The US-Egypt Tax Treaty for Individuals and Businesses

The United States and the Arab Republic of Egypt have a bilateral agreement to address international taxation for individuals and businesses operating in both nations. This treaty, which entered into force in 1981, allocates taxing rights between the two countries to prevent the same income from being taxed by both jurisdictions. The agreement also establishes a framework for cooperation between the U.S. Internal Revenue Service (IRS) and the Egyptian Tax Authority (ETA) to combat tax evasion.

Determining Residency for Treaty Purposes

Eligibility for the U.S.-Egypt tax treaty benefits is restricted to individuals and entities considered “residents” of one or both countries, as defined by each nation’s domestic laws. For the United States, a resident includes U.S. citizens, green card holders, and those who meet the substantial presence test. Under Egyptian law, an individual is considered a resident if they have a permanent home in Egypt, are physically present for more than 183 days in a fiscal year, or are an Egyptian national paid from an Egyptian source for work performed abroad.

A person may qualify as a resident of both countries, creating a “dual-resident” status. In such cases, Article 4 of the treaty provides sequential “tie-breaker” rules to assign a single country of residence. The first test is the location of a permanent home. If a home exists in both countries, the next factor is the individual’s “center of vital interests,” which examines where personal and economic ties are closer. If this is inconclusive, the next test is their “habitual abode,” or the country where they spend more time, followed by citizenship. For corporations, residency is determined by the country under whose laws it was created or is managed.

How the Treaty Affects Personal Income

The treaty establishes specific rules for personal income to clarify which country has the primary right to tax. For income from employment, referred to as “dependent personal services” in Article 16, wages and salaries are taxed in the country where the work is physically performed. An exception allows a resident of one country to be exempt from tax in the other country where they work, provided three conditions are met: the individual is present for less than 90 days, the remuneration is paid by an employer not resident in the host country, and the cost is not borne by a permanent business presence of the employer there.

Different rules apply to other forms of personal income. For private pensions and annuities, Article 19 grants the exclusive right of taxation to the individual’s country of residence. Remuneration paid by a government for services rendered to it is typically taxable only by that government, as outlined in Article 21. The treaty also provides special considerations for students and business apprentices under Article 22. A resident of one country temporarily present in the other for education or training is exempt from tax in the host country on payments received from abroad for their maintenance, education, or training.

How the Treaty Affects Business and Investment Income

A foundational concept for business income is the “Permanent Establishment” (PE), as defined in Article 5. The profits of a business from one country are taxable in the other country only if the enterprise carries on its business through a PE situated there. A PE is a fixed place of business and includes a branch, office, factory, or a construction project that lasts for more than six months. The treaty explicitly lists activities that do not create a PE, allowing businesses to engage in preparatory activities without triggering tax liability. These exceptions include using facilities for storage or display, maintaining goods for processing by another enterprise, or maintaining a fixed place for purchasing goods.

Once a PE is established, Article 8 stipulates that the host country may tax the business profits that are attributable to that PE. The treaty also sets maximum withholding tax rates on investment income, which are often lower than domestic rates. For dividends, Article 11 limits the withholding tax to 15%. Article 12 caps the tax on interest at 15%, and Article 13 limits the tax on royalties for copyrights, patents, and trademarks to 15%.

The Mechanism for Preventing Double Taxation

Article 25 of the treaty outlines the methods each country uses to relieve its residents from double taxation. The primary mechanism for the United States is the foreign tax credit. A U.S. citizen or resident who earns income from Egyptian sources and pays income tax to Egypt can credit that amount against their U.S. income tax liability, subject to the limitations of U.S. law. Egypt provides similar relief for its residents, allowing them to credit U.S. tax paid against their Egyptian tax liability on income sourced in the United States.

The treaty includes a “saving clause,” a standard feature in U.S. tax treaties that allows the United States to tax its citizens as if the treaty did not exist. This means a U.S. citizen living in Egypt cannot use the treaty to avoid U.S. tax on their worldwide income. The saving clause has important exceptions, however. Certain treaty provisions are not overridden, including those related to government service remuneration and the exemptions for students and trainees.

Required Tax Forms and Disclosures

U.S. citizens and residents who take a position that the treaty overrules or modifies a provision of the Internal Revenue Code must disclose this position by filing Form 8833, Treaty-Based Return Position Disclosure. This form requires the taxpayer to provide specific details, including the treaty article being relied upon and an explanation of the position. The completed Form 8833 must be attached to the annual income tax return, such as Form 1040 for individuals or Form 1120 for corporations.

For residents of Egypt seeking to claim treaty benefits on U.S.-source income, the primary document is Form W-8BEN, Certificate of Foreign Status of Beneficial Owner. This form is not filed with the IRS but is provided directly to the U.S. withholding agent—such as a bank or brokerage firm. On Form W-8BEN, the Egyptian resident certifies their foreign status and claims residency. To claim a reduced rate of withholding, the individual must cite the specific treaty article, which instructs the U.S. payer to apply the lower treaty rate.