Egypt VAT: commercial leases now taxable at 14% (Law 149 of 2026)

Executive summary

• Law No. 149 of 2026, amending certain provisions of the Value Added Tax Law issued by Law No. 67 of 2016, was published in the Official Gazette, issue No. 30 bis (A), on 28 July 2026 and took effect on the following day.
• Its article 2 replaced items 19, 20, 28, 32, 35 and 36 of the schedule of goods and services exempt from VAT that accompanies the law.
• Item 28 used to exempt the sale and letting of residential and non-residential buildings and units alike. As replaced, it brings into charge, at the general rate of 14%, the letting of a unit taken as an independent premises for managing an activity, even where it is a shop open to customers.
• Sales remain exempt in every case, as does the letting of premises for religious, charitable, social, educational and health activities.
• The executive regulations for these amendments had not been issued as at the date of this bulletin.

The law is one of seven tax laws published in the same issue of the Official Gazette; all seven are reviewed together in Egypt's July 2026 tax package.

What changed in item 28

Before the amendment, item 28 exempted "the sale and letting of vacant land, agricultural land, buildings and residential and non-residential units", without distinguishing between one non-residential use and another. As replaced, it reads:

The sale and letting of vacant land, agricultural land, buildings and residential units, and the sale and letting of non-residential buildings and units, save for the letting of buildings and units taken as an independent premises for managing an activity even if they take on a commercial character and have a connection with customers; excluded from this are buildings and units taken as premises for managing religious, charitable, social, educational and health activities, and such other activities as are designated by a decision of the Minister upon the proposal of the competent Minister for social necessities required by considerations of the public interest.

Sales were left untouched. Letting is the whole of the amendment.

What is taxable and what is not

The test is use, not classification

The provision does not turn on what the unit is, whether a shop, an office or a warehouse, but on the purpose for which it is taken: whether it serves as an independent premises for managing an activity.

The text adds the words "even if they take on a commercial character and have a connection with customers". That closes off the argument that a unit is not a premises for managing an activity because it is a shopfront visited by the public. On the plain words of the provision, an office from which a company is run and a shop from which a trader trades both fall within the charge.

For a group holding leases in Egypt, the question on each contract is therefore not whether the unit is residential, but whether it is taken as an independent premises from which an activity is run.

The carve-out

Letting of buildings and units used as premises for religious, charitable, social, educational and health activities is excluded from the charge. The text allows further activities to be designated by a decision of the Minister of Finance upon the proposal of the competent Minister, for social necessities required by the public interest. No such decision had been issued as at the date of this bulletin.

Other provisions of the same law

Beyond item 28, the law carries provisions with wider practical effect for industrial businesses.

Machinery, equipment and medical devices used in producing a good or rendering a service carry VAT at 5%, by exception from the general rate, other than buses and passenger cars (article 3, first paragraph, as replaced).

Suspension of the tax due on machinery, equipment and medical devices imported or bought on the local market by factories and production units for use in industrial production, for one year from the date of release or purchase, extendable for reasons the Egyptian Tax Authority (the ETA) accepts up to a total of three years. If the ETA is satisfied that they were used in industrial production within that period, they are exempted; the industrial producer may then not dispose of them for purposes other than those for which the exemption was granted during the five years following the exemption without notifying the ETA and paying the tax due according to their condition and value and the rate in force at the date of payment. If the period lapses without use in industrial production, the tax and the additional tax fall due from the date of customs release or purchase until the date of payment (article 28 bis, newly added).

Refund of a credit balance carried for more than four consecutive tax periods, other than the credit balance of taxpayers within Law No. 6 of 2025 on certain tax incentives and facilities for projects whose annual turnover does not exceed twenty million pounds, for whom more than three months suffices (article 30, first paragraph, item 3).

A new serial 17 was added to part One of the schedule of goods and services subject to table tax: natural gas, per thousand cubic feet, EGP 20. Serials 8 and 10 of part One of that schedule were repealed.

What this requires

• Review live leases of non-residential units and identify those over a unit taken as an independent premises for managing an activity.
• Check what each lease says about new taxes, since that decides whether the landlord or the tenant bears the VAT.
• Review the landlord's VAT registration position in the light of the rent that is now taxable.
• Review invoicing for the taxable rent and the point at which the tax falls due.
• For the tenant: consider how the tax charged on the rent is treated in its own accounts, which depends on its registration position and its right of deduction.
• For industrial businesses: consider the suspension available on machinery and equipment, and the five-year restriction on disposal that comes with the exemption.

Because the executive regulations for these amendments have not been issued, a number of procedural details, including the rules and procedures governing the suspension, remain pending. The firm's Tax Department reviews lease contracts, determines which fall into charge, prepares the resulting adjustments, and follows the implementing decisions as they are issued.

Mahmoud Nassef, CA, ESAA, MEST — Founder Partner
Member of the Egyptian Society of Accountants & Auditors (ESAA) and of the Egyptian Tax Society (MEST)
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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.