Withholding Tax in Egypt: A Detailed Guide

Withholding Tax in Egypt: A Detailed Guide

Egypt imposes withholding tax on income paid to resident and non-resident recipients, including dividends, interest, royalties and service fees. The tax is collected at the source where the payer deducts it from the gross amount before paying the net sum to the recipient. Under domestic law, the standard rates are 10% on dividends from unlisted shares or 5% on dividends from listed shares, and 20% on royalties, interest and most payments for services to non-residents. These rates may be reduced or exempt under an applicable double tax treaty (DTT). This guide outlines Egypt’s withholding tax framework, covering rates, exemptions, compliance obligations and related penalties.

Withholding Tax Rates in Egypt

The standard rates of withholding tax on income arising from Egyptian sources are as follows:

• Dividends: For corporate shareholders (that is resident or non-resident), withholding for dividends received from shares in an Egyptian company that is not traded on the Egyptian Exchange (EGX) is 10%. Upon the shares being traded on the EGX, the withholding rate drops to 5%.

• Interest: Interest paid to non-residents is generally subject to 20% WHT under current law. (Certain treaty provisions may reduce or eliminate this.)

• Royalties: Royalties paid to non-residents are taxed at 20% withholding tax, even if the work is done outside of Egypt.

• Service fees (consulting, management, etc.): Payments made to non-residents providing services such as consulting or management fees are generally taxed at 20% withholding tax.

Exceptions / conditions:

• Dividends to resident corporate shareholders are also subject to the 10% (5% for EGX-listed) treatment under the amended law.

• Where a DTT applies, the rate may be reduced or eliminated, provided required documentation (certificate of tax residence etc.) is submitted.

Tax Treaties and Reductions in Egypt

Egypt has signed numerous double tax treaties to avoid double taxation and encourage foreign investment. Double tax treaties typically provide for a reduced rate or exemption from withholding tax on dividends, interest, royalties, and some service payments paid to residents of treaty partner countries. The specific withholding rate applies only to the type of income and the provisions of the applicable tax treaty.

The recipient must provide a valid tax residency certificate and satisfy all treaty requirements to obtain treaty benefits. The tax authorities in Egypt may challenge treaty relief when the transaction violates anti-abuse provisions. Egypt has no equivalent to the European Union directives; rather, the availability of treaty relief remains the sole option for rate relief.  

Compliance Requirements for Withholding Tax in Egypt

Payers of income within the scope of withholding tax in Egypt must ensure accurate deduction, timely remittance and complete reporting of the tax to the authorities. The essential compliance steps are:

• Deduct the correct WHT: Apply the proper rate of Egyptian withholding tax on the full amount of payment before transferring the balance to the recipient. The rate depends on the type of income and the taxpayer’s classification under the law.

• Remit the tax to the ETA: Deposit the withheld amount with the Egyptian Tax Authority within the deadline stated in the tax regulations to prevent late payment charges.

• File returns: Prepare a withholding tax return that shows the total amount of tax deducted on each type of payment during the reporting cycle. Submit the return within the period required by the authority.

• Maintain records: Keep detailed evidence of payments, the deduction made, proof of remittance and any documents supporting a treaty claim to ensure proper verification during inspection or audit.

Penalties for Non-Compliance

Failure to meet the withholding tax obligations in Egypt can lead to financial and administrative consequences. The Egyptian Tax Authority has the power to impose fines, interest on unpaid tax and legal action for violations. Common cases include the late remittance of withheld tax, incorrect or insufficient deduction on payments and failure to submit the required returns.

The ETA may also reassess the accuracy of a transaction when the withholding process is not properly applied. The specific penalties, interest calculations and related procedures are defined in the provisions of Egyptian tax law and detailed in the authority’s official guidance.  

Exemptions and Reductions

Certain exemptions or reduced rates under Egypt’s tax law and treaty network include:

• Dividends received by resident companies holding significant participations may benefit from domestic participation-related rules (and other dividend rules introduced by recent law changes), subject to specific conditions in the Income Tax Law and implementing rules.

• Under a valid DTT, interest or royalty payments may be subject to a reduced rate or exemption, depending on the treaty wording and conditions.

• For dividends from companies listed on the EGX, the WHT rate is reduced to 5% instead of 10%.

Recent Developments on Withholding Tax in Egypt

Law No. 30 of 2023 made many significant amendments to Egypt’s Income Tax Law. The law eliminated certain historical exemptions (for example, a blanket exemption for WHT on long-term loans was narrowed/removed when owed by private sector borrowers). It also made changes to the determination of permanent establishment and other changes that affect the cross-border taxation process and WHT practice. Because the administrative practice and accompanying decrees can further specify application, taxpayers should rely on ETA as well as their advisors. Engaging an appropriately licensed Egyptian tax advisor will ensure that covered transactions are properly documented and treaty benefits are appropriately applied under compliance requirements.

Conclusion

A withholding tax applies to resident and non-resident payments made in Egypt in relation to dividends, interest, royalties, and service fees. The withholding tax rate for dividends is a general rate of 10 percent, decreasing to a rate of 5 percent when a dividend is paid by a publicly traded company on the Egyptian Exchange. A withholding tax of 20 percent is imposed on interest, royalties, or service fee payments made to a foreign recipient, although certain tax treaties may grant reductions or exemptions. Proper deductions, reporting, and recordkeeping will provide businesses some certainty that the risk of a penalty is lowered and that they remain compliant with additions to the regulatory framework. A regular review of the withholding process to verify accuracy will also mitigate compliance risk.

FAQs

1. What is the withholding tax rate on dividends in Egypt?
     In Egypt, dividends paid by companies not listed on the Egyptian Exchange are taxed at 10%, and dividends paid by companies listed on the exchange are taxed at 5%.  
2. Are interest payments subject to withholding tax in Egypt?
    Yes. Interest paid to non-residents in Egypt is generally taxed at 20%. Some double tax treaties may allow a lower rate. Under Law No. 30 of 2023, exemptions that applied to certain long-term loans were withdrawn.  
3. How can a reduced withholding tax rate under a treaty be applied in Egypt?
    To apply a reduced rate in Egypt, the recipient must provide a valid tax residence certificate and meet all treaty conditions before payment.  
4. Is withholding tax applied to services provided from abroad to Egypt?
    Yes. Payments made from Egypt to non-residents for services, including consultancy or management work, are generally taxed at 20%, unless a tax treaty sets a lower rate.  
5. Are royalties paid to non-residents taxable in Egypt?
    Yes. Royalties paid from Egypt to non-residents are subject to a 20% tax. The rate may be reduced or removed under an applicable treaty.