Egypt: Draft Amendments to the Egyptian Value Added Tax Law

As part of a broader tax facilitation initiative, the Egyptian government has submitted a draft law to the House of Representatives amending provisions of the Value Added Tax (VAT) Law No. 67 of 2016. The proposal balances support for strategic and productive sectors with targeted base-broadening measures to improve tax neutrality.

Tax Facilitations & Industrial Support

• Medical Equipment Relief: The reduced 5% VAT rate for manufacturing machinery is expanded to include medical devices.
• Suspended VAT: Payment of VAT on machinery, equipment, and medical devices for industrial units is suspended for one year from customs release or purchase. This can be extended up to an aggregate of three years. Full exemption is granted upon proof of use in industrial production, subject to a 5-year restriction on disposal.
• Transit Services Exemption: Goods in transit and their related services are legally deemed non-subject to VAT, provided they are under Customs Authority supervision.
• Accelerated Cash Flow: The general timeline to refund credit balances is shortened from six to four consecutive tax periods. For small businesses under Law No. 6 of 2025 (turnover under EGP 20 million), the window drops to just three months.

Sectoral Base-Broadening & Schedule Changes

• Real Estate & Administration: Sales and leases of residential and agricultural lands/units remain exempt. However, the 14% standard VAT will now apply to leases of non-residential buildings used as management or administrative headquarters, excluding entities carrying out religious, charitable, social, educational, or healthcare activities.
• Financial Neutrality: VAT exemptions are unified across all banking and non-banking financial services, including the National Post Authority and entities regulated by the Central Bank or Financial Regulatory Authority.
• Energy Schedule Tax: Natural gas is removed from the exemption list to face a schedule tax of EGP 20 per 1,000 cubic feet. This shift is designed to rest on commercial entities without burdening household consumers. Conversely, butane gas (LPG) and raw natural materials from mines/quarries remain explicitly exempt.
• Transition to Standard VAT: Certain consumeritems (including soaps and detergents) are moved to the standard 14% VAT regime. This permits producers to claim input VAT deductions, eliminating hidden tax costs in the supply chain. This transition also applies to construction and installation contracts, granting contractors the highly requested ability to deduct input VAT on raw materials and equipment. The previous 5% specific schedule tax on construction activities was entirely abolished.

Legislative Status

The proposed changes have received Council of Ministers approval. If passed by the House of Representatives, the law will enter into force the day following its publication in the Official Gazette.