U.S. income tax treaty with Egypt

Treaty documents and protocols

The convention was signed at Cairo on August 24, 1980, and entered into force on December 31, 1981. The IRS lists an Income Tax Treaty and a Technical Explanation, both labelled 1980. No protocol or amending convention appears in the IRS list or in IRS Table 3, which gives a general effective date of January 1, 1982.^[1][2][5]

The convention predates the limitation on benefits articles in later U.S. treaties. Its closest counterpart is Article 24, Investment or Holding Companies, which Table 4 of the IRS tables lists for Egypt.^[5][2]

Convention structure

The convention text organizes its provisions into 32 numbered articles, with the saving clause in Article 6, General Rules of Taxation. The opening articles are Taxes Covered, General Definitions, Fiscal Residence, Source of Income, Permanent Establishment and General Rules of Taxation. The later articles address named income categories and administrative matters. These include Dividends, Interest, Royalties, Relief from Double Taxation, Mutual Agreement Procedure, Exchange of Information, Entry into Force and Termination.

Residence under article 3

Article 3 defines a U.S. resident by reference to U.S. tax residence and specified entity rules. A U.S. corporation qualifies as a U.S. resident under the article. For a partnership, estate or trust, the definition applies only to the extent its income is subject to U.S. tax as resident income, whether in the entity's hands or those of partners or beneficiaries. The parallel Egypt definition also identifies Egyptian corporations and certain other persons resident there for Egyptian tax purposes.^[2]

When an individual is a resident of both countries under the article's definitions, the convention uses successive residence tests. The person is assigned to the country where a permanent home is maintained. If there is a home in both countries or neither, the test turns to the closer personal and economic relations, described in the text as the center of vital interests. If that center cannot be determined, habitual abode is used. If habitual abode is in both countries or neither, citizenship decides. If the person is a citizen of both countries or neither, the two countries' competent authorities settle the question by mutual agreement.^[2]

Dividends, interest and royalties

Article 11 states that dividends sourced in one country and derived by a resident of the other may be taxed by both countries. For U.S. tax on dividends paid by a U.S. corporation to an Egypt resident, the stated ceiling is 15 percent of the gross dividend. A 5 percent ceiling applies when the recipient is a corporation and the ownership and income conditions are met. The recipient corporation must have owned at least 10 percent of the payer's voting shares during the specified portion of the current taxable year and the whole prior taxable year, if any. Also, no more than 25 percent of the payer's gross income for that prior year may consist of specified interest or dividend income, subject to the stated exclusions for certain financial business income and subsidiary income.^[2]

For dividends paid by an Egyptian corporation to a U.S. resident, article 11 describes Egyptian taxes deducted at source and additional treatment depending on the recipient. When dividends are paid to a natural person, the general income tax on net total income cannot exceed an average of 20 percent of the net dividend payable. A U.S. corporation receiving such dividends is subject to no Egyptian taxes beyond those listed in the article's subparagraph (a). These dividend rules do not apply when the income is treated as business profits attributable to a permanent establishment in the other country; the convention then points to article 8.^[2]

Article 12 lets both countries tax interest, with the source country's rate not to exceed 15 percent of the gross amount. Interest beneficially derived by a country or by a government instrumentality not subject to tax, or by a resident on loans made, guaranteed or insured by its government, is exempt in the other country. Interest paid to a person who is not a resident of the other country is generally exempt, unless it counts as income from sources in the first country under the source of income article. The 15 percent cap does not apply where the interest is treated as business profits of a permanent establishment, and a related-person payment above an arm's-length amount receives treaty treatment only up to that amount. IRS Table 1 shows 15 percent for interest.^[2][6]

Article 13 permits both countries to tax royalties derived by a resident of one country from sources in the other, with the other country's rate capped at 15 percent of the gross royalty. The term includes payments for use of, or the right to use, listed intellectual property and certain gains contingent on its productivity, use or disposition. The article's rate rule does not apply to royalties effectively connected with a permanent establishment. In that case, article 8 applies. A related-person payment exceeding the amount that would have been paid independently receives article 13 treatment only up to that independent amount.^[2]

Article 24 and company eligibility

The convention includes article 24, titled Investment or Holding Companies. It addresses when a corporation of either country deriving dividends, interest, royalties or capital gains from the other country is not entitled to benefits under articles 11 through 14. The stated conditions are that special measures make the relevant tax substantially less than the country's general corporate profit tax, and that at least 25 percent of the corporation's capital is held or determined to be owned by specified persons who are not individual residents of that country. For an Egyptian corporation, the text specifies U.S. citizens in that ownership condition.

Saving clause and U.S. citizens

Article 6 states that, notwithstanding the convention except for paragraph 4, a country may tax its residents and citizens as if the convention had not come into effect. Paragraph 4 then names specified provisions whose benefits are not affected by that rule. These include private pensions and annuities under article 19 paragraph 3, Social Security Payments, Relief from Double Taxation, Nondiscrimination and Mutual Agreement Procedure. Other listed provisions apply under the stated condition for individuals who are neither citizens of nor have immigrant status in that country.^[2]

Questions and answers

Related resources

Related glossary terms

• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.
• Recognition of a trust: The Hague Convention describes recognition of a trust, its minimum legal effects, and limits tied to applicable law. Jersey law also addresses recognition.
• Income tax treaty: An income tax treaty may provide reduced U.S. tax rates or exemptions for specified U.S.-source income. Rules vary by country and income type under each treaty.

Related articles and guides

• U.S. income tax treaty with Slovak Republic: The Slovak Republic treaty has 30 articles covering income, residence, tax rules, information exchange, limitation on benefits, and the saving clause.
• U.S. income tax treaty with Switzerland: The U.S. income tax convention with Switzerland dates from 1996, and a Protocol in force since 2019 covers information exchange and binding arbitration.

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