On 5 September 2016, VAT Law No. 67 of 2016 was issued. It replaces the Sales Tax Law No. 11 of 1991 and it’s amendments. The effective date of the VAT is 8 September 2016, the date after the law was published in the official gazette. The new tax law is part of an economic reform programme package aimed at reducing the country's budget deficit.
In principle, VAT applies to all provisions of goods and services, other than some goods and services that are listeded in an exemption table. The VAT replaces the sales tax. This article highlights key provisions of the VAT.
The VAT tax rates are as follows:
- A 13% standard rate applies to most supplies of goods or services. This rate is set to increase to 14% on 1 July 2017.
- A schedule to the VAT Act lists goods and services that are subject to special rates in addition to the standard rate.
- A schedule to the VAT Act also lists goods and services that are subject only to special rates.
SCOPE OF THE TAX
VAT applies to the following transactions:
- The supply of taxable goods and services up to, or in excess of, the registration threshold.
- Importation of taxable goods into Egypt, regardless of the status of the importer.
- The imported services that are preformed for customers and clients in Egypt.
Any individual or juridical person who sold taxable goods or services with turnover during the 12 months before 7 September 2016 of at least EGP 500,000 must register for the VAT.
For importers taxable goods or services, the registration threshold zero, which means all importers must register.
NON-RECOVERABLE INPUT TAX
No input tax credit is allowed in the following situations:
- With respect to specific taxes imposed by the schedules attached to the VAT law .
- Where input tax is recorded as a cost.
- On exempted goods and services.
EXPORTS OF GOODS AND SERVICES
Export of goods out of Egypt is zero rated. Subject to certain conditions, a taxable person can claim a refund of VAT paid on inputs used to produce exported goods/services.
VAT RETURNS AND PAYMENTS
- Generally, a VAT return must be filed within two months of the end of a tax period in which VAT is due. However, a VAT registrant‘s April VATreturn must be filed before 15 June.
- Remittances of VAT are due at the same time VAT returns are filed.
- A VAT return must be filed even if there are no sales in that period.
The VAT legislations provides for penalties for non-compliance. The penalties depend onthe reason for, and duration of, the non-compliance, and the amount of tax involved. Simple interest is charged at a rate of 1.5% per month, or part of a month, during which an amount remains unpaid.
In additional to financial penalties, criminal penalties can also be applied for failure of comply with the tax obligations.