Executive summary

On 23 October 2025, the Egyptian Ministry of Finance (MoF) issued Ministerial Decree No. 417 and Ministerial Decree No. 418 of 2025 (Decree No. 417 and Decree No. 418), which introduce key amendments to the original Value-Added Tax (VAT) Law (Law No. 67 of 2016) and Law No. 157 of 2025.

These reforms expand the scope of VAT recoverability, clarify compliance obligations and introduce new VAT recovery mechanisms, particularly impacting construction services and inventory treatment.

These decrees are effective from 24 October 2025.

Detailed discussion

Background

The Egyptian MoF enacted VAT Law No. 67 on 7 September 2016, establishing an initial framework for the application of VAT for taxpayers in Egypt.

On 17 July 2025, the Egyptian Parliament issued Law No. 157 to amend key provisions, including VAT rates and compliance requirements, as part of a broader fiscal strategy.

The MoF's issuance of Decree Nos. 417 and 418 in October 2025 aims to provide operational and procedural clarity for taxpayers, including revised VAT-related definitions and compliance obligations, expanded recoverability rules, updated VAT obligations and timelines for contracting/construction services, and transitional rules for ongoing contracts and new contractual terms.

Key elements of Decree No. 417

Indirect inputs definition

Decree No. 417 broadens the scope of recoverable indirect inputs under Egypt's VAT framework. Previously, the VAT recoverability base was limited to indirect production and operating costs, sales and distribution expenses, and general administrative costs.

In addition to the above costs, the updated definition encompasses all costs indirectly related to the sale of taxable goods with the specific addition of construction costs and financing costs.

Input VAT recoverability on inventory

Under VAT Law No. 67 of 2016, newly registered taxpayers could recover previously paid VAT on inventory at the date of their registration, provided that the following conditions were met:

• All e-invoices and supporting documents are available.
• The original-purchase e-invoices must include tax or customs clearance procedures and proof of customs tax payment, as applicable.
• The previous stock data on Form No. 123 (VAT) was submitted on the date of registration.
• If input VAT has been recorded as cost, the necessary accounting and tax adjustments have been made and submitted to the tax authority within one year from the date of purchase or import.
• The stock is related to goods intended for sale of taxable goods or for providing taxable services.

Under the recent amendments, this benefit has been extended to currently registered taxpayers whose activities have transitioned to VAT rate (14%). These taxpayers may now recover input VAT at the time their sales become subject to VAT.

All previous conditions remain applicable, with one key update: Form No. 123 (VAT) detailing inventory data may now be submitted either at the time of registration or at the time sales become subject to VAT, within a timeframe to be determined by the head of the tax authority.

Input VAT suspension mechanism

For machinery, equipment or production lines purchased or imported in separate batches, the VAT suspension period begins from the date of acquiring the final component — either through local purchase or importation.

This update reduces uncertainty for businesses managing fragmented imports or purchases.

Services of a continuous nature

Under services of a continuous nature, Decree No. 417 provides a detailed definition of the construction services to include: buildings works, concrete works, ancillary/specialized construction works, road works, bridges, railways, airports, tunnel works, water stations, sewage networks, gas networks, fuel stations, electrical works, power stations, thermal stations, marine works and port construction, electromechanical works and electronic communication networks, renewable energy and solar power station works.

Schedule tax on alcoholic beverages

For alcoholic beverages, Decree No. 417 amends the effective dates for the increased schedule tax rates as follows:

• 15% annually for three years starting from 1 January 2026, instead of 18 July 2026
• 12% annually starting 1 January 2029, instead of 18 July 2029

Key elements of Decree No. 418

Construction contracts: new rules for ongoing agreements

Ongoing contracts

Initially, construction services were subject to a 5% schedule tax under VAT Law No. 67 of 2016. However, this was transitioned to 14% VAT under Law No. 157 of 2025, effective 18 July 2025, allowing input tax recoverability, which is not permitted under the schedule tax application.

Under the provisions of Decree No. 418, taxpayers may have the right to apply a 14% VAT on 36% of the total invoice value (i.e., 14% x 36%, effectively equivalent to the previous 5% schedule tax), provided that (1) the contracts were signed before Law No. 157 was implemented and continued thereafter and (2) a consultant-approved payment certificate, along with an e-invoice or an e-receipt, was issued before Law No. 157 came into force. Consequently, subcontractors are deemed compliant if the main contractor has paid VAT for the same project, supported by an approved certificate from the main contractor. Additionally, no input VAT recoverability is allowed.

In conclusion, contractors with ongoing contracts may have two options to apply in terms of their remaining contracts: (1) 14% VAT on the total e-invoice value with the benefit of input VAT recoverability or (2) 14% VAT on 36% of the total e-invoice value without input VAT recoverability.

Taxpayers should assess the new tax approach and reconfigure their Enterprise Resource Planning (ERP) systems to reflect the VAT application on the tax authority's e-invoice system.

Renewals and scope changes

Following the effective date of Law No. 157 of 2025, any renewal of an ongoing contract or any increase in the scope of work beyond the percentage specified in the contract is considered a new contract. Additionally, a 14% VAT rate shall apply on the full e-invoice value for these new contractual terms.

Implications

Taxpayers should review the provisions of Decree Nos. 417 and 418 and assess the impact of the new provisions on current and future transactions, including ongoing and proposed contracts, and evaluate input VAT recoverability on continuous construction contracts to comply with the VAT requirements.