in a revenue loss of around EGP 440 billion in 2023, representing about 4.3% of the GDP, with approximately EGP 277 billion attributed to VAT exemptions alone.

Schedule Goods (Table tax)

Schedule goods are supplementary and recreational items specified by Law 67 of 2016. They are taxed only once upon the first sale or importation and are not taxed again unless there is a change in the condition of the goods.

Types of Schedule Goods

• Goods and services subject only to the schedule tax, such as tobacco, oil products, and vegetable oils.
• Goods subject to the schedule tax and then VAT, where input tax is deducted only from the VAT, such as soft drinks, air conditioning units, and mobile network services.

Conclusion

The value-added tax is an indirect tax and one of the most critical tax systems in Egypt, ranking first in the state’s budget revenues. We hope the new government continues to develop the electronic system, simplifies the tax refund process for taxpayers, and revisits it in line with economic changes to achieve tax stability.

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