Negotiations with Egypt began in 1974, prior to the first publication of the United States model
convention in 1976. The form and pattern of the Convention, therefore, are somewhat different from the
United States model, but do not differ in major substantive respects from the model, except to reflect
Egypt's status as a developing country or particular features of Egyptian law.
As in the model, business profits of a resident of one country may be taxed by the other only if such
profits are attributable to a permanent establishment in the other country. Similarly with respect to
independent personal service income, an individual who is a resident of one State may be taxed by the
other on income from personal services performed in the other State only if certain tests are met. In the
Convention, the time threshold is shorter than in the United States model, and, with respect to
entertainers, the dollar threshold is lower.
Maximum rates of tax are established on a reciprocal basis for the taxation by the source country of
dividends, interest, and royalties. In general, these maximum rates in the Convention exceed the rates
specified in the United States model. The rates in the Convention are, however, consistent with those
established in other United States tax conventions with developing countries.
With respect to dividends, the United States withholding rate is, in general, limited to 15 percent,
although a lower 5 percent rate is specified for dividends paid to a parent corporation in Egypt. On the
Egyptian side, a special rule has been drafted because of several unique features of the Egyptian system
of taxation of corporations and their shareholders. Under Egyptian law, dividends paid out of current
earnings are fully deductible for purposes of corporate level taxation. The dividends are then subject to
a series of withholding taxes equivalent in total rate to the corporate taxes. When the shareholder is a
corporation, no further tax is due with respect to that income; individual shareholders, however, are
subject to general income tax at progressive rates on their dividend income. Under the Convention, a
United States corporation which receives dividends from an Egyptian corporation is not subject to any
Egyptian tax beyond the withholding taxes. An individual United States shareholder is subject to the
general income tax, but the average rate may not exceed 20 percent; it may, in some cases, be less than
20 percent, depending on the amount of the shareholder's Egyptian taxable income.
Interest is taxable at the source at a maximum rate of 15 percent, except that interest received,
guaranteed or insured by a Contracting State or instrumentality is exempt at source. Royalties are
subject to a maximum rate of tax at source of 15 percent. Motion picture royalties, under the
Convention, are treated as business profits. They are not subject to withholding tax at the source and
may be taxed by the source country, on a net basis, only if they are attributable to a permanent
establishment which the recipient has in that country.
The Convention contains the usual rules relating to real property income, capital gains, the treatment
of students, pensioners and government employees, nondiscrimination, and administrative cooperation.
These rules deviate only in minor respects from the model provisions. With respect to real property
income and capital gains, the Convention provides that gain on the sale of shares or an interest in a
partnership, estate or trust the assets of which consist principally of real property, may be taxed where