A 10% or 5% WHT is imposed on dividends paid by Egyptian companies to resident corporate shareholders. See Dividend income in the Income determination section for further information.
Payments of dividends, interest, royalties, and services by a domestic corporation to foreign or non-resident bodies are subject to WHT as follows.
Dividends to non-residents
A 10% WHT is imposed on dividends paid by Egyptian companies to non-resident corporate shareholders from shares unlisted on the EGX (see Dividend income in the Income determination section for further information).
A flat rate of 5% WHT is to be imposed on dividend paid to non-resident corporate shareholders from shares listed on the EGX.
However, an applicable double tax treaty (DTT) between Egypt and the foreign country may result in the reduction/elimination of such tax rate.
Interest to non-residents
Interest on loans with more than a three-year term entered into by private sector companies is exempt from WHT, while loans of less than three years are subject to 20% WHT on interest. However, an applicable DTT between Egypt and the foreign country may result in the reduction of such tax rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.
Royalties to non-residents
Royalty payments are subject to 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in a reduction in this rate. Please see below for the ministerial decree affecting the treatment of interest and royalty payments.
Service payments to non-residents
Service payments are subject to the 20% WHT. However, an applicable DTT signed between Egypt and the foreign country may result in the exemption of these payments if the services are performed abroad and not through PE in Egypt (based on each DTT).
For payments withheld on behalf of non-resident entities, tax shall be remitted to the tax authority the day following the withholding of the amount.
Egypt has concluded DTTs with over 50 countries, which could change the tax treatment of transactions carried out between Egyptian entities and residents of a treaty country.
|Czech Republic||5/15 (2)||15||15|
|15% for other royalties|
|Saudi Arabia||5/10 (8)||10||10|
|Serbia & Montenegro||5/15 (5)||15||15|
|United Arab Emirates||0 (6)||10||10|
|United States||5/15 (4, 7)||15||15|
- Dividends paid out by a company resident of Egypt to an individual of the other contracting state shall not be taxed more than the maximum amount mentioned. 15% in all other cases.
- Reduced rate of the gross amount of dividends is applied if the beneficial owner is a company that holds at least 25% of the company’s capital. Higher rate applies in all other cases.
- In the absence of specific provisions, dividends may be taxed under the local law at 10%, which may be reduced to 5% under certain conditions.
- Lower rate applies if the foreign company holds more than 25% of the capital in the company.
- Lower rate applies if the beneficial owner is a company.
- Taxed in the UAE only.
- The reduction in the rate does not apply if the recipient is engaged in a trade or business in the United States through a PE that is in the United States. However, if the income is not effectively connected with a trade or business in the United States by the recipient, the recipient will be considered as not having a PE in the United States to apply the reduced treaty rate to that item of income.
- Reduced rate of the gross amount of dividends is applied if the beneficial owner is a company that holds at least 20% of the company’s capital. Higher rate applies in all other cases.
- See Dividend income in the Income determination section for descriptions of instances when the 5% rate applies.
Procedures for applying the WHT on payments to non-residents
Ministerial decree no. 771 for 2009 dictates that the reduced rate of WHT on interest or royalties provided by an applicable DTT should not be automatically applied. The rate of 20% (Egyptian tax rate) should be imposed upon deduction. However, under certain conditions, the foreign recipient of payments will be able to get a refund for the amount resulting from the variance between the normal rate of 20% and the reduced treaty rate.
Certain documents should be submitted to the tax authority along with the refund claim.
A special unit responsible for interest and royalty WHT refunds is tasked with reviewing each refund case and with issuing refund letters (subject to compliance with the requirements of the 2009 ministerial decree). A refund letter is required to be able to get a refund of excess WHT from the tax office to which the taxes were actually paid.
Please note that free zone entities are obligated to withhold tax when dealing with non-resident entities and shall remit the tax to the tax authority.
In 2015, amendments were made to certain articles of the executive regulations of the Egyptian Income Tax Law no. 91 of 2005, among which was amending the article that forms the basis of the ministerial decree no. 771, whereby some provisions of this article were abolished.
However, it is still a controversial issue whether (i) the decree is abolished and so the reduced rate of the DTT should apply automatically or (ii) the decree stands and the refund mechanism should apply. Practically, the ETA still applies the pay refund mechanism and the resident companies would still need to deduct the 20% WHT as applied by the domestic law and the non-resident party should request the refund from the ETA.
We are of the opinion that taxpayers must have the necessary documents available at all times, as the ETA, upon tax audit, may seek to ensure that the recipient of the income is the beneficial owner of it and is a tax resident of the relevant state, to approve benefiting from a relevant DTT's privileges.
WHT on local payments
The rates of WHT applicable to local payments against local services and supplies in excess of EGP 300 have recently been updated as follows:
- Contracting and supplying: 1.0%
- All types of services: 3.0%
- Commissions: 5.0%
This type of WHT is considered as an advance payment of the CIT and should not represent an additional cost.