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Background

In May 2023, the Sultanate of Oman and the Arab Republic of Egypt (Egypt) signed the Double Tax Treaty on income and capital (DTT).

While this DTT was ratified by Oman vide Royal Decree RD 43/2023 dated 25 June 2023, it is yet to be ratified by Egypt. In Oman, the DTT will be effective on or after the first day of January of the calendar year in which the ratification instruments are exchanged. For example, if the corresponding ratification and procedural requirements are completed by 31 December 2023, the DTT will be effective from 1 January 2024. The only exception for effective date in Oman is provided with respect to Article 8 (Shipping and Air Transport) which will be effective retrospectively for tax years beginning from or after 1 January 1978.

What are the key provisions of the DTT?

Applicability
  • Residents of Oman or Egypt (as defined in the DTT)
Nature of income covered
  • Like any other DTT, the Oman-Egypt DTT covers taxability of various streams of income such as dividends, interest, royalties, fees for technical services, business income earned by Permanent Establishment (“PE”), etc.
PE related provisions
  • Broadly aligned with the OECD model.
  • Covers Fixed Place PE, Construction/Installation PE, Agency PE and Service PE.
Rates under the DTT for certain types of income
  • Tax rate for dividend, royalties and technical service fees is equal to the withholding tax rates as per the Oman domestic tax law (i.e. 10%)
  • Tax rate for interest is 12% that is higher compared to the Oman domestic tax law (10%). However, as per the Royal Directive issued on 11 January 2023, Oman withholding tax on dividends and interest payments made to non-residents is ceased indefinitely.
Alignment with international tax reforms

The Oman-Egypt DTT reflects Oman’s commitment towards implementing Base Erosion Profit Shifting (BEPS) minimum standards and includes:

  • Mutual Agreement Procedure provisions (Action 14) for resolution of issues arising due to interpretation of the DTT; and
  • Principal Purpose Test (Action 6) which aims to deny treaty benefits under certain circumstances.

Who will be impacted by the DTT?

It will be important for Omani businesses to consider the impact of the Oman-Egypt DTT on transactions with Egypt-based companies from a corporate tax perspective and vice-versa. This may impact the taxability of various payments made in relation to both inbound and outbound investments, e.g. financing arrangements, provision of service, royalty payouts, etc. between the two countries. 

How can KPMG help you?

The interpretation of the DTT is always an ongoing process with developments in the international arena and relevant jurisprudence. Its applicability and interpretation by the relevant authorities may change and develop over time. It is imperative that the articles of the DTT are correctly interpreted, particularly in the current scenario where businesses have become digitalized and tax administrations are looking to collect more taxes and levy penalties for taking aggressive tax positions based on the interpretation of the DTT.

KPMG has a dedicated team of experienced corporate tax specialists based in Oman, which is supported by a larger, experienced regional team. If you need assistance in interpreting the DTT and the implications it may have for your business, please reach out to your advisors at KPMG or the contacts mentioned below.

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Aabha Lekhak blog posts
Aabha Lekhak
Partner, Head of Tax
KPMG in Oman
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Sumit Bansal blog posts
Sumit Bansal
Director, Value Added Tax
KPMG in Oman
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