VAT in Egypt: New Decree Allows Suspension for Importers of Industrial Machines, Equipment

VAT in Egypt: New Decree Allows Suspension for Importers of Industrial Machines, Equipment
  • The latest review of VAT in Egypt is drafted to allow the manufacturing industry to thrive.

As a result of a new decree issued by the Egyptian Minister of Finance, Value Added Tax, VAT in Egypt will see a suspension on machines and equipment imported for factories and production units is now prone to suspension if the industrial producer meets certain requirements.

The VAT Law allows a suspension of 9% of the VAT on imported machines and equipment. Thus, the VAT is collected at a flat rate of 5% if the service provider meets certain requirements, as will follow.

This decree No. 2012 of 2022 (Decree), issued on 18 May 2022, adjusts a VAT suspension that was formerly provided under VAT Law No. 67 of 2016 (VAT Law).

VAT in Egypt: Applicability for VAT Suspension

1. The reduced VAT flat rate of 5% is applicable if the service provider submits to the proper customs authority documents that prove that the equipment is imported for the intention of industrial production, as authorized by the competent licensing entity.

2. To apply the suspension for trade, the importer must submit to the competent customs authority documents corroborating the supply of the machines and/or equipment to the industrial producer, the contract approved by the entity awarding the production license, or the supply order approved by the said producer, in addition to the registration certificate or tax card.

In this case, the suspended tax will be applied in the name of the industrial producer against the submittal of a letter of guarantee.

3. If the importer for trade is unable to provide the necessary documents confirming the supply to an industrial producer or a service provider, the tax is charged at the rate of 14% (placed in trust) until the importer submits the following:

i. Evidence of sale to Industrial Producer: If the importer submits to the proper customs office evidence of supply to an industrial producer, the paid VAT tax of 14% (in trust) is repaid to the importer in full.

Once the industrial producer submits to the customs office the contract or supply order approved by the entity licensing the industrial activity, and a letter from the competent Tax Office confirming the submittal of a letter of guarantee, the VAT charged on the machines and equipment sold in the local market is suspended.

ii. Evidence of sale to Service Provider: If the importer submits to the competent customs office evidence of supply to a service provider, the tax is settled at a flat rate of 5%, and the remaining 9% of the paid VAT amount (in trust) is returned to the importer. The importer reserves the right to deduct the tax initially settled at the time of customs release from the tax collected upon the sale of the products in the local market.

Non-applicability of Tax Suspension

1. Value Added Tax (VAT) that is due for the parts of machines and equipment that are unfit for use in industrial production, and spare parts imported from abroad or bought from the local market, are collected at 14%.

2. Machines and equipment that were received dismantled or in different shipments, or that their classification for industrial use can’t be confirmed by the competent customs, are collected at the rate of 14% (in trust).

Although, the amount placed in trust may be returned following the installation and inspection by a joint committee consisting of the Egyptian Tax Authority and the Customs Authority.

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