On the 8th of April 2016 Egypt and Kingdom of Saudi Arabia (KSA) signed a treaty to avoid double taxation and tax evasion between the two countries. The treaty was ratified by the Egyptian parliament on October 30, 2016 and entered into force on July 1st, 2017. The treaty will apply on residents of Egypt and/or KSA. It covers all forms of income taxes including capital gain taxes. For Egypt, the following taxes will be subject to the treaty:
- Individual income taxes including salaries, profits from commercial, industrial and professional activities, profits generated from real estate assets.
- Corporate income taxes.
- Withholding tax.
For KSA, the following taxes will be subject to the treaty:
- Income tax including taxes imposed on natural gas investments.
Residency (Article 4)
An individual or an entity is considered a resident of a contracting state if it subjects to its taxes under domestic legislation as a result of having a domicile, a residency or having its place of incorporation or management in this state.
For dual residents, the country of residency for treaty purposes will be that in which the individual has a permanent home. In case of having a permanent home in both countries; the individual will be a resident of the country with which it has stronger vital interests, or a habitual residency. If none of these criteria applies, the tax authorities of both countries will reach a mutual agreement in this respect.
For corporate entities having dual residency, the criteria for determining the residency will be the place of effective management.
Income from immovable property / real estate (Article 6)
Income derived by a resident of a contracting state from immovable property (including income derived from agriculture or forestry) located in the other contracting state may be taxed in that other state.
Commercial and Industrial Profits/ Business Profits (Article 7)
The term "commercial and industrial profits/ business profits" includes, inter alia, income driven from industry, commerce, banking, insurance, services or rental of movable personal property.
Deductions of expenses are allowed if incurred for the purposes of the permanent establishment including executive and general administrative expenses whether incurred in the state in which the permanent establishment exists or elsewhere.
However, royalties and charges paid by a permanent establishment to its headquarter for using patent or other rights or as management fees shall not be deductible. This shall not apply on interests paid by permanent establishment to a bank.
Transportation (Article 8)
Profits resulting from operating ships, aircraft or road vehicles in international transport shall be taxable only in the state of place of effective management. If the effective management of a maritime transportation project is on the ship, then the place of effective management shall be in the state in which the port of the ship locates and, if no such port exists, in the state in which the ship operator resides.
Dividends (Article 10)
Dividends can be taxed at the following maximum rates:
- a) 5% of the total value of dividends distributed if the beneficial owner of a company,
other than a joint venture company, directly owns at least 20% of the paid-up share
capital of the company.
- b) 10% of the total value of dividends distributed in all other cases.
However, profits derived from shares shall be exempted from tax in the contracting state in
which they arise if the beneficial owner of such dividends is the Government of the other
Interests (Article 11)
Interests on debts arising in a contracting state and paid to a resident of the other contracting state may be taxed in that other state. However, such interests may also be taxed in the contracting state in which they arise at a maximum of 10% of the total amount of interests.
Interests shall be exempted from taxation in the contracting state in which they arise if the beneficial owner is the Government of the other contracting state
Royalties (Article 12)
Tax on royalties shall not exceed 10% of its total amount. Royalties shall be exempted in a contracting state if the beneficial owner is the Government of the other contracting state.
Royalties are deemed to be established in a contracting state if its payer is resident in this state.
Independent personal services (Article 14)
Income derived by an individual who is a resident of a contracting state from professional services or other activities of an independent nature shall be taxable only in that state. It can also be taxed in the other contracting state in any of the following cases:
- a) If the individual has a regular fixed base in the other contracting state for the purpose
of carrying out its activities. In that case, the income will be taxed to the extent it is
attributed to such fixed base.
- b) If the individual is present in the other contracting state for a period(s) up to or
exceeding a total of (183) days during twelve months starting or ending in the
concerned fiscal year. In this case, the income will be taxed to the extent it is derived
from its activity in the other contracting state.
Methods for Elimination of Double Taxation (Article 23)
Where a resident of a contracting state derives income which, in accordance with the provisions of this treaty, may be taxed in the other contracting state, the first-mentioned state shall, deduct a tax amount equal to the tax amount paid in that other state. The amount of such deduction may not exceed the amount of income tax imposed on the other state before the deduction and attributable to the income which is taxable in the other Contracting State.