Deducting Input VAT in Egypt: Conditions and What Is Excluded

Executive summary

• The basis is article 22 of VAT Law No. 67 of 2016, as amended by Laws No. 3 of 2022 and 149 of 2026, and articles 26 to 30 of its executive regulations issued by Ministerial Decision No. 66 of 2017.
• Deduction requires a tax invoice, accepted by the Authority only in electronic form since 1 July 2023, and a registered accountant's certificate at each financial year-end, unless payment of the tax is proven on the Authority's electronic system.
• Four categories carry no deduction: schedule tax, input tax included in cost unless adjusted within three years of purchase or import, input on exempt goods and services, and non-resident suppliers under the simplified registration regime.
• Where sales are mixed, shared input is deducted in the proportion of taxable sales to total sales.
• Tax on factory machinery and equipment has been suspendable since 2022; Law No. 149 of 2026 added medical devices, raised the extension ceiling to three years and let the seller keep its right to deduct.
• A credit balance is carried forward until exhausted, and becomes refundable after more than four consecutive tax periods (more than three months for Law No. 6 of 2025 enterprises).

The right to deduct and its limits

Article 22, first paragraph, of the law reads: "On calculating the tax, a registrant may deduct from the tax due on the value of its sales of goods and services ... what it has previously borne of this tax on its inputs ... within the limits and subject to the conditions and arrangements the executive regulations determine." Tax on direct and indirect inputs is deductible where all of the period's sales are taxable (article 26 of the regulations); otherwise the apportionment below applies. Article 1 of the regulations (definition replaced by Ministerial Decision No. 417 of 2025) defines indirect inputs as indirect costs relating to a taxable sale or service, including construction, financing, selling and distribution costs and general administrative expenses.

Deduction is capped at the tax due; any excess is carried forward until exhausted. By way of exception, the right also covers sales to the bodies referred to in article 8 of the promulgation articles and article 23 of the law (diplomatic and consular exemptions), sales financed by grants exempted by a law, and, added by Law No. 149 of 2026, sales of machinery, equipment and medical devices on which the tax is suspended, as described below.

Documentary conditions

The registrant must hold a tax invoice (article 26 of the regulations), and the Authority states that since 1 July 2023 only electronic invoices support a deduction or refund; see E-invoicing in Egypt. Article 30 of the law, as replaced by Law No. 3 of 2022, provides that "the documents evidencing the taxpayer's entitlement to deduct the tax or have it refunded must include a certificate signed by an accountant on the register of accountants and auditors to that effect, unless payment of the tax is proven through the Authority's electronic system." Article 30 of the regulations, as replaced by Ministerial Decision No. 24 of 2023, fixes the timing: no deduction is approved unless the registrant files the certificate at the end of each financial year, subject to the same exception.

What is not deductible

(Article 22, fourth paragraph, as replaced by Law No. 3 of 2022, which added the last item; the adjustment period is in article 28 of the executive regulations.)

For goods subject to both schedule tax and VAT, such as alcoholic beverages, input tax is credited only against the VAT due on the sale, not against the schedule tax (article 27 of the regulations, and part two of the goods and services schedule attached to the law).

Apportionment where sales are mixed

Where, within a tax period, a registrant's sales combine taxable supplies with exempt or schedule-tax-only supplies, article 27 of the executive regulations applies:

• Input relating only to taxable sales: fully deductible, whether the sale takes place in the tax period or later.
• Input used only in exempt or schedule-tax-only sales: not deductible.
• Input used in both: deductible in the proportion of taxable sales to total sales.

Capital goods: suspending tax on machinery and equipment

Article 28 bis was added by Law No. 3 of 2022; Law No. 149 of 2026 replaced its text, bringing in medical devices and raising the extension ceiling from one year to three. As it now stands, tax on machinery, equipment and medical devices imported or bought locally by factories and production units for industrial production is suspended for one year from release or purchase, extendable for justified reasons accepted by the Authority by periods totalling no more than three years. If the Authority establishes industrial use within that time, the goods are exempted; for five years afterwards they may not be disposed of for another purpose before notifying the Authority and paying the tax on their condition and value at the rate in force on payment. If the period lapses without industrial use, the tax and the additional tax fall due from the release or purchase date until payment.

Law No. 149 of 2026 also added these sales as a third item in article 22's second paragraph, so their seller keeps the right to deduct its input tax despite the suspension on its sales, unlike the general rule for input on exempt sales.

Separately, tax paid on inputs within the inventory held at registration, or on the date sales become taxable, is deductible under the conditions of article 29 of the regulations (as replaced by Ministerial Decision No. 417 of 2025), among them regular books, original documents, an inventory statement on form 123 ض.ق.م, and adjustment of any of that tax included in cost within one year of purchase or import.

The credit balance

Tax not deducted is carried forward to later tax periods until fully deducted (article 22, third paragraph). Once a credit balance has stood for more than four consecutive tax periods — or more than three months for enterprises under Law No. 6 of 2025, whose annual turnover does not exceed EGP 20 million — it becomes refundable under the conditions and procedure set by the regulations (article 30, first paragraph, item 3, as replaced by Law No. 149 of 2026).

What this requires

• Do not post any domestic purchase invoice for deduction unless it is an electronic invoice.
• File the accountant's certificate of entitlement at the end of each financial year, unless payment of the tax is proven through the electronic system.
• Track input tax included in cost, and complete its adjustment and file the evidence within three years of purchase or import (one year for input within inventory).
• Calculate the apportionment ratio for each tax period whenever taxable sales are mixed with exempt or schedule-tax-only sales.
• Document industrial use of any machinery, equipment or medical devices held under the suspension before it expires.
• Track the age of the credit balance by tax period, ready to claim a refund once it passes the statutory threshold.

The firm's Tax Department reviews input invoices against the e-invoicing condition, prepares the annual deduction certificate, calculates the apportionment ratio on mixed sales, and tracks the suspension on machinery and equipment through to proof of industrial use.

Mahmoud Nassef — Chartered Accountant (Egyptian Register), Founder Partner

Member, Egyptian Society of Accountants & Auditors
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation

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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.