Gov’t scraps plan to register foreign crude suppliers ahead of implementing recent VAT amendments that would see them face a 10% tax, three government sources told EnterpriseAM. The move aims to keep them happy and keep their investments flowing.

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BACKGROUND- The Finance Ministry had been looking into registering crude oil suppliers under the simplified system with the Egyptian Tax Authority (ETA) in the foreign suppliers registry, which would have allowed for reverse tax charging. This was met with complaints from foreign firms, who noted that registration with the Egyptian tax system is not stipulated in their agreements, seeing as petroleum agreements follow a standalone legal framework, distinct from local laws.

How it will work: Foreign firms will be exempt from e-invoicing; instead, they will submit a simplified request and a declaration of the quantities supplied to the Egyptian General Petroleum Corporation (EGPC).

It will all fall to the EGPC — Egypt’s sole buyer of crude — to calculate, pay, and remit the VAT, as well as settling any penalties or late fees, the sources told us.

Stay tuned for the executive regulations: The mechanism will be detailed in the upcoming executive regulations for the amended VAT Act, which will be out within the coming days, the sources said.

It’s all about keeping FDI flowing: The move aims to attract more foreign players to the country’s petroleum sector, the sources told us.

REFRESHER- President Abdel Fattah El Sisi in July ratified VAT amendments, which are estimated to help the government bring in an additional EGP 200 bn in tax revenues. These amendments introduce a new tax treatment for crude oil — making it subject to a 10% tax.

ALSO IMPACTED BY THE VAT AMENDMENTS-

The VAT amendments also impact construction and contracting services, making them subject to the standard 14% VAT rate. The move resolved a long-standing issue affecting construction firms — under the previous VAT system supply and installation services were taxed at a flat 5% schedule rate without allowing companies to deduct input VAT.

The details: Under the amendments, the 14% VAT rate will apply only to new contracts signed after the law’s issuance, a government source told EnterpriseAM. Ongoing contracts signed before the law went into effect will continue to be taxed at the old 5% rate and contractors will not be allowed to deduct input VAT for these pre-existing contracts, the source added. During the transition period, the tax will be collected based on the contract date — not the payment date — to account for the sector’s staggered payment structure.

DATA POINT- The Finance Ministry aims to collect some EGP 6 bn from the updated tax treatment for construction activity in the current fiscal year, according to the source.

THERE’S MORE TO THE STORY- We dove into what the new VAT rules mean for contractors in a Hardhat published earlier this year. Check it out here.

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