Under Egyptian law and market practice, the most commonly offered incentive plans are the following:

• commissions;
• percentages paid to the employee in return for what they produce, sell or collect;
• benefits granted by the employer that are not required under the Labor Law;
• bonuses;
• allowances
• profit share;
• in-kind benefits;
• tips paid to the employee if they are customarily payable and regulated; and
• Employee Stock Ownership Plans (“ESOP”) granted in accordance with the Companies Law No. 159 of 1981 (the “Companies Law”).

Incentives are generally discretionary unless expressly guaranteed in the employment contract, internal policy, collective bargaining agreement or paid consistently enough to create a customary entitlement.

Under the Executive Regulations of the Companies Law, a joint stock company may provide ESOP plan for their employees. This plan may include the grant of free shares, the sale of shares at preferential prices, or promises to transfer ownership of shares after a specified period, while other shares plans, such as RSUs or Phantom Shares, are less common, and not explicitly regulated under Egyptian law but may be typically offered by multinational groups to senior management and key talent under offshore plans.

The Extraordinary General Assembly Meeting (“EGM”) of the company may approve the adoption of appropriate incentive plans structured as ESOP, subject to obtaining the approval of the Financial Regulatory Authority (“FRA”). In addition, a company may offer a mixed incentive and reward scheme by combining more than one type of incentive plan, provided that it has the necessary funding to support such schemes.

Employers may offer a range of long-term incentive (LTI) arrangements, as there is no exhaustive statutory framework governing such incentives. In practice, commonly adopted structures include deferred bonus schemes, retention bonuses, and profit-sharing or long-term performance arrangements which are typically linked to company and/or individual performance, continued employment over a specified vesting period, or the achievement of defined strategic objectives.

Yes. According to the Capital Market Law No. 95 of 1992 (the “Capital Market Law”), managers and employees holding, directly or indirectly, more than 10% of the issued share capital of the issuing company are not eligible to participate in share-based incentive or reward schemes.

Furthermore, employees of a holding company may participate in the incentive and reward schemes adopted by its subsidiary companies, provided that the holding company holds at least 20% of the subsidiary’s share capital or voting rights.

Yes. Awards may be made subject to performance criteria, vesting schedules, and forfeiture conditions. Companies are free to link awards to individual, team, or company performance, require continued employment over a defined vesting period, and provide for forfeiture in cases such as resignation, termination before vesting, or misconduct, provided these terms are clearly and expressly documented.

From a legal risk perspective, the plan documentation should clearly state that awards are conditional and discretionary to avoid the risk of reclassification as an acquired right.

Incentives that have vested and satisfied all applicable conditions are generally treated as part of the employee’s vested entitlements. Accordingly, the companies may not defer payment or impose additional post-vesting and/or post-employment holding restrictions. Any attempt to do so may expose the companies to a risk that such restrictions would be deemed null and void and unenforceable.

An incentive that has been paid and has become due is generally regarded as an acquired entitlement under Egyptian law. Accordingly, the companies may not unilaterally reduce or recover the amount after payment, even if a contractual clawback provision is included, except in limited circumstances such as fraud or a payment error.

In this context, incentive-related conditions should be designed to operate prior to payment, rather than afterward. In practice, incentive plans that align with Egyptian law rely primarily on malus provisions (i.e., the reduction or cancellation of unvested or unpaid awards) and clearly defined pre-payment conditions, while post-payment clawback mechanisms carry a heightened risk of being deemed unenforceable.

Pursuant to Income Tax Law issued by Law No. 91 of 2005, as amended (the “ITL”), Egyptian income tax is imposed on Egyptian-sourced income, including salaries. In addition, salaries paid by an Egyptian employer are subject to Egyptian payroll tax irrespective of whether the services are performed inside or outside Egypt.

While the employee bears the economic burden of the payroll tax, the employer is responsible for calculating the payroll tax due, withholding the relevant amounts from the employee’s remuneration, remitting such amounts to the Egyptian Tax Authority (the “ETA”), and submitting the relevant periodic payroll tax returns.

The ITL does not expressly define “taxable salary”. In practice, reference is made to the definition of “salary” under the Egyptian Labor Law, which adopts a broad and inclusive concept, covering all benefits received by an employee, whether fixed or variable, and whether paid in cash or in kind. In particular, “salary” includes, inter alia:

• basic salary;
• commissions;
• percentages (or amounts paid to the employee in consideration for what he has produced, sold or collected);
• increments of whatever type or reason;
• in kind benefits (that are not required by work exigencies);
• bonuses (whether decided by virtue of individual or CBAs, work’s regulations or employers’ fixed and continuous practices);
• allowances (paid to the employee to confront certain work circumstances or hazards);
• profit share (notice: statutory employee profit share is exempted from payroll tax); and
• tips.

On this basis, employee incentive plans (including share-based or securities-linked arrangements) are generally regarded as employment-related benefits and, accordingly, fall within the scope of payroll taxation in Egypt.

In practice, payroll tax is triggered at the point at which the employee effectively realises the economic benefit, namely upon the maturity, exercise, settlement, or disposal of the relevant shares or securities, where an actual cash payment or monetizable benefit is made available to the employee. At that stage, the relevant amount is required to be calculated, withheld, and reported by the employer in the payroll period in which such payment or benefit is realised.

For the loans granted to participants in connection with an incentive plan, these do not, in themselves, give rise to payroll tax consequences where they are extended on arm’s-length terms and on a bona fide repayment basis.

However, where such loans are provided on preferential terms (including interest-free or below-market interest rates), or are subsequently waived or forgiven, the ETA may seek to treat the resulting economic benefit as taxable employment income, subject to payroll tax in the period in which the benefit is realised.

Pursuant to the Social Insurance Law No. 148 of 2019 (the “Social Insurance Law”), the grant of an incentive award does not generally trigger any social insurance consequences, as no payment is made at that stage. At vesting, there is likewise no social insurance impact unless vesting results in amounts becoming due and payable to the participant.

Upon exercise, any cash amounts paid to the employee are typically subject to social insurance contributions if they are treated as remuneration. By contrast, equity awards that are granted or settled offshore, with no cash payment made by the local employer, are generally considered outside the scope of social insurance.

The acquisition, holding, or disposal of shares is treated as an investment activity rather than employment income and, accordingly, does not give rise to social insurance obligations. Loans provided in connection with an incentive plan do not usually trigger social insurance consequences, unless the benefit is recharacterized as disguised remuneration.

As referenced in response to Question 9, under the ITL, Egyptian income tax is imposed on Egyptian-sourced income, including salaries. In addition, salaries paid by an Egyptian employer are subject to Egyptian payroll tax irrespective of whether the services are performed inside or outside Egypt.

While the employee bears the economic burden of the payroll tax, the employer is responsible for calculating the payroll tax due, withholding the relevant amounts from the employee’s remuneration, remitting such amounts to the ETA, and submitting the relevant periodic payroll tax returns.
In practice, reference is made to the definition of “salary” under the Egyptian Labor Law, which adopts a broad and inclusive concept, covering all benefits received by an employee, whether fixed or variable, and whether paid in cash or in kind.

On this basis, employee incentive plans (including share-based or securities-linked arrangements) are generally regarded as employment-related benefits and, accordingly, fall within the scope of payroll taxation in Egypt.

In practice, payroll tax is triggered at the point at which the employee effectively realises the economic benefit, namely upon the maturity, exercise, settlement, or disposal of the relevant shares or securities, where an actual cash payment or monetizable benefit is made available to the employee. At that stage, the relevant amount is required to be calculated, withheld, and reported by the employer in the payroll period in which such payment or benefit is realised.

For the loans granted to participants in connection with an incentive plan, these do not, in themselves, give rise to payroll tax consequences where they are extended on arm’s-length terms and on a bona fide repayment basis.

However, where such loans are provided on preferential terms (including interest-free or below-market interest rates), or are subsequently waived or forgiven, the ETA may seek to treat the resulting economic benefit as taxable employment income, subject to payroll tax in the period in which the benefit is realised.

According to the Social Insurance Law, the grant of an incentive award does not generally trigger any social insurance consequences, as no payment is made at that stage. At vesting, there is likewise no social insurance impact unless vesting results in amounts becoming due and payable to the participant.

Upon exercise, any cash amounts paid to the employee are typically subject to social insurance contributions if they are treated as remuneration. By contrast, equity awards that are granted or settled offshore, with no cash payment made by the local employer, are generally considered outside the scope of social insurance.

The acquisition, holding, or disposal of shares is treated as an investment activity rather than employment income and, accordingly, does not give rise to social insurance obligations. Loans provided in connection with an incentive plan do not usually trigger social insurance consequences, unless the benefit is recharacterized as disguised remuneration.

Reporting, notification, and filing requirements apply where a joint stock companies adopts an incentive plan is equity-based (i.e, ESOP). In such cases, the incentive plan must be proposed by the board of directors of the company and approved by the EGM. The companies are also required to notify the FRA and obtain its ratification/approval of the plan, including the relevant templates and implementation mechanics.

Additionally, the companies must submit to the FRA quarterly reports on the extent of implementation of the incentive scheme. The annual report of the board of directors must also disclose the volume of implementation, the company’s compliance with the resolutions of the EGM, and any observations or remarks issued by the FRA.

Furthermore, according to the Capital Market Law, the relevant shares must then be registered with Misr for Central Clearing, Depository and Registry (“MCDR”).

For the listed companies, additional stock exchange and disclosure requirements apply, including disclosure relating to the adoption, amendment, and implementation of the incentive plan, in line with applicable Egyptian Exchange (“EGX”) disclosure regulations.

Participants do not have an automatic right to compensation for the loss of incentive awards upon termination of employment. Incentives are generally treated as contractual and conditional benefits and their treatment on termination depends on the plan rules and employment documentation, particularly whether the award has vested and become due before termination.

If employment ends before vesting, and the incentive plan clearly provides for forfeiture upon resignation or termination, the loss of the award is generally upheld, as the incentive has not yet become due or vested and remains a conditional benefit rather than an acquired entitlement. However, where an incentive has already vested or become payable, it is typically treated as an acquired right, and the employee may claim payment, especially if termination is found to be arbitrary or unlawful.

However, the reason for termination does matter, where termination is found to be unfair, arbitrary, or attributable to the employer rather than to the employee, Egyptian courts may, in practice, recognize the employee’s right to the incentive (in whole or in part), even if certain vesting or service conditions have not been fully satisfied, particularly where early termination deprives the employee of benefits that would otherwise have accrued in the ordinary course of employment.

As a general rule, data controllers and processors should conform to the data subject rights stipulated by Egypt’s Data Protection Law (“DPL”). Data subjects have the following rights:

To know of their personal data in the possession of the data holder/controller/processor, and to be able to access said data, reach it, and see it.

-To withdraw previous consent given for the storage or processing of their personal data.

-To correct, alter, delete, add or update personal data.

-To limit the processing to a specific range or context.

-To know of any violation or breach of the data.

-To object to the processing of personal data or the results of said processing when it violates the basic rights and freedoms of the data subjects.

When collecting employee data for incentive plans, the clear and explicit consent of employees must be obtained. As per the Personal Data Protection Center (‘PDPC’), which is Egypt’s primary data protection authority, there is a recognition of the power imbalance between employer and employee, and thus a separate specific consent form detailing the processing purposes is required. The form should also contain information regarding the type of data to be collected, to where it will be transferred, and any third parties involved. Any new processing activities or a material change in said activities require a new consent form, to ensure employee knowledge and informed consent.

PDPC general guidelines for consent state that consent must be:

• Granular.
• Intelligible.
• Visible and prominent.
• Separate.
• Requesting affirmative action.
• Concise, and
• In Arabic.

Yes. The adoption of ESOP plan by an Egyptian joint stock company is subject to specific corporate governance and regulatory requirements. Such plans must be proposed by the board of directors and approved by the EGM. In addition, the companies must comply with the FRA requirements including submission a set of documents to obtain approval of the plan and periodic reporting on the implementation of the plan, disclosure of incentive-plan details in the board of directors’ annual report, and compliance with any observations, conditions, or instructions issued by the FRA.

Yes. As per the Capital Market Law, the companies must get the approval of the adopted ESOP plan by the FRA and subsequently the company shall submit to the FRA with a quarterly report on the implementation of this plan, and to include in the annual report of the board of directors details of the extent of its implementation, the company’s compliance with the resolutions of the general assembly, and any comments made by the FRA.

Additionally, for the listed companies, additional stock exchange and disclosure requirements apply, including disclosure to EGX.

Yes. The adopted ESOP plan shall be approved by the FRA, and pursuant to which such elements shall be existed in the adopted plan:

– Scope of the Scheme: a description of the incentive and reward schemes, including the total number or percentage of shares to be granted or sold, and their allocation among eligible employees and managers.

– Eligibility Criteria: the conditions for participation, based on objective criteria such as job grade, seniority, competence, and performance, together with the applicable evaluation methodology.

– Share Valuation and Payment: the methods for valuing the shares, the payment terms where shares are purchased, and the funding sources where shares are granted free of charge.

– Rights Attached to Shares: legal status of the shares, including voting and dividend rights, during the period prior to the transfer of ownership.

– Lock-Up Periods: the applicable non-disposal (lock-up) periods, with a distinction between granted shares, preferentially priced shares, and conditionally transferred shares.

– Shareholder Impact Assessment: an independent assessment of the scheme’s impact on existing shareholders.

– Repurchase upon Exit: the company’s obligation, if any, to repurchase shares upon the employee’s or manager’s departure, regardless of the reason for termination.

According to the Central Bank of Egypt Law No. 194 of 2020 (the “CBE Law”), transactions within Egypt to be carried out in Egyptian Pounds (EGP). The CBE Law generally states that every natural or legal person has the right to keep foreign currency; and has the right to deal or carry out any foreign exchange operation, under condition that these operations are carried out through banks or through entities licensed to do so. However, the same law states that dealing within the Arab Republic of Egypt shall be in Egyptian Pounds, unless otherwise stipulated in an international agreement or other law or in cases specified by a decision of the Central Bank of Egypt Board of Directors.

Accordingly, the legal rule is that any dealing within Egypt must be in EGP. The practice is that in order to deal in foreign currency; the transaction must be made through banks approving such transaction in foreign currency, in other words, if the company can source foreign currency and its bank does not have any issues with the payment in foreign currency, then the Company can make payments in foreign currency.

In this respect, where an ESOP is implemented and the company’s share capital is issued in Egyptian Pounds, the shares allocated under the ESOP must likewise be issued in Egyptian Pounds. Otherwise, there is a risk that the FRA may not approve the ESOP plan.

The companies are required to submit a set of documents to the FRA to obtain its approval for the incentive plan is equity-based (i.e, ESOP), as follows:

– A copy of the minutes of the EGM approving the amendment of the company’s Articles of Incorporation (“AoI”) to include the provisions governing the ESOP, duly ratified by the General Authority for Investment and Freezones (“GAFI”), attached with the original company Investments Gazette reflecting such amendment.

– A copy of the minutes of the EGM approving the implementation, activation, or renewal of the ESOP plan, duly ratified by the GAFI.

– A copy of the proposed ESOP plan.

– A decision setting out the names of the committee supervising the implementation of the plan, together with the Board of Directors’ resolution establishing such committee.

– Templates of the sale, or promise-to-sell agreements to be entered into between the company and the beneficiaries of the ESOP plan.

– The disclosure form in accordance with Article (50) of the Listing and Delisting Rules, specifying the number and percentage of shares allocated for the ESOP scheme, as well as the number and percentage of any remaining shares in the event of extension or renewal of the scheme.

– Details of the categories of employees or managers benefiting from the plan, including a specific disclosure identifying any beneficiary who holds or has held a senior management position, together with the number and percentage of shares owned by beneficiaries prior to the implementation of the scheme, if any.

– A description of the accounting methodology adopted for the implementation and application of the ESOP.

– A report issued by an independent financial advisor assessing the potential impact of implementing one or more ESOP plan on the company’s existing shareholders.

– An undertaking from the Managing Director to submit to the FRA quarterly reports on the extent of implementation of the plan, and to include in the Board of Directors’ annual report the volume of implementation, the company’s compliance with the resolutions of the General Assembly, and any observations issued by the FRA.

Upon submission of the above-mentioned documents and obtaining the FRA’s approval for the adopted ESOP, the issued shares shall be registered MCDR. In the case of listed companies, the applicable disclosure procedures and requirements under the EGX rules shall also be complied with.

In addition, other incentive plans are typically governed by the employment contracts, internal regulations, and/or applicable collective bargaining agreements.

Yes. An overseas corporation may operate an incentive plan in Egypt, particularly where it acts as parent company to a subsidiary company. In such cases, the parent company may extend its group-wide incentive plan to cover employees of its subsidiaries.

Yes. An overseas employee may participate in an incentive plan, particularly where the plan is implemented on a group-wide basis by the parent company, or where the employee is employed by, seconded to, or otherwise affiliated with an entity within the same corporate group.

Where share options or awards are granted by an Egyptian employer to an internationally mobile employee, such incentives are generally treated as Egyptian-sourced employment income. Accordingly, irrespective of whether the employee performs the relevant services inside or outside Egypt, the economic benefit realised upon exercise, settlement, or maturity of the options or awards is, in principle, subject to Egyptian payroll tax, with the Egyptian employer bearing the obligation to calculate, withhold, report, and remit the relevant tax.

Conversely, where share options or awards are granted by a non-Egyptian tax resident employer to an internationally mobile employee who is tax resident in Egypt, the resulting benefit is generally taxable in Egypt. In such cases, no Egyptian payroll withholding obligation arises, and the employee is required to register with the Egyptian Tax Authority, file a personal tax file, calculate, report, and remit the applicable personal income tax on the amount realised upon exercise, settlement, or maturity of the relevant options or awards.

In both cases, the applicable rates for payroll tax imposed on the employees or individuals’ personal income are progressive rates starting from 0% tax rate up to 27.5% for any amount more than EGP 1,200,000 per annum.

Cash-based incentives granted to internationally mobile employees are generally treated as employment income for Egyptian tax purposes. Where such incentives are paid by an Egyptian employer, they are regarded as Egyptian-sourced income and are subject to Egyptian payroll tax, irrespective of whether the services are performed inside or outside Egypt.

Where cash-based incentives are paid by a non-Egyptian tax resident employer to an internationally mobile employee who is tax resident in Egypt, the incentive is generally taxable in Egypt as part of the employee’s personal income, with the employee being responsible for registration, reporting, and payment of the applicable personal income tax.

In both cases, the applicable rates for payroll tax imposed on the employees or individuals’ personal income are progressive rates starting from 0% tax rate up to 27.5% for any amount more than EGP 1,200,000 per annum.

Companies have increasingly favoured cash-based incentive schemes such as bonuses and have become more cautious in implementing equity-based incentive plans (such as ESOPs). This caution is primarily driven by the regulatory and procedural complexity associated with equity plans, which typically require approval from the EGM, prior clearance from the FRA, and the registration of the issued shares with MCDR, in addition to compliance with EGX disclosure and listing requirements where the company is listed. As a result, many companies view cash-based incentives as a more flexible, faster, and lower-risk alternative from both a legal and administrative perspective.

There is also a growing shift toward group-wide, offshore incentive plans led by foreign parent entities, under which Egyptian employees are permitted to participate. This approach is increasingly preferred as it helps minimize local regulatory, corporate approval, and exchange-control complexities that would otherwise arise if the plan were implemented at the Egyptian entity level, while still ensuring consistency with group-level corporate governance frameworks and applicable disclosure obligations.