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Monday, 5 November 2018

Egypt SMEs to pay 1% VAT under proposed SMEs Act, FinMin has new definition of small business

** #3 EXCLUSIVE- Businesses with annual top lines of less than 500k would pay 1% VAT under proposed SMEs Act: The Finance Ministry will set a VAT rate of 1% for SMEs, two senior ministry sources told Enterprise. The ministry was against exempting SMEs from the VAT, saying that to do so would provide an incentive for companies that are on the margin (but are not yet classified as SMEs) to engage in financial engineering to to dodge the VAT, one of the sources added. The move comes as part of a package of incentives the law offers to owners of small and medium size businesses to join the formal economy. These will include reduced electricity bills and tax rebates when paying for government services, the source added, without delving into details.

Whose definition of “small business”? The Finance Ministry has decided to develop its own definition of what constitutes and SME under the proposed act rather than relying on the Central Bank of Egypt’s definition, as has been previously reported, the sources confirmed. One source said the CBE’s definition of a small business is based on too high a revenue ceiling and would allow too many business to benefit from the incentives to be proposed in the law

Proposed FinMin definitions vs. central bank definition:

  • Very small businesses are those with up to EGP 250k in revenues per year, says Finance. CBE definition: EGP 1-10 mn.
  • Small businesses include anyone with a top line of EGP 250-500k, says Finance. CBE definition: EGP 10-20 mn.
  • Medium-sized enterprises are those with revenues of EGP 500k to EGP 1 mn, per Finance. CBE definition: EGP 20-100 mn.

When is the law coming out? The final draft, which has been under review for a little over a month now, will be presented to the Madbouly Cabinet “soon,” the sources said. The ministry plans to introduce the bill to the House of Representatives during the current legislative cycle.

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