Egypt’s House of Representatives has granted final approval to significant amendments to the Value Added Tax (VAT) law, a move poised to reshape the fiscal landscape for key sectors. The legislation, which received parliamentary endorsement on Tuesday, notably slashes the VAT on medical devices to a preferential 5% and introduces a new schedule tax on natural gas. This strategic recalibration aligns with Egypt’s broader economic reform agenda, aiming to foster transparency, enhance tax justice, and bolster the business community’s confidence in tax administration.
The parliamentary committee’s report underscores that these amendments are a direct consequence of the economic reform plan spearheaded by the Ministry of Finance and the Egyptian Tax Authority, forming part of the first package of tax facilitation initiatives. The overarching objectives are to consolidate transparency and tax justice, cultivate stronger trust between tax authorities and businesses, and achieve a more balanced state budget.
Central to the legislative overhaul is Article One, which revises several key provisions of the existing VAT law. A pivotal change is the introduction of an exceptional 5% VAT rate for medical devices, a substantial reduction from the standard 14%. This aligns the tax treatment of medical devices with that of machinery and equipment, signalling a concerted effort to bolster the health sector. Furthermore, kidney dialysis machines and their associated inputs, parts, and essential equipment are now fully exempted from VAT, removing a significant tax burden.
In a bid to solidify Egypt’s position as a regional logistics hub, the amendments also exempt services performed on transit goods from VAT. This mirrors the existing exemption for the transit goods themselves, thereby supporting transit trade operations. The suspension period for VAT payments on machinery and equipment intended for industrial production has been extended to four years from the previous two, provided they are installed and utilised in production. This extended benefit is now also applicable to medical devices used in industrial production, specifically those involved in the manufacturing of prosthetics, medicines, medical solutions, and blood plasma.
For businesses navigating VAT obligations, the refund period for credit balances has been shortened to four consecutive tax periods (four months), down from six. An additional concession is granted to taxpayers operating enterprises under Law No. 6 of 2025, which targets projects with an annual turnover not exceeding EGP 20 million, allowing them to claim refunds after just three months.
The leasing of administrative buildings and units will now be subject to the general VAT rate. However, taxpayers engaged in taxable activities can deduct this VAT, while those whose activities do not permit tax deduction can include it as a deductible expense for income tax calculations. Exemptions remain in place for buildings dedicated to religious, charitable, social, educational, and health activities, reflecting social considerations. The law also standardises the VAT treatment of financial services, exempting them irrespective of the provider, including the National Post Authority, banks, and entities regulated by the Central Bank of Egypt or the Financial Regulatory Authority.
To ease pressure on the state budget, natural gas has been removed from the VAT-exempt list. It will now be subject to a schedule tax of EGP 20 per thousand cubic feet, as stipulated in the second article of the approved draft.
Article Two introduces a new provision allowing taxpayers the right to a tax deduction on sales of locally produced machinery, equipment, and medical devices that fall under Article 28 bis. This measure is designed to stimulate domestic production by ensuring it is taxed comparably to fully exempt imported equivalents.
Article Three amends the VAT schedule by cancelling serial numbers 8 and 10 from the first item, thereby subjecting household soap, industrial detergents, and gypsum to the standard 14% VAT rate. This adjustment is a direct response to the demands of companies within these industries, granting them the right of tax deduction.
The law is set to take effect on the day following its publication in the Official Gazette, as outlined in Article Four.
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