The Ministry of Finance issued Decree no. 106 of 2017 to regulate how the reduced VAT rate of 5% (instead of the regular rate of 14%) on machines and equipment shall apply.
According to Art. 3 of the VAT Law, the reduced VAT rate applies on machines and equipment imported or locally procured by a company for the sole purpose of producing its goods or providing its services. If the machines and equipment are imported by a third party for the benefit of the producer or the service provider, the third party must submit sufficient supporting documents evidencing the transaction, otherwise the regular VAT rate shall apply until submitting such documents.
For complete production lines, a fixed VAT rate of 5% shall apply even if the production line is imported in parts. In this case, the competent authority (being the General Authority for Investment and Free Zones (GAFI) or the Industrial Development Authority (IDA)) shall send a letter to the Tax Authority confirming that the imported machines are a complete production line. The Tax Authority shall then send a letter to the Customs Authority with the applicable VAT rate.
A joint committee from the Tax Authority and the Customs will inspect the plant after installation to ensure that imported machines and equipment are subject to the reduced VAT rate.