Egypt’s VAT on Remote Digital Services
The Egyptian Minister of Finance issued Decree 24 of 2023 amending the Executive Regulations of the Value Added Tax Law No. 67 of 2016 (“VAT Law”) to regulate the application of Value Added Tax (“VAT”) on imported remote electronic services (“E-services”). A guide was issued recently by virtue of ministerial Decree 160 of 2023 (“Guide”) providing guidelines on the implementation of the new VAT regime on remote e-services.
According to Article 5 of the VAT Law, VAT is applicable on imported services in case Egypt is the place of supplying the service to its recipient, regardless of the method the services is supplied through.
Therefore, if you are a non-resident business making supplies of e-services to Egyptian customers, those supplies are liable to Egyptian VAT. If your supplies are liable to Egyptian VAT, you will need to register for Egypt VAT through the Simplified Registration Regime (SVRR)
HOW TO DETERMINE THE PLACE OF SUPPLY
Egypt is considered the place of supply according to one of the following three criteria:
Customer Location
Imported services are considered supplied in Egypt if the recipient is a non-registered person who has a residence in Egypt.
The residence of a recipient is determined through the information the electronic distribution platform obtains for the regular running of business, such as:
- Residence information (e.g., billing address or home address)
- Payment information (e.g., credit card info, bank account details, or bank ID)
- Access information (e.g., SIM info, IP address, location of landline through which services are supplied).
In case of conflicting information, residence can be determined based on at least two matching pieces of information.
VAT registration
Any individual or entity that is VAT-registered in Egypt is considered to have residence in Egypt for VAT purposes.
Corporations
Any governmental or non-governmental entity or corporation recognized in Egypt will be considered to resident regardless of being registered in Egypt or not.
REMOTE E-SERVICES V. ON-THE-SPOT SERVICES
Remote e-services are defined as any services where, at the time of the supply of the service, there is no necessary connection between the physical location of the recipient and the place of physical performance. Examples include:
- supplies of digital content, such as e-books, movies, TV shows, music and online newspaper subscriptions;
- website design or publishing services;
- online supplies of games, apps, software and software maintenance; or
- legal, accounting or consultancy services.
Using the internet, or other electronic means of communication, just to communicate or facilitate trading does not always mean that a business is supplying e-services. Services which require the physical presence of a customer in a specific location to receive it, even if they are booked online, are not remote e-services for VAT purposes. They services are called on-the-spot services such as:
- booking of hotel services;
- physiotherapy services;
- physical entry to entertainment or sporting events; or
- restaurant and catering services; or
- passenger transportation services.
BUSINESS-TO-BUSINESS (B2B) VS. BUSINESS-TO-CUSTOMER (B2C)
If you are a non-resident supplying your e-services to a private customer in Egypt, then, you have an obligation to register for Egypt VAT through the Simplified Vendor Registration Regime (“SVRR”), charge, and collect VAT (B2C sales).
If your customer is VAT-registered in Egypt (B2B sales), then the customer is the one required to self-assess the VAT and remit it to the Egyptian Tax Authority through the Reverse Charge Scheme. The registered customer shall remit the VAT within 30 days of the date of supplying the services.
VAT-exempted businesses (not VAT registered) that receive imported e-services from non-resident is also required to register at Reverse Charge Scheme, calculate the VAT, and remit it to the ETA within 30 days from the date of receiving the imported services.
BUSINESS USING ELECTRONIC DISTRIBUTION PLATFORMS (EDP)
An electronic distribution platform (EDP) is an electronic interface—such as a website, internet portal, online store, or online marketplace—that allows recipients and persons offering services through the electronic interface to enter into contact which results in a sale through that electronic interface.
If you are supplying e-services to private non-registered customers through an electronic distribution platform (“EDP”), you need to determine whether you are making the supply through your own portal or application or through third party EDP.
If you are a non-resident using our own EDP, then you should register under the SVRR, charge and collect VAT. On the other hand, if you are a supplier of e-services (local or non-resident) through a third party’s EDP, then the EDP will be the one obliged to collect and remit the VAT. If the EDP is also a non-resident, then it has to be registered under the SVRR.
An EDP will be exempted from collecting VAT if the following conditions are met:
- the supplier has agreed with the EDP in writing that the supplier, instead of the platform operator, is responsible for collecting the VAT and remitting it to the Egyptian Tax Authority;
- the invoice or sales receipt must identify the supplier and the service supplied; and
- the terms and conditions of the EDP must not:
- authorize the EDP to delivery of the service,
- authorize the EDP to collect taxes from service suppliers, nor
- set (directly or directly) the general terms and conditions of the supply of the service.
An EDP that does not meet all these conditions must treat the sales of third-party e-services as if they were its own, and must charge, collect and remit VAT.
If your only role in the supply is to provide for the processing of payments, you are not regarded as an EDP and you do not have to account for VAT.
SIMPLIFIED REGISTRATION REGIME (SVRR)
A non-resident supplier and EDP providing e-services to a private customer in Egypt (B2C) is required to submit apply to register under the SVRR system through the portal of the Egyptian Tax Authority.
Minimum Threshold
The SVRR registration requirement applies only if their revenue of the non-resident e-service provider in Egypt meets or exceeds EGP 500,000 within a 12-month period.
However, professional and consultancy services providers must register under SVRR from the outset, regardless of the sales amount they make in Egypt.
Registration Process
To register for the SVRR, a non-resident supplier or EDP shall file a registration comprising the following information:
- Country of incorporation.
- Tax residency.
- National tax identification number.
- Registered address.
- Contact person’s name, email address and cell phone number.
- Its URL.
Upon completion, the application will be assigned a registration number (on Form 3-VAT) and the Egyptian Tax Authority will notify the applicant with this number (on Form 13/1 -VAT).
Once registered, the non-resident supplier or EDP will be required to file a VAT return and pay the relevant VAT due within the month following the taxable period’s expiration.
The SVRR is currently in effect but will only apply to e-services starting from 22 June 2023.
VAT RATE AND PAYMENT CURRENCY
The standard VAT rate of 14% applies to all services, except for professional services subject to a 10% rate. The due VAT can be paid in EGP or USD, other currencies will be available as of December 2023
COMPLIANCE AND PENALTIES
Non-compliance with the SVRR registration requirement or the collection or remittance of the due VAT is considered a tax evasion that could be penalized with 3 to 5 years imprisonment, a fine up to EGP 50,000, paying the imposed tax and a delay penalty.
The relevant authorities might also ban the service supplier from accessing the Egyptian market.
A non-compliant may also be subject to “risk review” (audit) which can result in the assessment and calculation of the due VAT by the Egyptian Tax Authority and claim it in the courts at the jurisdiction of the non-resident.
VAT on digital services is a an area of some complexity and there will be nuance given the range of digital services offered across the sector. Should you have any queries in relation to the VAT treatment of the supply of digital services, or need any additional information with respect to this Alert, please contact the following:
