VAT to be introduced in Egypt
The Egyptian Parliament has passed a new VAT law to replace the previous sales tax, with immediate effect. The rate has been set at 13%, which will increase to 14% from 1 July 2017 and all businesses with a turnover in excess of EGP 500k p.a. will be required to register.
Those businesses that were registered under the old sales tax law will be automatically registered under the new VAT law and retain the same registration number.
The law provides for a reduced rate of 5% on machinery and equipment which are used to manufacture goods in Egypt or to render a service. The law provides relief from penalties for a 3 month transitional period to allow businesses to adapt to the new provisions.
The introduction of VAT has been flagged for some time, and was a key recommendation from the IMF who have provided substantial loans to Egypt. It also precedes the proposed introduction of VAT in the GCC States which is scheduled for early next year.
Non-residents making supplies in Egypt are required to appoint a fiscal agent and failure to do so will expose the Egyptian customer to a liability for the tax. A reverse charge mechanism will apply to imported services but where these are consumed in the making of taxable supplies there will be an immediate right of deduction, and unlike the previous system, the VAT law provides for a deduction of input tax.
There are some exemptions for basic goods and services which impact low income earners, but otherwise it is a broad based tax that will apply to more goods and services than the previous sales tax. However some goods and services will also be liable to the Schedule Tax which is applied in addition to the VAT, and these are mainly luxury items such as certain soft drinks, large screen TV’s, air conditioners, mobile telecommunications and luxury cars.
Other items remain subject to the Schedule Tax only including, internal transport, tobacco & cigarettes, petrol & diesel, construction and professional services & consulting.
Many financial services are also exempt from VAT, including banking services that are restricted to banks, insurance & re-insurance, factoring, real estate finance and financial leases.
When added to the new legislation in India (from 1 April 2017) it leaves the US as the only major economy without a VAT system, although we have seen the issue being raised again in the run up to the US election next month, and depending on the outcome on November 8th tax reform may well be on the agenda of the incoming president.
For more information, contact:
Head of Tax Markets
M:+27 (0)82 686 9345
Head of Indirect Tax
M: +27 (0)82 851 6587