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Egyptian Parliament Examining VAT Legislation

The Egyptian parliament is currently examining the legislation to introduce a value added tax (VAT) and repeal the Sales Tax Law. The main aspects of the current draft legislation are as follows.

Rate and Registration Requirements

  • The standard VAT rate will be 12% to 14% (final rate will be determined by parliament after the impact examination is completed);
  • The general VAT registration threshold is sales of EGP 500,000, with taxpayers already registered for sales tax automatically maintaining their registration for VAT purposes if meeting the new threshold;
  • Traders and importers required to register for sales tax must maintain registration for VAT (EGP 150,000 threshold for traders, no threshold for importers).

Goods and Services Subject to VAT

  • VAT will apply on all goods and services, unless specifically exempted;
  • Services subject to VAT are defined as any work done not classified as goods, which includes transactions involving professional, consulting, and training services, shared services, advertising, and intellectual property transactions;
  • Exemptions will apply for basic commodities, education and healthcare services, banking and financial leasing services, and approximately 90% of food commodities.

Non-Resident Suppliers

  • Supplies made by non-resident suppliers are subject to VAT, with the non-resident supplier required to appoint a tax representative to fulfill the VAT obligations;
  • If a representative is not appointed, the reverse charge will apply (recipient accounts for the VAT due)

VAT Administration

  • VAT declarations are required monthly;
  • The penalty for late payments is 1.5% per month;
  • The statute of limitations for the tax authority to amend a declaration is five years; and
  • Refunds are available if a balance has been maintained for more the six months.

The parliament is expected to approve the VAT legislation in September, with the required executive regulations issued within one month of approval. The switch to VAT is expected to be effective from 1 January 2017.

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