In one of my demo environments, I tested server-side synchronization for emails. Everything works well and I can send emails to contacts.
Unfortunately when I did the same thing in clients enviroment I can choose only from 'Accounts' and 'Users' with no option to send Emails to 'Contacts'.
After many hours I have found a fix so will post it for future devs.
Even though I have added the contact entity via Site Map you also need to add it via ModelDrivenApp itself since SiteMap only adds views and not table itself.
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