Update on the new UAE and Egypt Tax Treaty

Applicability of the Tax Treaty and key points


The New TT provides additional wording to the preamble to clarify that the intention of the Contracting States is to conclude an agreement for the avoidance of double taxation without creating opportunities for double non-taxation or tax reduction through tax evasion or avoidance, as well as to prevent circumvention of the agreement by using residents of third states.

Definition of Permanent Establishment (PE) (Article 5)

The PE definition maintains the general elements of the PE definition. However, the new definition considers the following aspects:       

  • A specific provision for service PEs, whereby the furnishing of services may give rise to a PE, provided certain conditions are met.
  • New dependent agent definition to tackle commissionaire arrangements and similar strategies.      
  • Anti-avoidance rule for specific activity exemption.
  • A special provision for insurance companies.

New definition of closely related enterprise, i.e., an enterprise is closely related to another enterprise if one has control over the other or both are under the control of the same enterprises. Control is defined as owning directly or indirectly at least 50% of the beneficial interest in the other enterprise. The protocol further states that the two contracting states shall exchange the needed information to identify a closely related person.

Distributive rules

The New TT covers the same items of income as the Old TT – namely: income from immovable property, business profits, income from international shipping and air transport, dividends, interests, royalties, capital gains, income from employment, director’s fees, pensions, remuneration for government services, students, and other income. 

However, the New TT provides certain differences in respect to which the Contracting States may tax and to what extent. We have summarized the key changes in the table below:


Rate/Taxing rights

Item of income


Old TT

New TT

Business profits
(Article 7)

  • The New TT considers new rules on the
    attribution of profits to PEs.

No taxation in the source country, unless the non-resident carries on business in
the source country through a PE.

Same as Old TT, but considers new rules on how the income is attributed to the PE.

(Article 10)

  • The Old TT granted exclusive taxing rights to the state of residence. The New TT provides shared taxing rights, allowing source state to tax if conditions are met.
  • The New TT also includes a 365 days holding period in order to apply the lower rate (5%).
  • A branch profit tax is allowed, but the rate will not exceed 5%.

No withholding tax (WTH) in the source state.

Both states restricted in the application of
branch profit taxes.

5% or 10% WHT in the source

(Article 11)

  • Exemption for governmental entities was removed. 

10% WHT in the source

Same rate

Capital gains
(Article 13)

  • The Old TT provided for exclusive taxing rights
    on capital gains from the transfer of shares to the resident state of the
  • Under the New TT, gains from the transfer of shares
    would be taxed in the country where the entity whose shares are being transferred
    is a resident.

In respect to the
transfer of shares, the residence state may tax, unless the shares derive their
value from immovable property situated in the source state. 

Source state
can generally tax gains from the transfer of shares*

(*) we cannot exclude that also the transfer of
“quotas” fall within the scope of the article)

Other income
(Article 21)

  • New clarification has been provided in respect
    to immovable property effectively connected to a PE or fixed base.

Source state can generally

Source state can
generally tax, but new rules are provided from immovable property effectively
connected to a PE.


Savings clause for hydrocarbons (Article 28)

The New TT considers a savings clause but has narrowed its application to income and profits resulting from the extraction of hydrocarbons. Specifically, the new article provides that the right of the Contracting States to apply their national laws and regulations regarding taxes on income and profits resulting from the extraction of hydrocarbons shall not be affected by the TT. 

Principal Purpose Test (Article 30)

The New TT also considers the Principal Purpose Test (PPT), which was not included in the Old TT. The PPT denies the applicability of the TT when it has been established that obtaining the benefits is the objective or one of the
objectives of carrying out the arrangement or transaction.

What you should to be attentive to 

  • The applicability of the TT should be evaluated on a case-by-case basis, attending to the specific facts and circumstances and the specific conditions set forth for each separate item of income.
  • The interpretation of the TT is an ongoing process, its applicability and interpretation by the relevant authorities may change and develop over time.
  • In certain cases, the applicability of the TT may not be automatic and additional administrative processes must be exhausted, such as: obtaining a Tax Residency Certificate (TRC), meeting the substance requirements. 
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