VAT In Egypt For Foreigners : A Comprehensive Guide

1. Intro

Nowadays, Egypt runs multiple international projects with direct foreign investments. To fulfill these projects, foreign companies register branches in ARE under intergovernmental agreements, concession agreements, and other contracts with specific tax incentives.

Most tax exemptions are applied to indirect taxes, such as VAT. In this case, a lot of companies pay VAT on incoming invoices and, therefore, show a credit VAT balance in their VAT tax returns.

To successfully refund these amounts, a company has to follow thoroughly the procedure established by VAT Law #67 Y 2016 and its Executive Regulations.

2. Governing Laws and Regulations

VAT was introduced in Egypt in September 2016 as a substitution for GST. VAT Law # 67 Y 2016 requires separate registration for VAT purposes from taxpayers and regulates all VAT-related procedures, such as tax imposition and maturity, tax value definition, documentation requirements (invoicing, books, and registers), tax collection, as well as tax deduction, exemption, and refunding. Later Article 53 of Uniform Tax Procedure Law # 206 Y 2020 confirms the refund procedures and deadlines, and imposes, in case of an incomplete refund, the delay fee calculated on the basis of the credit and discount rates announced by the Central Bank on the first of January prior to the due date for the tax refund, plus 2%, excluding fractions of the month and the pound.

3. Regulatory Requirements

After the adjustments made by Law # 3 Y 2022, Article 30 of VAT Law # 67 Y 2016 stipulates that the VAT will be refunded in accordance with the conditions and procedures and within the limits specified in the Executive Regulations within forty-five days from the date of submitting the application supported by documents in the following cases:

"1- The tax previously paid or charged on goods and services that are exported, whether exported as is or included in other goods or services, not to exceed the credit balance of the goods and services for which the tax deduction applies, provided that the value of exports is transferred to one of the banks subject to the supervision of the Central Bank in accordance with the controls it specifies, or in accordance with any of the payment methods or other settlements specified by the executive regulations, all on the condition that the value of exports is not less than the value of their inputs.

2- The tax that was collected by mistake.

3- The credit balance that has passed more than six consecutive tax periods.

4- The tax previously paid on buses and passenger cars if their use is the facility's licensed activity.

5- The tax borne by a non-resident person registered under the simplified supplier registration system for the purposes of performing his activity within the country.

In all cases, among the documents proving the taxpayer's entitlement to deduct or refund the tax, there must be a certificate signed by an accountant registered in the register of accountants and auditors stating this, unless the tax payment is recorded in the electronic system of the authority."

As per Article 37 of Executive Regulations of VAT Law # 67 Y 2016, the terms and conditions of VAT refunding (for the most frequently occurring cases) are as follows:

• If the tax was collected by mistake, then the taxpayer shall submit a written or electronic request explaining the amount of tax collected by mistake and the reason for it, along with a statement of the tax period in which the error occurred, and shall attach supporting documents to the request.
• If there is a VAT credit balance that has passed for more than six consecutive tax periods (in the following cases):
  • The difference in tax category between inputs and outputs;
  • Accumulation of tax on inventory in the registered account;
  • Sales to exempt entities are legally permitted to deduct tax on the inputs of taxable goods and services sold to them.

In this case, the taxpayer shall submit a written or electronic request stating the value of the credit balance, and shall attach supporting documents to the request, as ETA must verify the validity of this balance before responding.

The tax may not be refunded by ETA on the credit balance that has passed for more than six consecutive tax periods if this balance arose from any other tax refund case stipulated in Article 30 of the Law.

• If the VAT refunded is borne by a non-resident person registered under the simplified supplier registration system for the purposes of performing his activity within the country, then this non-resident taxpayer submits an electronic application on the form prepared for this purpose, indicating the amount of tax to be refunded. The supporting documents in digital form are attached to the application, and ETA will verify them.

The VAT refund will be executed in the following manner:

• The tax collected previously will be refunded in the same denomination, currency, and value that were in effect at the time of payment;
• Taxable goods and services must be used for the purposes of the activity of a taxpayer who is not resident in Egypt.
• In all cases of tax refund stipulated in this article, the tax is refunded only within the limits of the credit balance.
• The tax shall be refunded no later than forty-five days from the date of submitting the application supported by documents.

As per Article 35 of Executive Regulations of VAT Law # 67 Y 2016, in all cases, the following must be taken into account:

• Only what has been previously collected from the tax will be refunded in the same category and value that was valid at the time of payment or loading and on what has already been exported, and not exceeding the credit balance of the goods and services for which the tax deduction applies.
• Submitting evidence of supplying the value of exports to one of the banks subject to the supervision of the Central Bank in accordance with the controls it sets, or in accordance with any of the other payment or settlement methods, including the following:
  • Any other electronic payment method from the importer or his agent to the exporter in foreign currencies.
  • Bank deposit of the value of the transaction in foreign currencies in accordance with the Central Bank's procedures for countries where bank transfers are not possible and in accordance with the export documents stipulated by the law.
  • Settlements resulting from barter sales. The registrar must submit evidence indicating that the value of the commodity exported through barter is payment for the value of the imported goods, provided that it is certified by the Customs Authority.
  • Settlements between holding or parent companies and their subsidiaries.
• The value of exports should not be less than the value of their inputs.
• The tax to be refunded has not been included among the cost elements.
• The tax will be refunded no later than forty-five days from the date of submitting the application supported by documents.

Article 38 of Executive Regulations of VAT Law # 67 Y 2016 requires a certificate signed by an accountant registered in the Register of Accountants and Auditors, stating that the taxpayer is entitled to a tax refund. A refund request that is not accompanied by the submission of this certificate will not be accepted unless the tax payment is recorded in the electronic system of the authority.

Minister of Finance Decree # 188 Y 2023 introduced new Article 38-bis for Executive Regulations of VAT Law # 67 Y 2016, which stipulates "In all cases of tax deduction or refund stipulated in Articles 22 and 30 of the Law, only electronic invoices will be considered for tax deduction or refund as of July 1, 2023, for those registered in the electronic tax invoice system, with the exception of paper invoices previously issued by taxpayers and issued before the date of their obligation to issue electronic tax invoices."

4. Restrictions

A company cannot refund any VAT amounts if there are possible due balances in its VAT tax return. If there are possible sales in the coming period of six months that are subject to VAT, and subsequently VAT amounts are due, the credit VAT balance must be deducted from any debit VAT balance.

Also, the Schedule Tax (Part 3 VAT Law #67 Y 2016) amounts must not be refunded in any case.

5. Timeline

Article 30 of VAT Law # 67 Y 2016 defines the moment of commencing the refund procedure as when the credit balance in the VAT tax return has passed more than six consecutive tax periods (though there is a probability of a tax audit from ETA, if the amount is too large or the tax periods were passed six months deadline long ago), and the amount should be refunded within forty-five days from the date of submitting the application.

6. Document requirement

The file a company submits for VAT refund to ETA, depending on the nature of the refunded VAT, must include (according to Article 35 of Executive Regulations of VAT Law # 67 Y 2016):

• In the case of a VAT refund for exported goods:
  • Tax invoice – the goods or their inputs must have been purchased from a registered person.
  • Proof that the goods must not have been used before, knowing their source.
  • Customs Authority release documents – the proof that the goods must be exported by the Customs Authority.
  • Proof of payment through one of the banks is subject to the supervision of the Central Bank in accordance with the controls it sets. In the event that it is proven that a bank transfer is impossible, any of the payment or settlement methods mentioned in this article shall be taken into account.
  • Proof that the tax shall not be included in the cost, unless the necessary accounting and tax settlement has been made and proof of this has been submitted to the Authority within a period not exceeding one year from the date of purchase or import. The tax shall not be refunded except within the limits of the credit balance of the goods for which the tax deduction applies.

The Authority must verify the previous tax payment unless the tax payment is recorded in the Authority's electronic system.

• The tax refund request shall be matched with:
  • Documents submitted.
  • The original tax invoice or electronic invoice is available on the authority's electronic system.

In cases where there is an agreement with the Customs Authority, the Customs Authority may refund the tax on exported goods and on imported goods re-exported abroad, whether they were exported in their original state or included in local manufactures exported abroad, in accordance with the customs procedures followed regarding exported goods.

• In the case of services performed on exported goods:
  • A copy of the service contract approved by both parties to the contract.
  • The proof of the tax payment which the Authority must verify, unless the tax payment is recorded in the Authority's electronic system.
  • The tax refund request shall be matched with:
    • Documents submitted.
    • The original tax invoice or electronic invoice available on the authority's electronic system.
  • In the case of exported services – the tax is refunded on exported service inputs provided that the following conditions are met:
    • Proof of dealings between the service provider in Egypt and its recipients abroad by submitting a service performance contract or by any other means depending on the nature of the service.
    • A paper or electronic copy of the tax invoice or extract, including detailed data about the service, especially its type and value, as well as the name and place of residence of both the service provider and its beneficiary.
    • A copy of the document stating that the value of the service has been paid by the recipient of the service abroad via a bank transfer to one of the banks subject to the supervision of the Central Bank in accordance with the controls it sets. In the event that it is proven that the bank transfer is not possible, any method of payment or settlement mentioned in this article shall be taken into account.
    • The original tax invoice for the inputs for performing the service.
    • The proof of the previous tax payment which the Authority must verify, unless the tax payment is recorded in the Authority's electronic system.

7. Concluding Remarks

The procedure for a VAT refund requires following specific steps, including strict deadlines and the submission of certain documents. The accuracy of file submission and observation of the timeframes significantly increase the probability of obtaining a obtaining a VAT refund.

Youssry Saleh & Partners fully dedicated team of experienced Attorneys and Auditors offers outmost attention, deep concern and valuable time in order to provide the best possible solution for our clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.