Latest draft of the VAT regs out
The VAT executive regulations have leaked: A copy of the executive regulations for the value-added tax (VAT) emerged last night courtesy of Al Mal (view the document in pdf). The newspaper says it has posted the full draft being shopped around town for feedback before it’s issued. Feedback from the business community and accountants has been great, said Deputy Finance Minister Amr El Monayer. The regs are expected to be issued within a week.
The 94-page document effectively sets the procedures, documents and requirements for almost every article of the VAT legislation. We have some highlights below, and we’ll have more once we get our resident taxman to give it a more thorough read-through:
The regs lay out how the VAT is determined for discounts, installments, and custom breaks. For discounts, VAT will be based on the discounted selling price. VAT on installment payments will factor in the interest rates set by the CBE on the day of signing the contract. VAT on goods that receive customs breaks will be determined by using the same pricing mechanism used by the Customs Authority to value the item. Condition and market value will be factored into determining the taxable value of any particular item. The VAT on the sale of used goods will be 30% of market value (Article 11).
Contracts signed prior to the VAT and that continue until after the VAT was brought in must be amended to factor in the VAT. Terms of the original contract will not be changed. This does not apply to seasonal contracts. A tax rebate can be granted on contracts signed with a government body, if the government fails to reprice it after the VAT (Article 12)
Accounting procedures on keeping books, required documents and receipts for tax filing purposes were outlined in great detail in Articles 13-17.
Rebates and Incentives (ie: the lottery): There will be no rebates for exports on used goods. All customs must be cleared on machinery and equipment used for production before a rebate can be issued. The Finance Minister will be tapped to outline the conditions for the lottery (Articles 35 and 74).
Free zones: While most activities in free zones are tax-exempt, the sale of cars into free zones is not VAT-exempt (Article 9).
Special articles on schedule tax: Spare parts and components in the auto industry will not be subject to the schedule tax, but will be subject to the 13% baseline rate. Operators of industries and commercial outlets that sell goods subject to a schedule tax must keep the Tax Authority informed on all shutdowns to production (Article 48 and 9).
On registration procedures: Those who manufacture and sell schedule tax items (such as cars) have 30 days to register. The procedures also shed some light on those making less than the EGP 500K threshold for mandatory registration: If you make more than EGP 150K, hold a tax card and have a registered headquarters, then registration is optional. Once registered with the Tax Authority, you cannot de-register until 24 months have passed (Articles 51 and 22).
The Finance Ministry also released a guide (pdf) with the regs that outlines examples of goods and services subject schedule tax and how to calculate VAT on them. Some goods have a straightforward rate, such as the automotive industry, which has a schedule tax of 30%. The guide provides an equation to apply deductibles in the schedule tax for cars. Construction and development contractors will be subject to a 5% tax, while professional services such as lawyers and accountants will have to pay 10%. The guide then offers equations to calculate the tax for other goods such as tobacco and for applying the schedule tax on imported goods.
The system is so extensive it appears another layer of management was set up. Finance Minister Amr El Garhy formed a VAT department in the Tax Authority headed by deputy tax authority head Mohamed Abdel Sattar to handle the bureaucracy of the VAT, Al Mal reports. Former authority chief Abdel Moneim Matar is still the VAT commissioner who will oversee the system.