Tax Rules for Digital Services Provided in Egypt

Over the past two decades, the digital revolution has transformed global commerce and brought issues like the Egypt digital services tax to the forefront as countries rethink how to tax online service providers. Companies no longer need physical branches or offices in every country to generate income; a business based in Singapore or Dublin can now deliver software services to thousands of clients in Cairo or Alexandria and earn substantial profits without a single employee ever setting foot on Egyptian soil.

Against this backdrop, traditional tax systems—designed for an era of physical commerce—found themselves facing a crucial dilemma: How can tax be imposed on a non-resident company that generates income from a local market without any physical presence?

This challenge has prompted many countries, including Egypt, to rethink the concepts of “source of income,” “permanent establishment,” and “digital services” within their tax legislation.

The Egyptian Legal Framework

The cornerstone of the Egyptian tax system is Income Tax Law No. 91 of 2005. Although the law was enacted at a time when the digital economy had not yet flourished, modern interpretations of the concept of “source of income” have paved the way for subjecting foreign digital revenues to tax whenever the services are consumed in Egypt.

According to Article (56) of the law, tax is imposed on income earned by non-residents if the source of that income is Egypt. This includes services provided from abroad and used within Egypt, even if the service provider has no branch or permanent establishment in the country.

On this basis, digital services—such as SaaS subscriptions, online advertising, digital marketing, and digital consulting—are deemed Egyptian-source income whenever they are consumed within Egypt or benefit an Egyptian client.

Recent Developments

In recent years, the Egyptian Tax Authority (ETA) has expressed a clear intention to expand the application of tax to the digital economy, recognizing the significant global shift in online commercial activity. A growing portion of economic transactions now occurs through the internet without the physical presence of service providers, prompting an update to the tax framework to align with this new reality.

In 2023, the ETA launched an integrated digital tax registration system aimed at incorporating non-resident digital service providers into the Egyptian tax regime. This includes companies providing cross-border digital services such as SaaS providers, online advertising and marketing platforms, entertainment or educational content platforms, and booking applications that serve customers inside Egypt.

Tax authority guidelines confirm that foreign companies generating income from the Egyptian market are now required to register as taxpayers—even without any legal entity in Egypt. The determination of tax liability is now tied to where the income is sourced and where the service is consumed, rather than the physical location of the provider.

This approach reflects the state’s objective to ensure tax fairness between traditional and digital activities and to secure a fair contribution from the digital economy to public revenues.

Withholding Tax (WHT)

Withholding tax is a fundamental component of the Egyptian tax system, particularly regarding payments made to non-residents for digital services. When an Egyptian company contracts with a foreign provider for online services, the Egyptian entity becomes—by law—the withholding agent responsible for deducting the tax due at source before remitting any payment abroad.

The general withholding tax rate is 20% on services rendered to non-residents, unless local laws or international tax treaties stipulate otherwise. If a double tax treaty (DTA) exists between Egypt and the service provider’s jurisdiction, a reduced rate or full exemption may apply—provided that a valid tax residence certificate and proof of beneficial ownership are submitted to ensure transparency and prevent treaty abuse.

Example:
If a Cairo-based company pays EGP 100,000 to a German SaaS provider, it must withhold EGP 20,000 and remit it to the Egyptian Tax Authority. However, this rate may drop to 10% or even 0% if a valid German tax residency certificate is provided in line with the DTA between Egypt and Germany.

This underscores the importance of Egyptian companies understanding their legal obligations. Failure to apply withholding or delays in remittance can result in substantial penalties, while proper compliance enhances legal certainty and international credibility.

The Emerging Concept of the Digital Permanent Establishment

One of the most debated challenges in international taxation is how to define a Permanent Establishment (PE) in the digital environment.

While traditional definitions require a physical presence such as an office, factory, or dependent agent, modern business models allow entirely digital operations that generate real income from multiple countries without any physical footprint.

Although Egyptian law has not yet explicitly defined a “digital permanent establishment”, the tax authority may rely on the source of income principle to broaden the scope of taxable presence.

In the near future, Egypt is expected to adopt a definition aligned with OECD recommendations, which recognize a digital PE based on “significant and sustained economic interaction” with users inside a country, even without physical presence.

Value Added Tax (VAT) on Digital Services

In addition to income tax, digital services are subject to Value Added Tax (VAT) under Law No. 67 of 2016, which expanded VAT applicability to electronic transactions and online services. Recognizing the rapid growth of this sector, the ETA issued detailed implementing guidelines in 2022 outlining how VAT applies to digital and electronic services.

The core legislative principle is that a service is taxable in the jurisdiction where it is consumed, regardless of the service provider’s location. Accordingly, any digital service supplied to a customer in Egypt—by a local or foreign provider—must bear VAT at 14%.

In B2B transactions, where an Egyptian entity procures digital services for business purposes, the responsibility lies with the Egyptian customer, who must self-assess and remit VAT through the Reverse Charge Mechanism.

In B2C transactions, where digital services are provided directly to Egyptian consumers, the foreign service provider must register for VAT in Egypt, collect VAT from customers, and remit it to the ETA. This applies to streaming platforms, gaming platforms, subscription applications, and global SaaS providers.

This model aligns with international practices in the EU, GCC, and other digital economies under the Digital VAT Framework, which aims to ensure tax fairness and prevent revenue leakage from unregistered digital transactions.

From BEPS to FATCA and CRS

Egypt’s tax system cannot be viewed in isolation from global developments in combating tax evasion.

Egypt is an active participant in the BEPS Initiative (Base Erosion and Profit Shifting) by the OECD, which seeks to ensure that income is taxed where real economic value is created.

Egypt has also joined global tax information exchange frameworks such as FATCA (with the United States) and CRS (with the OECD), enhancing its ability to trace cross-border income.

These developments place Egypt firmly within a global system that requires foreign companies to maintain high levels of transparency and disclosure—particularly in the digital services sector, known for its complex operational structures.

Challenges Facing Foreign Digital Service Providers

Despite Egypt’s significant progress in regulating tax on the digital economy, foreign companies serving Egyptian customers still face several legal, administrative, and operational challenges:

1. Lack of regulatory clarity

Key concepts such as “digital permanent establishment” and “actual place of service consumption” remain insufficiently defined. This ambiguity makes it difficult for foreign companies to determine whether their activities are taxable in Egypt, and may lead to inconsistent interpretations by taxpayers and tax officers.

2. Risk of double taxation

Foreign digital companies may face double taxation—being taxed in both their home country and Egypt—particularly where no double tax treaty exists or where treaty application is complicated.

3. Administrative and compliance burden

Registering for tax in Egypt, filing periodic returns, and implementing e-invoicing require substantial organizational and technical capabilities. Smaller foreign firms may struggle with language barriers, differing systems, and complex electronic procedures.

4. Transfer pricing and related-party transactions

Multinational digital companies must comply with Egypt’s transfer pricing regulations, applying the Arm’s Length Principle and maintaining master and local files. Non-compliance can result in profit reassessments and additional tax liabilities.

5. VAT obligations

Reverse charge requirements for B2B transactions and the need for direct VAT registration for B2C supplies add further accounting burdens. Providers must accurately identify Egyptian customers and apply the correct VAT rate to each transaction.

Overall, these challenges test the ability of foreign digital providers to adapt to Egypt’s rapidly evolving tax environment. However, proactive tax planning, engaging local advisors, and implementing robust digital compliance systems can transform these obstacles into opportunities for sustainable operation in the growing Egyptian market.

Conclusion

Egypt is striving to redefine tax fairness in the digital age, ensuring that tax is imposed where real economic value is generated, not merely where a company’s legal presence exists.

As the digital economy expands, understanding Egyptian tax rules is becoming increasingly essential—not only to mitigate risks but also to seize the opportunities offered by one of the largest technology and internet markets in the Middle East and Africa.

Recognizing that Egypt is no longer “just a consumer market” but a “digital tax jurisdiction” is the first step for foreign companies seeking successful and sustainable tax management in this new landscape.

Frequently Asked Questions

To find out more, please fill out the form or email us at: info@eg.Andersen.com

Contact Us