VAT in Egypt: Changes and Implications

What is VAT in Egypt? VAT, or Value Added Tax, is a broad-based consumption tax levied on the value added to goods and services at each stage of production and distribution. In Egypt, VAT was introduced through Law No. 67 of 2016 on September 7, marking a significant transformation from the previous General Sales Tax system.

On September 7, 2016, Law No. 67 on Value Added Tax (VAT) in Egypt was issued in the Official Gazette in issue number 35 repeated J, which cancels the General Sales Tax Law No. 111 of 1991. This marks the beginning of a new tax period with different transactions and VAT rates in Egypt. In this law, some tax concepts and rates have been amended, and the name has changed from General Sales Tax to Value Added Tax.

As a result, the VAT rates in Egypt have been changed from 10% to 13% starting from September 8, 2016. Furthermore, these rates were increased to 14% and implemented on July 1, 2017. This applies to all goods and services except those classified under Table tax first and Table tax second:

• Table Tax First: Includes goods subject to different rates than the general price.
• Table Tax Second: Includes some goods and services subject to specific rates, in addition to a 14% value-added tax. In addition to the rate adjustments, 58 items were exempted from VAT, providing relief to specific sectors.

Submitting Value Added Tax Declarations Electronically

The Egyptian Tax Authority has introduced a new system for submitting electronic Value Added Tax declarations starting from January 2019. It is now mandatory for all taxpayers; the manual submission of VAT declarations will no longer be accepted, except through the Egyptian Tax Authority’s website. This change reflects the ongoing modernization of the tax system, including the VAT threshold in Egypt, which businesses need to be aware of.

Electronic Invoices Implementation

With the developments taking place in the tax environment in Egypt, new mechanisms have been introduced to facilitate the submission of VAT returns for both taxpayers and the tax authority. This has been done through the implementation of the electronic invoicing system, in accordance with Law No. 206 of the Unified Tax Procedures Law, Article 35.

The implementation of this system has been carried out in several stages, starting from 2020, as per Decision No. 188, which mandates the issuance of electronic invoices and receipts, in compliance with the technical and legal requirements set by the head of the tax authority.

VAT Threshold in Egypt

To enhance the ease of submitting tax returns and utilizing electronic invoices, and to provide further facilitation for taxpayers, certain amendments have been made to Law No. 67 of 2016, the Value Added Tax Law. These amendments were introduced through the issuance of Law No. 3, effective from January, as published in the Official Gazette No. 3, dated January 26.

According to this law, special economic zones with specific tax privileges, similar to those enjoyed by free zones, have been granted these privileges. The VAT threshold in Egypt has been suspended for machinery and equipment purchased from the local market for a renewable period of one year. If it is determined that this machinery and equipment have been already used in manufacturing, they will be exempted from VAT. This provision encourages economic growth in these special areas by granting them the same tax privileges applied to free zones. This tax is known as the ” Table tax ” and the landlord is required to remit it to the tax authority.

Conclusion

The issuance of Law No. 67 on Value Added Tax in September 2016 marked a significant shift in Egypt’s tax landscape, replacing the General Sales Tax and introducing various changes in tax concepts, rates, and exemptions. The transition from 10% to 13% and later to 14% VAT rates, along with the introduction of electronic tax declarations and e-invoices, aimed to modernize and streamline the taxation system. Special economic zones were granted tax privileges to boost economic growth, while the incorporation of certain provisions from the Stamp Tax Law into the Value Added Tax Law in Egypt reflected a shift in tax treatment. These changes, including the imposition of a 1% tax on commercial property transactions, have had a profound impact on Egypt’s taxation framework, fostering a more efficient and structured tax system in the country.

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