Egypt introduces VAT guidelines for nonresident providers of remote digital and electronic services

• The Egyptian Ministry of Finance introduced, via a Ministerial Decree, value-added tax (VAT) guidelines for digital services and other remote services provided by nonresidents (Guidelines) to customers based in Egypt.
  
  
• Ministerial Decree No. 160 of 2023 follows amendments to VAT Law No. 67 of 2016 and clarifies the Executive Regulations with respect to the simplified registration regime for nonresidents.
  
  
• The Guidelines outline the VAT obligations for nonresident service providers who render digital and remote services to customers in Egypt through various platforms (including websites, social media stores and applications).
  
  
• Nonresident service providers who provide remote services to customers in Egypt should review the Guidelines carefully and take necessary steps to comply with the simplified registration regime within six months from the issuance date of the Executive Regulations of Law No. 3 on 11 January 2023.
   

Executive summary

On 22 March 2023, the Egyptian Ministry of Finance (MoF) issued Ministerial Decree No. 160 of 2023 (pdf) introducing, in an appendix, guidelines for digital services and other remote services provided by nonresidents (Guidelines) to customers based in Egypt. On the same day, the Egyptian Tax Authority (ETA) also published the Guidelines (pdf) on its website.

Specifically, the Guidelines govern remote services (electronic and digital services) rendered by nonresident service providers to customers based in Egypt (through various platforms, including websites, social media stores and applications) and determine the value-added tax (VAT) liability for nonresident service providers, whether the customer is a business or a consumer.

Detailed discussion

Background

In January 2022, the Egyptian Government published Law No. 3 of 2022, amending VAT Law No. 67 of 2016.

The amendments covered certain topics relating to the simplified registration of nonresidents, special economic zone projects, sale and lease of real estate, the VAT treatment of equipment and machinery, the schedule tax items and exemption lists, etc.

Subsequently, on 11 January 2023, the Egyptian Government published the Executive Regulations elaborating on the provisions of Law No. 3.

Thereafter, on 22 March 2023, to further clarify the simplified registration regime for nonresidents, the MoF issued Ministerial Decree No. 160 of 2023, introducing the Guidelines.

Key elements of the Guidelines

Application

The Guidelines apply to nonresident service providers rendering remote services to customers based in Egypt, and to electronic distribution platform (EDP) operators rendering remote services to customers based in Egypt.

Based on the Guidelines, remote services shall comprise the following:

• Online supplies of games, apps, software and software maintenance
  
  
• Website designing or publishing services
  
  
• Legal, accounting or consultancy services

The booking of hotel services, restaurants and catering services, and passenger transportation services are out of scope of the definition of remote services.

For business-to-business (B2B) transactions

The reverse-charge mechanism applies where the resident taxpayer is required to self-account for VAT applying the reverse-charge rules, which remove the nonresident's obligation to charge or remit VAT, whether the resident registered taxpayer sells taxable goods/services or nontaxable goods/services.

For business-to-consumer (B2C) transactions

Two alternative scenarios may apply:

1. Nonresident service providers provide services: (a) via their own portal, or (b) via a mobile application. In this case, the service providers must register and remit VAT (simplified registration regime).
   
   
2. Nonresident service providers provide services through a nonresident EDP. In this case, the EDP must register and remit VAT (simplified registration regime).

VAT rates and payment currencies

In general, the standard 14% VAT rate applies. However, for professional and consultancy services, the applicable VAT rate is 10%. The acceptable currencies for VAT payment are Egyptian Pounds (EGP) and the US Dollar (USD), but other currencies will be acceptable from December 2023.

Input VAT recoverability for nonresident registrants

Nonresident registrants under the simplified service providers registration regime cannot deduct any input VAT. However, they can apply for a refund to recover any input VAT they have incurred in Egypt in connection with their taxable activity.

Threshold for VAT registration for nonresident service providers

The revenue threshold for simplified registration for remote services shall be EGP500,000 for any 12-month period. However, professional and consultancy services should be registered from the beginning, irrespective of their turnover.

Noncompliance with registration implications

In cases of noncompliance with the VAT registration requirements, the ETA will contact the nonresident service providers, and if no response is received, the ETA may commence a risk review, which may result in the ETA's taking following steps:

• Registering nonresident service providers for Egyptian VAT online on their behalf and sending them an assessment of their liability, based on ETA calculation with additional penalties
  
  
• Registering the debt in a court in the country of the nonresident supplier

The ETA can take serious action by preventing or banning the nonresident service providers from exporting services into the Egyptian market until they fulfill their obligations (in accordance with Law No. 3 of 2022).

Implications

Nonresident businesses rendering services to customers in Egypt should comply with the new procedures introduced by the issued VAT Guidelines, as they have direct implications on services the businesses export to Egypt. These service providers should assess potential obligations through addressing invoicing requirements, keeping records and filing VAT returns.
 

For additional information with respect to this Alert, please contact the following:

Ernst & Young Egypt, Cairo
 

• Ahmed El Sayed, MENA Global Compliance and Reporting Leader
  
  
• Hossam Nasr, Global Compliance and Reporting
  
  
• Ahmed Abo El Fotouh, Global Compliance and Reporting
  
  
• Heba Wadie, International Tax and Transaction Services
  
  
• Karim Emam, International Tax and Transaction Services
  
  
• Amani Badr, Indirect Tax
   

Ernst & Young LLP (United States), Middle East Tax Desk, New York
 

• Asmaa Ali

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.