A new decree was issued by the Egyptian Minister of Finance suspending VAT on machines and equipment (including production lines) imported for factories and production units if the industrial producer meets specific requirements.
The said decree No. 2012 of 2022 (“the Decree”), issued on 18 May 2022, regulates a VAT suspension, which was previously provided under Law No. 67 of 2016 as amended by Law No. 3 of 2022, and its executive regulations (the “VAT Law”).
Tax Suspension Ratio
The VAT Law provides for a suspension of 9% of the 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 the 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 the case of import for the purpose of trade, in order to apply the said suspension, the importer must submit to the competent customs authority documents confirming the supply of the imported machines and/or equipment to the industrial producer, as indicated in the contract approved by the entity granting the production license, or the supply order approved by the 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 shall be collected at the rate of 14% (placed in trust) until the importer submits the following evidence of the sale to either an industrial producer or a service provider:
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) shall be refunded to the importer in full. VAT payment on the machines and equipment sold in the local market shall be 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 submission of a letter of guarantee.
Evidence of sale to Service Provider: If the importer submits to the competent customs office evidence of supply to a service provider, the tax shall be settled from at a flat rate of 5%, and the remaining 9% of the paid VAT amount (in trust) shall be 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 due on 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 received disassembled or on separate shipments, or if the competent customs office cannot verify their classification, are collected at the rate of 14% (in trust). However, the said 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.
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