Value-added tax (VAT)
The standard VAT rate is 14% as of the financial year 2017/18 (i.e. as of 1 July 2017; previously 13%). The standard rate is applicable to all goods and services; however, the reduced VAT rate of 5% is applied to the machinery and equipment that are necessary for producing goods or providing services. As per the amended VAT law no. 3 for the year 2022, the 5% reduced rate of the machinery and equipment that was used for the purpose of industrial production activities is suspended for one year from the importation date and might be extended for a further one year. Then, such machinery and equipment may be exempt from VAT in case it has been proved that they are only used for industrial production activities; otherwise, the due VAT should be paid alongside the due additional tax.
It's important to note that the exported goods and services are to be subject to 0% VAT.
The VAT law exempts a number of basic goods and services that affect low-income earners (in addition to other exemptions listed within the law).
Further, the VAT law includes a reverse-charge mechanism, whereby transactions involving non-residents providing services/royalties to Egyptian resident entities are subject to VAT in Egypt.
Also based on the newly issued updates, VAT at the rate of 14% is imposed on the advertisements services that were exempted before.
It’s worth noting that the new amendments to VAT issued by virtue of law no. 3 include new concepts to VAT, such as the simplified vendor registration system, which every non-resident and unregistered person who does not perform through a PE in Egypt to sell a good or provide services is required to apply for.
Also, for the reverse-charge concept, it’s critical to mention that the physical representative concept is no longer required based on the new amendments clarifying the reverse-charge concept.
Simplified Vendor Registration System (SVRS)
This simplified system should be enforced within six months for services and within two years for commodities from the effective date of the law.
According to the aforementioned law, every non-resident and an unregistered person who does not practise an activity through a permanent establishment in Egypt and sells goods or provides taxable services to a person who is not registered inside the country is obliged to apply for registration under the simplified vendor registration system as specified by the executive regulations.
The non-resident and unregistered person or his representative shall fill and submit the relevant application through the tax authority’s portal.
- The tax authority shall verify the submitted applications, and any incomplete applications shall be temporarily registered.
- The tax authority shall maintain a register for recording the completed or even pending requests.
- A registration number shall be assigned to the non non-resident and unregistered persons, then a registration certificate
(form no.3 VAT) shall be issued along with a notification to be sent via form no. (1/13 VAT).
- Non -residents who are not applied for the simplified vendor registration system shall be treated as registered in this system, as soon as their sales value reaches the registration threshold, and they will be recorded in the aforementioned register, then they will be notified by the tax authority via form no. (1/13).
Electronic filing of VAT returns
The Egyptian tax authority (ETA) has introduced a new e-filing system for the submission of the VAT returns; consequently, taxpayers will be required to submit their VAT returns (i.e. monthly VAT and/or schedule returns) electronically through the ETA’s website, starting from January 2019. Accordingly, the manual filing of VAT returns will not be accepted as of the mentioned date.
The account created by taxpayers for the e-filing of CIT returns shall be used to access the ETA’s website. Such an account will provide taxpayers access for the e-filing of all relevant taxes, including VAT. Taxpayers will be required to register on the ETA’s website to create an online account for the e-filing procedures. Upon filing the online VAT return, taxpayers should pay the VAT amount due through regular bank transfers and then enter the details of the payment on the ETA’s website to finalise the VAT e-filing process.
As per the unified tax law article no. 35, taxpayers are required to use the e-invoicing system with regard to all the performed transactions whether by issuing an e-invoice/e-receipt.
As per the Ministry of Finance decree no. 188 on 26 March 2020, taxpayers are required to issue their invoices electronically as per the technical and legal requirements that were issued by the head of the ETA.
In November 2020, the ETA started applying the e-invoicing system gradually in phases. The decision includes the steps and conditions needed to be followed by the taxpayers. The decree also mentioned that the non-selected companies can voluntarily join the phase in order to apply the new e-invoicing system, provided that the required conditions and steps declared in the decision are fulfilled. Recently, it was announced that all Egyptian entities should be applying the e-invoicing system before the end of financial year 2022.
The liability for customs duty rests with the person who is importing the goods from abroad.
Customs duties are imposed on imported goods at rates that vary according to official categories. Average rates of duties range between 0% and 60% of the cost, insurance and freight (CIF) value.
Higher rates (up to 135%) are applied for passenger cars, nonessential and luxury consumer goods, and alcoholic beverages.
With regard to the importation of machines and equipment to be used for industrial purposes, the rate of customs duty that applies in this case ranges from 0% to 5% depending on the exact type of the good (determined according to its customs code). However, it is worth noting that trucks and heavy equipment are generally subject to customs duty between the rates of 10% and 20%.
In Egypt, the government is flexible with importing second-hand equipment, with an aim to encourage foreign investment.
VAT applies on such imported products at 14% of the customs/import duty paid (the VAT base will be based upon the invoice value CIF, the customs duty, and other taxes).
A contractor who intends to re-export plants and equipment after expiration of a contract may import the plant and equipment into Egypt free of customs duties if certain requirements were met.
Under all circumstances, a fee at a rate of 2% monthly and up to 20% annually of the amount of customs duty due is imposed for each year or partial year the plant or equipment remains in Egypt before re-export. Note that it is effective for a period of one year and may be renewed after the approval of the Customs Authority.
Also, customs tax amounting to 1% of the stipulated customs tax on the date of the temporary release shall be collected for every month or part thereof with a maximum of 10% annually for equipment, new and renewable energy components, and their spare parts.
Under the Egyptian VAT law no. 67 for the year 2016, an excise tax was introduced as special tax rates imposed on certain products and services.
The excise tax (which is also called schedule tax or table tax) should be imposed only once on the listed products and services (e.g. professional services, construction services, processed potatoes), and it should only be imposed once more if there was a change in the product status. The excise tax is solely applied on specific listed items while it could be applicable in addition to the normal 14% VAT on some other items (e.g. air conditioners).
The excise tax should not be considered as a recoverable input tax, nor should it be deducted against incurred input VAT, with very limited exceptions.
Real estate taxes
The Real Estate Tax Law takes into consideration the different variables that can affect the value of a property, such as location, value of similar buildings, and the economic situation of the district in which the property is located. This is to be updated every five years (most recently in August 2014).
Real estate tax is levied annually on all constructed real estate units, with the exemption of schools, orphanages, charitable organisations, and private residences with a market value of less than 2 million Egyptian pounds (EGP). This tax covers land and buildings, excluding plant and machinery.
Such tax is assessed based on the rental value of the land and building, and these value assessments are set by the committees, after approval of the Minister or whomever the Minister delegates, and published in the Official Journal. Based on the announcement, any taxpayer can appeal the rental value assessment.
The real estate tax rate is 10% of the rental value, and the calculation of the rental value differs for residential units and non-residential units. Specific percentages of deductions are provided by the law to account for all the expenses incurred by the taxpayer, including maintenance costs.
The real estate's definition was recently amended to replace the original land spaces’ provision by the following: 'Actually exploited lands, whether independent or attached to buildings, fenced or not (as determined by the relevant executive regulations).'
In addition, a new article was recently introduced to the Real Estate Tax Law, allowing by means of a decision from the Egyptian Cabinet, real estate tax exemption for the real estate actually exploited in the production and services activities stated by the Egyptian Cabinet, provided that the decision includes the below, for each production or service activity:
- The percentage of exemption.
- Its duration.
There are two distinct types of stamp tax, which are imposed on legal documents, deeds, banking transactions, company formation, insurance premiums, and other transactions, as follows:
- The nominal stamp tax is imposed on documents, regardless of their value. The tax rate for items such as contracts is approximately EGP 1 for each paper (per each copy of the document).
- Percentage or proportionate stamp tax is levied based on the value and nature of the transactions.
An annual proportional stamp tax at the rate of 0.4%, shared by the bank and the client, is imposed on a bank's loans. This stamp tax is due on a quarterly basis on the beginning balance of each quarter of credit facilities and loans and advances provided by Egyptian banks or branches of foreign banks during the financial year in addition to the amounts utilised within the quarter.
Loans from other establishments are not subject to this tax.
With the introduction of law No.30, minor changes took place with regards to the stamp tax law no.111 for 1981, namely, the following:
1% on each life insurance premium and 2% on each premium on illnesses, bodily injuries or related civil liability, and on compulsory insurance premiums of any kind.11% (previously 10%) of the insurance consideration for land, river, sea, and air transport, with a minimum of one pound.
11% (previously 10%) on each premium of other insurances and the consideration of these insurances, including insurance against war risks, with a minimum of one pound.
Stamp tax on the disposal of financial securities
Stamp duty is enacted on the disposal of shares as per the publication number 24 in the official gazette published on 19 June 2017. As per the publication, such stamp duty is imposed on the total proceeds (i.e. value of the transaction) from buying or selling any kind of stocks/securities (with very limited exceptions for the T-bills and T-bonds), regardless of whether they are Egyptian or foreign, listed or non-listed, without deducting any costs, where buyer and seller should each apply the stamp duty on the total proceeds realised.
This type of stamp tax has also been among the changes announced by the Egyptian government, as explained in the Significant developments section.
Based on the law, resident investors trading in or holding Egyptian shares/securities unlisted on the EGX and whether buyers or sellers should be subject to 0.05% stamp tax on the total proceeds realised without deducting any costs (for the transactions involving less than 33% of a company's shares). On the other hand, resident investors trading in or holding Egyptian shares/securities listed on the EGX are exempt from the stamp tax for the transactions involving less than 33% of a company's shares (the 0.05% that used to apply on listed shares has been abolished starting 1 January 2022).
On the other hand, non-resident investors trading in or holding Egyptian shares/securities (whether listed or unlisted on the EGX and whether buyers or sellers) should be subject to 0.125% stamp tax on the total proceeds realised without deducting any costs (for the transactions involving less than 33% of a company's shares).
On the other hand, in case any of the below-mentioned conditions are met, then the rate of the stamp duty to be imposed in such case should be 0.3%:
- If the sale and purchase transaction involves 33% or more of the value or the number of shares or voting rights in a resident company, or
- If the sale and purchase transaction involves 33% or more of the assets or the liabilities of a resident company by another resident company in return of shares in the acquiring company.
In both cases above, the buyer and seller (i.e. the party exceeding the threshold) should each pay the 0.3% stamp duty on the gross transaction value without deducting any costs.
There is no payroll tax other than the employer’s social insurance contribution (see below).
Social insurance (employer’s contribution)
The social insurance contribution of the employer is 18.75% of the total social insurance salary.
Comprehensive health insurance system contributions
Egypt is embarking on implementing a new comprehensive health insurance system, starting from 2019. The law behind the new health insurance system entered into force on the 12 July 2018. This new system will be implemented within a 15-year period and over six phases. Each phase will comprise five governorates at a time, whereby Cairo and Giza governorates, among others, will be in the final phase of implementation. The new health insurance system will be financed through several sources and among them are the following:
- A contribution of 0.25% of total annual revenues to be paid by all entities, and such contribution cannot be deducted as an expense for CIT purposes.
- EGP 0.75 of the value of each pack of cigarettes sold (local/ foreign), and such value shall be increased every three years until it reaches EGP 1.50.
- 10% of the value of each unit sold from tobacco cut-filler products (other than cigarettes).
- Fees, ranging between EGP 1,000 and EGP 15,000, paid by hospitals, medical clinics, treatment centres, pharmacies, and pharmaceutical companies to subscribe to the new health insurance system.
Individuals who wish to benefit from the new health insurance system will be required to pay a subscription fee, depending on the category they fall in, as detailed below:
- The employer will pay a subscription of 4% of the employee’s portion of the salary subject to social insurance and the employee will pay 1% of that portion to reach a total of 5%.
- The employee will pay a subscription of 3% of the above-mentioned portion of the salary to insure one's spouse in case of their unemployment (or no stable fixed income).
- The employee will pay a subscription of 1% of the portion of the salary subject to social insurance to insure each dependant.
- Business owners or self-employed professionals or Egyptians working abroad will pay a subscription of 5% of the portion of salary/wage subject to social insurance or of their income reported in the income tax return, whichever is greater.
- The foreign expatriates residing in Egypt may also be allowed to subscribe in the new health insurance system, according to certain conditions and in case of reciprocal treatment by their home country.
The above-mentioned subscription fees will only be paid when the new health insurance system is applied in the relevant governorate (e.g. no fees should be paid by Cairo citizens/individuals until the last phase of implementation of the system). The party collecting such subscription fees will be required to submit them within 30 days from the date of collection.
It is important to mention that any non-compliance with the new health insurance system may result in financial or imprisonment penalties.