Egypt – VAT introduced; new rules for settling disputes | KPMG | GLOBAL

Egypt – VAT introduced; new rules for settling tax disputes

Egypt – VAT introduced; new rules for settling disputes

KPMG in Egypt provides an overview of significant changes to Egypt’s tax laws, including: introduction of a new VAT law, which replaces the current sales tax law and new rules for the settlement of tax disputes.

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New VAT introduced

The government of Egypt has released the VAT Law on 7 September 2016 and enacted it the next day on 8 September 2016. The law imposes VAT on all commodities and services, including the local or imported commodities and services listed in the table attached to the tax law.

A 3-month transitional period applies without imposing additional tax, provided any tax differences are relatively connected to preparing for the tax.

Scope

All commodities and services would be subject to VAT, with the ability to offset VAT previously paid on inputs of such commodities and services so that the final consumer ultimately bears the tax. 

Registration threshold and requirements

Companies with annual turnover of 500,000 Egyptian pounds (EGP) or more are required to register for VAT purposes. Others may register voluntarily. A registrant that meets the threshold required for registration will maintain its registration number under the previous general sales tax.

A producer or importer of any commodity listed in the table attached to the VAT Law will remain registered, regardless of its transaction volume, as will importers of taxable commodities. 

VAT rates

The VAT applies at the rates of:

  • 13 percent until 30 June 2017
  • 14 percent, starting on 1 July 2017
  • 5 percent on machinery and equipment used to produce a commodity or render a service
  • 0 percent for exports.

Special VAT rates and specific amounts on commodities and services are listed in the schedule attached to the VAT Law.

Additional tax/surcharge

The additional tax/surcharge of 0.5% percent per week under previous law is reduced under the new VAT law to 1.5 percent per month.

Statute of limitation

Under the VAT Law, the statute of limitation is 5 years, or 6 years in cases of tax evasion. 

Tax refunds

Tax would be refunded within 45 days under the VAT Law (rather than 3 months under the previous law), provided that the supporting documents are available. In all cases, a certificate to this effect must be issued by an Egyptian certified public accountant registered with the Ministry of Finance’s Register of Chartered Accounts and Auditors.

Filing deadlines

VAT returns are due 2 months following the end of each month except for April, where the tax return is required to be filed by 15 June.

Input tax deduction

The VAT due on sales of commodities and services is reduced by VAT paid on inputs or calculated for sales returns. VAT deductions are allowed for:

  • sales of commodities to entities that are tax-exempt under international treaties  
  • tax-exempt entities specified under article 23 of the law (e.g. diplomatic missions) 
  • sales of commodities financed through grants where a law has been issued to exempt such sales

The deduction is limited to the tax due. Any remaining balance is carried forward to subsequent periods until the deduction is completely used/covered. 

Reverse charge mechanism

Where a non-registered non-resident individual or company renders a service to an Egyptian resident recipient, the recipient is required to calculate the tax and remit it to the tax authority within 30 days following the date of buying the service. 

Where a registrant imports a service required for carrying out its taxable activity, then it would be regarded as the importer and supplier for the service at the same time.

New law for the settlement of tax disputes

The Egyptian parliament issued a new law1 for the settlement of tax disputes between taxpayers and the Egyptian Tax Authority, with the goal of reducing the number of outstanding tax disputes. Highlights of the new law are as follows.

  • All outstanding tax disputes or disputes brought before different levels of courts, tax appeal committees, conciliation committees and grievance committees between the Egyptian Tax Authority and the taxpayers or taxable persons, and arising from the application of the provisions of the Income Tax Law and other tax laws applied by the Authority, may be settled, regardless of the status of litigation or appeal.
  • The settlement of tax disputes shall be conducted by one or more committees formed by a ministerial decree issued by the Minister of Finance. 
  • The taxpayer or the taxable person must file an application for the dispute settlement with the Egyptian Tax Authority on a form prescribed by the Minister of Finance
  • The dispute settlement committee will review all papers and documents submitted by both parties, in the light of the law and circumstances of each case and issue its recommendation, pursuant to the procedures and rules prescribed by a ministerial decree issued by the Minister of Finance.
  • The recommendation shall be presented within 5 days from its date of issuance to the taxpayer or taxable person or their representatives. If the taxpayer, taxable person or representative accepts the recommendation in within the following 5 days, the committee shall record the recommendation in a report to be raised to the Minister of Finance (or delegate).
  • If the Minister (or delegate) approves the report, it will have the force of a writ of execution and the Egyptian Tax Authority shall inform the relevant court or committee to consider the dispute settled.

1 Law No. 79 for the year 2016 on the Settlement of Tax Disputes, which was published in the Official Gazette on 26 September 2016 and came into force as of the date following its publication.

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