Egypt: Enhanced VAT Compliance Measures for Digital Services

| Image credits: Central business district in New Administrative Capital, Egypt, by Abdelrhman 1990

Egypt has intensified efforts to bring non-resident vendors providing digital and remote services into compliance with value-added tax (VAT) regulations. In a recent development, Egypt identified many potential taxpayers engaged in providing such services in Egypt.

IDENTIFYING NON-RESIDENT TAXPAYERS

Through extensive analysis of the digital sector, Egypt has compiled detailed records of companies potentially liable for VAT. These measures are part of Egypt’s broader strategy to regulate the rapidly growing digital economy and ensure equitable tax collection.

Since June 22, 2023, non-resident suppliers providing remote services in Egypt have been required to register for VAT under the simplified registration regime.

Non-compliance may lead to severe penalties, including mandatory registration, tax assessments, additional fines, and restrictions on market access within Egypt.

REGISTRATION THRESHOLD

The VAT registration threshold is aligned with that of domestic VAT taxpayers. Under the simplified registration regime, the threshold applies to:

• Digital services sales exceed EGP 500,000 within any 12-month period.

However, for professional and consultancy services, the threshold is set at EGP 0.00, meaning registration is required from day one, regardless of the turnover.

Once successfully registered in Egypt, non-resident registrants can file the simplified VAT return monthly and make payment for the VAT due.

SCOPE OF TAXABLE REMOTE SERVICES

Digital and remote services subject to VAT include:

• Streaming content: movies, music, and TV shows.

• Online subscriptions: games, apps, and software.

• Professional services: legal, accounting, and consultancy services.

• Technical services: website design, publishing, Artificial Intelligence, and software maintenance.

Generally, these remote services attract the standard VAT rate of 14%. However, certain categories, such as professional services, are taxed at a reduced rate of 10% and are subject to VAT from day one, with no threshold limit.

EXAMPLES OF DIGITAL SERVICES (14% VAT RATE)

• Digital content purchases (downloads of videos, apps, games, music).

• Subscription-based supplies of content (music, streaming video, online gaming).

• Software services and maintenance (anti-virus software, digital data storage, etc.).

• Licensing of content (e.g., access to specialized online content such as publications, software, cloud-based systems, etc.).

EXAMPLES OF PROFESSIONAL AND CONSULTANCY SERVICES (10% VAT RATE)

• Legal consultancy.

• Accounting and bookkeeping.

• Marketing consultancy.

VALIDATION OF TAX REGISTRATION NUMBER FOR B2B TRANSACTIONS

Starting November 1, 2024, non-resident vendors in Egypt must validate the Tax Registration Number (TRN) and Unique Identification Number (UIN) of their B2B clients. This new requirement ensures the proper application of the reverse charge VAT mechanism, which shifts the tax liability from the seller to the buyer.

API ACCESS FOR COMPLIANCE

To simplify the validation process, Egypt has introduced an API system.

Failure to validate TRNs and UINs will result in transactions being classified as business-to-consumer (B2C), subjecting them to a 14% VAT charge and potential penalties.

UIN ACQUISITION AND MANAGEMENT

Egypt has provided detailed guidance to assist businesses in acquiring and managing UINs. These UINs are valid for one year and require periodic renewal to maintain compliance.

STRENGTHENING TAX COMPLIANCE IN EGYPT’S DIGITAL ECONOMY

Egypt's proactive measures, including identifying potential taxpayers, implementing stringent validation requirements, and providing resources for compliance, underscore Egypt’s commitment to regulating its digital economy.

Non-resident vendors must stay informed and adhere to these regulations to avoid penalties and contribute to a fair tax environment.