Deducting Input VAT in Egypt: Conditions and What Is Excluded

A registrant may deduct the tax borne on its inputs from the tax due on its sales if it holds a tax invoice (since 1 July 2023, for those registered on the electronic tax invoice system, an electronic one, or a paper one drawn up before its issuer was obliged to issue electronic invoices) and files a registered accountant's certificate at the end of each financial year, unless payment of the tax is proven on the electronic system of the Egyptian Tax Authority (the ETA). The basis is article 22 of the Value Added Tax Law issued by Law 67 of 2016 (Official Gazette, issue 35 bis (C), 7 September 2016, in force from 8 September 2016) and articles 26 to 30 of its executive regulations issued by Minister of Finance Decree 66 of 2017 (Al-Waqa'i al-Misriyya, issue 55 continued (A), 7 March 2017).

The rules bind every registrant that deducts input tax: it must hold the supporting documents, leave out what is not deductible and apportion shared input on mixed sales. Law 149 of 2026 (Official Gazette, issue 30 bis (A), 28 July 2026, in force from 29 July 2026) changed the deduction and refund rules in two respects: the suspension of tax on machinery and equipment, and the refund of a credit balance.

The right to deduct and its limits

Article 22, first paragraph, of Law 67 reads (unofficial translation): "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 registrant's sales in the tax period are taxable (article 26 of the regulations); otherwise apportionment applies. Indirect inputs are the costs the taxable person bears indirectly that relate to selling a taxable good or providing a taxable service, including construction, financing, selling and distribution costs and general administrative expenses (article 1 of the regulations, definition replaced by Minister of Finance Decree 417 of 2025, Al-Waqa'i al-Misriyya, issue 237 continued (C), 23 October 2025).

The deduction also covers sales of goods and services supplied to the bodies referred to in article 8 of the promulgation articles (exemptions under international agreements and petroleum and mining agreements) and in article 23 of the law (diplomatic and consular exemptions), and sales of goods and services financed by grants exempted from the tax by a law. Law 149 added sales of machinery, equipment and medical devices to which article 28 bis applies (article 22, second paragraph).

Deduction is limited to the tax due, and what is not deducted is carried forward to later tax periods until exhausted (article 22, third paragraph). A credit balance is refunded once it has stood for more than four consecutive tax periods, or more than three months for taxable persons among the enterprises subject to Law 6 of 2025 on certain tax incentives and facilitations for enterprises whose annual turnover does not exceed twenty million pounds, under the conditions and procedure set by the regulations (article 30 of the law, and its first paragraph, item 3, as replaced by Law 149). Law 6 is covered in Egypt's Simplified Tax Regime for Small Enterprises.

Tax paid on inputs within inventory held at registration, or when sales become taxable, is also deductible under the conditions of article 29 of the regulations as replaced by Decree 417, among them regular books and accounts, 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.

Documentary conditions

The registrant must hold a tax invoice (article 26 of the regulations). From 1 July 2023 only electronic invoices count for deducting or refunding the tax for those registered on the electronic tax invoice system; paper invoices issued by taxable persons and drawn up before the date from which they were obliged to issue electronic tax invoices are excepted (article 38 bis of the regulations, added by Minister of Finance Decree 188 of 2023, Al-Waqa'i al-Misriyya, issue 83 continued (F), 9 April 2023). See E-invoicing in Egypt.

The last paragraph of article 30 of the law, as replaced by Law 3 of 2022 (Official Gazette, issue 3 bis (E), 26 January 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 Minister of Finance Decree 24 of 2023 (Al-Waqa'i al-Misriyya, issue 9 continued (B), 11 January 2023), fixes the timing: no deduction is approved unless the registrant files the certificate at the end of each of its financial years, subject to the same exception.

What is not deductible and apportionment

Deduction does not apply to the following (article 22, fourth paragraph, as replaced by Law 3 of 2022, which added the last item):

• Schedule tax, whether on goods or services taxable in themselves or as inputs into taxable goods or services, unless the law provides otherwise.
• Input tax included in cost, unless an accounting and tax adjustment is made and evidence of it filed with the ETA within three years of purchase or import (article 28 of the regulations).
• Exempt goods and services.
• Cases of simplified supplier registration under the first paragraph of article 17, defined in article 1 as a system for registering non-resident suppliers in a simplified manner.

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

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

• 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.

Suspension of tax on machinery and equipment

Article 28 bis was added by Law 3 of 2022; Law 149 replaced its text, bringing in medical devices and raising the extension ceiling from one year to three. As replaced, payment of the tax on machinery, equipment and medical devices imported or bought locally for factories and production units for use in industrial production is suspended for one year from release or purchase, extendable for justified reasons accepted by the ETA by one or more periods totalling no more than three years.

If the ETA establishes industrial use within that time, the goods are exempted, and for five years afterwards the industrial producer may not dispose of them for purposes other than those of the exemption before notifying the ETA 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 become payable by the industrial producer from the customs release or purchase date until payment.

What we recommend

• If registered on the e-invoice system, post a domestic purchase invoice for deduction only if it is electronic, or on paper drawn up before its issuer's e-invoicing obligation began.
• 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 sales are mixed, and track the age of the credit balance, ready to claim a refund once it passes the statutory period.
• Document industrial use of any machinery, equipment or medical devices held under the suspension before it expires.

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, Founder Partner
Chartered Accountant, Ministry of Finance, Egypt

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.