Value-Added Tax (VAT) in Egypt: A Comprehensive Guide

Value-Added Tax (VAT) is a cornerstone of Egypt’s tax system, introduced in 2016 to modernize and broaden the tax base. For foreign investors and businesses operating in Egypt, understanding VAT is crucial to ensure compliance and optimize tax planning. In simple terms, VAT is a consumption tax levied at each stage of the supply chain where value is added – from production to final sale. Unlike the old Sales Tax system, which applied only at the retail stage, VAT allows businesses to claim credits for taxes paid on inputs, and shifts the ultimate tax burden to the end consumer. The legal framework for VAT is set by Law No. 67 of 2016 (as amended), supported by executive regulations and ministerial decrees. Recent reforms – including Law No. 3 of 2022 and Law No. 157 of 2025 – have expanded the tax base and introduced new obligations.

Egypt first implemented VAT on 8 September 2016, replacing the previous 10% General Sales Tax (GST). The change marked a significant overhaul: VAT is collected at every stage of production and distribution, whereas the old GST was a one-stage tax on final sales. Initially set at 10%, the VAT rate was raised to 13% in September 2016 and then to 14% from July 2017. Since then, 14% has been the standard rate for most goods and services, with no announced plans for further increases. The VAT system follows the OECD model of value taxation, aligning Egypt with international best practices and facilitating trade by allowing exporters to zero-rate their sales.

Key Differences Between VAT and Sales Tax in Egypt

VAT and sales tax are both consumption taxes, but they differ fundamentally. Sales Tax (the former system in Egypt) was levied only at the point of final sale to the consumer. It was a single-stage tax and did not allow businesses to reclaim tax on inputs, which could lead to tax-on-tax (“cascading”) effects. By contrast, VAT is charged at each stage of production or distribution. Businesses collect VAT on their sales (output tax) and pay VAT on their purchases (input tax), remitting only the net difference to the tax authority. This multi-stage mechanism enhances transparency and prevents compounding of tax across the supply chain. For example, a manufacturer charges VAT on sales to a retailer but deducts the VAT already paid on raw materials, ensuring that only the value added at each step is taxed. Ultimately, the end consumer bears the total VAT, but businesses act as intermediaries who collect and remit the tax. This system contrasts with direct taxes like income or corporate tax, which are based on profits or earnings. VAT is a flat tax based on consumption, not on income, meaning all consumers pay the same rate on purchases regardless of their income level. In summary, Egypt’s VAT is an indirect, consumption-based tax applied broadly, replacing the old sales tax and avoiding the inequities of multi-stage taxation.

Legal Framework of VAT in Egypt

VAT in Egypt is governed by Law No. 67 of 2016, issued on 7 September 2016 in the Official Gazette. This law repealed the prior Sales Tax law (Law No. 111 of 1991) and established the modern VAT regime. The VAT law is supported by executive regulations and ministerial decrees that detail implementation procedures, invoicing requirements, and compliance rules. Over time, the law has been amended to broaden the tax base and update procedures. For instance, Law No. 3 of 2022 introduced simplified registration for non-residents and clarified treatment of real estate, machinery, and other categories. More recently, Law No. 157 of 2025 amended VAT Law 67/2016 effective 18 July 2025, increasing taxes on certain goods (like cigarettes and alcohol) and subjecting new items (e.g. crude oil, commercial trademarks, advertising services) to VAT. These amendments reflect the government’s aim to boost revenue and align VAT with public health and economic priorities. Key provisions of the VAT law include definitions of taxable supplies, conditions for registration, rates, refund mechanisms, penalties for non-compliance, and appeal rights. Together, Law 67 and its amendments form the legal framework that businesses and tax advisors must navigate to comply with Egyptian VAT.

Scope of VAT in Egypt

VAT applies to the supply of goods and services in Egypt and to the importation of taxable goods and services, with specific exceptions. In general, most commercial transactions are taxable unless explicitly exempt. By default, the standard rate of 14% applies, but there are special categories with reduced or zero rates. For example, machinery and equipment used in manufacturing and production benefit from a 5% rate to encourage investment. Exports of goods and services outside Egypt are zero-rated (0% VAT) to promote international trade. Similarly, supplies within Free Zones or Special Economic Areas for export also qualify for 0% VAT. The VAT law also distinguishes “table tax” (schedule) items, which are taxed only once at the first sale or import (such as tobacco and petroleum products) instead of standard VAT.

However, certain goods and services are exempt from VAT altogether. Exempt means no VAT is charged on the sale, and the supplier cannot recover input VAT on those purchases. Major exemptions include essential items and public services: basic foodstuffs (57 groups of staple goods), healthcare, education, and domestic passenger transport are exempt to reduce the burden on consumers. The law also exempts financial and banking services (banks, insurance, capital markets, etc.) to stimulate investment, and the sale or lease of real estate (land and buildings) to avoid discouraging property markets. Expatriates and diplomatic entities are exempt by international agreement. In sum, scope is broad: unless a supply falls into an exemption or is a schedule item, it is VATable under the law.

VAT Registration

Any business (individual or legal entity) that makes taxable supplies in Egypt must register for VAT once certain conditions are met. Under VAT Law 67/2016, mandatory registration is triggered by annual taxable sales exceeding EGP 500,000 (about USD 16,000). In other words, if a company’s taxable turnover over 12 months exceeds this threshold, it must register with the Egyptian Tax Authority (ETA) and obtain a VAT number. Importers of taxable goods are also required to register from the start of their activity.

Notably, registration can also be voluntary for smaller businesses. Taxpayers below the threshold may elect to register if their turnover exceeds EGP 150,000 or paid-up capital is at least EGP 50,000. Voluntary registration allows these firms to claim input tax credits even if they fall below the standard threshold. Certain businesses are explicitly exempt from registering: those exclusively dealing in exempt supplies or schedule items, and natural persons not engaged in commercial sales.

Foreign (non-resident) businesses have special rules. A non-resident supplier selling goods or services to Egyptian consumers must register under the “simplified supplier” scheme. The ETA issues a VAT registration number (Model 3) to such non-residents, ensuring tax collection on their sales. For B2B services, however, Egypt often applies a reverse-charge mechanism: if an Egyptian VAT-registered business receives imported services, it self-assesses VAT (reverse charges) instead of forcing the foreign provider to register. Foreign goods imports are treated differently: non-resident sellers cannot register directly; instead, the Egyptian importer or a local fiscal representative registers and accounts for VAT. In summary, any foreign company doing business in Egypt – whether selling goods or digital services – must be aware of registration rules. They can register if reaching thresholds, or in some cases use the reverse-charge or simplified regime.

VAT Rates and Categories

Egypt’s standard VAT rate is 14%, applicable to the vast majority of goods and services. There are very few reduced rates: notably, a 5% rate applies to machinery and equipment used in industrial production or specified service sectors. Certain activities have special tax regimes outside normal VAT: for example, schedule (table) items like petroleum products and some consumer goods incur a one-time fixed tax and then the standard VAT on the remainder.

Zero rates (0% VAT) apply to encourage trade and investment. Supplies exported outside Egypt are zero-rated, meaning Egyptian exporters charge 0% VAT but can still recover input tax. Similarly, goods and services brought into Free Zones for use in those zones (if re-exported) enjoy 0% VAT. Exports from Free Zones are also zero-rated. These provisions aim to make Egyptian exports competitive globally and attract foreign investment into designated zones.

On the other hand, the law also maintains table tax rates on products like cigarettes, alcoholic beverages, and other luxury or harmful goods. Recent reforms (Law 157/2025) further increased specific taxes on tobacco and alcohol, adding fixed excise per pack plus VAT to bolster state revenues. In all cases, VAT on top of any excise or schedule tax may apply, but the complexities of table tax are handled as a separate regime.

VAT Calculation and Invoicing

VAT is calculated by taking the output tax charged on sales minus the input tax paid on purchases. Every VAT-registered seller must collect 14% VAT on taxable sales (assuming standard rate) and add it to the price payable by the customer. Simultaneously, the business will have paid VAT on its own taxable purchases; this input tax can be credited against its output VAT liability. For example, if a company collects EGP 140 in VAT from customers and has EGP 90 in input VAT paid to suppliers during the same period, it owes EGP 50 to the tax authority. If input VAT exceeds output VAT, the excess credit can be carried forward or refunded (subject to conditions).

VAT invoices are crucial: each taxable sale must be documented by a compliant VAT invoice. Egypt mandates (through Law 206/2018 on tax procedures) that invoices are issued electronically with specific information. Effective 2022, all transactions must be invoiced electronically via the ETA’s e-invoicing platform. Required invoice details include: a unique invoice number, issuance date, supplier’s name/address and tax registration number, customer’s name/address (and VAT number, if registered), description of goods/services, tax rate, tax amount, and total due. Invoices must be in Egyptian Pounds (no foreign currency invoices). Failure to issue a proper invoice is a serious offense under Article 67 of the VAT law, penalized by imprisonment (3–5 years) or a substantial fine. In practice, businesses use accounting software linked to ETA’s system; the government-provided electronic invoicing ensures accurate reporting of VAT due.

Modernization has simplified VAT reporting: since January 2019, all VAT returns must be filed electronically through the ETA portal. The shift to e-invoicing and e-declarations is part of Egypt’s ongoing digital tax strategy, aimed at reducing errors and tax evasion. Companies should ensure their accounting systems are integrated and personnel are trained on e-invoicing requirements. In summary, VAT calculation in Egypt involves separately tracking output and input tax, issuing compliant invoices for each sale, and filing monthly returns online with all supporting figures.

VAT Returns and Filing

Once registered, a business must periodically file VAT returns and remit any VAT due. In Egypt, VAT returns are generally monthly. The return for a given month must be filed by the end of the second following month. For example, the VAT return for July would be due by the end of September. (As a special case, the April return is typically filed by 15 June each year.) The monthly return summarizes total sales, purchases, output VAT and input VAT. The net VAT payable (or refundable) is then declared.

The penalties for late filing or payment are significant. Non-payment or late payment of VAT incurs a surcharge of 1.5% of the outstanding VAT for each month overdue. Moreover, under the Unified Tax Procedures Law, failing to file VAT returns within 60 days of due date attracts fines from EGP 3,000 up to EGP 50,000 (which can escalate for repeated offenses). Thus, timely filing is critical. Fortunately, the electronic system sends reminders and locks out delays: returns can only be filed through ETA’s online portal, ensuring a clear trail of compliance.

After filing, payment of VAT must be made by the return deadline. Payments can be made via bank transfer, at tax authority service points, or using the taxpayer’s banking credentials on the ETA website. For imports, VAT is paid at the time of clearance at customs prior to release of goods. Overall, businesses should reconcile their returns carefully: the return due date is firm, and input credits can only be claimed if the corresponding invoices exist and have been reported in VAT returns.

VAT Payment and Refunds

If a company’s return shows output VAT exceeding input VAT, the difference must be paid to the tax authority by the filing deadline. Conversely, if input VAT exceeds output VAT (for example, due to large capital purchases or exports), the taxpayer has a VAT credit. In many cases this credit can be carried forward against future VAT or claimed as a refund.

Egypt’s VAT law provides specific refund procedures. Authorized cases include exports (where the seller zero-rates sales) and persistent credits. According to tax guidelines, if the difference is due to export-related input, the VAT is refundable up to the credit balance. Also, if a taxpayer has a net credit for more than six consecutive tax periods, they may apply for a refund. Importantly, the ETA aims to process approved refund claims within 45 days of proper application. To secure a refund, the taxpayer must submit supporting documents (invoices, proof of export, etc.) and adhere to prescribed forms (such as VAT Form 15). For capital goods, relevant certificates or industrial letters may also be required. After a refund is paid, there are restrictions: if the business later sells assets (like machinery or vehicles) acquired via refunded VAT, it may have to repay the tax to the state.

Refunds also apply to foreign tourists. Visitors purchasing over EGP 1,500 of goods (for personal use) can get VAT reimbursed at departure—provided they show receipts, their passport, and goods to customs officials. This tourist refund system is an incentive for tourism spending, although the process involves bureaucratic steps (like obtaining a refund form at the exit port).

In practice, many exporters simply deduct accumulated credits against future VAT liability. Regardless, businesses must meticulously document transactions to support any refund claims. The time value of money and uncertainty of audits means companies often prefer to use credits rather than claim refunds unless absolutely necessary. Nevertheless, the possibility of a refund (with a 45-day target) is an important feature of the VAT system, encouraging export-oriented investment.

VAT Audits and Inspections

The Egyptian Tax Authority (ETA) actively monitors VAT compliance through audits and inspections. A VAT audit may be triggered by irregularities in returns, random selection, industry risk profiles, or discrepancies spotted during processing. There are two main types of inspections: desk reviews (based on submitted returns and documentation) and field audits (on-site review of records and facilities).

During an inspection, ETA officers examine books, invoices, electronic records, bank accounts, and contracts to verify reported sales, purchases, and tax payments. They check that invoices have been properly issued and VAT accounted for according to law. Any mismatch between claimed input tax and actual purchases can lead to adjustments. If underpayment is found, the ETA issues an assessment determining additional tax owed. For example, if a company erroneously omitted sales or added ineligible input credits, the audit will compute the correct VAT and impose payment plus penalties. According to the tax procedures law, failure to issue a required invoice is considered tax evasion, further emphasizing the inspector’s focus on documentation.

Taxpayers have rights of appeal. After an audit, if a business disagrees with an assessment, it can file an objection. Egypt provides an administrative appeals system: first an Internal Committee reviews disputes, then an Appeal Committee (part of ETA) provides a final administrative ruling. Decisions by the Appeal Committee are binding unless challenged in the courts. All VAT assessments and appeals occur within the general statutes of limitation (five years, or six in cases of evasion). Non-cooperation during an audit can itself trigger penalties. In summary, VAT compliance requires maintaining pristine records and cooperating with ETA queries. Engaging qualified tax advisors during audits is common practice, as review teams may probe complex cross-border or sector-specific transactions.

VAT Compliance and Record-Keeping

Strict record-keeping is essential under Egyptian VAT law. Every VAT-registered business must keep detailed accounting books, sales and purchase invoices, import documents and other tax records for five years from the date of filing the return. The same statute of limitations (five years) applies to both audits and refunds. During this period, the ETA can request documents to verify any VAT claim. Digital records must match submitted e-invoices and returns. Companies typically store these records electronically, given that filing and invoicing are done through the ETA’s system.

Good VAT compliance also means reconciling the VAT ledger regularly, ensuring that output tax is correctly reported and input tax is genuinely eligible. For inputs, rules require they be used in taxable activity; purchases related to exempt sales may not qualify for deduction unless specific conditions are met. Segmenting business operations (taxable vs exempt) and allocating shared costs appropriately are common compliance challenges.

Crucially, the e-invoicing system has automated much of compliance: every invoice is submitted in real-time to the ETA, which cross-checks buyers and sellers. The electronic platform flags inconsistencies or missing information. Therefore, businesses must ensure invoices are issued and payments recorded contemporaneously. Failure to comply can lead to denial of input credits and penalties for late or false reporting. In practice, most companies hire or train in-house VAT specialists to manage filings and maintain records in accordance with Egypt’s digital tax infrastructure.

VAT on International Transactions

VAT rules for international trade and services are a critical area for foreign investors. Exported goods and services are generally zero-rated. Egyptian businesses exporting goods (or services subject to export rules) charge 0% VAT, allowing them to reclaim input tax. In contrast, imports of goods are subject to VAT at customs upon clearance. Import VAT must be paid as a condition of releasing goods into Egypt. For most imports, the tax is calculated on the CIF value (including customs duties and expenses). Importers later claim this VAT as input tax in their returns, just like domestic purchases.

Cross-border services follow international norms. If a foreign company supplies services to an Egyptian business (B2B), the Egyptian recipient accounts for VAT under the reverse-charge mechanism. This means the Egyptian firm includes the VAT amount in its own return (as both output and input tax), ensuring revenue neutrality without burdening the supplier. However, when foreign entities provide services directly to Egyptian consumers (B2C), the rules changed recently. New guidelines (2023) require nonresident providers of digital or remote services to register and charge VAT at 14%, or face penalties. For example, a foreign online marketplace selling to Egyptian customers must withhold and remit VAT, either itself or via the platform operator. These provisions mirror global trends on digital VAT, ensuring Egypt collects tax on streaming, apps, consultancy and other remote services rendered to its residents.

In summary, exports are VAT-free (0%), imports are taxable, and cross-border services are taxed either by reverse-charge (B2B) or supplier registration (B2C). Currency rules from the recent guidelines allow payment in EGP or USD (and soon other currencies). Foreign businesses targeting the Egyptian market must navigate these rules carefully: if they exceed the EGP 500,000 threshold in a year, they are required to register for VAT in Egypt.

VAT in Key Sectors

Certain economic sectors have special VAT treatments:

• Real Estate: The sale or lease of land, agricultural property and residential or commercial buildings is exempt from VAT. (Notably, commercial real estate rentals are also exempt.) Developers and landlords do not charge VAT on these transactions, but they also cannot claim VAT on related costs. Construction services, however, are taxable at the standard rate unless used for exempt sales.

• Healthcare and Education: Medical services, prescription medicines, and most educational activities are exempt. This exemption keeps these vital services affordable. Supplies of medical equipment and diagnostic services follow this exemption (often via separate agreements or Executive decrees).

• Banking and Financial Services: Core banking, insurance, capital markets and related financing services are exempt. This exemption is common globally and avoids VAT on fees and interest. Banks often segregate any taxable activities (like selling goods) under separate VAT invoicing.

• Agriculture and Food: Basic foodstuffs are either zero-rated or exempt (depending on classification). Many staple food items are exempt to protect consumers. Agricultural sales (by farmers) also generally fall outside VAT if not in commercial supply chains.

• Oil & Gas: Crude oil and petroleum have special treatment. The 2025 amendment (Law 157/2025) expressly brought crude oil under VAT – meaning that when state-owned enterprises sell crude to refiners, VAT applies (though often offset by oil sector accounting). In practice, fuel and gas distribution involve a mix of VAT and excise taxes.

• Tobacco and Alcohol: These “sin goods” incur high excise/tax amounts plus VAT. For example, cigarettes have fixed per-pack taxes plus the 14% VAT. Alcoholic beverages also attract additional tax on top of VAT, making final consumer prices higher.

• Tourism and Hotels: Most tourism-related services (hotels, restaurants) are standard-rated at 14%. However, the sector benefits from the refund system: foreign tourists can reclaim VAT on hotel bills when leaving Egypt (through the tourist refund scheme).

• Technology and Digital Services: As noted, electronic services to Egyptians are now taxable. In practice, many foreign tech firms must register or appoint local agents.

Understanding these sector rules is vital. For instance, a real estate developer avoids charging VAT on sales (exempt) but cannot claim input VAT on construction materials. A bank exempt from VAT on loans cannot recover VAT on office supplies. A refinery selling fuel must charge VAT on top of duties. In each sector, specialized guidance or consultation is often needed. Law firms and accountants frequently publish sector-specific VAT alerts; for example, recent amendments to patenting and advertising in media have been announced to ensure fair taxation.

Dispute Resolution and Appeals

Despite best efforts, VAT disputes can arise. Egypt’s tax procedure law establishes a tiered administrative appeal process. If the ETA raises an assessment (following an audit or correction), the taxpayer may first object and discuss it with the auditor. Unresolved disputes go to the Internal Dispute Resolution Committee (within ETA) for a secondary review. If still dissatisfied, a final appeal can be lodged with the Tax Appeal Committee. The Appeal Committee’s decision is binding unless taken to the courts.

Should either the taxpayer or ETA disagree with the administrative outcome, the next step is litigation. Appeals from the Appeal Committee are made to the Administrative Tax Courts within 30 days. These courts (first and second degree) examine legal and factual issues. Taxpayers can ultimately petition Egypt’s Court of Cassation on final tax judgments.

It’s important to note that during this entire process, certain timelines (statute of limitations) apply – generally five years from the transaction date, or six years if fraud is alleged. While appeals are pending, the taxpayer is typically required to pay the assessed tax, though interest can be claimed if the dispute is later resolved in the taxpayer’s favor. For businesses, engaging experienced tax lawyers is crucial at this stage to craft arguments, file necessary forms on time, and navigate the legal procedures. Professional guidance often makes the difference in settling VAT disputes efficiently.

Role of Tax Advisors and Law Firms

Navigating Egypt’s VAT system can be complex, especially for foreign investors. Compliance involves technical registration rules, nuanced invoice requirements, frequent legal updates, and potential language barriers (most official communications and the ETA portal are in Arabic). Therefore, specialized tax advisors and law firms play an essential role. They help businesses with VAT registration (including obtaining approvals from the ETA), set up accounting systems for proper invoicing and e-filing, calculate VAT liabilities, and prepare periodic returns. They also advise on structuring transactions (e.g. deciding when to charge VAT versus qualify for an exemption) and on handling audits or refunds.

For foreign companies, local advisors often serve as fiscal representatives, liaising with the ETA and ensuring compliance with the simplified registration regime. In case of disputes or audits, tax law firms represent clients before ETA committees and courts, arguing on grounds of law or evidence. These professionals also stay updated on legislative changes; for instance, the 2025 amendments to table taxes and new digital service rules required rapid guidance to clients. In sum, effective VAT management in Egypt typically involves close collaboration with qualified advisors to align corporate practices with the evolving legal framework.