Cyprus Ethiopia Treaty Details: A New Scramble For Africa?

The new double tax treaty between Cyprus and Ethiopia was signed on the 30 December, 2015.  Details of that treaty have now become available.  In general the treaty follows the OECD model treaty.  In terms of the treaty the following withholding rates are applicable:

5% on dividends;

5% interest other than interest derived by the Government or a National Bank of either state;

5% on royalties.

Deviations from the OECS model worthy of note are the following:

Article 5 on permanent establishments extends that definition to include a shop, warehouse, farm, forestry etc.  it also allows for a 6 month period that a building or construction site must exist before it becomes a permanent establishment.

Article 8 on international traffic provides that interest on funds connected with the operation of ships and aircraft are regarded as profits from the operation of such ships and aircraft.

Article 12 on royalties includes consideration for the right to use computer software or industrial commercial or scientific equipment.

Article 13 on capital gains does not include a provision on gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property.

Ethiopia is in the process of becoming an important regional hub and it is interesting to see that Cyprus has taken the lead in signing a treaty with Ethiopia, although we note that Ireland has also approved a treaty with Ethiopia.  The current list of countries entered into by Ethiopia does not currently include recognised hubs like Mauritius or Singapore.

Cyprus now has treaties with the following countries in Africa:

Egypt; Mauritius; Seychelles; South Africa and now Ethiopia.   Not exactly an extensive list so an interesting development that it is now going for Ethiopia.  It follows on Ireland signing treaties with Botswana, Zambia and Morocco.

 

For years, Mauritius has been seen as the gateway into Africa, although in theory South Africa also qualifies but because of exchange controls has not been seen as a serious contender.  Is this move by Cyprus and Ireland a sign that other regional hubs are now starting to focus on Africa with a view to challenging Mauritius for that mantle?  If so, it will be interesting to see how this develops, but in general improved treaty networks can only be for the benefit of development of Africa.  In any event both Cyprus and Ireland appear to have stolen a march on Mauritius with regards to establishing links with Ethiopia.