Egypt: VAT Update - Contracting & Construction at 14%

Effective 18 July 2025, Egypt abolished the 5% schedule tax on contracting/construction (including supply & installation) and brought these activities under the general VAT regime at 14%. This change stems from Law No. 157 of 2025 amending VAT Law No. 67 of 2016. The official Arabic text (Official Gazette) confirms the deletion of serial no. (9) from Item “First” of the Schedule of Goods & Services attached to the VAT Law—the provision that previously covered contracting/construction at 5%. 

Highlights

• Contracting & construction are reclassified from the 5% schedule regime to the standard 14% VAT framework.  

• Input VAT now creditable: Moving to the general regime enables input VAT recovery for eligible purchases facilitating a critical cash-flow improvement versus the non-creditable 5% schedule tax.  

• Effective date: 18 July 2025 (law published 17 July 2025).  

• Note: Independent analyses highlight an exception for construction/maintenance of places of worship (assess case-by-case).  

What This Means in Practice 

1. Invoicing & Returns 

• Rate: compliance requires E-invoices and ERP/tax codes/master data must reflect 14% for relevant supplies from the effective date. 

• Input tax: Record input VAT on eligible purchases for offset in periodic returns  

2. Contracts & Pricing Contracts:  

• Reprice affected milestones and adjust gross-up/change-in-law clauses to reflect 14%. Ensure subcontractor terms are aligned to avoid margin leakage.  

3. Transitional Situations  

• Work done/advances before 18 July 2025: Map each billing event (advance, delivery, acceptance certificate) to the tax point and law in force at that time; re-issue or supplement invoices if required by ETA practice.  

• Long-term contracts: Consider variation orders or side letters to reflect the new rate and input-credit mechanics. 

4. Scope & Exceptions 

• Coverage: “Contracting/construction (supply & installation)” previously captured by Schedule 1(9) is now within the general VAT base.  

• Exception (market commentary): Places of worship (construction/maintenance) are flagged as an exception in authoritative commentary. 

Immediate Actions for Tax & Finance Teams: 

1. Change VAT rate to 14% for all relevant contracting/construction items in ERP/e-invoicing; activate input-VAT deduction workflows.  

2. Contract audit: Review milestone schedules, advance billing, and gross-up terms; align subcontractor and procurement frameworks  

3. Transitional reconciliation: Tie out pre-change invoices/advances vs post-change deliverables; ensure audit-proof documentation.  

4. Project screening: Flag any worship-related works for specific treatment; seek formal confirmation where needed. 

This announcement provides general information only and does not constitute advice. For case-specific analysis or transitional support, please contact WTS Egypt.