Executive summary

On 17 November 2024, the Egyptian Tax Authority (ETA) issued Instruction No. (78), revoking Circular Nos. (5) and (6) of September 2019 (Circulars). These Circulars had required value-added tax (VAT) to be applied to specific exported services, including marketing, promotion, warranty services and agency services. The Instruction is effective from its date of issuance.

Although the new instruction cancels the previous VAT requirement, companies that have already collected VAT under the Circulars must remit these amounts to the ETA.

Detailed discussion

Background

On 7 September 2016, VAT Law No. (67) was issued, introducing a broad definition for services as "anything that is not a commodity, whether domestic or imported"; however, no specific definition for exported service was included. On 7 March 2017, Executive Regulations No. (66) was released, providing a clear definition for exported service as "a service rendered by a person in Egypt to a recipient abroad, whether it is provided by a person residing in Egypt or having a Permanent Establishment therein, or not residing in Egypt, but providing it from within it."

Effective from September 2019, the Circulars mandated that amounts transferred from foreign companies to their agents, representatives and branches in Egypt for certain services should be subject to VAT, provided that the location of the economic beneficiary is in Egypt, regardless of the residency of the recipient. These services include:

1. Marketing and promotion services
2. Warranty services and coverage of any legal obligations that may arise from the sale of the product within Egypt
3. Agency services for foreign companies

The issuance of the Instruction, effective from 17 November 2024, canceled the application of the Circulars.

Key elements of the Instruction

• Cancelation of circulars: The Instruction cancels the tax obligations imposed by the Circulars. Consequently, the abovementioned services shall be subject to a 0% VAT rate, governed by the provisions of VAT Law No. (67) of 2016 and its Executive Regulations. For the purposes of availing the 0% VAT rate, the company should maintain the following documents and make them readily available during the tax inspection:
  1. Copy of the agreement between the Egyptian service provider and the nonresident recipient showing the nature of service, and the recipient of the service should be a person or company not resident in Egypt
  2. Copy of the taxable invoice comprising detailed data about the service supplied (the full description of the service provided, and the value of the service should be stated and separately indicated from the VAT amount)
  3. Copy of the document proving the payment made for the mentioned service through a bank transfer to a local bank, subject to the supervision of the Central Bank of Egypt
• Effective date: The Instruction is effective immediately from the date of issuance, i.e., 17 November 2024.
• Remittance of collected taxes: Companies that collected VAT and schedule tax under the Circulars must remit these taxes to the ETA within the legally prescribed deadlines.

Further clarity will be needed to explain the treatment of (i) uncollected taxes from the period between 19 September 2019 and 17 November 2024, (ii) taxes in dispute pending at the different levels (e.g., internal committees, high appeal committees, tax dispute resolution committees, and the court), and (iii) companies that have not been inspected to date. Each case should be examined individually to determine the appropriate tax treatments.

Implications

Taxpayers should review the provisions of the Instruction and update their compliance procedures for the relevant export activities to align with the requirements.