Egypt withholding tax is a question to resolve before your company pays an overseas service provider, licensor or lender. Must the company withhold Egyptian income tax from the payment?
Article 56 of Egypt’s Income Tax Law No 91 of 2005 places that obligation on specified payers. It covers interest, royalties, service fees and payments for an athlete’s or artist’s activity. For international groups, the payment category and the recipient’s residence matter. So does the distinction between a branch and a subsidiary.
This guide explains the domestic statutory framework and related definitions. It does not determine a payment’s treatment under a particular double taxation agreement.
Who must account for Egypt withholding tax?
Article 56 addresses payments to non-residents made by sole proprietors, legal persons resident in Egypt, and non-resident entities with a permanent establishment in Egypt.
Foreign ownership does not, by itself, make an Egyptian company non-resident. Under Article 2, a legal person is resident if it meets any of the following conditions:
- It was established under Egyptian law.
- Its principal or effective management centre is in Egypt.
- The State or a public legal person owns more than 50% of its capital.
Therefore, start with the legal entity, rather than its shareholders’ nationality or bank account location.
For a non-resident payer operating in Egypt, the permanent establishment question also matters. Article 4 defines the concept and includes a branch among its listed forms. However, the full statutory conditions and exceptions must be considered when assessing a particular operation.
Classify the payment before applying the rate
Article 56 specifies a rate of 20% on covered amounts, without deducting costs. It lists interest, royalties, consideration for services, and consideration for an athlete’s or artist’s activity. The last category includes payments made directly or through another entity.
Check the invoice description against the contract. Article 1 defines royalties by reference to payments for the use of, or right to use, specified rights, assets and information. These include copyright, patents, trademarks, designs, secret processes, industrial or commercial equipment, and information concerning industrial, commercial or scientific experience.
For example, a fee described as a group charge may require examination of the underlying rights or services. The commercial label alone does not settle the legal classification.
Review head office allocations separately
Article 56 contains a specific provision for an Egyptian permanent establishment’s share of administrative, supervision and oversight expenses borne by its head office abroad. It excludes that share from consideration for services. It also sets conditions for recognising the expenses when determining the permanent establishment’s profits.
The text limits the recognised amount to 10% of the permanent establishment’s net taxable profit. In addition, the expenses within that limit must exclude royalties, interest, commissions and direct wages. The provision requires a certified and authenticated certificate from the head office’s auditor.
This provision concerns a permanent establishment and its head office. Consequently, a subsidiary should not assume that an invoice from its foreign parent qualifies merely because it concerns management support. First check the legal structure and the nature of the expense.
Check the conditions of an interest exemption
Article 56 includes an exemption for interest on external loans and credit facilities obtained by the Government, local administration units and other public legal persons.
It also contains a conditional exemption for specified borrowing by public sector, public business sector and private sector companies. The borrowing must be from unrelated persons to finance national infrastructure projects designated by a Prime Ministerial decision on the Minister’s proposal.
The stated conditions include a loan or facility term of at least five years. They also require the company’s contribution to national projects to be at least 25% of its total investments. The text limits the exemption’s duration by reference to the loans and facilities connected with implementing the relevant project’s basic works.
Accordingly, an ordinary overseas loan should not be treated as exempt simply because it is long term. Establish each condition of the particular exemption.
Build the withholding tax deadline into payment approval
Article 56 requires the covered payer to withhold the tax due. It must remit that tax to the Tax Authority on the first working day following the day of withholding.
The final paragraph expressly includes the specified companies, establishments and branches in special economic zones, as well as projects operating under the free zones system.
In practice, assign responsibility for remittance before releasing the payment. Identifying withholding only during a later accounting review does not provide a process designed around this deadline.
Egypt withholding tax checklist before payment
The following are suggested internal controls based on the statutory questions. They do not imply that the Law prescribes a particular approval form.
- Identify the parties. Record the legal payer, the recipient and the basis for their residence classification.
- Classify the payment. Keep the contract and invoice together. Identify the actual interest, rights or services being paid for.
- Document the treatment. Record the Article 56 category and the basis for calculating the tax due.
- Check head office allocations. Verify the permanent establishment relationship, expense limits, excluded items and auditor certificate where this provision is relied on.
- Verify exemptions. Record how each statutory condition is satisfied before relying on an interest exemption.
- Assign remittance responsibility. Retain evidence of withholding and timely remittance.
A documented decision before payment gives finance and legal teams a common basis for handling recurring cross border payments. It should establish who pays, who receives, what the payment represents and which rule applies.
For the wider context, see our guide to compliance obligations for foreign companies in Egypt. VAT is a separate question; our article on reverse-charge VAT on imported services addresses that topic.
Consortio Law Firm can help your team review the legal classification of cross border payments and structure an internal withholding review process around your Egyptian operation.
This article provides general information and does not constitute advice on a specific transaction.
