Do You Know That Understanding Value Added Tax in Egypt Could Save You Thousands of Pounds Annually and Help You Avoid Legal Accountability? As a business owner or investor in the Egyptian market, being familiar with the rules and procedures of Value Added Tax is essential to ensure the continuity of your business and achieve tax compliance.
Since its official implementation in September 2016, this tax has become a fundamental pillar in the Egyptian tax system and has directly impacted your financial and investment decisions.
In this comprehensive guide, we clarify everything you need to know about Value Added Tax in Egypt, from registration and declaration mechanisms to how to benefit from Mofawter’s specialized services to simplify your tax obligations.
What is Value Added Tax in Egypt?
Value Added Tax in Egypt is an indirect tax imposed on goods and services at various stages of the production and distribution chain. This tax was officially implemented in September 2016 to replace the previously applied sales tax.
The basic rate of Value Added Tax is 14%, which applies to most goods and services, with other rates for specific goods and services. Value added means the difference between the value of inputs and outputs at each stage of production or distribution.
The Importance of Value Added Tax in the Egyptian Tax System
Value Added Tax in Egypt plays a vital role in the Egyptian economic system as it:
- Represents a main source of revenue in Egyptian taxes.
- Contributes to achieving tax fairness among taxpayers.
- Enhances transparency in commercial transactions.
- Helps limit VAT evasion in Egypt.
- Supports the state’s efforts in digital transformation through the electronic invoice system.
Who is Subject to Value Added Tax in Egypt?
Every natural or legal person engaged in commercial, industrial, or service activity whose annual sales exceed the mandatory registration threshold of 500,000 Egyptian pounds is subject to Value Added Tax in Egypt.
It should be noted here that registration for Value Added Tax in Egypt becomes mandatory once this threshold is exceeded, and failure to register in a timely manner may lead to the imposition of significant financial penalties.
Goods Subject to Value Added Tax in Egypt
Most goods and services are subject to Value Added Tax in Egypt at the general rate of 14%. However, there are some goods subject to this tax at special rates such as:
- Luxury goods and services (schedule tax is applied alongside the 14%).
- Petroleum products (at varying rates).
- Tobacco and its products (at varying rates).
- Communications (at varying rates).
Services Subject to Value Added Tax in Egypt
Services subject to Value Added Tax in Egypt include a wide range of activities, including:
- Professional and legal consulting services.
- Advertising and marketing services.
- Hospitality and hotel services.
- Transportation and shipping services.
- Maintenance and repair services.
- Insurance services (except for some exempt types of insurance).
- Contracting and construction services.
To avoid any legal problems, it is important to understand the nature of your activity and know whether it falls within the services subject to Value Added Tax in Egypt or not.
Entities Exempt from Value Added Tax in Egypt
Although Value Added Tax in Egypt has been applied to most goods and services, Egyptian law has exempted some entities and activities from this tax. Entities exempt from Value Added Tax include:
- Some government agencies and non-profit institutions.
- International and diplomatic organizations, in accordance with international agreements.
- Some educational and health institutions.
- Some basic goods and services, such as subsidized bread and essential medicines.
It is important to note that there are also some companies that are exempt from income tax, in accordance with investment laws and free zones.
How to Register for Value Added Tax in Egypt
If your annual sales exceed the mandatory registration threshold, you need to know how to register for Value Added Tax in Egypt. The steps for registration include:
- Fill out the registration application form (Form 101 Q.M)
- Submit the required documents, which include the commercial register, tax card, and articles of incorporation for companies.
- Submit the application to the competent tax authority or through the Egyptian Tax Authority’s electronic portal.
- Obtain the registration certificate and tax registration number.
Mofawter experts can help you complete the Value Added Tax registration procedures in Egypt easily and accurately, saving you time and effort at the lowest costs, and ensuring the avoidance of any errors that may lead to the rejection of the registration application.
Tax Declarations and Obligations Related to Value Added Tax in Egypt
After registering for Value Added Tax in Egypt, you have a set of tax obligations, the most important of which are:
- Submit monthly tax returns (Form 10 Q.M).
- Pay the due Value Added Tax in Egypt on time.
- Keep accounting books and records for 5 years.
- Issue tax invoices that include the tax registration number and the value of the Value Added Tax.
- Comply with the electronic invoice system if you are among the categories obligated to do so.
It is worth noting here the importance of accuracy in calculating and paying Value Added Tax to avoid penalties and legal sanctions. For this reason, it is preferable to seek the assistance of specialized experts such as the Mofawter team to ensure the accuracy of your tax calculations.
How to Calculate Value Added Tax in Egypt
Knowing how to calculate Value Added Tax in Egypt is essential for every business owner subject to tax. The tax in Egypt is calculated by following these steps:
- Calculate sales tax (due tax): This is the Value Added Tax in Egypt collected from customers on sales and services.
- Calculate purchase tax (deductible tax): This is the Value Added Tax paid to suppliers on purchases and services.
- Calculate the Value Added Tax in Egypt due = sales tax – purchase tax
Those registered for Value Added Tax must supply the difference between the collected tax and the paid tax to the Tax Authority. In case the paid tax exceeds the collected tax, the balance can be carried forward to subsequent periods or a request for Value Added Tax refund can be sent.
Refund of Value Added Tax in Egypt
In some cases, you may be eligible to request a refund of Value Added Tax in Egypt, especially if there is a continuous credit balance (input tax greater than output tax) for more than two tax periods, or in export cases, where exports are subject to 0%, in addition to business cessation or cancellation of registration for Value Added Tax.
The process of Value Added Tax refund requires the submission of multiple documents and proofs, and often undergoes careful examination by the Tax Authority. In this matter, Mofawter experts can help you prepare and submit the refund request correctly to ensure its acceptance.
Cancellation of Registration for Value Added Tax in Egypt
In case of cessation of your activity or if your annual sales fall below the registration threshold, you may wish to cancel your registration for Value Added Tax in Egypt. The cancellation procedures include:
- Submit a VAT registration cancellation request (Form 108 Q.M).
- Submit tax returns for all previous periods.
- Pay all tax dues.
- Undergo tax examination.
It is important to note that you cannot cancel the registration until at least 24 months have passed since the date of registration, unless the reason is the final cessation of activity.
Evasion of Value Added Tax in Egypt and Its Penalties
Evasion of Value Added Tax in Egypt is considered a crime punishable by Egyptian law with severe penalties. The penalties for evasion range from financial fines that may reach twice the value of the evaded tax, to criminal penalties that may reach imprisonment in some cases. Forms of tax evasion include:
- Failure to register despite exceeding the mandatory registration threshold.
- Failure to issue tax invoices.
- Submitting incorrect tax returns.
- Manipulation of accounting books and records.
The Electronic Invoice System and Its Relationship to Value Added Tax in Egypt
As part of the Egyptian Tax Authority’s efforts to combat evasion of Value Added Tax in Egypt and improve tax collection mechanisms, the electronic invoice system has been mandatorily applied to specific categories of companies, with a plan for gradual expansion to include all those registered for Value Added Tax in Egypt.
The electronic invoice system allows companies to issue and send tax invoices electronically, as well as register them in the tax system immediately, ensuring transparency and accuracy in commercial transactions and tax returns.
Mofawter Company provides integrated solutions for issuing electronic invoices, compatible with the requirements of the Egyptian Tax Authority, helping your company to comply with tax regulations while saving time and effort.
Mofawter Services in Value Added Tax in Egypt
Mofawter provides an integrated set of services related to Value Added Tax in Egypt, through which you can focus on managing your business, while we take responsibility for tax compliance and dealing with government agencies on your behalf. These services include:
- Assistance in registering for Value Added Tax in Egypt.
- Preparation and submission of monthly tax returns.
- Electronic invoice solutions compatible with Tax Authority requirements.
- Specialized tax consultations in the field of Value Added Tax.
- Assistance in Value Added Tax refund.
- Representing clients before the Tax Authority in cases of tax examination or tax disputes.
In Conclusion, Value Added Tax in Egypt represents an administrative and financial challenge for companies and individuals subject to it, but a good understanding of its rules and application mechanisms can help you transform this challenge into an opportunity to improve your financial and accounting systems and enhance your ability to compete in the market.
With the continuous developments in the Egyptian tax system and the state’s orientation towards digitization, it has become necessary to seek the assistance of specialized experts in this field, such as the Mofawter team, which provides integrated services, including tax consultations, electronic invoice solutions, and preparation of tax returns.
Do not hesitate to contact the Mofawter team today for a free consultation on Value Added Tax and the specialized tax services we provide to help you achieve full tax compliance, while reducing the administrative burden on your company.
Frequently Asked Questions about Value Added Tax in Egypt
What is the mandatory registration threshold for Value Added Tax in Egypt?
The mandatory registration threshold for Value Added Tax in Egypt is 500,000 Egyptian pounds as annual sales volume.
What is the allowed period for submitting the monthly tax return?
The monthly tax return must be submitted and Value Added Tax paid within the month following the tax month, with the possibility of submission until the thirtieth day of the month.
Is it possible to register voluntarily for Value Added Tax in Egypt?
Yes, you can register voluntarily for Value Added Tax even if your sales do not exceed the mandatory registration threshold.
What is the penalty for late submission of the tax return?
The penalty for late submission of the Value Added Tax return in Egypt starts at a rate of 1% of the tax due for each month or part of the month, with a maximum of 60% of the tax value.
