Egypt

Doing Business in Egypt

Introduction

Foreign enterprises wishing to conduct business in Egypt may do so by establishing a formal, permanent presence in Egypt. Egyptian law permits foreign investors in Egypt to establish any of the following types of companies:

  • Limited Liability Company;
  • Commandite Company Limited by Shares; or
  • Joint Stock Company.

A foreign investor may decide not have a permanent presence in Egypt, instead setting up a branch or representative office, or appointing a commercial agent to sell and distribute products in the Egyptian market. Each of these business forms is discussed in detail below.

Conducting Business under the Investment Law

Foreign companies may incorporate as an entity in Egypt under either the Commercial Companies Law or the Investment Guarantees and Incentives Law No. 8 of 1997 (hereinafter referred to as the “Investment Law”). The rules and regulations governing the structure and incorporation procedures of entities under the Investment Law are essentially identical to those under the Commercial Companies Law. However, companies incorporated under the Investment Law are licensed by a different authority and are entitled, if their objects fall within the targeted industries, to various tax and capital investment incentives.

The targeted sectors include: infrastructure; manufacturing and mining; transport; software and computer systems development and production; medical services; certain financial services; oil field services; agriculture; reclamation of desert land; hotels and tourism. Investment guarantees and incentives outlined in the Law are limited to commercial activities falling within these sectors.

The investment guarantees afforded to qualifying companies include: the prohibition of nationalization, confiscation and freezing of assets; the prohibition of governmental interference in the pricing of companies’ products; the right to own buildings and land for project purposes, regardless of the nationality and place of residence of a qualifying company’s shareholders/partners; the ability to import all materials required for construction or expansion of a project without the need for a special import license or registration in the import register; and the ability to export products without special licenses or registration in the export register.

There are many tax incentives afforded to qualifying companies under the Investment Law, including, inter alia, 5, 10, or 20 year tax holidays, depending on where the company is set up; waiver of certain fees and duties; fixed customs duties; and exemption from tax of certain profits and dividends.

Article 28 of the Investment Law provides that the Council of Ministers (the Cabinet) may grant and transfer state owned land to companies incorporated under the Investment Law whose activities are within one of the targeted sectors.

Beyond investment guarantees and financial incentives, the Investment Law provides for the establishment of Free Trade Zone Areas including privately run Free Trade Zones.

Establishing A Company Under The Commercial Companies Law

A. Limited Liability Company (“LLC”)

Formation

A LCC may be formed with a minimum of two shareholders and a maximum of 50 shareholders. If the number of shareholders should fall below two at any time, the LCC will be deemed wound up by operation of law. There is no minimum Egyptian shareholding required to form a LCC.

The founding shareholders of the LCC must submit an application requesting permission to incorporate a LCC. The Ministerial Decision Implementing the Commercial Companies Law outlines the mandatory provisions that must be included in the Memorandum of Association.

The LLC is incorporated once it is registered in the Commercial Register. The LLC must also maintain a Register of Partners in its head office, which must contain the names, nationalities, domiciles and occupations of the partners; the number of shares owned by each partner; the sum paid by each; and the assignment or transfer of shares and related relevant information.

The name of the LLC must be derived from the object of the company and may include the name of one or more of its partners/shareholders. Additionally, the words “Limited Liability Company” must be included in the name.

Capital

The minimum share capital required to form an LLC is £E 50,000. The capital must be divided into equal shares, either in cash or in kind, and the value of each share must be at least £E 100. Each partner/shareholder is liable to the extent of the value of his shares and no share certificates are issued.

Management

The management of an LLC may be vested in one or more managers. At least one manager must be of Egyptian nationality. The manager(s) must be named in the Memorandum of Association but need not be a shareholder(s). The manager(s) may be appointed for a definite term (which must be specified in the Memorandum of Association) or for an indefinite term. The manager(s) shall have full authority to represent the LLC, unless such authority is limited or qualified by the Memorandum of Association. A shareholders’ resolution limiting the authority of the manager(s) will not be valid unless it is entered in the Commercial Register.

A supervisory board is required if the LLC has more than ten shareholders of which at least three must be shareholders.

Objectives

An LLC may conduct a variety of business activities, with the exception of insurance, banking, savings, receiving deposits or investing funds on behalf of others

Personnel Requirements

The LLC is subject to the provisions of the Commercial Companies Law relating to the employment of Egyptian personnel. Where the LLC’s share capital is £E 250,000 or more, it must distribute 10% of the company’s net profit to its employees up to a maximum amount equal to the total annual payroll. LLC’s incorporated under the Investment Law whose objects are among the activities listed in Article 1 of the Investment Law are exempt form this requirement.

Commandite Company Limited by Shares

Formation

Article 3 of the Commercial Companies Law defines a Commandite Company Limited by Shares (“CCLS”) as “a company whose capital is composed of one or more shares owned by one or more joint partners, as well as from shares of equal value subscribed for by one or more shareholders whose shares are negotiable in the manner prescribed by law.”

At incorporation, a CCLS must have at least two founding parties, one of which must be a joint partner (with unlimited liability). The founding members of the CCLS must submit an application to the appropriate authority requesting permission to incorporate the company.

Where the CCLS is incorporated under the Investment Law, the Investment Law provides certain guidelines concerning the provisions that must be included in its Memorandum of Association.

Capital

The minimum share capital required of a CCLS is £E 250,000. The capital is divided into two categories: (1) shares owned by joint partners, and (2) shares of equal value subscribed to by shareholders. The joint partners have unlimited liability while the shareholders’ liability is limited to the value of their respective shares.

The Commercial Companies Law does not impose minimum Egyptian shareholding requirements on the CCLS.

Management

The management of the CCLS is run by one or more joint partners, called partner manager(s). The name and scope of such partner manager’s authority must be included in the Memorandum of Association.

A CCLS must have a Supervisory Board made up of at least three persons, whose purpose is to supervise the acts of the manager(s). As such, this Supervisory Board may not be chosen from the partner manager(s).

Objectives

The CCLS is prohibited from conducting the business of insurance, banking, or savings or investing funds on other people’s behalf.

Personnel Requirements

The CCLS is subject to the same provisions as the LLC concerning the employment of Egyptian personnel.

Joint Stock Companies

Formation

Article 2 of the Commercial Companies Law defines a Joint Stock Company (“JSC”) as:

“ . . . a company whose capital is divided into shares of equal value, which shares are negotiable in the manner prescribed by law. The liability of a shareholder is limited to the value of the shares subscribed for by him. The Company name shall be derived from the objects for which it is to be incorporated and may not include the name of one or more of the shareholders.”

JSC’s must have at least three founding shareholders. The name of the company must refer to the activities it intends to undertake. At least 25% of the cash equity of the company must be paid up prior to incorporation. Once the incorporation application is approved by the authority, and the company is listed in the Commercial Register incorporation is complete.

Capital

The minimum share capital of a JSC is £E 500,000 if the JSC offers its shares to the public and £E 250,000 if it is private. The capital must be divided into shares of equal value, with a nominal value of between £E 5 and £E 1,000. All shares must be registered. A shareholder’s liability is limited to the value of the shares subscribed to by him. Share certificates are issued in the name of each shareholder.

Upon incorporation or upon an increase in capital, a minimum of 49% of the share capital must be offered for one month to the public and Egyptian natural and juridical persons, unless Egyptian shareholders already hold 49%. The JSC is permitted to incorporate if, after one month, the JSC is unable to obtain 49% Egyptian shareholding.

Management

The JSC is managed by a Board of Directors. The Board must have an odd number of directors, with three being the minimum allowed. Juristic persons are allowed to act as directors, provided that a natural person is appointed as representative to act on its behalf on the Board. The directors shall hold a term of three years, except for the initial directors, who are appointed for a term of 5 years.

The majority of the Board of Directors must be Egyptian nationals. This requirement does not apply to JSC’s incorporated under the Investment Law, whose corporate objects are among the activities specified in Article 1 of the Investment Law.

If the JSC is undertaking the management or business of a public utility, the Minister in charge must approve the appointment of directors to the Board.

Directors are required to own a specified number of shares, which must be deposited in an account, where they will remain throughout his tenure, as a guarantee of his management. The value of the shares must be at least £E 5,000.

Personnel Requirements

The Law requires a certain degree of personnel involvement in the JSC. The Articles of Association must, therefore, provide for participation by the personnel in the management of the JSC in one of the specified forms. Additionally, the JSC must distribute a share of its distributable profit to its personnel. This share cannot be less than 10% of the JSC’s profit or more than the total payroll of the company.

The JSC must abide by the provisions of the Commercial Companies Law requiring the employment of a certain percentage of Egyptian personnel. Foreigners may be hired if it is impossible to find the requisite number of qualified Egyptian employees and Ministerial approval is obtained.

Engaging A Commercial Agent

Foreign companies wishing to engage in any type of consulting or other services, or to tender on government agency bids (except sales to the Ministry of Defense) may do so only through a registered local agent or intermediary. Law No. 120 for the year 1982 (hereinafter referred to as the “Commercial Agencies Law”) regulates commercial agencies.

A commercial agent must be either an Egyptian national or an Egyptian juristic entity whose name has been registered at the Commercial Agents and Intermediaries Register at the Ministry of Economy and Foreign Trade (“MEFT”). Furthermore, the person/entity must meet specific characteristics, which are set forth in Article 2 of the Commercial Agencies Law.

Once the parties enter into an agency agreement, the agent/intermediary must register the agreement. The agency agreement must include the territory covered by the agent, the product or service that is the subject matter of the agency, the agent’s fee or rate of commission, the currency and mode of payment of such fees and commissions, and the term of the agreement. Furthermore, the Commercial Agencies Law requires that each agency agreement contain a specific undertaking by the foreign principal to inform the appropriate Egyptian embassy or consulate (in the foreign principal’s home country) of any amendments to the agreement.

The agency agreement does not have to be exclusive. The Commercial Agencies Law does not limit the principal’s right to terminate (or not to renew) a commercial agency. However, Egyptian law does include the “abuse of rights” doctrine, under which a court may grant a commercial agent damages for the principal’s abusive exercise of the right to terminate (or not renew) the agreement. The provisions of the commercial agency agreement generally will govern and define the rights of the parties upon termination or renewal.

Principals must report to the tax department details of payments of commissions made to commercial agents and intermediaries within one month of each payment and must adhere to the specific withholding requirements provided for in Law No. 157 of 1981 (“The Income Tax Law”). A foreign company with no presence in Egypt, however, would not be under any obligation to withhold taxes on payments made to its Egyptian commercial agent, because the tax regulations do not have such extraterritorial effect.

Establishing A Branch Or Representative Office

Representative Office

A foreign company may establish a, “representation, liaison, scientific, or other office as long as the sole purpose of such office is to carry out market surveys or to study the feasibility of production without carrying on any commercial activity including the activities of a commercial agent”.

The representative office must be registered in the Register of the Foreign Representative Offices kept by the Companies Department at MEFT , as well as with the Imports and Exports Authority.

Branch Office

Following approval of the registration application, all foreign companies conducting commercial, financial, industrial or contracting activities in Egypt must register their office in the Commercial Register. Once registered at the Commercial Register, the foreign branch must also be registered in a centralized register of foreign companies kept at the Commercial Companies Department.

Branch offices are subject to certain provisions of the law pertaining to the percentage of Egyptian personnel that must be employed.

The branch office must distribute at least 10% of its net profits to its employees, up to a maximum of the total annual payroll.

The branch office is subject to corporate income tax at the rate of 40% on profits that are generated from its operations in Egypt. (Branches of foreign companies and consulting engineers working in new communities and reconstruction projects enjoy a tax holiday from certain Egyptian taxes.)

The Commercial Register Law

The process of registration be it for agents or companies, is governed by the Commercial Register Law. The basic rule is that anyone carrying on a commercial activity must register in the Commercial Register.

The Commercial Register Law provides that all registrations must be renewed every 5 years. Once a person, company, or partnership is registered, it must put its trade name, place of registration and registration number on the front of its premises and on all its correspondence.

The penalties for violating the provisions of the Commercial Register Law are set forth in the Ministerial Decision Implementing that Law and range from a fine of £E 10-100 to three months – two years imprisonment and/or a fine between £E 100 – £E 500.

Disclaimer
Whilst every effort has been made to ensure that the details contained herein are correct and up-to-date, it does not constitute legal or other professional advice. IQTESADI does not accept any responsibility, legal or otherwise, for any errors or omission.