Withholding Tax (Deduction at Source) Explained

Withholding tax — known in Egyptian tax practice as deduction at source (الخصم تحت حساب الضريبة) — is a collection mechanism whereby the payer deducts a percentage of a payment before remitting the balance to the recipient. The withheld amount is then paid directly to the Egyptian Tax Authority on behalf of the recipient. This system ensures a steady tax-revenue flow and reduces evasion by bringing collection closer to the point of economic activity.

Who Must Withhold?

Under Egyptian law, withholding obligations apply to a broad set of payers, including:

• All government bodies and public-sector entities — required to withhold from all payments to suppliers and contractors.
• Large taxpayers registered with the Large Taxpayer Center (LTC), who must withhold on payments to any vendor.
• Companies listed on the Egyptian Exchange and their subsidiaries.
• Any entity specifically notified in writing by the ETA to act as a withholding agent.

Private companies that do not fall into these categories are generally not required to withhold from domestic commercial payments, though the landscape continues to evolve through ministerial decree.

Applicable Rates

• 1 % on payments for the supply of goods and contracts for works or services, where the annual contract value exceeds EGP 300.
• 5 % on professional-fee payments (legal, consulting, accounting) made to individuals who are not employees.
• 10 % on royalties and technical-service fees paid to non-resident entities.
• 20 % on dividends distributed to non-resident shareholders (subject to double-tax-treaty reduction).

Remittance and Documentation

The withheld amounts must be remitted to the ETA by the last day of the month following the month of payment. The withholding agent must issue the payee a Form 41 certificate documenting the gross payment, the withheld amount, and the ETA payment reference. Payees use these certificates to offset the withheld amounts against their own annual income-tax or corporate-tax liability — making the accurate collection and issuance of Form 41 critical to both parties.

Failure to withhold, or to remit withheld amounts on time, exposes the withholding agent to the same penalties that would otherwise apply to the taxpayer — including a fine equal to the unwithheld tax plus monthly interest. ETAF Office helps businesses establish internal controls to ensure every eligible payment triggers the correct withholding and that certificates reach recipients without delay.