How Do I Prepare for a Tax Audit?

Understand What Triggers an Audit

The Egyptian Tax Authority (ETA) uses both risk-based selection and random sampling. Common triggers include: significant year-on-year revenue decline, high refund claims (especially VAT), inconsistency between declared income and industry benchmarks, related-party transactions, and large capital expenditure not matched by declared financing.

The Documentation Foundation

Everything in a tax audit is won or lost on documentation. Before any audit, ensure you have:

• All tax returns for the open periods (typically 5 years), filed on time.
• Audited financial statements reconciled to the tax return for every year under review.
• Full sales documentation: invoices, contracts, delivery notes, and bank receipts that match exactly.
• Complete purchase documentation: tax invoices from registered vendors (electronic invoices for periods after e-invoicing implementation), receipts, and payment evidence.
• Payroll records: Form 4 submissions, social insurance, and Form 2 filings for all employees.
• Fixed asset register with depreciation schedules reconciled to the accounts.
• Bank reconciliations for every month of every year under review.

Common Audit Adjustments and How to Defend Against Them

• Disallowed expenses: Make sure all expenses have proper supporting documentation and a clear business purpose. Personal expenses on the company account are the most common disallowance.
• Understated revenue: Auditors cross-reference bank deposits to declared revenue. Any unexplained deposit becomes a risk. Document all non-revenue receipts (loans, capital injections, advances) clearly.
• Transfer pricing: Related-party transactions must be at arm's length and documented.

The Audit Process

Egyptian tax audits typically begin with a notification letter requesting documents. Respond within the timeframe given. Engage a tax advisor to manage the audit — the initial response sets the tone for the entire process. Never submit documents without professional review.