Tax authority withdraws VAT on export services
The Egyptian Tax Authority (ETA) has reformed its approach to value-added tax (VAT) on exported services by canceling two controversial 2019 Circulars. These Circulars required certain services exported from Egypt to be taxed based on the economic beneficiary’s location in Egypt, irrespective of the recipient’s residency. The reform, effective 17 November 2024, aligns the treatment of exported services with VAT Law No. 67 of 2016 and its Executive Regulations.
Withdrawal of VAT on exports
- Revocation of the 2019 Circulars:
- Circulars (5) and (6), issued in 2019, mandated VAT on services such as marketing, promotion, warranty, and agency services provided to foreign entities if the beneficiary was in Egypt.
- The new Instruction (No. 78) cancels these requirements, restoring a 0% VAT rate for qualifying exported services.
- Definition of Exported Services:
Under the 2016 VAT Law and 2017 Executive Regulations, an exported service is defined as one provided by an Egyptian entity to a recipient outside Egypt, whether the provider resides in Egypt or not. - Compliance for Taxpayers:
- To qualify for the 0% VAT rate, businesses must maintain specific documentation, including:
- Contracts proving the service’s nature and the foreign residency of the recipient.
- Invoices detailing the service description and value, separate from VAT.
- Bank payment records for transactions via local banks under the Central Bank of Egypt’s supervision.
- To qualify for the 0% VAT rate, businesses must maintain specific documentation, including:
- Transition Measures:
- Companies that previously collected VAT under the revoked Circulars must remit those amounts to the ETA.
- Pending clarity is expected on disputes, uncollected taxes, and cases under inspection for the period 19 September 2019 to 17 November 2024.
Implications for Taxpayers
Businesses involved in exporting services should review the new provisions and assess their tax compliance processes. This reform aims to eliminate ambiguities and harmonize the VAT framework, ensuring alignment with the broader principles of the 2016 VAT Law.
Taxpayers must prepare for upcoming guidelines and ensure accurate documentation to avail themselves of the benefits of the revised VAT treatment.
