In brief

The new Double Tax Treaty (DTT) between Cyprus and Egypt, which was signed on 8 October 2019 and which entered into force on 31 July 2020, is effective as from 1 January 2021 based on a recent Interpretative Directive issued by the Cyprus Tax Authority (CTA).

The new DTT replaced the existing DTT between Cyprus and Egypt (signed in 1993).

In detail

Overview of the new DTT provisions

(i) Dividends

A maximum 5% withholding tax (WHT) rate applies where the recipient/beneficial owner is a company (other than partnership) that holds directly at least 20% of the capital of the company paying the dividends throughout a 365 day period that includes the day of the payment. For all other cases, the DTT provides for a maximum 10% WHT rate.

A maximum 5% WHT rate applies also for remittance of profits from a Permanent Establishment to its Head office.

(ii) Interest

A maximum 10% WHT rate applies.

(iii) Royalties

A maximum 10% WHT rate applies. Royalty payments are in consideration for:

  1. the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph and video films, or films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or
  2. the use of, or the right to use industrial, commercial or scientific equipment, or
  3. information concerning industrial, commercial, or scientific experience.

Royalty payments do not include payments for the use of, or the right to use, ships or aircrafts.

(iv) Capital gains

Cyprus retains the exclusive taxing rights on disposals of shares made by Cyprus tax residents, except in the following cases:

  1. non-listed shares which derive, at any time during the 365 days preceding the alienation, more than 50% of their value, directly or indirectly, from immovable property situated in Egypt;
  2. where the shares derive their value or the greater part of their value, directly or indirectly, from certain offshore rights/property relating to exploration or exploitation of the seabed or subsoil or their natural resources located in Egypt;
  3. non-listed shares, where the Cyprus tax resident alienator, at any time during the 365 days preceding the alienation, held directly or indirectly at least 20% of the Egyptian company in question

(v) Entitlement to benefits

A benefit under this new DTT shall not be granted, in respect of an item of income or capital, should this benefit be one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it can be established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provision of this new DTT.

This provision is in accordance with the Principal Purpose Test (PPT) of BEPS Action 6 and complies with the OECD minimum standard in this respect.

Cyprus WHT rates remain at 0%

Despite the rates of WHT mentioned above on dividends, interest and royalties, Cyprus will continue to apply no WHT on such payments (except in the case of royalty payments earned on rights used within Cyprus), as per the Cypriot domestic law for such payments to non-residents of Cyprus.

The takeaway

The new DTT agreed between Cyprus and Egypt will contribute to the further development of trade and economic relations between the two States.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.