A new decree was issued by the Egyptian Minister of Finance suspending the value added tax (VAT) on machines and equipment imported for factories and production units if the industrial producer meets specific requirements.

The said decree No. 2012 of 2022 (Decree), issued on 18 May 2022, regulates a VAT suspension, which was previously provided under VAT Law No. 67 of 2016 (VAT Law).

Tax Suspension Ratio

The VAT Law provides for a suspension of 9% of VAT for the said category of imported machines and equipment. Accordingly, the VAT is collected at a flat rate of 5% if the service provider meets specified requirements, as will follow.

Applicability for VAT Suspension

  • The reduced VAT flat rate of 5% is applicable, if the service provider submits to the competent customs authority documents evidencing that the equipment is imported for the purpose of industrial production, as approved by the competent licensing entity.
  • In order to apply the said suspension the purpose of trade, the importer must submit to the competent customs authority documents confirming the supply of the machines and/or equipment to the industrial producer, the contract approved by the entity granting the production license or the supply order approved by the said producer, in addition to the registration certificate or tax card. In this case, the suspended tax will be applied in the name of the industrial producer against submittal of a letter of guarantee.
  • If the importer for trade is not able to provide the required documents indicating the supply to an industrial producer or a service provider, the tax is collected at the rate of 14% (placed in trust) until the importer submits the following:
  1. Evidence of sale to Industrial Producer: If the importer submits to the competent customs office evidence of supply to an industrial producer, the paid VAT tax of 14% (in trust) is refunded to the importer in full. The VAT on the machines and equipment sold in the local market is suspended as soon as the industrial producer submits to the customs office the contract or supply order approved by the entity licensing the industrial activity, and a letter from the competent Tax Office confirming submittal of a letter of guarantee.
  2. Evidence of sale to Service Provider: If the importer submits to the competent customs office evidence of supply to a service provider, the tax is settled at a flat rate of 5%, and the remaining 9% of the paid VAT amount (in trust) is refunded to the importer. The importer retains the right to deduct the tax previously paid or settled at the time of customs release from the tax collected upon selling the products in the local market.

Non-applicability of Tax Suspension

  • VAT that is due for the parts of machines and equipment that are unsuitable for use in industrial production, and spare parts imported from abroad or purchased from the local market, are collected at 14%.
  • Machines and equipment that were received disassembled or in separate shipments, or if the competent customs office cannot verify their classification for industrial use, are collected at the rate of 14% (in trust). However, the amount placed in trust may be refunded after installation and inspection by a joint committee composed of the Egyptian Tax Authority and the Customs Authority.

Originally Published 13 June 2022

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