Egypt: Guidance clarifying VAT on digital services regime
Nonresident vendors of remote services required to register under “simplified vendor registration mechanism” and charge VAT from 22 June 2023
Nonresident vendors of remote services required to charge VAT from 22 June 2023
The Egyptian tax authority (ETA) published guidance clarifying the value added tax (VAT) on digital services regime. Nonresident vendors of remote services to customers in Egypt are required to register under a new “simplified vendor registration mechanism” and charge VAT effective from 22 June 2023.
An overview of the guidance is provided below.
- Remote services are defined as services when, at the time of the performance 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; and legal, accounting or consultancy services.
- Remote services exclude “on-the-spot” services, which are services that require the physical presence of a customer in a specific location to receive it, even if they are booked online (e.g., booking of hotel services, physiotherapy services, etc.).
- Remote services are in principle subject to the standard VAT rate of 14%, unless the services are subject to the reduced VAT rate of 10% (e.g., consultancy, accounting, and marketing services) or are explicitly exempt (e.g., certain financial, insurance, and education services).
Business-to-business (B2B) vs. business-to-customer (B2C)
- The obligation to register, charge, and collect VAT applies to sales made to consumers (B2C sales).
- For sales made to business customers (B2B sales), the customer is required to self-assess the VAT and remit to the tax authority.
- Remote services are considered to be rendered in Egypt if the recipient is a non-registered person that has permanent residence in Egypt. The permanent residence of a recipient is determined through the following pieces of evidence:
- 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)
- Vendors need to obtain at least two pieces of non-conflicting pieces of evidence.
- 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 a vendor (local or nonresident) sells remote services to non-registered taxpayers through an EDP, the EDP is deemed for VAT purposes to have rendered the services itself. The EDP, therefore, has to collect and account for VAT.
- An EDP will not be deemed to have made the sale if all of the following are satisfied:
- The vendor has agreed with the EDP in writing that the vendor, instead of the platform operator, is responsible for collecting the VAT and remitting it to the ETA.
- The invoice/receipt issued to the recipient of the remote service identifies: the vendor as the person that renders the service, and the service rendered.
- The EDP does not authorize the charge to the recipient for the sale, does not authorize the delivery of the service and does not (whether directly or indirectly) set any of the terms and conditions under which the sale is made.
- Platforms that only process payments, only advertise offers, or only operate as click-through referral platforms are therefore not regarded as having rendered the remote services themselves.
- Generally, for remote services—EGP 500,000 for any period of 12 months.
- However, for services subject to the reduced VAT rate, the registration threshold is nil.
- Noncompliant taxpayers may be subjected to a “risk review” (audit). A risk review may result in:
- The ETA registering the taxpayer for Egyptian VAT and sending them an assessment of liability based on the ETA’s calculation with additional penalties.
- Registering the VAT debt in a court in the taxpayer’s country.
- The ETA can also ban access to sell in Egypt.
For more information, contact a KPMG tax professional:
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