Withholding tax in Egypt: Form 41, the rates and the common errors

Executive summary

• It is not a separate tax. It is an advance collection on account of the tax due from the supplier or service provider, who credits it against the tax in the annual return and recovers any excess through a refund claim.
• The rates: 1% on contracting, supplies and purchases · 3% on services · 5% on commission agency and brokerage and on the fees of non-commercial professionals, under Minister of Finance Decree No. 405 of 2018.
• The base is the net amount after trade discounts and before VAT, not the invoice total.
• Withholding applies to each amount paid above EGP 300, and above EGP 100 for the fees of non-commercial professionals.
• Form 41 is filed for each quarter, and the amounts withheld are remitted with it, by the end of April, July, October and January. An entity that fails to withhold or remit pays the amounts itself, together with the late payment charge.

What it is, and why that matters

The system rests on articles 59 and 70 of the Income Tax Law issued by Law No. 91 of 2005, with the rates set by Minister of Finance Decree No. 405 of 2018.

The paying entity withholds the rate from the amount due to the supplier and remits it to the Egyptian Tax Authority (the ETA). The amount does not come out of the payer's own funds but out of the supplier's entitlement, and is credited to the supplier when its annual tax is settled.

Two consequences of this are often missed:

First: the supplier does not lose the amount withheld; it pays it in advance. A supplier who objects to the withholding is objecting to timing, not to a cost.

Second: the paying entity is responsible for the withholding itself. The law requires an entity that did not withhold or remit to pay those amounts to the ETA together with the related late payment charge (article 59).

Rates and base

Decree No. 405 of 2018 sets further rates for specific cases, among them the discounts, grants, commissions and incentives given by certain companies. Commission or brokerage paid to an individual outside the exercise of his profession is taxed at 20%, not withheld on account (article 57).

Withholding is computed on the net amount after trade discounts and before VAT is added, which is how the e-invoicing system computes it.

It applies to each amount paid above EGP 300 as commission, brokerage, or consideration for purchases, supplies, contracting or services (article 59), and to each amount above EGP 100 paid to non-commercial professionals (article 70). Nothing is withheld below the threshold, but the payer must still report to the ETA its dealings with any person that exceed EGP 300 in the quarter (article 59, third paragraph; Form 46).

The deadline

Form 41 (withholding and collection) is filed for each quarter, and the amounts withheld are remitted with it, by the end of April, July, October and January each year (article 82 of the executive regulations of the Income Tax Law).

Who must withhold

Article 59 names them, including: government ministries and departments, local administration units and public authorities; public-sector and public business sector companies; capital companies; companies under the investment laws and in free zones; partnerships whose capital exceeds EGP 50,000; branches of foreign companies; cooperative and civil associations; hospitals and hotels; professional offices and foreign representative offices; and any others designated by ministerial decree.

Every capital company is covered, whatever its size, while a partnership is covered only if its capital exceeds EGP 50,000. Within that list, what matters is that the entity is the payer.

When nothing is withheld

Nothing is withheld from insurance premiums paid to insurers (article 59), or from payments to a supplier within the advance-payments system (article 60). The ETA's notice accepting a supplier into that system serves as a certificate to all its counterparties for one tax period; if it is not renewed, withholding resumes (article 84 of the regulations).

Law No. 6 of 2025 provides that the enterprises within it are "not subject ... to the withholding or advance payment system on account of tax" (article 11).

The three errors that recur

First — withholding on the invoice total including VAT. It belongs on the net. The difference builds up over the year and surfaces when the supplier reconciles.

Second — not obtaining proof of the withholding from the payer at the time of payment. Form 41 identifies the supplier by tax registration number, file number, tax office and nature of the transaction (article 82 of the regulations). So proof of the amount withheld is obtained with each payment and the supplier's details on it are checked, rather than leaving it to the year end.

Third — classifying the transaction. The rate follows the type of activity as classified by Decree No. 405 of 2018, and one contract may combine a supply and a service. The safer course is to price each component separately in the contract and put it on its own e-invoice line with its own withholding type, since the system computes withholding line by line. Neither the law, the regulations nor the decree settles a contract whose two values cannot be separated, so that case is reviewed before the first payment.

Payments to non-residents — a separate regime

Tax on amounts paid to persons not resident in Egypt is a separate regime under article 56 of the same law, covering interest, royalties and service fees, with dividends under article 56 bis. The test is the payee's residence, not where the money is sent.

The point that must not be missed: a double tax treaty may reduce or remove these rates, depending on its terms and on the supporting documents. Before any payment to a non-resident, the treaty between Egypt and the payee's country is reviewed, and neither the headline rate nor a reduced one is applied automatically.

What this requires

• Set withholding in the payments system on the net before VAT, not on the invoice total.
• Check both thresholds, EGP 300 and EGP 100, and the quarterly reporting of amounts below them.
• Obtain proof of the amount withheld from us with each payment, and check our details on it.
• Price each component separately where a contract combines a supply and a service, and invoice it on its own e-invoice line.
• Record the Form 41 deadlines, the end of April, July, October and January, in the compliance calendar.
• Review the double tax treaty before any payment to a non-resident, and document the basis on which the rate was applied.
• Reconcile the amounts withheld from us in our annual return against the proof we hold.

The firm's Tax Department prepares withholding returns, reviews the rates applied and reconciles amounts withheld, and reviews payments to non-residents against the applicable treaties.

Mahmoud Nassef — Chartered Accountant (Egyptian Register), Founder Partner

Member, Egyptian Society of Accountants & Auditors
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation

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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.