The telecommunications sector is a cornerstone of the modern economy, playing a significant role in the growth of digital communication and the provision of diverse services to both individuals and businesses. From a tax perspective, Telecommunication Taxes in Egypt present a complex regime due to the diverse and intricate nature of the operations involved, which include a wide range of services. This complexity necessitates a deep understanding of the industry's operations to avoid tax risks and maximize the benefits of available tax incentives.
The purchase and leasing of vacant land, agricultural land, buildings, and non-residential units are exempt from Value Added Tax (VAT). However, there are exceptions: Telecommunications companies often lease space in hotels to install mobile networks, which is subject to VAT at a rate of 14%.
The construction of the network's infrastructure is subject to a Schedule Tax at a rate of 5% of the value of the certified consultant's invoice. Additionally, contracting work, whether imported, manufactured, or purchased from the local market, is subject to tax at the legally prescribed rates.
The company is entitled to offset the Schedule Tax previously paid by the subcontractor against the Schedule Tax paid by the company for the same work.
Telecommunication Services
Telecommunication services provided via mobile networks, including calls, messaging, video calls, data transfer services, and marketing or promotional messages, are subject to a Schedule Tax at a rate of 8% in addition to VAT at a rate of 14%. Input VAT can only be deducted from the output VAT.
Interconnection Service between Mobile Operators
Interconnection service refers to the mutual utilization of telecommunications networks within the Arab Republic of Egypt, resulting in interconnection revenue. This revenue is generated from the utilization of telecommunications networks between companies, facilitating the connection of calls to their respective subscribers. In other words, it is a communication service between licensed networks of one or more operators, allowing free communication between users of these networks when the sender is on a different network from the recipient.
Tax Rate for Interconnection Service
The interconnection service, as a standalone service, is not subject to Schedule Tax. However, it is subject to Value Added Tax (VAT) at a rate of 14%.
Revenue from International Calls
Revenue from international calls is subject to a zero percent tax rate, as it is considered an exported service. This applies if the service is provided by a person within the country, whether they are a resident, have a permanent establishment, or are a non-resident but provide the service from within Egypt to recipients outside the country.
Revenue from Sales of Mobile Devices, Accessories, and Station Sharing
Revenue from the sales of mobile devices, accessories, and station sharing is subject to the general VAT rate of 14%.
Revenue from Fixed-Line Telephones
This revenue is generated from providing fixed-line telephone services by the company if it has obtained a fixed-line license and has received approval from the National Telecommunications Regulatory Authority. This revenue is subject to VAT at a rate of 14%.
Revenue from Fixed-Line Internet
Revenue from fixed-line internet services is subject to VAT at a rate of 14%.
Domestic Roaming between Networks
Domestic roaming is an agreement between telecommunications companies to use each other's network paths in exchange for a fee or in-kind compensation. This agreement is made to cover areas where one of the operators has no physical or technical presence and does not have coverage.
Tax Rate for Domestic Roaming Service
The domestic roaming service is subject to a Schedule Tax at a rate of 8%, in addition to VAT at a rate of 14%.
The Law Versus Its Application by the Egyptian Tax Authority
Legal Provision:
Under Law No. 67 of 2016, telecommunications services are categorized as continuous services. The law stipulates that tax is imposed when the service provider issues the invoice for such continuous services.
Application Mechanism:
In practice, the Egyptian Tax Authority, when auditing telecommunications companies, employs a tax formula based on operating revenues. This approach is due to the fact that financial statements are prepared on an accrual basis, which may lead to tax discrepancies arising from operating revenues. The revenues calculated using the Tax Authority's formula are often higher than those reported in the financial statements. This discrepancy has prompted calls for the leadership of the Ministry of Finance and the Egyptian Tax Authority to reconsider and clarify the application mechanism, as the executive regulations do not provide comprehensive guidance on these services.
It is also worth noting that the clarity and simplicity of tax regulations, along with the swift execution of procedures, are significant factors that attract investments to the community.
There are numerous criticisms regarding the methods used by the Egyptian Tax Authority during tax audits, which we will explore in greater depth in our upcoming articles.
Conclusion
Given the high risks associated with investing in the telecommunications sector, due to the substantial capital involved and the extensive branches across the country—resulting in numerous assets and employees—the law provides exceptional tax incentives across various types of taxes. It is essential to ensure tax compliance with all relevant laws and regulations to guarantee the enjoyment of these incentives, ensure the continuity of operations, and improve liquidity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.