Insights from Egypt’s updates to the VAT Law and its executive regulations

On July 17 2025, Egypt enacted Law No. 157 of 2025, introducing sweeping amendments to VAT Law No. 67 of 2016. These changes redefined the tax schedule, adjusted the list of exemptions, and notably transformed the VAT treatment of construction and installation contracts. Later, ministerial decrees Nos. 417 and 418 (October 23 2025) refined the executive regulations to ensure consistency with the new framework. Subsequently, on October 27 2025, comprehensive guidelines – supported by FAQs and practical examples – were issued to clarify the VAT treatment of construction and contracting services updated in the aforementioned ministerial decrees.

These changes enable construction and contracting services to fully benefit from the advantages associated with goods and services taxed at the standard VAT rate; most notably, eligibility for input VAT deduction. Furthermore, the amendments underscore continued adherence to World Health Organization (WHO) standards concerning alcoholic beverages, tobacco, and cigarettes.

This article provides an analysis of these changes and their implications for Egyptian businesses.

The reform aims to broaden the tax base and simplify compliance, particularly in the construction, real estate, and consumer goods sectors. Companies are advised to review their contractual structures, pricing, and VAT reporting processes to remain compliant and seize new deduction opportunities.

The tax treatment of construction services (i.e., supply and installation) has undergone a major overhaul:

• Reclassification of the VAT rate – construction activities are now taxed at the standard 14% rate instead of the previous 5% schedule tax;

• Input VAT deduction – contractors can now deduct input VAT on eligible construction costs for new contracts, since the definition of indirect inputs now expressly includes financing and construction-related costs, enabling broader input VAT deduction; and

• Advance payments – these are no longer immediately taxable; VAT is recognised when the electronic invoice is issued, since construction is now deemed an ongoing service.

Special transitional rules apply depending on the date of contract signature in light of the guidelines issued on October 27 2025:

• For contracts signed before July 18 2025 (and still ongoing) that are supported by a certified work order, an electronic invoice, or an electronic receipt, VAT can be calculated based on 36% of the invoice value, multiplied by the 14% rate. These contracts are not eligible for input VAT deduction, meaning input VAT cannot be offset against VAT payable on such contracts. Subcontractors are exempt from remitting VAT if the main contractor has already paid the VAT due, provided a formal certificate is issued by the main contractor confirming the payment.

• New contracts (including renewals or scope extensions) signed on or after July 18 2025 are taxed at the standard rate of 14% and are eligible for input VAT deduction.

Substantial revisions affect several key commodities:

• Wine and alcoholic beverages – a fixed amount per hectolitre is now levied based on alcohol content, replacing the prior ad valorem rate. This amount will rise 15% annually from January 1 2026, for three years, and 12% annually thereafter.

• Tobacco and cigarettes – new price brackets (EGP 48–EGP 69) apply, increasing 12% annually over three years starting November 5 2025. The tax base now covers the entire retail price, including all duties and taxes, aligning with WHO standards.

• Crude petroleum – formerly exempt, now subject to a 10% schedule tax rate.

• Administrative unit rental – added to taxable commercial premises components, subject to a 1% schedule tax rate.

The exemptions list has been narrowed, while key definitions were clarified. News agencies and advertising, for example, are no longer exempt and now incur the standard 14% VAT. Only advertising linked to charitable medical or governmental health campaigns retains the exemption.

Businesses – especially in construction, real estate, tobacco, and beverages – must act promptly to:

• Review contracts (construction) – confirm that all projects pre-dating July 18 2025 apply the correct transitional formula, and ensure new contracts maximise eligible input VAT deductions;

• Adjust pricing – recalculate prices for alcoholic beverages and tobacco products to accurately reflect the new fixed tax amounts and mandated annual increases;

• Optimise input VAT – update accounting systems to capture eligible input deductions for new contracts and review internal costs against the clarified definition of indirect inputs (including financing and construction costs) for broader deduction opportunities;

• Ensure compliance (advertising) – news and advertising entities (unless linked to charitable/governmental health campaigns) should charge 14% VAT henceforth;

• Petroleum sector – incorporate the new 10% tax on crude petroleum into immediate financial models and adjust procurement/selling prices accordingly;

• Commercial real estate – landlords and property managers must implement new procedures for collecting and remitting the 1% tax on administrative unit rental income; and

• Timeline adherence – prioritise system and process updates to align with key implementation dates: July 18 2025 (construction rules), November 5 2025 (tobacco price brackets start), and January 1 2026 (first annual increase for alcoholic beverages).

The following specialised services, obtained from professional advisers with expertise in the Egyptian VAT framework, can help businesses adapt smoothly:

• Transition support (construction) – recalculating VAT liabilities and designing new compliance procedures for existing and new construction contracts.

• Pricing strategy review – assessing optimal pricing under the new fixed-rate tax schedule for tobacco and beverages, ensuring competitive and compliant rates.

• Financial impact modelling – conducting a comprehensive assessment of the financial and operational impact of the new 10% tax on crude petroleum and the 1% tax on administrative unit rentals.

• VAT due diligence and optimisation – ensuring input deduction policies align with the redefined scope of indirect inputs across all relevant business expenses to maximise legitimate VAT recovery.

• Systems and process alignment – advising on necessary updates to ERP and accounting systems to ensure correct treatment of newly taxable services (such as advertising) and the new fixed/annually increasing tax structures.

• Legal interpretation and clarification – providing support in interpreting the ministerial decrees and assistance in seeking official clarification from the Egyptian Tax Authority regarding ambiguous areas, such as the new tax base for tobacco or specific applications of transitional rules.