What is Withholding Tax (WHT)?

Objectives of WHT:

• Provide regular liquidity to the tax authorities: This ensures that the government has cash in its coffers instead of waiting for the period when the treasury disburses funds to the tax collection period.

• Identify suppliers who are required to pay taxes and estimate the amount of taxes due from them.

• Reduce tax evasion: The government monitors business transactions from both sides of the transaction, rather than leaving tax control at the disposal of one party who files a return for himself. It is as if each merchant you deal with provides a glimpse of a return about you, just as you file your final return.

How is WHT paid?

Since WHT is considered a payment on account of income tax, it is collected in advance for each company. The total amount of WHT collected at the end of the financial year and after the preparation of the tax return is deducted from the company's income tax liability.

In other words, WHT is a tax imposed by the government at the source on various returns on capital, especially on interest and profits. This is done by withholding an amount from the income under the heading of "income tax obligations."

It can be said that it is an amount that the seller or service provider deducts at specific rates imposed by the tax authorities for supplies, services, industrial and commercial activities, or consultations.

Who is responsible for paying WHT?

The buyer or recipient of the service is responsible for paying this tax quarterly within three months at the latest by the end of (April - July - October - January), through form 41 in the name of the taxpayer and the total tax withheld to the relevant authority.

WHT Rates in Egypt

The Egyptian government announced the start of collecting taxes on commercial and industrial profits as of September 1, 2018. According to Circular No. 122 of 2018, the Egyptian Minister of Finance issued Decision No. 405 of 2018 to determine the withholding rates on account of tax.

Article 1 states that the rates to be deducted when calculating the tax due in implementation of the provisions of Article 59 of the Income Tax Law shall be as follows:

• 1% tax on contracts, transportation, and supplies, excluding supplies of horticultural crops to the government and the public sector from the owners of crops within the limits of their cultivation.

• Purchase tax 1% and service tax 3%.

• The decision states that a 1% tax deduction shall be applied to the amounts paid by cooperative societies for transporting cars for their members in exchange for transportation in their cars, and it reaches 5% in brokerage and agency contracts.

• The decision states that a 2% tax deduction shall be applied to all discounts, grants, and commissions granted to petroleum and telecommunications companies, medical supplies, electrical appliances, clothing, food, detergents, paper industries, and other companies and institutions subject to the withholding system.

• The decision also states that a 2% tax deduction shall be applied to the export support granted by the Export Development Fund to the exporter.

According to the decision of the Minister of Finance No. 308 of 2018 amending the decision of the Minister of Finance No. 537 of 2005 regarding the determination of the commercial and industrial activities to which the withholding and collection system under the tax account applies, according to the provisions of the system Provisions of Article (59) of Law No. 91 of 2005.

Table of rates to be deducted in the implementation of the provisions of the law:

Professions other than lawyers and doctors, a fixed

Clarification on the preparation of Withholding Tax (WHT):

WHT is calculated on the net amount, excluding the value-added tax (VAT) on the products. If the price of the product is 10 Egyptian pounds (EGP) and the VAT added to it is 1 EGP, the tax deduction is calculated on the 10 EGP only, not the 11 EGP. Two taxes cannot be applied simultaneously, with one being higher than the value of another tax, leading to an increase and multiplication of the tax value.

Note: The withholding tax rate is applied to the actual selling price, and trade discounts on the transaction are not added. If the buyer receives a discount of 50 EGP from a total invoice of 500 EGP, the withholding tax is applied to 450 EGP.

Legal Texts:

• Article (59) of the Income Tax Law specifies a percentage of everything exceeding three hundred Egyptian pounds paid by way of commission, brokerage, or in exchange for purchase or supply operations, contracts, or services to any person in the private sector.

• Article (70) of the Income Tax Law specifies a deduction of 5% on account of the tax from every amount exceeding one hundred Egyptian pounds paid to the owner of non-commercial professions (freelance professions) which are determined by a ministerial decision.

• Decision No. 381 of 2018 by the Minister of Finance amended Decision No. 537 of 2005 by the Minister of Finance regarding the collection of amounts under account of the tax on non-commercial professions, due from lawyers.

• Article 1 of the decision states that the court registry in all its types and levels, offices, and real estate registration offices shall collect the following amounts under account of the tax due on lawyers as follows:

  • 20 EGP for each statement of claim, appeal, or document signed by a lawyer registered with the lawyers' roll before the primary courts.

  • 50 EGP for each statement of claim, appeal, or document signed by a lawyer registered with the lawyers' roll before the courts of appeal.

  • 100 EGP for each statement of claim, appeal, or document signed by a lawyer registered with the lawyers' roll before the Court of Cassation.

• Article 3 of the decision states that the provisions of this decision do not apply to:

  • Statements of claim filed by the State Law Authority.

  • Statements of claim filed by the lawyer subject to the tax on salaries and similar benefits related to the entity he works for, and this is proven by a certificate from the entity where the lawyer works.

  • Statements of claim filed by the lawyer during the period of his exemption from tax, and this is proven according to what is stated in the tax card issued to the lawyer.

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Decision No. 382 of 2018 by the Minister of Finance amended Decision No. 532 of 2005 by the Minister of Finance regarding the collection of an amount under account of the tax on non-commercial professions due from the doctor or specialist who performs work on his own account in one of the hospitals according to the provisions of Article (71) of the Income Tax Law No. 91 of 2005.

• Article 1 of the decision states that any hospital where a doctor or specialist performs work on his own account shall collect an amount of one hundred Egyptian pounds from each work under account of the non-commercial professions tax due on the doctor or specialist.

• Article 2 of the decision states that these hospitals shall provide the doctor or specialist with a receipt for each amount collected under account of the tax, and they must pay to the General Administration for collecting withholding and collection forms under the tax account at the tax authority the value of what was collected for every three months at the latest by the end of April, July, October, or January of each year "to be paid by one of the electronic payment methods specified in Decision No. (312) of 2019 by the Minister of Finance".

Difference between "Withholding and Addition" and "Advance Payments"

The advance payment system is an optional system provided to you by the Egyptian Tax Authority, which exempts you from the obligation of the withholding and addition tax applied compulsorily to taxpayers. What does that mean?

The idea of advanced payments is that you pay 60% of the last tax you paid to the authority in advance, which provides liquidity to the state and exempts you from the obligation to withhold tax, which is difficult if the company deals with many suppliers. If you are bound by these systems, you must submit papers proving this to the buyer so that you are