The Value-Added Tax Rate Imposed on Machines, Equipment, and Production Lines
Resolution number 115 of 2023
On March 2, 2023, the Minister of Finance issued resolution number 115 of 2023 regarding the amendment of the value-added tax rate imposed on machines, equipment, and production lines purchased from the local market or imported from abroad and used in the production of goods or the provision of services, at a rate of 5%. However, the producer of the goods or the service provider must provide the local seller or customs authority with documents proving their activity, which include:
A) An approved document from the relevant technical entity of the goods producer or service provider confirming that the machines, equipment, or production lines are used in the production of goods or services.
B) A registration certificate of the goods producer or service provider with the Egyptian Tax Authority (Value Added Tax) or the tax card.
The decree stipulates that in order to apply a 5% tax on machines, equipment, or production lines, customs authorities must be able to verify that any dismantled or disassembled equipment received represents a machine, equipment, or production line; If it is found otherwise, the tax will be collected at a rate of 14% as a deposit until the tax settlement is completed. Also, if disassembled equipment is purchased from different suppliers in the local market, a tax of 14% will be imposed on it until the tax settlement is completed.
The decree established the process for tax resolution, which will be undertaken by a joint committee comprised of tax and customs authorities. This committee will first verify that any disassembled or fragmented equipment is indeed a machine, equipment, or production line in ,and a letter from the appropriate authority confirming that the 14% payment made as a guarantee represents a machine, equipment, or production line will be required. The tax settlement process will then proceed as follows:
- 1- Refund of the previously paid tax as a guarantee (14%) if it is found during the inspection that the equipment was used in industrial production activity during the tax suspension period.
- 2- Refund of 9% and the settlement of 5% if it is found during the inspection that the equipment was used in industrial production activity after the tax suspension period has expired.
- 3- Refund of 9% and the settlement of 5% if it is found during the inspection that the equipment was used in producing goods other than industrial production or services.
- 4- Tax settlement from the guarantee amount of 14% if it is found during the inspection that the equipment was used for purposes other than those mentioned above.
- The decree also distinguished the procedures to be applied when using machines, equipment, and production lines for commercial trading purposes compared to those used for industrial production purposes, as outlined below:
- For trading purposes: If the equipment is imported for trading purposes, the importer must provide the documents proving the supply to the goods producer or service provider mentioned above, in addition to the supply order issued by the goods producer or service provider to the importer or the contract between them, and approved by the relevant entity. Failure to provide these documents exposes the importer to pay a tax of 14% as a guarantee, and when they are provided, a tax settlement is carried out after sale and inspection.
- For industrial production purposes: The tax is suspended on devices, equipment, and production lines according to the provisions of the Value-Added Tax Law and its implementing regulations. Along with the requirement to provide documentation proving the supply to the goods producer or service provider, the buyer can request the local seller or competent customs authority not to suspend the due tax and pay it at a 5% rate if the tax authority verifies its intended use.
If such equipment is used to produce non-industrial goods, a 5% tax is imposed on local purchases, subject to the general value-added tax price and tax categories or both when used in producing goods or providing services.
To conclude, this article aims to highlight that this decree contributes to improving the business environment in Egypt and increasing confidence between investors and companies by providing a more effective and transparent system for the value-added tax imposed on machines, equipment, and production lines. As a result, it enhances the economic activity and stimulates investment.
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