Netherlands- Egypt Tax Treaty highlights

Lately, we have seen in our practice a significant interest in investing in Egypt via the Netherlands. One of the reasons is the application of the Netherlands-Egypt Tax Treaty. In this blog, I would like to share some high-lights regarding the Netherlands- Egypt Tax Treaty.

The Double Taxation Avoidance Agreement (DTA) between the Netherlands and Egypt provides for the two countries to avoid the double taxation of income that may flow between them. It came into force on 20 May 2000. Without the DTA, income may be taxed double. This double taxation unfairly penalizes income flows between the countries and thereby discourages trade and commerce. To address this problem and to reduce the overall burden of a taxpayer, the Netherlands and Egypt signed the DTA. Pursuant to the signing of the agreement, any income that is taxable in both countries will be subject to double taxation relief.

Below, we provide the salient features of the important articles under the tax treaty:

  1. Treaty residence 
  2. Permanent establishment
  3. Offshore Activities
  4. Business profits
  5. Withholding taxes
  6. Elimination of double taxation and Mutual Agreement
Treaty residence  

The Netherlands-Egypt Tax Treaty includes the OECD Model Convention ‘standard’ residency clause and tie-breaker for entities (place of effective management).

Permanent establishment

The Netherlands-Egypt Tax Treaty includes the OECD Model Convention ‘standard’ permanent establishment (‘PE’) clause. However, it is also inspired by the UN Model Convention in terms of the reduced duration of the construction sites and installation projects deemed to be PE’s if the duration exceeds 6 months),

Offshore Activities  

Offshore, activities are deemed to constitute a PE, unless the duration of such activities, performed in one or more periods in any 12-month period, is less than 30 days. The duration of off shore activities performed by related companies is added together whereby, in case the total combined duration is 30 days or more, each company involved is deemed to have a PE. Any enterprise shall be considered associated with one another if one holds directly or indirectly one-third of the other enterprise’s capital.

Business profits

The Netherlands-Egypt Tax Treaty includes the 2000 version of the business profits allocation provision and the ‘standard’ provision for associated enterprises. This means a ‘separate entity approach’ for PE profit allocation, recognizing the at arm’s length principle and corresponding adjustments. Also, deduction of expenses, including executive and general administrative expenses, incurred in the calculation of PE are recognized under the PE Profit allocation determination.

Withholding taxes

The Netherlands-Egypt Tax Treaty allocates the right to levy tax on dividend, interest, and royalties exclusively to the residence state. However, these are subject to limited source state taxing right on the following conditions.

Dividends:

Dividends are taxable in both the residence state and the source state, whereby the right of the source state to levy tax is limited. If the recipient is the beneficial owner of the dividends, the tax so charged shall not exceed:

  1. 15% of the gross amount of the dividends if the beneficial owner is a resident of the other contracting state
  2. 0% if the beneficial owner is a company that owns at least 25 percent of the shares of the company paying the dividends.
Interest:

Interest may be taxed in the source state if the tax so charged shall not exceed 12 percent if the recipient is the beneficial owner of the interest.

Royalties:

Royalties may be taxed in the source state if the tax so charged shall not exceed 12 percent if the recipient is the beneficial owner of the royalties.

Elimination of double taxation and Mutual Agreement

Article 22 of the Netherlands-Egypt Tax Treaty allows the credit method as a form of double tax relief in case a situation of double taxation arises. If there is still a case of double taxation or taxation which is not in accordance with the Netherlands-Egypt Tax Treaty, at the request of the taxpayer, the competent authorities of the Netherlands and Egypt will consult each other in a mutual agreement procedure as meant in article 25 of the Netherlands-Egypt Tax Treaty.

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