Questions about the tax impact of the Minister of Finance Decree No. 518 of 2023Copy
The issuance of the Minister of Finance Resolution 518 of 2023 and the decision of the Board of Directors of the Central Bank held on 21-11-2023 is considered a shift in the business world and a leap to the world, as the decision stated the right of Egyptian institutions to issue invoices for their sale in foreign currency and collect them in foreign currency, not only that, but also to pay value-added tax in the same collection currency, which is considered in the business world a strategic development of the state's monetary policies by lifting the restrictions imposed on entrepreneurs from the state. And encourage them to open up to the world through the freedom to choose the trading currency, but what is the tax impact of this decision on enterprises?
Hereby this resolution the following is hereby declared:Copy
1-Obligation to pay VAT collected from the customer in a foreign currency in the same currency after deducting tax on purchases
2-Exemption from this obligation in the case of submission of documents indicating
3-Waiver of an amount equal to or greater than the amount of VAT collected on the invoice
4-This assignment must be made during the month following the revenue (issuance of the electronic invoice)
5-To one of the banks registered with the Central Bank
With the issuance of this decision, two categories of questions arise:Copy
1-The first category of questions related to the obligation to pay tax in foreign currency
2-What is the penalty for non-compliance with the provisions of Article 52 of the Unified Tax Procedures Law of supplying tax in currency and will the fine prescribed under the Unified Tax Procedures Law be sufficient to force companies to pay tax in currency? Or will the subject matter be subject to tax evasion articles under other executive instructions?
3-When will the incident of non-compliance be discovered, whether with the submission of the monthly declaration through the risk system or upon examination, or will be linked with bank accounts and overcome the barriers of confidentiality of bank accounts, which will represent a stab to business in the Egyptian state at a time when all countries of the world are skilled in lifting restrictions on local and global trade, this restriction on Egyptian transactions (if any) will represent pressure on the Egyptian business community.
4-Does this obligation apply to all foreign currencies or is it limited to dollar transactions only, meaning that if this procedure is formulated at this time to find a dollar earnings, does this mean that this trend is for the dollar currency only, meaning that transactions in the Chinese yuan, the Saudi riyal and others will not be the focus of attention or review by the Egyptian state?
5-In the case of deduction of tax on purchases, the case that the purchases are paid in local currency, which is the simplest case, then, according to the text of the decision, the tax collected will be according to the waiver price and the payer in Egyptian currency will be deducted directly from it, but the decision did not address any of the following two cases, namely
6-In the event that the purchases are paid in the same foreign currency as well, will the payer be deducted in currency from the collector in currency, or must the establishment then convert the foreign currency in its books to the Egyptian currency before factoring, and whether then the conversion rate within the books of the establishment will be the official rate of the foreign currency or the waiver rate of the bank at the time or will it be (as the interest sometimes does) from calculating the exchange rate for the tax collected according to the assignment rate, while the exchange rate for transferring purchases Is it advertised by the central bank?
7-As for the case that the purchases are paid in another foreign currency, then there must be a conversion price and the same questions arise as a result, any conversion price will be taken as a basis for conversion and with any transaction (purchase or sale), especially since this other currency may not exist The bank that accepts it (such as the currencies of African countries, for example) and then will not have a waiver rate supported by a document from one of the banks registered with the Central Bank, so will the conversion rate be the official price announced from Central Bank?
The second category of questions is related to the exemption from this obligationCopy
1-If the establishment decides to enjoy this exemption but does not succeed in waiving the currency within the specified period, then it is required to submit the declaration in the following month as an amended declaration in light of the disappearance of the reason for the exemption, which means that specifying a period of time for the waiver of foreign currency may conflict with the period of submitting the declaration, which is only one month, in cases of delay in waiver?
2-Will the currency differences that may arise in the books of the enterprise vis-à-vis advanced treatments be an expense approved by income tax, or will it be considered an unapproved expense?
All these inquiries need quick responses from the state so that companies do not fall into wrong applications that cause a loss of trust between the state and its financiers.
Minister of Finance:Copy
VAT collection in foreign currency is applicable only to goods and services paid for or for in foreign currency by licensees.
The collection of VAT in foreign currency is limited to entities licensed to deal in foreign currency
The decision does not apply to imports
Deduction of tax on production inputs or purchases in the same currency before payment
Dr. Mohamed Maait, Minister of Finance, confirmed that the decision to collect value-added tax in the same foreign currency in which the value of the commodity or for the service was paid, does not apply to import operations, but is limited only to goods and services that are paid for or for them in foreign currency to the entities licensed to deal with these such as tourism services for foreigners, and the value of the tax paid on purchases is deducted from the value of the tax collected in foreign currency.
The minister clarified that the tax may be paid in Egyptian pounds when the taxpayer submits evidence that he has waived an amount in foreign currency equal to or greater than the tax amount during the month following the revenue realization to one of the banks registered with the Central Bank.
The minister stressed that we are keen to collect the dues of the state's public treasury, in a way that contributes to achieving tax justice, pointing out that just as it was decided to collect value-added tax in foreign currency in the event of paying the value of the commodity or for the service in foreign currency, to entities licensed to deal in foreign currency, VAT will also be deducted on production inputs or purchases in the same foreign currency before paying the due tax on value-added.