Oman and Egypt Sign Double Tax Treaty

The Double Tax Treaty (DTT) on income and capital between the Sultanate of Oman and the Arab Republic of Egypt was signed in May 2023.

While Oman ratified the DTT through Royal Decree RD 43/2023 on June 25, 2023, Egypt’s ratification is still pending. In Oman, the DTT will become effective on or after the first day of January of the calendar year in which the ratification instruments are exchanged. For instance, if all necessary ratification and procedural requirements are completed by December 31, 2023, the DTT will take effect from January 1, 2024. The only exception is for Article 8 (Shipping and Air Transport), which will be effective retrospectively for tax years starting from or after January 1, 1978.

  1. Applicability:
    • Applies to residents of Oman or Egypt, as defined in the DTT.
  2. Nature of income covered:
    • The Oman-Egypt DTT encompasses the taxability of various types of income, including dividends, interest, royalties, fees for technical services, and business income earned through Permanent Establishment (PE).
  3. PE related provisions:
    • Broadly aligned with the OECD model.
    • Covers Fixed Place PE, Construction/Installation PE, Agency PE, and Service PE.
  4. Rates under the DTT for certain types of income:
    • The tax rate for dividends, royalties, and technical service fees is equivalent to the withholding tax rates specified in Oman’s domestic tax law (i.e., 10%).
    • The tax rate for interest is 12%, which is higher than Oman’s domestic tax law (10%). However, according to the Royal Directive issued on January 11, 2023, Oman has indefinitely ceased withholding tax on dividends and interest payments made to non-residents.
  5. Alignment with international tax reforms:
    • The Oman-Egypt DTT demonstrates Oman’s commitment to implementing Base Erosion Profit Shifting (BEPS) minimum standards, including:
      • Mutual Agreement Procedure provisions (Action 14) for resolving issues arising from the interpretation of the DTT.
      • Principal Purpose Test (Action 6), which aims to deny treaty benefits under specific circumstances.

It is crucial for Omani businesses to consider the impact of the Oman-Egypt DTT on transactions with Egyptian companies from a corporate tax perspective, and vice versa. This may influence the tax implications of various payments related to both inbound and outbound investments, such as financing arrangements, service provision, royalty payments, and more, between the two countries.

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