Regulatory updates - Egypt

On 22 June 2023, the Ministery of Finance Decree No. 160 of 2023 came into effect, introducing VAT (Value-Added Tax) on non-resident digital and remote services.

The decree affects non-resident (foreign) operators of electronic distribution platforms (EDPs) that offer remote services to Egyptian residents. Rendering a remote service now entails an obligation for VAT to be paid in Egypt.

Furthermore, the Egyptian Tax Authority (ETA) issued detailed guidelines to the decree, informing vendors and recipients of their VAT obligations.

These VAT obligations apply differently to B2B (supplying a registered taxpayer) and B2C (supplying a non-registered taxpayer) transactions:

• B2B transactions - VAT obligations follow the Reverse Charge Scheme (RCS), i.e.:
  • The Egyptian buyer is responsible for accounting for VAT;
  • The non-resident vendor does not have to charge and remit VAT but is required to request and validate the Egyptian resident’s tax registration number. The validation is done by integrating with the Egyptian Tax Authority’s API.

• B2C transactions - The obligations depend on whether the non-resident vendor supplies the service through their own portal or an EDP.

• Rendering services through its own portal obliges the vendor to register and remit VAT;
• If an EDP is used, the EDP is responsible for registering and remitting VAT.

In cases where the vendor uses their own platform or the EDP is a non-resident vendor, the vendor must remit the VAT through the simplified vendor registration regime. In the simplified registration regime, VAT registration is done online, and only basic information is required for submission to ETA.

Finally, complying with the VAT obligations is important to avoid fines or legal actions, as outlined in VAT Law No. 67 of 2016 and underlined in a statement made by the ETA on the decree.

The Ministry of Finance of Egypt announced a new e-invoice requirement for importing and exporting entities. As of 1 July 2023, all entities providing import and export of goods must be registered in the e-invoicing system.

The entities in scope must register in the e-invoicing system through the Tax Authority’s website.  This website is linked to the online portal “Nafeza”. The “Nafeza” portal will indicate only entities registered in the e-invoicing system.

After the registration in the e-invoicing system, the entities must obtain and include in e-invoices the GS1 codes for goods. For import purposes, the entities must send the acquired GS1 codes for items to the supplier who issues an e-invoice with these codes.

The online portal “Nafeza” will automatically verify the prescribed codes on the e-invoices. This verification is an approval of the completion of the customs declaration.

The created e-invoices must be uploaded to the platform CargoX.

On 10 November 2022, ETA announced that doctors, engineers, lawyers, artists, chartered accountants, consultants, and all freelancers are obligated to register in the electronic invoicing system and send their B2B invoices as electronic invoices via the ETA system no later than 15 December 2022 and that those categories must follow the e-receipt system for their B2C invoices as per their binding waves and timelines.

Furthermore, it is essential to note that there are penalties for non-compliance with e-invoicing. The ETA has classified companies late to adopt e-invoicing as high-risk companies as a warning to taxpayers dealing with them. ETA has also made it possible to inquire about those high-risk companies in a black list available on the ETA website.

On 21 May 2022, the Egyptian Tax Authority (ETA) announced that beginning January 2023, it will be mandatory to send invoices in real time (within the same day of invoice issuance) to the mandatory infrastructure for clearance.

The current 7-day rule will be reduced in a gradual approach over 6 months period. That is, starting from July this year, the submission time will be within 6 days from the date of issuing the e-invoice to become one day by December 2022.

As of 1 January 2023, invoices will be submitted simultaneously with the issuance of the e-invoices (within 24 hours).

The Egyptian Minister of Finance has confirmed that a pilot implementation of the electronic receipt system was launched on 15 April 2022, with the mandatory phase starting on 1 July 2022.

The e-receipt system will be based on a central system, enabling the Tax Authority to monitor all commercial activity within the sales of goods and services to end consumers. The monitoring will be done through an integration with the point-of-sale devices or ERP systems of the traders, which will facilitate validity verification of B2C transactions in real-time.

Similar to the phased rollout approach of implementing the e-invoicing obligation, larger businesses will be the first to participate in the system. Some of them are already assisting in piloting the system. The last phase of the project is expected during the fiscal year 2023/2024 and will include smaller businesses, such as those operated by craftsmen or entities providing trade-based services.

The implementation of the electronic receipt system is part of Egypt’s plan to automate its tax management system. The modernization and automation of the system began with the e-invoicing introduction in 2020.

As we reported in the previous updates, the Egyptian Tax Authority (ETA) has been gradually rolling out the mandatory e-invoicing system to new taxpayers categories since 2020.

Earlier in July, the Egyptian Cabinet issued decree number 1602, obliging the Governmental entities to apply the e-invoicing system as of 1 October 2021.

Furthermore, the ETA announced through decree number 443 in September that 3737 companies registered at the Joint Stock Companies Department and the Investment Department must follow the e-invoice system starting 15 December 2021.

According to the timelines anticipated by the Ministry of Finance, all tax invoices issued in Egypt should follow the e-invoicing mandate by April 2023.

What does the ACI system entitle?

In light of the latest Decrees issued by the Ministry of Finance, i.e., Decrees No. 38, 222, 328, and 367 of 2021, the Advance Cargo Information (ACI) concept was built. It is a system that requires submitting the shipment data electronically to the Egyptian Customs Authority 48 hours before the shipment’s arrival. The required documents include, among others, commercial invoice, certificate of origin, packing list, bill of lading, pro forma invoice, and a letter of credit.

Benefits of the new system

The new system will aim at protecting the country from the infiltration of goods of an unknown origin or source. It will also help ease the customs activities, elevate international trade, and unify customs release and clearance processes. In addition, the new customs mechanisms will facilitate access to refunds for exporting businesses and foster streamlined and digitally-enabled import and export procedures.

Who is in scope?

Following taxpayer categories will be obliged to comply with the requirements in Phase 2:

• Importers
• Exporters and suppliers (foreign)
• Clearance companies
• Sea/air shipping companies

How does the (ACI) system work?

Two portals have been implemented for different kinds of suppliers. Egyptian importers have to register and follow the steps specified by the online portal Nafeza.

Foreign exporters have to use the platform CargoX.

Timelines

The roll-out of the (ACI) system is taking place in two phases:

• Phase 1 - pilot phase since 1 April 2021;
• Phase 2 – the mandatory phase kicking off on 1 October 2021.

Foreign exporters are advised to work closely with their Egyptian customers to ensure compliance of the consignments’ data with the newly imposed requirements. Penalties for customs violation and smuggling are also foreseen in the rules.

On 17 May 2021, the head of the Egyptian Tax Authority, Reda Abdel Qader, issued the Decree No. 195 of 2021. The decree requires all companies registered at the Medium Taxpayers Center (Cairo) and the Large Taxpayers Center of the Free Profession (Nasr City) to issue e-invoices starting from 15 September 2021.

Earlier this year, the Tax Authority issued a decision imposing an obligation on the companies registered with the Large Taxpayers Centre to issue electronic invoices as of 15 May 2021 - the third phase of the e-invoicing mandate. This came after the implementation of the first phase on 15 November 2020 and the second phase on 15 February 2021 respectively.

On 10 March 2021, the Ministry of Finance, issued Decree No. 125 of 2021 to add a new paragraph to Article 38 of the Executive Regulations of the VAT law.

The decision includes prohibiting paper invoices in deducting or refunding the VAT and enforcing that only e-invoices cleared with the government’s systems can be used in tax refunds as of 1 January 2022.

This is a bold move by the Ministry of Finance - as of now, only 411 companies are using the e-invoicing system. More companies will be included in the mandate throughout 2021.

The new Article 38 will help drive the adoption of e-invoicing and the use of the ETA’s e-invoicing system, as the business risk of having non-electronic invoice VAT refunds rejected, could pose significant revenue losses.

The first phase of the e-invoice roll-out started on 15 November 2020, while the second came into effect on 15 February 2021. On 22 February 2021, the Egyptian Tax Authority (ETA) issued a decree (No. 85 of 2021) which states that taxpayers registered with the Large Taxpayers Centre must register in the ETA's electronic invoice system until 15 May 2021 before the third phase of the mandatory e-invoicing begins.

Moreover, on 30 March 2021, the Minister of Finance, Dr Mohamed Maait, emphasized that companies not complying with the electronic invoice mandate will be referred to the prosecution as of mid-April, as per Article (72) of the Unified Tax Procedures Law No. 206 of 2020. Previously, the Decision No. (518) of 2020 was issued obligating 347 companies to register in the e-invoicing system starting from the middle of last February as the second phase.

The Minister of Finance called the companies to quickly take all necessary steps to join the ETA's electronic invoicing system and integrate with it. As of 1 July 2021, there will be more procedures and advantages associated with the system. These, however, will be available exclusively to the taxpayers issuing e-invoices through the system.