May 9, 2023
Egypt introduces VAT guidelines for nonresident providers of remote digital and electronic services
On 22 March 2023, the Egyptian Ministry of Finance (MoF) issued Ministerial Decree No. 160 of 2023 introducing, in an appendix, guidelines for digital services and other remote services provided by nonresidents (Guidelines) to customers based in Egypt. On the same day, the Egyptian Tax Authority (ETA) also published the Guidelines on its website.
Specifically, the Guidelines govern remote services (electronic and digital services) rendered by nonresident service providers to customers based in Egypt (through various platforms, including websites, social media stores and applications) and determine the value-added tax (VAT) liability for nonresident service providers, whether the customer is a business or a consumer.
In January 2022, the Egyptian Government published Law No. 3 of 2022, amending VAT Law No. 67 of 2016.
The amendments covered certain topics relating to the simplified registration of nonresidents, special economic zone projects, sale and lease of real estate, the VAT treatment of equipment and machinery, the schedule tax items and exemption lists, etc.
Subsequently, on 11 January 2023, the Egyptian Government published the Executive Regulations elaborating on the provisions of Law No. 3.
Thereafter, on 22 March 2023, to further clarify the simplified registration regime for nonresidents, the MoF issued Ministerial Decree No. 160 of 2023, introducing the Guidelines.
Key elements of the Guidelines
The Guidelines apply to nonresident service providers rendering remote services to customers based in Egypt, and to electronic distribution platform (EDP) operators rendering remote services to customers based in Egypt.
Based on the Guidelines, remote services shall comprise the following:
The booking of hotel services, restaurants and catering services, and passenger transportation services are out of scope of the definition of remote services.
For business-to-business (B2B) transactions
The reverse-charge mechanism applies where the resident taxpayer is required to self-account for VAT applying the reverse-charge rules, which remove the nonresident's obligation to charge or remit VAT, whether the resident registered taxpayer sells taxable goods/services or nontaxable goods/services.
For business-to-consumer (B2C) transactions
Two alternative scenarios may apply:
VAT rates and payment currencies
In general, the standard 14% VAT rate applies. However, for professional and consultancy services, the applicable VAT rate is 10%. The acceptable currencies for VAT payment are Egyptian Pounds (EGP) and the US Dollar (USD), but other currencies will be acceptable from December 2023.
Input VAT recoverability for nonresident registrants
Nonresident registrants under the simplified service providers registration regime cannot deduct any input VAT. However, they can apply for a refund to recover any input VAT they have incurred in Egypt in connection with their taxable activity.
Threshold for VAT registration for nonresident service providers
The revenue threshold for simplified registration for remote services shall be EGP500,000 for any 12-month period. However, professional and consultancy services should be registered from the beginning, irrespective of their turnover.
Noncompliance with registration implications
In cases of noncompliance with the VAT registration requirements, the ETA will contact the nonresident service providers, and if no response is received, the ETA may commence a risk review, which may result in the ETA's taking following steps:
The ETA can take serious action by preventing or banning the nonresident service providers from exporting services into the Egyptian market until they fulfill their obligations (in accordance with Law No. 3 of 2022).
Nonresident businesses rendering services to customers in Egypt should comply with the new procedures introduced by the issued VAT Guidelines, as they have direct implications on services the businesses export to Egypt. These service providers should assess potential obligations through addressing invoicing requirements, keeping records and filing VAT returns.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Egypt, Cairo
Ernst & Young LLP (United States), Middle East Tax Desk, New York
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor