Egypt e-Invoicing: How the ETA is Rewriting the Rules of Tax Compliance

However, the tax system used by Egypt relied on trust. Businesses traded, recorded their activities internally, and made periodic reports to the Egyptian Tax Authority. This tax model served its purpose well up until the point it stopped doing so, and VAT differences started occurring, with under-reporting becoming prevalent. The Egyptian authorities simply could not have any real-time information on how businesses operate.

It is for this reason that the new system known as Egypt e-Invoice, which went live in 2020 within the Egyptian Tax Authority, was created. The new system did not rely on aggressive audits or higher taxes but rather made it impossible to not record any taxable activity.

Under Egypt’s clearance model, invoices are validated by the ETA before they are considered compliant electronic invoicesUnder Egypt’s clearance model, invoices are validated by the ETA before they are considered compliant electronic invoices.

Egypt’s e-Invoice System: The Basics

How Egypt’s Clearance Model Actually Works

Egypt uses the clearance method, which is very different from the reporting method. Knowing the difference between these two is crucial before implementing the system.

With the reporting system, you will first send out the invoice to your customer and then submit the relevant data to the tax authorities during the stipulated time period. However, with the clearance system, the order of events is the reverse. Your invoice should first be cleared by the ETA, then stamped, and only after these actions can you deliver the invoice to your customer.

It is imperative to understand that an invoice that has not been validated by the ETA may not qualify as a compliant electronic tax invoice for VAT and tax reporting purposes irrespective of whether you have delivered your goods, received your payment, and even if your transaction was legitimate.

The implications on the finance department are huge:

• The clearance time frame influences cash flow management. If your business process considers the raised invoice to be validated immediately, then it needs to be redesigned taking clearance time into account.
• The buyer’s VAT input refund depends on invoice clearance. The uncleared invoice will be ineligible for refunding input tax to the buyer. As such, the requirement for your compliance becomes their compliance as well.
• Automated solutions are needed for high volume transactions. Manually sending the invoices to the ETA is no solution. API integration with ERP systems should not be an option but an imperative for your business.

In Egypt, an invoice that hasn’t been cleared hasn’t happened. That is the logic the entire system is built on.

The Technical Stack: What Compliance Actually Requires

The Egyptian e-Invoice system relies on international standards that have ETA-specific implementation requirements. The following functionality should be supported by any compliant system:

• Either JSON or XML file format. Both are acceptable for e-Invoice submissions; however, the formatting of invoices should follow the ETA’s standard strictly, specifying field mapping, data types and fields.
• Digital signature. Each invoice should contain a digital signature issued by an ETA-approved certificate authority to confirm its authenticity and ensure that it cannot be modified once the clearance stamp is placed onto it.
• UUID. All invoices should have a uniquely generated UUID attached upon creation, which will be used as a reference for audit matching and any other purposes by the ETA.
• API transfer. The system allows submitting invoices only using the ETA’s REST API. Invoices are submitted electronically through ETA APIs, including support for automated and bulk submissions.
• Cryptographic stamp. Once the invoice is approved, a cryptographic stamp will be issued back from the ETA and attached to the invoice. It will be presented to the buyer as evidence of the invoice being officially approved.
• Correction of invoices. Any corrections should be performed using linked credit or debit notes provided through the same system. Editing of issued invoices is not possible.
• Five-Year Archive. All invoices must be preserved in their original and signed form for a minimum of five years for possible inspection by ETA.

The Rollout: From Large Taxpayers to Full Market Coverage

Egypt adopted a gradual approach, targeting large companies first before moving lower down on the revenue chain. This has been the case in Saudi Arabia, Jordan, and Kenya, beginning with the entities having a huge financial influence and expanding from there.

There were two advantages associated with adopting such an approach. Firstly, the ET was able to test its effectiveness in dealing with a large number of companies. Secondly, it gave smaller companies time to adjust, although this phase is now history.

It is important to note that companies coming into tax brackets under Takaful do not have any grace period to speak of. The ETA has significantly toughened its stance, which has made it harder for non-compliant companies to continue.

The phases are not a queue. They are a countdown. If you have not received a notification, your wave is approaching – not absent.

Egypt in the MENA and Africa e-Invoicing Landscape

Egypt has a unique place within the regional context. It was an early adopter among the MENA countries, coming before even Saudi Arabia’s Phase 1 by a year, and the most developed in Africa after Kenya.

In compliance terms, companies that work within Egypt, Saudi Arabia, and Jordan can utilize the clearance model within all three nations. There are enough similarities between the technical requirements involved (JSON/XML invoicing, digital signature validation, REST API transmission, and UUID identification) to provide room for a single platform.

Creating a solution for Egypt, another one for Saudi Arabia, yet another for Jordan, is not a way forward in terms of compliance. This is an unnecessary expenditure, one that increases with each new mandate.

Egypt has led the way. And other MENA nations are now doing what Egypt did first.

Conclusion

The Egyptian e-invoicing solution has been operational for more than four years. The technology is now sophisticated, the stance of the ETA with regards to enforcement is well-defined, and the time to treat this matter as something that will happen in the future is over.

It is not the amount of budget dedicated to achieving the compliance requirement that differentiates between companies doing well and those struggling. Instead, it is about how each organization approached this initiative. Businesses that redesigned their workflow in billing, focused on data quality, and selected compliance partners have managed to get fast VAT returns, minimal risks of audits, and the right infrastructure for the next mandate, whichever it might be.

Egypt was the first to enforce this regulation in the region; but it will not be the last one your company will face in the country.

Transform your VAT reporting with a certified, real-time e-Invoicing solution for Egypt

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