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Gov’t to apply a zero VAT rate on select exported services: The Finance Ministry is currently working on a draft decision that would see the application of a zero VAT rate on exported services, provided that the service recipient is outside the country and the service provider is local, three government sources told EnterpriseAM.
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The move would represent a breakthrough in promoting investments, as well as franchising, outsourcing, and other services provided by local suppliers to foreign companies or importers, boosting the value of exports and position Egypt as an international hub for outsourced services, our sources said.
Although a zero VAT rate law for exported services was already issued back in 2016, a lack of clarity regarding its implementation mechanisms has led to the provision not being applied, our sources explained.
What’s different this time around: The ministry’s decision will lay out the exemption mechanism and the eligible beneficiaries of the zero VAT rate. Services including outsourcing, digital marketing, professional consulting, website design, cybersecurity, the organization of outbound tourism trips, services provided to global companies, and contract manufacturing for third parties under fixed-term binding agreements will be among the list of services eligible for the zero VAT rate.
The details: If the service provider is foreign and the service recipient is in Egypt, the service will be subject to the VAT rates set by law — 10% for consulting services and 14% for other services, excluding internet services (which are taxed at 8%). A reverse charge will be applied if the foreign service provider does not register under the simplified system with the Egyptian Tax Authority (ETA) in the foreign suppliers registry to benefit from the exemption — either the foreign provider pays the tax in their own country, or a reverse charge is applied, and the local recipient of the service is liable to pay the charge, our sources explained. This applies to services such as franchising for global brands operating in Egypt, they added.
Companies exporting their services abroad — particularly tech services — and enjoying zero VAT treatment, will be eligible for export subsidies, our sources said.
As for pilgrimage services, the organization of pilgrimage and Umrah trips will be totally exempted, given that they already enjoy multiple exemptions. As such, they are considered partly local and partly exported services, and will therefore fall under the exemption category, the sources explained.
