Sidestepping VAT challenges for export services in Egypt

Recognizing the critical role exporters play in bolstering the national economy and shoring in foreign currency, the VAT law stipulates a 0% VAT rate for export services. This zero-rating is designed to alleviate tax burdens on international transactions and enhance Egypt’s competitiveness in the global market.

Exports in focus 

Egypt’s strategic location and diversified economy make it a hub for various export services, including IT, consultancy, legal advisory, and software development. The zero-rating of VAT on these services is a strategic move to support the country’s economic growth and integration into the global economy. However, businesses must navigate a complex regulatory environment to fully benefit from these provisions.

Qualifying for the 0% VAT rate

To qualify for the 0% VAT rate, businesses must adhere to stringent documentation requirements:

• Service agreement: A formal agreement demonstrating the relationship between the Egyptian service provider and the foreign recipient.
• Detailed tax invoice: Comprehensive invoicing that meets the standards set by the Egyptian Tax Authority (ETA).
• Proof of payment: Evidence of payment via bank transfer to a bank supervised by the Central Bank of Egypt, or other approved payment methods.

Challenges and recent developments

In September 2019, the ETA issued new instructions that have added layers of complexity to the VAT landscape for export services. These instructions delineate specific conditions under which services provided to non-residents are reclassified as local services, thus subjecting them to the standard VAT rate instead of the 0% export rate.

For instance:

• Marketing and advertising services: Services provided to non-resident entities but targeting the Egyptian market are now considered local services.
• Guarantee services: Agents and branches of non-resident companies offering guarantee services for goods sold by their foreign entities to the Egyptian market are also classified as local services.

While the aforementioned services do not fall within the scope of exportation of services description from Egyptian VAT practices, the reclassification poses significant challenges for businesses, potentially increasing their tax liabilities and complicating compliance efforts.

Our services

We intricacies of VAT regulations and the challenges businesses face in this evolving landscape. Our specialized services are designed to help you navigate these complexities and ensure compliance while maximizing the benefits of VAT zero-rating where applicable. Here’s how we can assist:

• Tailored VAT advice: Our team of VAT experts provides customized advice on complying with the latest VAT regulations affecting export services.
• Regulatory interpretation: We help you interpret recent instructions and apply them correctly to your business transactions.
• Advance rulings: In certain cases, we can assist clients in obtaining advance rulings from the ETA by liaising with the authority to clarify the exportation of services related to business activities.

By leveraging our expertise and comprehensive services, you can confidently navigate the complexities of VAT regulations on export services, ensuring compliance and optimizing your tax position.