Physical PE

Egyptian tax law defines a physical permanent establishment as a fixed place of business through which the business or projects of a non-resident are carried out or executed in Egypt. The definition largely follows the OECD Model and includes:

A place of management;
A branch;
A building, facility, or warehouse used as a sales outlet;
An office;
A factory;
A workshop;
A mine, oil field, natural gas well, quarry, or any other place for extraction of natural resources, including timber or any other forestry products;
A farm or plantation;
A building site, construction project, installation or assembly project, or supervisory activities connected therewith. Effective 16 June 2023, a permanent establishment is constituted if such site, project, or supervisory activity continues for a period or periods aggregating 90 days or more within any 12-month period; or
Effective 16 June 2023, any activities carried out in Egypt in connection with the exploration, extraction, or exploitation of natural resources, including the use or installation of substantial equipment, for a period or periods aggregating 90 days or more within any 12-month period.

However, the following places do not constitute a permanent establishment for a foreign enterprise in Egypt:

Using facilities only for the storage and display of goods and merchandise owned by the enterprise;
Maintaining an inventory of goods and merchandise owned by the enterprise for storage or display purposes;
Maintaining an inventory of goods and merchandise owned by the enterprise only for the purpose of reprocessing by another enterprise;
Maintaining a permanent place for the sole purpose of purchasing goods or merchandise or the gathering of information for the enterprise;
Using a fixed place of business for carrying out of activities of preparatory or auxiliary character; or
Using a fixed place of business solely for the purpose of the combined exercise of the activities referred above, provided that the overall activities are of preparatory or auxiliary character;
Industrial or commercial works carried out by a foreign enterprise through a broker or a general agent on commission, or any other independent agent, unless it is proved that the broker or agent has dedicated most of its time or effort during the tax period for the interest of the foreign enterprise; or
If the overall activity of the fixed place of business is of a preparatory or auxiliary character (effective 16 June 2023). However, such activities may constitute a permanent establishment if the non-resident or its closely related enterprise carries on business activities at the same place or at another place in Egypt that do not constitute complementary functions that are part of a cohesive business operation and if any of the following two conditions is satisfied:

such place or other place constitutes a permanent establishment for the non-resident or its closely related enterprise; or
the overall activity resulting from the combination of activities carried out by the non-resident and its closely related enterprise is not of a preparatory or auxiliary character.

Enterprises are closely related if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises. In all cases, the person is considered closely related to a project, if the person possesses directly or indirectly more than 50% of the total shares, transfer or ownership rights.

If a non-resident enterprise has control over another resident enterprise, it does not result into considering the resident enterprise as a permanent establishment of the other.

Service PE

Effective 16 June 2023, the new definition of a permanent establishment provides that a service PE is constituted if a non-resident furnishes services (including planning, supervisory, or consultancy services) in Egypt through its employees or other individuals/entities engaged by the non-resident for a period or periods aggregating 90 days or more within any 12-month period.

Prior to June 2023, the domestic law did not specifically define a service PE. A number of Egyptian treaties such as those with Belgium, Uzbekistan, and Bahrain specifically provide for a service PE clause requiring the physical presence of an individual for a prescribed period (ranging between 183 days and 12 months). Several other Egyptian tax treaties, including those with Austria, Canada, the United States, the United Arab Emirates, the Netherlands and France do not have a specific service PE clause.

Agency PE

An agent having the authority to conclude contracts on behalf of a non-resident in Egypt constitutes an agency PE of the non-resident. Effective 16 June 2023, the scope of an agency PE is broadened to include situations in which an agent habitually plays the principal role leading to the conclusion of contracts without substantial modifications by the non-resident.

Additionally, an agent collecting insurance premiums or insuring risks on behalf of a non-resident in Egypt constitutes an agency PE of the non-resident.

However, a person does not constitute an agency PE of a non-resident if the person is an agent of an independent status carrying out activities in Egypt in the ordinary course of his business. A person is not considered to be an agent of an independent status if the activities are carried out exclusively or almost exclusively on behalf of the non-resident.

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