Credit Note in Egypt: Regulations, Format, and VAT Compliance

Credit Note in Egypt: Regulations, Format, and VAT Compliance

A credit note in Egypt is issued under the VAT system of the Egyptian Tax Authority (ETA) and is governed by Value Added Tax Law No. 67 of 2016 along with its Executive Regulations. A credit note is a legal document that reduces the value of a previously issued VAT tax invoice when goods are returned, services cancelled or errors found. It applies to businesses registered for VAT (or obligated to issue electronic invoices) and ensures that the VAT reported matches the correct transaction value. Every VAT-registered (or e-invoicing obligated) business must issue a credit note promptly after identifying an error/adjustment and keep proper records for the statutory period. This blog explains when to use a credit note in Egypt, what details must be included, and compliance rules for businesses there.

What is a Credit Note in Egypt

In Egypt a credit note is a legal document issued by a supplier (or seller) to adjust the value of a VAT invoice already issued. It is used when the invoice amount was too high, or when goods are returned or cancelled, or when a pricing or tax error occurred. The main role of the credit note is to correct the value of the transaction without needing to issue an entirely brand-new invoice for the full value.

When you issue a credit note, you reduce the net amount of the original invoice and also adjust the VAT accordingly. This means you’re not creating new tax liability; you’re fixing what was overstated. For example: if you issued an invoice for EGP 100,000 (plus VAT) and the customer returns goods worth EGP 20,000 net, you’d issue a credit note for the EGP 20,000 net (and reduce the relevant VAT accordingly). Both the supplier and the customer should update their books so the VAT return shows the correct position.

Issuance Requirements for Credit Notes in Egypt

In Egypt the rules around issuing credit notes link into the electronic invoicing and VAT laws. For instance:

• Credit notes are used to correct previously issued invoices registered in the e-Invoicing system.
• The document type “Credit Note v1.0” is defined in the e-Invoicing SDK for Egypt, specifying the structure and that they must reference the original invoice.
• On the VAT side, businesses must ensure their taxable value, invoices and VAT returns reflect correct values under Executive Regulations of Value Added Tax Law No. 67 of 2016.

So you’ll issue a credit note when:

• goods previously sold are returned by the customer;
• services previously invoiced are cancelled (or not delivered);
• post-invoice discounts are applied;
• a clerical error (e.g., wrong price, wrong quantity, wrong VAT rate) is found.

Information Required on a Credit Note in Egypt

When you issue a credit note in Egypt, it should include all key details to ensure it links properly to the original invoice and is acceptable under the e-invoicing & VAT regime. The details typically include:

• Date of Issue: The date the credit note is created. This determines the VAT period in which the adjustment takes effect.
• Unique Serial/Reference Number: Each credit note must have a unique identifier in the e-invoicing system (e.g., document type “c” for credit note, version 1.0) referencing the original invoice.
• Supplier (Issuer) Details: Legal name, address, VAT registration number (or tax ID) of the supplier/issuer.
• Customer (Receiver) Details: Name, address, tax ID (if applicable) of the customer receiving the credit note.
• Reference to the Original Invoice: The number and date of the invoice being corrected must be clearly indicated. This links the two documents.
• Reason for Adjustment: A short explanation such as “goods returned”, “services cancelled”, “discount applied”, or “error corrected”.
• Description of Goods or Services Being Adjusted: Describe what part of the transaction is being reduced (matchable to invoice).
• Financial Details: The net amount reduced, the VAT rate applied, the VAT amount reduced, and the total credited amount (net + VAT).
• Heading “Credit Note” (or Arabic equivalent): The document must clearly show it is a credit note, not a new invoice.
• Format Compliance: Since Egypt has mandatory e-invoicing, the credit note must be issued electronically (XML/JSON), include the unique UUID from the e-invoicing system, and comply with system requirements.

Credit Note and VAT Adjustment in Egypt

When a credit note is issued in Egypt, it affects how VAT is reported by the supplier and how the customer records their tax input (if applicable). The adjustment must be made in the VAT return period in which the credit note is issued.

• The supplier will reduce their output VAT by the VAT amount specified in the credit note (because the taxable sale has been reduced).
• The customer (if a VAT-deductible entity) will reduce their input VAT claim accordingly (because the original purchase has been partly cancelled or reduced).
• It’s critical that both parties update their books and their VAT returns so that reported VAT (output and input) corresponds to the real transaction.
• Because Egypt uses mandatory electronic invoicing and requires unique UUIDs, the linkage and timing are significant for audit trail and compliance.

Recording the credit note in the correct period is important. If you issue the credit note after you’ve already filed a return for the prior month, you must reflect the adjustment in the next available VAT return. Mis-timing may result in mismatches between the supplier’s and customer’s records and might trigger inquiries from the ETA.

Process of Issuing a Credit Note in Egypt

Here’s a typical flow you might follow (Egypt-style) when you need to issue a credit note:

1. Identify the error or change in the transaction
    The supplier reviews the original invoice and identifies that goods were returned, services cancelled, or an error exists.
2. Prepare the credit note with all required details
    Use your accounting system/e-invoicing system to create the credit note in XML/JSON, referencing the original invoice, providing supplier/customer info, reason, amounts, VAT adjustments, unique document ID, etc. This links into the ETA’s e-invoicing system.
3. Submit the credit note electronically (if required)
    Since Egypt mandates e-invoicing, you’ll submit the credit note to the ETA system (or the designated portal) in real time (or as per your phase) and obtain the unique code/UUID and approval for the document.
4. Send the credit note to the customer
    Provide the customer copy of the credit note so they can update their records (invoice reduction, VAT input adjustment).
5. Record in the accounts of both supplier and customer
   • Supplier: reduce sales and output VAT by the credit note amount.
   • Customer: reduce purchases and input VAT claimed (if deductible) by the same amount.
6. Adjust the VAT return for the relevant period
    Ensure the VAT in the period of issue reflects the reduced amounts. If previous return was filed, adjustment goes in next eligible period.
7. Maintain proper records and archiving
    Store the credit note, original invoice, supporting documents and correspondence, as part of your e-invoice archive. Egypt requires secure storage of electronic invoices/documents.

Record-Keeping and Compliance in Egypt

Record-keeping and compliance form the foundation of Egypt’s VAT system, helping businesses meet legal obligations and avoid penalties. The key legal requirements under Egyptian VAT law include:

• Businesses must maintain books, records and documents in accordance with VAT Law No. 67/2016 and its Executive Regulations.
• The e-invoicing system records both invoices and related documents such as credit notes and debit notes; these must be stored and retrievable for audit.
• Every registrant must archive records and documentation for five years following the tax period in which the registrant submitted the return.
• The standard VAT rate is 14% (with certain reduced or zero-rates), so when issuing a credit note you apply the correct VAT rate that was on the original invoice.

Penalties for Non-Compliance in Egypt

If a business in Egypt fails to issue a credit note when required, or fails to properly record it, or mis-reports VAT, it may face risks including:

• Over-declaration of VAT output or incorrect input VAT by customers.
• Audit queries from the ETA which may lead to adjustments, interest and fines. For example, delays in VAT return/payment may attract additional tax at 1.5% per month of the due tax.
• Failure to comply with e-invoicing obligations (including issuance of credit notes electronically, linking to UUIDs) may attract sanctions under the e-invoicing rulebook/ETA guidance.
• Mis-issuing or failing to issue proper credit notes may also complicate VAT refunds or cause mismatches with customers’ VAT inputs (especially for large customers).

Conclusion

Credit notes in Egypt form an essential part of the VAT and e-invoicing system. They allow businesses to correct invoices, reduce taxable sales, and adjust VAT accordingly -  ensuring the VAT reported is accurate. Suppliers must issue credit notes promptly and correctly, record them in both their accounts and the customer’s records, and observe the electronic invoicing requirements provided by the ETA. A business that follows the rules for credit notes will maintain accurate accounts, build trust with customers, avoid nasty surprises in audits, and keep things smooth with the Egyptian VAT system.

FAQs

1. What is a credit note in Egypt?
    A credit note in Egypt is a document used by a supplier to reduce the value of a previously issued VAT invoice, adjusting the tax base and VAT accordingly.
2. When must a credit note be issued in Egypt?
    It should be issued when goods are returned, services cancelled, invoice pricing errors found, or discounts applied after the original invoice.
3. What details must a credit note contain in Egypt?
    It must show supplier and customer details, the original invoice reference (number & date), description of goods/services, net amount reduced, VAT rate and VAT amount, date of issue, unique document identifier and electronic compliance details.
4. How long must credit notes be kept in Egypt?
    Electronic invoices and related documents (including credit notes) must be archived under the e-invoicing rules. Every registrant must archive records and documentation for five years following the tax period in which the registrant submitted the return.
5. What happens if credit notes are not issued properly in Egypt?
    You risk overstating output VAT, causing mismatches with your customer’s records, possible penalties, interest on late or incorrect VAT, and audit scrutiny by the ETA.