Egypt Issues New VAT Rules for Construction Sector

November 8, 2025

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Following the Egyptian government's amendment to the VAT Law, it issued a decree on October 23, 2025, detailing implementation procedures. The key changes introduced by the amending Law concern building and construction activities, specifically supply and installation contracts, which are now subject to the standard VAT rate of 14% rather than the previous reduced rate of 5%.

In addition to clarifying how this shift applies to existing and new contracts, the decree also addresses key issues, including tax liability, input VAT deductibility, and the remittance responsibilities of general contractors and subcontractors.

New VAT Rules for the Construction Sector

As clarified in the decree, for existing contracts that had certified work orders or e-invoices issued before July 18, 2025, VAT is to be calculated on 36% of the total invoice value, applying the 14% rate to that portion. Notably, input VAT deduction is not allowed in these cases. This means that the VAT paid cannot be offset against other VAT liabilities. Moreover, in cases where the main contractor has already remitted the VAT due and issued an official certificate confirming that remittance, subcontractors are exempted from paying the tax again.

Regarding new contracts in the building and construction sector, including those renewed or expanded beyond the original agreed scope, the full 14% VAT rate applies to the total invoice value. Furthermore, the standard VAT deduction rules are reinstated, allowing contractors to recover input VAT on eligible expenses. In these cases, the responsibility for VAT remittance lies with the party issuing the invoice, whether that is the main contractor or the subcontractor.

Conclusion

The latest decree published by the Egyptian government bridges the legal and operational aspects of Egypt’s new VAT regime for the construction sector, ensuring a smooth transition from the previous 5% VAT rate to the 14% standard VAT rate. Equally important, the decree ensures a smooth transition by providing clear guidance on how contractors should handle both pre-existing and new contractual arrangements.

Source: Deloitte

What is the new VAT rate for construction services in Egypt?

The new VAT rate for building and construction activities in Egypt is 14%, replacing the previous reduced rate of 5%.

When did the new VAT rules for construction take effect?

The changes took effect following the decree issued on October 23, 2025, after amendments to the Egyptian VAT Law.

How are existing construction contracts affected by the VAT changes?

Existing contracts with certified work orders or e-invoices issued before July 18, 2025, are taxed at 14% on 36% of the total invoice value, without input VAT deduction.

Can contractors deduct input VAT under the new decree?

Input VAT deduction is not allowed for existing contracts but is permitted for new or renewed contracts under standard VAT deduction rules.

Who is responsible for VAT remittance under the new construction VAT rules?

The party issuing the invoice, either the main contractor or the subcontractor, is responsible for remitting the VAT.

What is the purpose of Egypt’s 2025 VAT decree for construction?

The decree aims to provide legal clarity and ensure a smooth transition from the 5% reduced VAT rate to the 14% standard rate for construction activities.

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