Doing Business In: Egypt
Ibrachy & DermarkarView Firm Profile
Egypt has been opened for business since the late President Sadat announced the open-door policy in the October Paper of April 1974. During those 47 years, Egypt has amassed a considerable experience and benefited from international best practices in attracting investments. In July 2004, Ahmed Nazif became prime minister of Egypt. He adopted a policy of transfusing businesspeople into the government offices. This included the all-powerful Ministry of Information as well as ministries of Trade and Industry, Ministry of Tourism and the Ministry of Housing. The transfusion of businesspeople also took place at the level of government owned companies including Telecom Egypt, the Smart Village and the Egyptian Post Office, to name a few. A new trend is taking place now. Businessmen are not to be involved in politics in any major way. The GOE has also become more active through government owned companied in various economic fields such as construction, oil and gas, heavy industry, health and media. They operate with a for profit mandate. The result is a vigorous economic performance of such companies which positively impacts the overall economic performance in Egypt. The GDP growth peaked to 7,157% in 2008. Even during the time when Egypt was in a revolution, the growth of the GDP did not go below 1,756%. In the doldrums of the Covid 19, Egypt stands tall at a GDP growth of 2,9%.
The general investment atmosphere is becoming more and more sophisticated. A non-exhaustive example of such changes are:
- The Government of Egypt (GOE) issued its proposed law of the non-banking financing including fintech. Egypt is having the discussion at the same time as this issue remains a burning issue that China is currently dealing with.
- Law 70/2021 which Amends Law 87/2015 on electricity. The Law addresses the Holding Company for Egyptian Electricity. It requires it to present a policy paper enforceable within a transitional period of ten years. The policy paper should set HCEE operations within a competitive market environment
- The Decree of Prime Minister No. 654 of 2021 promulgating the Executive Regulation of the Law No. 152 of 2020 on the Development of Micro, small and medium-Sized Enterprises.
- The Ministerial Decree No. 286 of 2021 promulgating the Executive Regulation of the Unified Tax Procedures Law No. 206 of 2020.
- The Ministerial Decree No 198 of 2021 by the Minister of Trade and Industry promulgating the Executive Regulation of the General Authority for Industrial Development Law No. 95 of 2018.
- The Presidential Decree No. 28 of 2021 amending certain provisions of the Law No. 14 of 2012 on the Development of Sinai concerning Dahab and Sharm El sheikh cities.
- The Ministerial Decree No. 90 of 2021 promulgating the Executive Regulation of Law on the Establishment of the Authority for International and Domestic Land Transport.
- The Law No. 11 of 2021 amending certain provisions of Restructuring, Preventive Composition and Bankruptcy Law No. 11 of 2018.
The GOE embarks on many mega projects. The private sector, that is capable of cooperating with the Government, benefits from the opportunities. There are emerging opportunities in the high-tech. But some face challenges in the growing regulations around data protection. To navigate this, requires not only knowledge of increasing regulations in the field, but also an understanding of the concerns and attitudes of officials.
The Governmental meg projects are numerous. The new administrative capital project is estimated to cost USD 58b. It is expected to host seven million people. China State Construction Engineering Corporation is a major partner in this project. The City Gate Project is constructed over 2100 acres. It is sponsored by the Qataris. Its first phase is estimated at USD 54b. The Dabaa Nuclear Power Plant is expected to produce 4200 megawatts. It is 85% financed by the Russians. The Hurghada-Alamain High Speed Rail is estimated to cost USD 23b. Siemens Mobility is a main partner of the project. Tahya Misr Bridge is engineered by the Engineering Authority of the Army. It is rumored to cost USD 9,6b. The October Oasis is a development in Giza. It is estimated to cost USD 8,5b. Tahrir Petrochemical Complex in Suez produces Ethelyn and polyethylene. The New Alamein City is conceived to be a touristic and educational city, in addition to becoming the summer-seat of the GOE. China State Construction is a main partner. The Capital Medical City project is expected to have 2000 beds. Smart Engineering Solutions, an Egyptian electricity distribution company is working on a concentrated solar power plant. It is expected to cost USD 1,25b. Seventy percent of the project is financed from international financing institutions.
The above projects are not only about the appetite and ambition of the GOE, but also about a potential ripple effect that would have impact on many small and medium sized projects. It is a story of a country in a race to build. But with this comes challenges. Laws and regulations are becoming more complex. Even worse, the developments are sometimes quicker than the promulgation of laws and the passing of ministerial decrees. We need to know the concerns of those in charge…it is not about who you know…it is all about knowing how they think.
Changes in 2021 – What has changed in the last year that has impacted the way business is conducted?
- Rise and growth in the start-up scene. Uber, Swvl, trella, paymob, telda, etc. Incubators and accelerators also active as of recently in support of the start-ups
- Continued growth in construction
- Real estate continues to be a main repository of wealth.
- Data protection: The GOE is becoming more and more aware about the importance of controlling the handling of personal data.
- Start in the growth of the fintech (public and private sectors). Banking the un-bankable sector of the population, shall bring positive rewards and will contribute to the increase in the GDP.
- Covid drawbacks, such as in the tourism industry
- What are the advantages of your country as a business location?
- It is a hub to address Africa, Middle East, Europe, Near Asia.
What are the business structures in your country?
The business structures allowed in Egypt are set out in the Law of Commerce No. 17 of 1999 and the Companies Law No. 159 of 1981. The Law of Commerce deals mainly with the sole proprietor and the simple partnerships, whereas the Companies Law regulates in detail joint stock companies, limited partnerships by shares, and limited liability companies.
There are two structures that provide a limited liability to the shareholders; namely, the limited liability company and the joint stock company. Other business structures involve an unlimited liability to at least one of the shareholders or partners, making them less common.
Joint Stock Companies
The laws governing Egyptian joint stock companies follow best practices in the World. The capital is divided into shares. Shares could belong to different classes to provide specific privileges in voting, profit distribution or in the value of the assets upon liquidation. The number of of a joint stock company should not be less than three founders, and consequently the number of shareholders should not fall below three at any time. The shareholders are not personally liable. The shares could be traded on the stock exchange.
The shares of a joint stock company, private or public, can be fully owned by non-Egyptians, but they have to pay the value of their shares in the company in foreign convertible currencies. To form a joint stock company, the founders (or an attorney on behalf of them) are to submit an application to the Companies Department with the following documents required:
- A list of the founders’ names and details.
- For founders who are corporations, a resolution from each corporate body indicating participation in the new company.
- For founders who are of foreign nationalities, relevant data is required in authenticated or legalized form such as nationality, address, work or activity, documents of incorporation, etc.
- The memorandum of association and the draft of the articles of association of the new company.
- A certificate from the Egyptian bank receiving the share capital payments, which shows that each founder and ordinary shareholder has paid at least 25%. This 25% can be paid on two installments: 10% before applying to the Companies Department, and the remaining 15% within three months following the registration of the company in the Commercial Register. The Companies Department will submit the application and attached documents to a Special Committee for Company Formation which will review the application and the documents. If the application and documents are complete and within the requirements of the Egyptian law and public order, the Committee will issue a resolution approving the formation of the new company, and accordingly the memorandum and articles of association of the new company are published in the Companies Bulletin.
Subsequently, the founders will apply to the Commercial Registration Office to register the new company in the Commercial Register, after which the company will be fully incorporated and can start its activity. The incorporation of a joint stock company usually takes 4 to 5 weeks to complete.
The minimum issued share-capital of a closed or private joint stock company (i.e. the company which does not offer its shares for public subscription) is LE 250 000, and that of a company which offers its shares (or part thereof) to public is LE 1.000 000 of which at least 50% must be subscribed by the founders. At least 25% of the share-capital is to be paid during foundation and the rest over a maximum of five years.
The shares of a joint stock company, whether it is a private or a public company, can be traded on the Egyptian Stock Exchange. However, in-kind shares and founders shares cannot be traded in the Stock Exchange before the lapse of two financial years from the incorporation of the company. A foreign shareholder can sell his shares in the Egyptian Stock Exchange and can repatriate the proceeds of the sale abroad without any restrictions. Dividends of non-Egyptian shareholders could be repatriated.
A joint stock company is managed by a board of directors of no less than three. The board members, including the chairman, could be non-Egyptians. Corporate entities could be boar members. Board members are not deemed employees of the company and are dismissible by the general assembly at any time.
Limited Liability Companies
The Egyptian limited liability company is a closed company. The liability of each of its partners is limited to the value of his or her quotas in the company. The number of partners of a limited liability company cannot be less than two persons and cannot exceed fifty. The quotas of the limited liability company cannot be traded on the stock exchange.
The founding shareholders of the company must submit an application requesting permission to incorporate a limited liability company. The ministerial decision implementing the Commercial Companies Law outlines the mandatory provisions that must be included in the Memorandum of Association. The company is incorporated once it is registered in the Commercial Register.
Limited liability companies cannot raise funds (as capital or as loan) through public offering. Also such companies may conduct a variety of business activities, with the exception of insurance, banking, savings, receiving deposits or investing funds on behalf of others.
The management of a limited liability company may be assigned to one or more managers. At least one manager must hold the 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 company; unless such authority is limited by the Memorandum of Association. The manager of the limited liability company has the same legal status of the director of the joint stock company.
If the number of the partners of a limited liability company exceeds ten, the partners should form a supervisory board consisting of at least three of them. The supervisory board has the right to check the accounting records of the company, ask the managers to provide reports upon request, count the company’s cash and other assets, and review the company’s financial statements before being submitted to the partners’ general meeting.
Apart from the above, the provisions related to joint stock companies apply to limited liability companies.
The minimum equity capital of a limited liability company is L.E. 50,000. The equity capital should be fully paid up on foundation. The nominal value of the share or quota cannot be less than L.E. 100.
The quotas cannot be traded in the stock exchange, however, any partner can sell his or her quotas to outsiders, given that he has already offered them to the other partners and they declined to buy them.
Foreigners can own 100% of the equity capital of a limited liability company, but they have to pay the value of their shares in foreign convertible currencies.
If a foreign partner(s) in a limited liability company wishes to repatriate his or her capital out of Egypt, he or she has to sell his or her quotas or liquidate the company (if he or she actually owns all or most of it), deposit the proceeds of sale or liquidation in an account at one of the accredited banks in Egypt, and the bank will realize the required repatriation of the funds.
A limited liability company which has a share-capital equal to or exceeding the minimum share-capital of a closed joint stock company (i.e. LE 250 000) has to allocate at least 10% of the profit to be distributed among its partners to its employees as profit-sharing, but with a maximum of 100% of their annual salaries.
Other Forms of Business Structures Associated with Foreign Entities Operating in Egypt
In addition to the above, there are other forms of business incorporation associated with foreign operations such as representation offices, foreign branches and franchising.
Foreign companies are allowed to open branches in Egypt to carry out construction works, hotels management, commercial, financial and industrial activities or generally to execute works of contractual nature.
Following approval of the registration application, all foreign companies conducting activities in Egypt must register their office in the Commercial Register. Once registered at the Commercial Register, the foreign branch must also be registered at the centralized register of foreign companies kept at the Companies Department.
A manager should be appointed by the foreign company to manage its branch in Egypt, and to legally represent it in all matters related to its activity and existence. The manager can be of a foreign nationality. The manager may delegate others who are professionals or specialists to handle matters of complicated or specialized nature such as taxes, and legal disputes.
If the manager is of Egyptian nationality, then he or she should enroll himself or herself in the state social insurance system as an employee. Enrolling in the social insurance system applies also to foreigners whose countries have reciprocal social insurance arrangement with Egypt.
The foreign branch should keep proper books of account as required by law, and should issue annual financial statements which should be audited by a certified Egyptian auditor.
At least 10% of the net profit of the branch should be allocated to employees as profit-sharing, but the amount of profit-sharing should not exceed 100% of the annual salaries of the employees.
The net profit of the foreign branch can easily be repatriated abroad if the branch has acquired enough foreign currency to do so. This also applies to the capital of the foreign branch.
Establishing a branch of a foreign company in Egypt requires registration in the Commercial Registration Office. To register a branch of a foreign company, this company should first be awarded a contract to perform works in Egypt, such as a contract for construction works, hotel management, oil exploration, and the like.
Afterwards, the foreign company, or its attorney, will apply to the competent commercial registration office for registration of a branch with the following documents:
- A copy of the contract awarded to the foreign company to perform works in Egypt with a recognized Arabic translation thereof.
- A legalized copy of the memorandum and articles of association of the foreign company with a recognized Arabic translation thereof.
- A legalized copy of the foreign company’s board of directors’ resolution to establish a branch in Egypt with a statement that the company has no other branches in Egypt.
- Appoint a manager for the branch.
- A certificate from one of the accredited banks in Egypt stating that the foreign company has transferred to the bank an amount in a foreign convertible currency equal to at least L.E. 5000 to be the branch’s capital, and that this amount is deposited in a blocked account.
- In case of construction works, a document indicating that the foreign company has been registered in the Egyptian Federation for Erection and Building Contractors as a correspondent.
- A copy of the rental contract of the office of the branch in Egypt.
The registration fees of a foreign branch are about L.E 500. This is exclusive of the professional fees of an attorney. The establishment of a foreign branch usually takes about 2 to 3 months to complete.
Foreign companies can establish in Egypt representation, liaison, or scientific offices. The object of such offices is limited to studying the Egyptian market and exploring the possibility for their companies to manufacture or carry out business in Egypt, but without actually performing any kind of commercial activity including commercial agency work, or performing any activity which may generate income.
Representation, liaison, or scientific offices should be registered at the Companies Department before they are allowed to work in Egypt.
However, foreign pharmaceutical companies may apply to the Ministry of Health to open scientific offices in Egypt and if the Ministry of Health approves their request, they may register their scientific offices at the Imports and Exports Control Authority (under the Ministry of Foreign Trade), instead of the Companies Department. This kind of registration allows scientific offices of pharmaceutical companies to make promotions in Egypt for their pharmaceutical products. Such scientific offices may also receive on behalf of their companies the royalty on the foreign pharmaceutical products, which are manufactured by Egyptian pharmaceutical companies by license from the foreign companies. Scientific offices may also receive a promotion allowance from the Egyptian pharmaceutical companies if they make the necessary promotions for the locally manufactured products by themselves.
The manager of the representation, liaison, or scientific office can be a foreigner. But the manager of a scientific office of a pharmaceutical company, which is registered at the Imports and Exports Authority, must be an Egyptian who is a licensed member of one of the medical professions in Egypt. There is no minimum capital for a representation, liaison, or scientific office, but the funds required to establish any such office and to run it should be transferred from abroad in foreign convertible currency and deposited at one of the accredited banks in Egypt. However, scientific offices of pharmaceutical companies are allowed to use the royalties and promotion allowances accruing thereto as indicated above in meeting their expenses or part thereof.
Since representation, liaison, and scientific offices cannot exercise any commercial activity that could generate income, they are not subject to the corporate tax and their employees do not enjoy any profit-sharing rights.
To register a representative office, the concerned foreign company, or its attorney, should submit an application to this effect to the Companies Department (or the Imports and Exports Control Authority in the case of scientific offices of pharmaceutical companies) with the following documents:
- A legalized copy of the memorandum and articles of association of the foreign company with a recognized translation thereof.
- A legalized copy of the company’s board of directors’ resolution to establish a representative office in Egypt to study the Egyptian market and explore production possibilities without being engaged in any trading or profit -oriented activities.
- Appoint a manager for the representative office.
- A certificate from one of the accredited banks in Egypt stating that the foreign company has a convertible foreign currency balance (no minimum amount is required) and that the currency has been transferred from abroad.
- A certified check for L.E. 1000 as registration fees in the name of the Ministry of Foreign Trade.
- A copy of the rental contract of the representative office in Egypt.
- Registration of a representative office usually takes about one month to complete.
Benefiting from Egyptian Market without Operating in Egypt:
A foreign entity could benefit from the Egyptian economy through franchising its business to local franchisees. The royalty that the franchisor gets is subject to taxes as a passive income. Some non-double taxation agreement allow very reduced taxes on the royalties collected by foreign companies from its franchisees.
The Intellectual Property Rights No. 82 of 2002 passed in June 2002; incorporates Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement), to which Egypt is a signatory. Egypt is also a signatory to a number of major international agreements such as Madrid International Convention protecting trade and industrial marks.
Importers, Commercial Agents & Contractors
A non-Egyptian company may seek to find an agent or distributor in Egypt. An agent is an appropriate vehicle if the company seeks its Egyptian partner to mediate contracts in Egypt. A distributor is an appropriate vehicle if the company seeks its Egyptian partner to import and distribute its products in the Egyptian market or regionally (if the distributor has a free zone facility).
Importation for trading purposes and commercial agency activity are both restricted to Egyptians or business firms wholly owned by Egyptians. This remains an antiquated area of Egyptian law which involves restrictions not commonly applied in many jurisdictions.
Importation for Trading Purposes
Law no. 121 of 1982 on “Importers Register” requires that any natural or legal entity wishing to import goods for trading purposes should, first of all, be registered in the Importers Register.
To register a partnership or a company in the “Importers Register” the following requirements should be met: (Article 2)
- The partnership or company should be registered in the Commercial Register.
- Its head office must be in Egypt.
- Its object should include importation for trading purposes.
- All the partners and managers of partnerships and all the managers of companies must be of Egyptian nationality, or at least ten years should have elapsed since acquiring it.
Conditions for an individual to register as a commercial agent are:
- He or she should be registered in the Commercial Register, and should have a tax card.
- He or she should be of Egyptian nationality and if his or her Egyptian nationality was acquired, then at least ten years should have elapsed since acquiring it.
- He or she should have carried commercial activities for at least two consecutive years (there are some exceptions to this rule).
- He or she should have a clean criminal record.
- He or she should not have been bankrupt, or if he or she was bankrupt, has now been rehabilitated.
- His or her business capital amount should not be less than L.E. 10,000, with some exceptions.
- If the person has been a civil servant performing works related to commercial activities, then at least two years should have elapsed since his or her leaving the civil service.
- He or she should not be a member of the parliament, the advisory council, a local municipality, or fully engaged in political work, unless he has been undertaken such activities before being a member of such councils.
To work as a commercial agent or intermediary, the person must be either an Egyptian national or an Egyptian juristic entity whose name has been registered at the “Commercial Agents Record” or “Intermediaries Register” at the Ministry of Foreign Trade.
Registration in the record requires also the submission of the commercial agency contract showing the nature of work of the commercial agent, and the responsibilities of the principal and the agent, the percentage of the agency commission, the conditions for paying it to the agent and the currency of payment. Registration in the “Commercial Agents Record” must be renewed every five years. Furthermore, the Commercial Agencies Law requires that each agency agreement contain a specific obligation 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.
Principals must report to the tax department details of payments of commissions made to commercial agents and intermediaries within one month of each payment. On the other hand, the commercial agent must keep proper books of account and record therein all the commissions received and the banks in which they are deposited.
Non-Governmental Organizations (NGOs)
In June 2002, the Parliament ratified a law regulating the work of non-governmental organizations (NGOs). The law is largely identical to a 1999 law, which was annulled because it had not been passed to the Shura Council, Egypt’s upper parliamentary house, for approval. Under the law, the government determines how NGOs are run and requires that NGOs obtain the government’s permission to receive funds from abroad. The law gives the Ministry of Social Affairs the sole authority to approve new NGOs or to withdraw approval of existing ones.
Corporate Income Tax
The annual taxable net profit is subject to a corporate tax, which, in turn, is determined based on the audited financial reports after adjustments based on the income tax law.
Taxpayers are required to file annual corporate income tax return to be signed by an external tax advisor. Understating tax liabilities in the tax return will result in the imposition of penalties, as Tax return under Egyptian Tax Law is self-assessed.
- The corporate income tax rate is 22.5% on net taxable income.
- Tax losses can be carried forward for five subsequent years maximum.
Individual Income Tax
In 2020, the Egyptian Government issued Law no. 26 of 2020 (“New Law”) amending certain provisions of the Income Tax Law No. 91 of 2005, such as, Article (8) which addresses the income tax rates applicable to natural persons, Article (13) regarding annual personal income exemptions and Article (87 Bis) which sets out penalties applicable on tax return differences.
The new amendments abolished the tax discounts on the income of natural persons.
Under the New Law, the applicable progressive tax rates are based on a taxpayer’s annual income. The personal exempted allowance under the New Law was raised to efficiently direct subsidies, supporting the lower income brackets, while reducing the tax burden.
- The annual personal exemption increased from EGP7,000 to EGP9,000.
- These new rates are applicable to (i) salary taxpayers, starting from 1 July 2020; and to (ii) commercial, industrial and manufacturing (sole partnership), professional, non-commercial or real estate taxpayers, starting from the following tax period ending after issuance of this law (i.e., 1 January 2020). The new rates are as follows:
- Up to EGP 15,000 are exempted from the income tax;
- EGP 15,000 – EGP 30,000 subject to 2.5%
- EGP 30,000 – EGP 45,000 subject to 10%
- EGP 45,000 – EGP 60,000 subject to 15%
- EGP 60,000 – EGP 200,000 subject to 20%
- EGP 200,000 – EGP 400,000 subject to 22.5%
- Above EGP 400,000 subject to 25%.
Under the Egyptian Tax Law, the employer is the party liable to withhold the salary tax due on each employee and is responsible to submit such tax to the Tax Authority on a monthly basis within fifteen days following payment.
The withholding tax is applicable to payments exceeding the amount of EGP 300.
- 3% on services;
- 1% on supplies & contracting activities, and
- 5% on commissions & brokerage fees.
Entities which are subject to the withholding tax under the existing tax law are required to apply the above rules and to file a quarterly withholding tax form within one month following the end of each quarter and to submit the tax along with the tax form.
Sales tax is imposed by Law No. 11 of 1991 on manufactured goods whether imported or locally produced and is also imposed on some services.
The standard sales tax is the Value Added Tax (“VAT”) which is 14%. However, some goods are exempt from the tax while other goods attract lower / higher tax rates. Export activity is exempted from sales tax. For instance, there is a 10% VAT imposed on professional and consulting services. The Law No. 67 of 2016 provides a list for such tax exemptions and/or variations.
Taxpayers are required to register with the Sales Tax Authority and file monthly sales tax returns.
In 2020, due to the global pandemic affecting the Egyptian economy, the law No. 170 of 2020 was passed, introducing a new symbiotic contribution. Article (1) of the law sets out for 1% deduction to be imposed on employees’ income after all taxes and social insurance have been deducted to be submitted to the competent account dedicated for the symbiotic contribution (responsibility of the Employer). This deduction is effective for one year as of its enforcement, subject to renewal by the Egyptian government.
The law also provides for certain exemptions, such as, employees with an income less than EGP 1000 (after tax and social insurance deductions).
Legal entities operating in Egypt are required to register with the competent social insurance office.
Social insurance on employees’ salaries is imposed on both the employee and the employer. The Law No. 148 of 2019 provides for the following rates to be deducted from the salary of an employee:
- The employer’s share of social insurance is 18.75% of an employee’s salary.
- The employee’s share of social insurance is 11% of an employee’s salary.
GOE deems the strength of the Egyptian pound as one of the indicators of the strength of the economy. As a result, the GOE is frequently keen to support the exchange rate of the Egyptian pound against major currencies. Supporting the exchange rate of the Egyptian pound is also due to the fear of the inflationary consequences if the Egyptian pound weakens against major currencies. Market realities puts pressure on the GOE and that is why the down-trend of the Egyptian pounds quite frequently happens in spouts rather than gradually.
The annual inflation rate in Egypt inched up to 4.9 percent in June of 2021 from 4.8 percent in the previous month. It is the highest inflation rate since last December, mainly due to rising prices of food (3.3 percent vs 1.7 percent in May). On a monthly basis, consumer prices were up 0.2 percent, easing from a 0.7 percent rise in the previous month.
Inflation Rate in Egypt is expected to be 5.20 percent by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, we estimate Inflation Rate in Egypt to stand at 5.00 in 12 months time. In the long-term, the Egypt Inflation Rate is projected to trend around 5.00 percent in 2022, according to our econometric models.
- 2020: 5.7%
- 2021: 4.9%
Main trade sectors (source: OEC)
- Overview: In 2019 Egypt was the number 39 economy in the world in terms of GDP (current US$), the number 59 in total exports, the number 42 in total imports, the number 131 economy in terms of GDP per capita (current US$) and the number 73 most complex economy according to the Economic Complexity Index (ECI).
- Exports: The top exports of Egypt are Crude Petroleum ($4.23B), Refined Petroleum ($3.34B), Gold ($2.07B), Petroleum Gas($1.79B), and Nitrogenous Fertilizers ($1.41B), exporting mostly to United States ($3.24B), United Arab Emirates ($2.32B), Italy($2.31B), Turkey ($2.12B), and Saudi Arabia ($2.07B).
- In 2019, Egypt was the world’s biggest exporter of Aluminum Powder ($177M).
- Imports: The top imports of Egypt are Refined Petroleum($5.87B), Wheat ($4.67B), Crude Petroleum ($2.62B), Cars($2.24B), and Packaged Medicaments ($1.79B), importing mostly from China ($12.5B), Russia ($5.46B), United States ($5.06B), Saudi Arabia ($5.05B), and Germany ($4.05B).
- In 2019, Egypt was the world’s biggest importer of Wheat($4.67B), Asphalt ($187M), and Cotton Sewing Thread ($15.7M).
Current Opportunities and Future Prospects
What opportunities exist for clients looking to invest in your jurisdiction?
Many countries in the Middle East live in chaos. Egypt stands among them stable and tall. Even one of the most tumultuous change in political leadership in 2011, was quite smooth in comparison.
The Egyptian oil and gas sector is quite attractive. Egypt is becoming a regional hub for gas liquification. Gas remains an attractive source of less polluting fossil fuel. Petrochemical industries is a sector that has great potential.
The renewable energy projects, including solar energy provide considerable opportunities. GOE provided attractive purchase in-take commitment. When the price of oil went down, it dampened its interest in purchasing more electricity. Nevertheless, we believe that the market is ripe again for a renewed interest with potential alternative formulations.
The IT sector in Egypt is buzzing with opportunities. The country offers an attractive human resource base for the growth in this sector.
Real estate development and contracting proved to be a source of substantial business opportunities. Consulting architectural services for specialized projects is also needed.
Tourism has not yet recovered. In our view, it remains an attractive potential.
GOE works hard to provides incentives to investors. Among the attractions that Egypt provides are:
- Simplification of process due to the establishment of a one-stop shop at the General Authority for making investments and free zone.
- Ease of transfers of dividends and capital.
- Decrease in the tariff rates and tariff dispersion.
- Revitalization of the asset management program.
- Reforms in banking sector and development of financial sector.
- Broadening of free trade agreements covering principal trading blocks.
- Easy access to low-cost lands.
- Improvement in dispute settlement programs.
- Buildup of new trading opportunities between private and public sectors.
- Financial stability and a strong banking sector.
- Development of infrastructure including roads, electricity, CIT, airports and ports.
- Easy availability of qualified labor force at relatively low prices.
- Increasing drive for political and economic stability.
- Large local market and access to regional markets.
The Egyptian court system is generally efficient but is quite slow. Many investors have sought to use dispute avoidance techniques as well as alternative dispute resolution techniques. It is important for investors to choose a dispute forum that is professionally run and that assures the neutrality of arbitrators.
The Investment Law No. 72 of 2017 and its amendments replaced the Law No 8 of 1997. The Law aims at raising the GDP and the domestic production, opening job opportunities, encourage the exportation and attracting new investments, whether domestic or foreign, by providing several incentives and guarantees and facilitating the procedures required for the establishment of investments.
The Investment Law provides investors who invest in certain sectors with more privileges. Sectors include manufacturing, cultivation, land reclamation, education, medical facilities, transportation systems, tourism projects, housing and infrastructure projects, sports, electricity, the energy and technology and the telecommunications. The Minister of Investment may, in cooperation with other ministries, add further activities where their investors may benefit from the guarantees and incentives provided for in the Investment Law. Both domestic and foreign investment are entitled to benefit from the guarantees with regard to the activities outlined under the law and its regulation.
Guarantees provided in the Investment Law include:
- Fair and Equitable treatment to both foreign and domestic investors. However, due to the reciprocity principle, the cabinet may accord favorable treatment to foreign investors.
- Invested funds are not subject to any arbitrary procedures or discriminatory decisions.
- Investment projects may not be nationalized. The government may expropriate invested funds, provided that certain conditions shall be fulfilled. These conditions are as follows; the expropriation is for public interest. The investor whose investment is expropriated shall be entitled to fair economic value compensation to be paid in advance and without delay.
- Investment projects’ funds may not be sequestrated, confiscated, or frozen unless they are subject to a court order or an irrevocable judgment, excluding tax debts and social insurance subscriptions due to the state which shall be collected through all means of detention, without prejudice to the contracts concluded by the State or public legal persons with the Investor
- No Administrative authority may issue general regulatory decisions that impose further financial or procedural burdens with respect to the establishment or operation of projects which are subject to this Law. Furthermore, any authority may not impose fees, consideration for services, or adjustments to the said fees or considerations, except after seeking the opinion of the Board of Directors of the General Authority for Investment “GAFI” and obtaining the approvals of cabinet and supreme council.
- No Administrative authority may revoke or suspend the licenses issued for the investment projects or withdraw real-estate properties allocated for the Project unless after notifying the Investor of the violations attributed to him, listening to his input, and giving him an adequate grace period to rectify the causes of the violation.
- The investor shall be entitled to establish, expand, and fund its investment project from abroad with no restrictions and in foreign currencies. The Investor shall also be entitled to own, manage, use, and dispose of the Project, to profit from the project, and to transfer such profits abroad, as well as to liquidate the Project and transfer the proceeds of such liquidation, in whole or in part, abroad without prejudice to the rights of third parties.
- The State shall allow all cash remittance operations associated with foreign investment freely and without delay to and from the State, using a free transferable currency. The State shall also permit the conversion of the local currency into a freely usable currency without delay.
- Without prejudice to the provisions of the laws, regulations, and decrees regulating importation, the investment projects subject to the provisions of this Law shall have the right to import, whether directly or through third parties, the raw materials, production supplies, machinery, spare parts, and transportation suitable for their activities, and necessary for the establishment, expansion, or operation thereof, without the need to be registered in the importers’ register.
- Furthermore, those Projects shall have the right to export their products, directly or through an intermediary, without a license and without the need to be registered in the exporters’ register.
- Some preferential tax treatments.
What are the main risks posed by trade and investment?
The main risks that Egypt needs to address is the slow legal system. Another risk the challenges that present itself in executing court or arbitration decisions.
Egypt suffers from cumbersome customs procedures and non-tariff trade barriers.
The high poverty rate and excessive unemployment pause both a challenge and an opportunity.
The expansive presence of the government-controlled economic entities provides challenges in terms of assuring fairness and equal treatment including the perception of fairness and equal treatment. The government-controlled entities are, by and large, managed very efficiently and with a mandate to make profits. This makes the ability to align with them a much more achievable task. Certain companies have aligned themselves with the interests of the government-controlled entities. They presented them with the complementary expertise that they needed. They also cooperated with them in the regional markets, providing them with an invaluable marketing knowhow. As a result, they have achieved substantial profits.
Investment and Real Estate Market in Egypt
The Egyptian market has encourage major investments in development and real estate. This is proving especially popular among investors from the Arabian Gulf area. The growth of the population has provided growth in the housing projects. Even in the absence of international tourism, local tourism has provided a strong demand over such projects.
Due to recent reforms to simplify purchasing procedures in Egypt, the country is now attracting more overseas property buyers’. This is true despite an antiquated land registration process, which is needs to be addressed.
Certain provisions specifically address foreign investments in real estate. This includes Law No. 230 of 1996. In April 2005, the Egyptian government issued a new Ministerial Decree No. (548) of 2005 to further elaborate on the terms on foreign ownership and usufruct of real estate in large areas in Egypt. The new decree of the law provides for the right of foreigners to enjoy all the rights granted to Egyptian citizens in the sale, purchase and possession of real estate, buildings and lands in new urban communities, and touristic governorates and regions, such as: Hurghada Touristic District, Red Sea Governorate, Sidi Abdel Rahman (touristic area) and similar areas within the Arab Republic of Egypt.
The ownership in Sinai is restricted to security concerns.
Foreign exchange controls
The Foreign Currency Control Law No. 38/1994 was replaced by the Banking Law No 88/2003. The Banking Law No. 88/2003 has been recently replaced by the New Banking Law (hereinafter referred to as (BL) No. 194/2020. The Central Bank of Egypt (CBE) has the authority to set the policies of foreign exchange and the execution thereof, in addition, it organizes and supervises the foreign currency market. As a result, the CBE sets the price of foreign currency taking into consideration the supply and demand mechanism in the foreign currency market.
In accordance with the BL, both natural persons and legal entities may retain any amount of foreign currency, and execute any transactions in foreign currency including maintaining these amounts in Egypt or remitting it abroad. Those transactions shall be executed through banks or authorized entities in accordance with the procedures and rules set forth by the board members of the CBE.
Generally, there is no statutory foreign currency controls in the Arab Republic of Egypt. Nevertheless, in practice, the CBE organizes the transfer of foreign currency into Egypt or abroad thorough issuing circulars, whether such circulars are directed to the local banks or dealers of foreign currency. Through such circulars, can influence the supply and demand of the foreign currency in the market. In general, companies may transfer any amounts, whether dividend or proceeds of liquidation, in foreign currency abroad, provided that such company submits supporting documents defining the source of such remitted amounts.
In conclusion, Egypt deserves more attention. But it is difficult to enjoy a flower in the middle of a spiny shrub.