Egypt Clarifies VAT Treatment of Consumer Finance Interest

The Egyptian Tax Authority has issued a corrective clarification to its earlier instructions on how consumer finance services should be treated for VAT purposes. The main reason for this announcement was to address a high number of questions from taxable persons and finance service providers about whether and how interest earned by consumer finance providers is subject to VAT. 

VAT Treatment of Consumer Finance Services

The Tax Authority noted that the release of additional clarification on VAT treatment of consumer finance services aligns with directives from the Minister of Finance to simplify tax procedures. More specifically, these directives are intended to clearly define tax accounting rules and prevent conflicting interpretations that could lead to disputes. 

Accordingly, the correction, which updates Instruction No. (25) of 2022, is based strictly on the provisions of the VAT Law No. 67 of 2016, its executive regulations and amendments, as well as conclusions reached by the Tax Legislation Committee. As explained by the Tax Authority, if licensed consumer finance companies separate interest from the value of taxable goods and services, the interest is exempt from VAT. The clarification provides an authoritative interpretation that resolves prior ambiguity and ensures consistent treatment across the sector.

Rasha Abdel Aal, the Head of the Egyptian Tax Authority, emphasized that publishing the information on the Egyptian Tax Authority’s website reflects the Authority’s broader commitment to providing clear guidance, strengthening tax certainty, and encouraging voluntary compliance. 

Conclusion

The effort invested by the Egyptian Tax Authority to address concerns about how consumer finance services are treated for VAT, as well as the readily available, publicly accessible guidance, should reduce disputes, stabilize tax treatment in practice, and ultimately support a more predictable business environment that helps stimulate economic activity. Businesses operating in the finance sector should further review the guidelines to gain a clearer understanding of the relevant rules.

Source: Egyptian Tax Authority