Real Estate VAT Amendments in Egypt Under Decision No. 639
Minister of Finance Decision No. 639 of 2026 provides important guidance on the VAT treatment of real estate leasing in Egypt. Issued on 5 November 2026, it amends the Executive Regulations of VAT Law No. 67 of 2016, following the changes introduced by Law No. 149 of 2026. Its principal relevance for landlords and business tenants lies in the interpretation of Item 28 of the VAT exemption list: the tax treatment turns on how the leased premises are used, not simply whether the lease describes them as “administrative” or “commercial”.
The Decision draws a particularly significant distinction between premises used as an independent location for managing an activity and premises in which management and the underlying activity are carried out together. It also explains when a taxable lease falls within the 10% schedule-tax category. These distinctions should guide contractual reviews, VAT classification and invoicing.
How Law No. 149 of 2026 Changed the Exemption
Previously, Item 28 broadly exempted the sale and leasing of vacant land, agricultural land, buildings and residential and non-residential units. Law No. 149 of 2026 retained the general property exemption but excluded leases of buildings or units taken as independent premises for managing an activity. It preserved special treatment for premises used to manage religious, charitable, social, educational and healthcare activities, alongside other activities designated under the statutory procedure.
Law No. 149 was published on 28 July 2026 and came into force on 29 July 2026. Ministerial Decision No. 639, by contrast, states that it takes effect on the day following its publication in the Egyptian Gazette. Its date of issue, 5 November 2026, should not be treated automatically as its commencement date without checking the relevant Gazette publication.
The Decisive Clarification under Decision No. 639
Article 1 of Decision No. 639 replaces the explanation of Item 28 in Article 78 (Secondly) of the Executive Regulations. The revised text identifies exempt categories, including leases of vacant and agricultural land, residential property leases and sales of non-residential buildings or units. More importantly, it expressly addresses two types of non-residential lease that may look similar in practice but have different consequences.
First, the exemption covers the leasing of non-residential buildings or units used for commercial, industrial, professional or other activities, provided they are not taken as an independent location for managing any activity. It also covers premises taken as a location for management and the activity together, whether or not they possess a commercial character and maintain customer relationships. Accordingly, a shop or operating site does not become taxable merely because administrative tasks are undertaken there.
Secondly, the Decision expressly denies the Item 28 exemption to non-residential buildings or units taken as an independent location for managing an activity, regardless of whether they have a commercial character or customer relationships. The central question is therefore whether the premises are genuinely a standalone management location, rather than the name given to them in the lease or their classification in a property register.
Which Premises are Affected in Practice?
A separately leased corporate headquarters or independent management office is the clearest example of a property requiring taxable-lease analysis. By contrast, a retail shop, workshop, showroom or professional practice used for the underlying activity, including its day-to-day management, may remain within the exemption. Residential leasing remains exempt. Premises used to manage the specifically protected religious, charitable, social, educational and healthcare activities also benefit from the relevant exemption.
Borderline cases remain fact-sensitive. An office attached to a warehouse, a dedicated management floor in a retail establishment or separately leased offices within an operating facility may require examination of physical separation, actual functions, lease terms and supporting records. The Decision does not set a numerical test or a universal rule for all mixed-use arrangements.
The 10% Schedule Tax
The final paragraph of the amended Item 28 explanation provides that taxable buildings and units having a commercial character and a connection with customers are subject to schedule tax under Item 15 of Part One of the schedule annexed to the VAT Law, at 10% of the rental value of the building or unit. This is a specific schedule-tax treatment, not a statement that every commercial lease attracts 10% VAT.
The text makes the commercial character and customer connection relevant to the schedule-tax classification; the loss of the leasing exemption, however, rests on use as an independent management location. Where a management-only location lacks the characteristics specified for the 10% category, the applicability of the general 14% VAT rate should be assessed against the Law and other relevant provisions rather than assumed from Decision No. 639 alone. The 10% schedule tax must not be conflated with ordinary output VAT.
A landlord whose rental activity falls outside the exemption should review whether registration is required, the correct tax category and the applicable invoice and return requirements. The general EGP 500,000 registration threshold under Article 16 should not simply be assumed to govern every schedule-tax supply; special registration provisions may be relevant. Landlords should retain the lease, evidence of the property’s actual use and documentation supporting the selected classification.
For corporate tenants, tax charged on a lease is not necessarily recoverable in the same way in every case. Ordinary VAT input-tax deduction is subject to the statutory conditions and restrictions, while schedule tax has a distinct legal treatment. A tenant should not presume that the 10% schedule tax may be deducted as ordinary input VAT. Proper invoices, payment evidence and records establishing the connection with taxable business activities remain essential.
Existing Leases and Contractual Allocation of Tax
Neither the legislative amendment nor Decision No. 639 states that every lease signed before the reform automatically becomes taxable. The correct approach is to classify the premises and assess supplies, rent instalments and any advance payments by reference to the operative dates and applicable VAT tax-point rules. Periods completed before the legislative change should not be treated as retrospectively taxable merely because an agreement continues afterwards.
Separately, statutory responsibility for accounting for tax should be distinguished from who ultimately bears its cost under the lease. Whether the landlord can add tax to an agreed rental amount depends on the contract’s tax, gross-up and inclusive-price clauses and the applicable law. Parties should review existing terms before issuing revised rental demands or accepting additional charges.
Conclusion
Decision No. 639 of 2026 makes the distinction between standalone management premises and premises used for management and business operations together central to Egypt’s VAT treatment of property leases. It also introduces an express regulatory explanation of the 10% schedule tax for qualifying taxable premises with a commercial character and customer relationships. Landlords and tenants should document the actual use of each property, revisit lease provisions and check registration, invoicing and input-tax positions. This targeted review is more defensible than treating all administrative or commercial rentals as subject to one uniform tax rule.
Frequently Asked Questions
How does Decision No. 639 of 2026 affect VAT on real estate leasing in Egypt?
+
Minister of Finance Decision No. 639 of 2026 amends
the Executive Regulations of VAT Law No. 67 of 2016
following the changes introduced by Law No. 149
of 2026. It clarifies that the VAT treatment of
non-residential property leases depends primarily
on the actual use of the premises. In particular,
it distinguishes between properties used as
independent locations for managing an activity
and properties used for management and business
operations together. This distinction determines
whether the leasing exemption under Item 28 applies.
Are commercial and administrative property leases exempt from VAT in Egypt?
+
Not all commercial and administrative leases receive
the same VAT treatment. Under the amended Item 28,
leases of non-residential premises used for commercial,
industrial, professional or other activities may
remain exempt where the premises are not taken as
an independent location for managing an activity.
Properties used for both management and the
underlying business activity may also qualify
for the exemption. However, premises leased
exclusively as an independent management location
fall outside the Item 28 exemption, subject to
the relevant statutory exceptions. The contractual
description of the property does not, by itself,
determine its VAT treatment.
What is the difference between standalone management offices and mixed-use premises?
+
A standalone management office is a separately
used location dedicated to managing an activity,
such as an independent corporate headquarters.
Such premises generally fall outside the leasing
exemption under Item 28.
By contrast, premises where management and
the underlying business activity are carried
out together, such as a retail shop, workshop
or professional practice, may remain exempt.
Borderline arrangements require examination
of the property’s actual functions, physical
separation, contractual terms and supporting
records. Decision No. 639 does not establish
a universal numerical test for mixed-use premises.
When does the 10% schedule tax apply to property leases in Egypt?
+
Under the amended explanation of Item 28, taxable
buildings and units that have a commercial character
and a connection with customers are subject to
schedule tax at 10% of the rental value under
Item 15 of Part One of the schedule annexed
to the VAT Law.
However, this does not mean that every commercial
property lease is automatically subject to 10%
tax. The exemption must first be assessed based
on the actual use of the premises.
Where a taxable management-only location does
not meet the conditions for the 10% schedule-tax
category, the potential application of the
general 14% VAT rate must be assessed under
the relevant provisions of the VAT Law.
What are the VAT registration and input-tax implications for landlords and tenants?
+
Landlords whose rental activities fall outside
the VAT exemption should assess their registration
obligations, the applicable tax classification,
and the relevant invoicing and return requirements.
The general EGP 500,000 VAT registration threshold
should not automatically be assumed to apply
to every schedule-tax supply, as special
registration provisions may be relevant.
For tenants, the recoverability of tax charged
on rent depends on the applicable statutory
conditions and restrictions. In particular,
the 10% schedule tax should not automatically
be treated as deductible ordinary input VAT.
Both parties should retain valid invoices,
lease agreements, payment evidence and
documentation establishing the actual use
of the leased premises.
Do the new VAT rules apply to existing lease agreements in Egypt?
+
Existing lease agreements do not automatically
become taxable merely because they were signed
before the legislative changes and remain
in force afterwards.
Landlords and tenants should assess the actual
use of the premises, the relevant commencement
dates, rental instalments, advance payments
and applicable VAT tax-point rules.
Law No. 149 of 2026 came into force on
29 July 2026, while Decision No. 639 of 2026
takes effect on the day following its
publication in the Egyptian Gazette.
The parties should also review their lease
provisions concerning taxes, inclusive rental
prices and gross-up clauses to determine
who contractually bears any additional tax cost.
Rental periods completed before the legislative
change should not be treated as retrospectively
taxable solely because the lease continues.
Add Andersen in Egypt to Google Preferred Sources
Make us your preferred source to ensure you always get accurate
information. Access our peer-reviewed, highly reputable, and
unique research directly through Google.
Add
To find out more, please fill out the form or email us at: info@eg.Andersen.com
Contact Us
