Investing In... 2023 Comparisons

The Egyptian legal system is basically grounded on a mixture of Islamic law and civil law. It is considered to be a civil law system, based on a well-founded system of codified laws similar to most other civil law jurisdictions. The supreme law of Egypt is its written constitution. As to the transactions carried out between natural persons and juristic persons, Egyptian civil law continues the primary legislation regularising such transactions, which remains the main source of legal rules applicable to contracts. Many of the Egyptian civil law provisions are based on French civil law and, to a minor extent, various other European laws and Islamic law, particularly for family-related matters.

Two main regulatory bodies monitor the listed and unlisted companies in Egypt, namely, the General Authority for Investment and Free Zones (GAFI) and the Egyptian Financial Regulatory Authority (FRA). However, several regulatory bodies may have jurisdiction over companies, whether listed or unlisted, depending on the operational industry of such company. 

While Egypt saw its FDI drop by 12% in 2022, Egypt was the largest recipient of FDIs in Africa according to the UNCTAD World Investment Report issued in 2021. The reason for this decline is the unrepeated large investments in exploration and production agreements in extractive industries that took place in 2021.

Pursuant to the aforementioned Report, despite the decline, Egypt was the second largest host of FDI on the continent during 2022. Gulf States pledged to invest some USD22 billion in various sectors, which, hopefully, will boost FDI in the near future.

In 2022, the number of announced greenfield projects in Egypt more than tripled, to USD5.6 billion according to the Report; for example, Reportage Properties (United Arab Emirates) announced a real estate project for USD1.5 billion.

The Egyptian Government is exerting itself to boost FDI diversification, including the agreement to reactivate the USD16 billion Saudi-Egyptian investment fund, which lists tourism, healthcare, pharmaceuticals, infrastructure, digital technologies, financial services, education and food as priority sectors; and clean energy as crystallised by hosting COP 27 in Sharm El Sheikh, inter alia, to attract FDIs in the clean energy field as well.

Furthermore, notwithstanding the economic backdrop and adverse effects of the COVID-19 pandemic, fluctuating crude prices, economic uncertainty and disruptions to global markets, deal activity was significantly driven by the involvement of sovereign wealth funds (SWF). The Sovereign Fund of Egypt (TSFE) remains, seeking to attract FDI into a range of economic and social development projects through public-private partnerships. Among the areas covered are solar-powered desalination plants, digitalisation of the education system, transport (electric trains), finance, as well as the restructuring of state assets in the petroleum and water sector (SWF). Nevertheless, FDI in the country is still largely directed to natural resources. This pattern has been reinforced by the discovery of the Zohr offshore gas field in the Eastern Mediterranean region. FDI is concentrated in the oil and gas industry (around three-quarters of total investments), followed by real estate, manufacturing, financial services and construction.

There is no typical structure for a business combination in Egypt. Businesses may be combined through an acquisition, a merger or other possible consolidation scenarios based on the legal structure of the local target. Partnerships and joint ventures may also be considered by the relevant parties, depending on the objective of the consolidation. The structure is chosen based mainly on: 

• the assets subject to combination; 
• the legal type of the target shares; 
• the threshold of ownership offered for acquisition; and 
• other transaction-specific considerations (eg, tax, regulatory and licensing requirements, and impositions).

M&A transactions are regulated in Egypt by diverse legislation. The main rules pertaining to M&A can be found under the Egyptian Companies Law and its executive regulations, as amended; the Capital Market Law No 95 of 1992 and its executive regulations, as amended (the “Capital Market Law”); and the Egyptian Stock Exchange (EGX) Listing and Delisting Rules, as amended.

The key regulatory authorities concerned are the EGX, the FRA, and GAFI. Acquisitions involving the transfer of shares of joint stock companies and quotas of limited liability companies are the most common acquisition structures in Egypt.

Any transfer of shares of a joint stock company must take place through the EGX, whether the shares are listed or not. A licensed broker should be appointed to effect the shares’ transfer in accordance with the transfer procedures set out by the EGX and the FRA.

Quotas of limited liability companies may be transferred through official or unofficial transfer agreements as prescribed under the memorandum of association of the company, with no involvement on the part of the EGX. An official transfer agreement will require notarisation by a notary public and such notarisation will be subject to an ad valorem fee. Quota-holders of a limited liability company enjoy a statutory right of first refusal on any quotas subject to transfer.

The primary sources of corporate governance legislation in Egypt are the Companies Law, the Capital Market Law, the Central Depository Law, and the Law of the Central Bank of Egypt, the Banking Sector and Money. The listing rules of the EGX also provide a number of mandatory corporate governance requirements.

Furthermore, the Central Bank of Egypt issued a decision on the Corporate Governance Guidelines and Instructions for Banks, with the aim of developing the Egyptian banking system and maintaining its integrity through the application of international best practices. The application of these rules by banks should be commensurate with their size, scale, the complexity of their operations and their risk appetite.

Egyptian legislation has a protective relationship towards the minority investors in a company. This can be summarised by the following.

Rights Related to Attendance and Voting in General Assembly Meetings

Attendance and voting rights are granted to every shareholder, regardless of their shareholding percentage, and a shareholder’s attendance can be in person or via proxy. However, attendance via proxy will not be admissible if the shareholder owns more than 10% of the total nominal shares. 

The Companies Law has recently adopted electronic voting systems for listed and unlisted companies, upon satisfaction of certain conditions stipulated under said law and the listing and delisting rules issued by the FRA. Furthermore, the law recently stipulated the relative representation on the board for any shareholder owning 10% of shares. 

The Companies Law also entitles any shareholder who holds 5% of a company’s capital to request the chairman to call an ordinary general assembly meeting, upon satisfaction of certain conditions stipulated under said law. Furthermore, if a shareholder owns at least 10% of a company’s capital, the shareholder is entitled to request the chairman to call an extraordinary general assembly meeting, upon satisfaction of certain conditions stipulated under the law. In all cases, such minority shareholders are entitled to resort to the administrative authority should the chairman deny their request to call a general assembly meeting.

No provision refusing a shareholder their right to attend the general assembly, to discuss, and to question the board and auditors, whether in or before the meeting, will be admissible.

At the request of a shareholder owning at least 5% of a company’s shares, GAFI and the FRA have the right to suspend the general assembly’s resolutions issued in favour of a certain class of shareholders or a board member, if these are unfavourable to the company’s interest.

Restrictions on Related Party Transactions (RPTs) and Disclosure Rules for Listed and Unlisted Companies

Except for public tenders, neither the founder nor major shareholders (or their related parties) may enter into commutative agreements unless prior approval of the general assembly is duly obtained and after the vote of the concerned shareholder has been excluded.

No board member or manager of a company is allowed to exercise any activity that is being exercised by the company unless the general assembly approves this. Otherwise, the company will be entitled to compensation. 

No board member or manager of a company may enter into a commutative agreement with another company which is also being co-managed by such board member or manager, where the lesion of such agreement’s consideration exceeds one fifth. In all cases, any commutative agreement that is unfavourable to the company’s interest may be nullified, and the management (board of directors (BoD) or managers) will be liable for any damages triggered by such commutative agreement. 

If a company is applying to list on the stock exchange, it must attach certain documents to the listing application, inter alia, a summary of all contracts that represent 5% of the total annual revenues of the preceding fiscal year along with details of the mutual obligations and payments made under such contracts. In addition, a summary of any effective contracts or agreements concluded between the company applying for listing, any sister or affiliate company and any shareholder owning 5% or more, board members or executive managers, including commutative agreements, must be included.  

A six-month disclosure requirement before the EGX is mandatory for listed companies, after the execution and before the beginning of the following trading session, when a shareholder’s ownership or related party’s ownership exceeds or decreases to 5% (or multiples) of the shares of a listed company or its voting rights. This also applies to the company’s board members, employees and their related parties who sell or purchase 3% or multiples of the company’s shares (including the subscription in the rights issues). 

A notification requirement is imposed as to tender offerings for listed companies, as throughout the validity of a tender offer, all retail and institutional investors who have purchased a share of the target company that is equivalent to at least 0.5% of its capital or voting rights, are required to notify FRA and EGX daily after the end of the trading sessions. They must report the sale and purchase of shares as well as any transaction that would transfer the immediate or deferred ownership of such shares or voting rights.

In the listed companies, any person who has acquired or wishes to acquire, individually or through related parties, more than one third of the capital or voting rights in the company must notify FRA and submit a tender offer for the purchase of all securities constituting part of the capital, voting rights and bonds that entitle its holder to own part of the capital, within 30 days from the date of acquisition of a third of the capital or voting rights. The violation of this mandatory rule will result in a fine under the Capital Market Law. 

For listed companies, if any shareholder individually or through related parties acquires 90% or more of the capital or voting rights of the company, any other shareholder holding at least 3% of the capital may request FRA, during the 12 months following the majority’s acquisition of the said percentage, to notify the majority to submit a tender offer for the minority shares.

As a further protection for minority rights in listed companies, any company encountering urgent and material events affecting its activity or its financial position must immediately disclose such events by means of publication in accordance with the rules and regulations established by the board of FRA.

For listed companies, a company may not dispose of more than 50% of its fixed assets and other assets related to the company’s activity, unless prior approval of the extraordinary general assembly is obtained.

Any shareholders’ agreement will not apply to the remaining shareholders or partners who are not party thereto unless approved by the extraordinary general assembly of the company by a majority of not less than three quarters of the capital, or by a higher majority in certain cases stipulated under the Companies Law.

Any board member or executive manager who has an interest conflicting with the company’s interest in a transaction presented to the board for approval must inform the board accordingly and this must be recorded in the minutes of the meeting. In such case, the voting of such board member or executive manager will be excluded.

GAFI has recently adopted a new approach whereby, if more than 10% of the capital of a company is owned by a foreign shareholder, the company must submit a quarterly statistical report to GAFI.

Supervision, Inspection and Liability of Members of the Board of Directors

Board members are civilly liable towards the shareholders, and any agreement stating otherwise will be null and void. The limitation of liability of the civil liability lawsuit is one year.  

Generally, any act, transaction or decision issued by the board, managers or general assembly in violation of the law will be null and void. 

Shareholders who object to the decision of the merger may demand to sell off their shares in the company in a written request, upon satisfaction of certain procedures set out under the law. 

Any shareholder owning 20% of the capital of a bank or 10% of the capital of a joint stock company will have the right to request an inspection of such bank/company for allegations concerning serious violations of their duties or the law imputed to the members of the board or the auditors.

GAFI monitors and inspects the application of the applicable laws, within the limits of its competence, examines any complaints from the shareholders or the company or from other stakeholders regarding said application, and will take action against any violation of the rules and procedures as stipulated by the law.

Shareholders’ access to the company’s books and information

As a general rule, shareholders have the right to access the company’s records, documents, data, reports, commutative agreements, related party transactions and their supporting documents within the specifications stipulated by the law, and they can request such from the relevant authority (GAFI or FRA). Also, the shareholders are entitled to access the company’s budget, profits and losses account, and auditor’s reports within the limits provided by the law. 

The disclosure and reporting requirements under the Capital Market Law are quite extensive. Moreover, the Egyptian Companies Law requires certain ownership disclosures of non-listed companies. The paragraph below lists the main disclosure requirements concerning the ownership of both listed and non-listed companies.

Any corporate entity established in Egypt and any investment project carried out in Egypt involving a minimum of 10% foreign shareholding for non-listed companies or 2.5% for listed companies (excluding any company operating locally by virtue of a concession agreement) are now required to submit disclosure/reporting forms to GAFI on a quarterly and annual basis, or in the event that certain articles of a company’s statutes are amended. Furthermore, according to the FRA’s listing rules, shareholders are obliged to notify the FRA if their shareholding, voting rights, subscription percentage (directly or indirectly) reaches or falls below 5% and multiples of 5%. This also applies to employees, board members and their related parties, whose respective shareholding, voting rights, subscription percentage (directly or indirectly) reaches or falls below 3% and multiples of 3%.  

The Capital Market Law No 95 of 1992 (the “Capital Market Law”) and its executive regulations control the operations of the capital market in Egypt. Under the Capital Market Law, any company intending to issue securities must notify the FRA. For a public issuance of securities, a company must prepare a prospectus approved by FRA and provide the latter with periodic reports and information. The Capital Market Law also allows the issuing company to set a return on securities that exceeds the limit established in other laws (ie, the ceiling of 7% as set forth under the Civil Law). The Capital Market Law provides that the trading of securities may only be undertaken by companies licensed by the FRA. The Capital Market Law regulates both companies that offer their shares to the public and those that deal in securities. In particular, it regulates the actions of companies engaged in the following types of securities-related activities: 

• promoting and underwriting investments in securities; 
• participating in the formation of companies that issue securities or in the increase of their capital (the Egyptian equivalent to a holding company); 
• venture capital; 
• securities clearing and settlement activities; 
• the creation of securities portfolios and investment funds, and portfolio and investment fund management; 
• securities and brokerage activities; 
• other securities specified by a decree of the competent minister following the approval of the FRA; and
• any other activities in the field of securities may be added to this list by virtue of a ministerial decree after obtaining the approval of the FRA. 

In the case of a direct acquisition through a transfer of shares of a joint stock company, the transaction will take place on a cash basis (with certain limited exceptions requiring the prior approval of the regulator) and through the EGX, via a designated local broker. This will trigger certain time-consuming actions, including gathering and legalising the corporate documents of the acquirer for the ultimate beneficial owner. 

In general, foreign investors are able to operate locally while undergoing the security screening process. However, and by way of exception, some foreign nationalities (which are generally subject to change) require security clearance to be issued prior to starting the business. 

Under a merger scenario, the evaluation process and the issuance of the regulator’s approval of such evaluation (if required, depending on the legal nature of the concerned entities) may also be time-consuming. One vital element to consider in relation to the timeline is whether the local target entity is a public company. The direct or indirect acquisition of at least one third of the share capital of listed companies on the EGX or of unlisted companies that offer or have offered their shares to the public, will result in an extended timeline, as it requires a mandatory tender offer which must be addressed to all the shareholders of the target entity after obtaining the prior approval of the FRA.    

Furthermore, if the transaction value exceeds EGP20 million, it must be pre-approved by the EGX Pricing Committee, which convenes on a weekly basis to examine and resolve each contemplated transaction.

Generally, according to Article 142 of the executive regulations of the Capital Market Law, an investment fund will be in the form of a joint stock company (JSC), with a minimum paid-in capital of EGP5 million, to be paid by the founders of the fund pro rata to their ownership percentage in said fund. Aside from this rule, banks, subject to the prior approval of the CBE, as well as insurance companies, subject to the FRA’s prior licensing, may undertake investment fund activities solely or with a third party.

Principally, all types of funds are governed by the Capital Market Law, together with its executive regulations. They are regulated by the FRA and its decrees issued in this regard, irrespective of the kind of investment (ie, whether a local or foreign investment).

With respect to merger control, the Egyptian Competition Law 3/2005 and its executive regulations (ECL), as amended, which regulate competition and monopolistic practices, require a post-notification to be served to the Egyptian Competition Authority (ECA) within 30 days of completion of the transaction. Generally, the ECA is the entity authorised to monitor and regulate competition practice in the Egyptian market. Also refer to 6.3 Remedies and Commitments and 6.4 Enforcement.

During the notification process, the ECA requires certain information/documentation to perform a proper assessment. The following information is, among other things, required for the assessment:

• identification of the individual and legal persons participating in the transaction;
• the nature and legal form of the concentration;
• a description of the goods or services provided;
• any related parties; and 
• market shares pre- and post-transaction. 

The ECA has applied its new policy of de facto pre-merger control despite the fact that the ECL does not stipulate such a regime. The new policy was notably applied with regard to the Uber and Careem transaction, whereby Uber purchased the entire assets of Careem. The parties were approached by the ECA (by virtue of Decree No 26 of 2018) prior to the closing of the transaction and were instructed to file an exception request in accordance with the provisions of the ECL, prior to the closing of the transaction, in order to obtain the ECA’s approval. Although the 2018 decree and the policy that the ECA aimed to establish were criticised in Egyptian legal circles for lacking valid arguments and constituting an abuse of power, the ECA continued in its policy and conducted a review of the Uber Careem transaction. Ultimately, the ECA approved the transaction after imposing certain commitments on the parties. The approval was granted in December 2019 by virtue of “Decree No 45 of 2019, approving the acquisition conditional upon the parties’ compliance with the ‘Commitments’ in accordance with the provision of the ECL”.

The ECA has indeed developed its policy in relation to enforcement. One of the remarkable decisions made by the ECA was its decision that two app-based food delivery providers had purportedly entered into a market division agreement in light of a minority shareholding acquisition by one of the transaction parties. As such, in 2019 the ECA stated that while the acquisition of a minority share does not, per se, constitute a breach of the ECL, using these shares in order to obtain a competitor’s confidential information and impact its tactical decisions, thereby affecting its competitive position in the Egyptian market, does entail a breach of the provisions of the ECL. Therefore, the ECA decided that the two companies were in breach of the ECL and ordered them to cease the implementation of the alleged prohibited agreement, and to revert to the situation prior to the purported agreement (ie, both parties operating in the Egyptian market).

Since FDI usually has a potential impact on national security, it is subject to a national security review, as stipulated, and a security clearance must be obtained through the General Authority for Investment and Free Zones. In a transaction involving FDI, a security verification form must be filed before said authority to be reviewed by the competent authorities on a case-by-case basis, and, in a few cases, clearance has to be received prior to making the investment.

The national security review regime in Egypt primarily considers the FDI’s impact on national defence and security, national economic stability, basic social stability, the research and development of key technologies related to national security, national cultural safety and public ethics, and national network security. However, no specific criteria have been published for the substantial review. Accordingly, the criteria of the review vary on a case-by-case basis according to the structure of the investment. 

Furthermore, the national security review is a highly discretionary process and is subject to the opinion of the competent authorities.

From a practical standpoint, the national security review might treat investors differently according to their country of origin and the target sector. The national security scrutiny can result in a refusal only if it appears that the investment will jeopardise national interests, such as the preservation of confidential defence information related to strategic industries, etc.

From a practice standpoint, the foreign investor can adopt another investment structure or optimise the initial investment structure to address the national security review concerns. This is usually subject to consultation between all the parties and their advisers to reach the optimum investment structure. Nevertheless, there are no particular guidelines on the categories of concerns the competent authorities may have and the restrictive requirements that may be necessary to address these concerns. As mentioned previously, the national security review is a highly discretionary process, subject to the competent authorities’ assessment on a case-by-case basis.

According to the Egyptian Companies Law, the competent authority will notify the company in writing of its objection to the incorporation. In addition, a copy of such notification must be submitted to the commercial registrar. The objection must be grounded and must include the necessary procedures to be adopted to rectify the status of the company. While the grounds for objection are clearly stated and limited under the Egyptian Companies Law, the competent authority has discretionary power under the said law.

Accordingly, the company must clear all the reasons on which the competent authority’s objection is grounded or file a petition to the competent minister. Otherwise, the competent authority will unwind the company and have it removed from the commercial register; in which case, the foreign investor may resort to the competent administrative court which will decide on the dispute on an emergency basis. 

Where FDI is likely to have a significant impact on national security, which cannot be remedied by certain measures, certain restrictions are imposed under the local laws.

Restricted Real Estate Ownership

With respect to the foreign ownership of real estate, Article 4 of Law No 230 of 1996, regulating the ownership of real estate property and vacant land by foreign nationals, stipulates a number of restrictions on foreign ownership, including: 

• a foreign national owning vacant land in Egypt must start building on it within five years from the effective ownership date (the date on which ownership is registered at the notary public’s office) or sell the land; and
• real estate can only be sold five years after registering ownership, unless prior consent to sell it is obtained from the prime minister before this period expires; similar restrictions are set out in other laws, eg:
1. foreign nationals are prohibited from owning desert land except under presidential decree following approval from the cabinet (Law No 143 of 1981 on desert land); and
2. foreign nationals and companies are prohibited from owning agricultural land (Law No 15 of 1963 amended by Law No 104 of 1985).

With regards to foreign ownership in the Sinai Peninsula, according to the Sinai Development Law (the “Sinai Law”), foreign nationals are prohibited from acquiring ownership rights in the Sinai Peninsula. However, as an exception, Egyptians with dual nationality (as well as foreign nationals, whether natural or juristic persons) can be granted the right to own the buildings without the land where they are built, upon obtaining approval from the following authorities:

• the National Authority for the Development of the Sinai Peninsula;
• the Ministry of Defence;
• the Ministry of Interior; and
• the General Intelligence Agency.

These are collectively known as the “NSA”.

Restricted Activities

Generally, the regulatory control over the foreign investment in Egypt varies, and yet depends on the target industry. Accordingly, the key consents required can be highlighted, as follows:

• prior consent of the FRA on the transfer of ownership of a business (eg, acquisition of 10% of the voting rights or shares of a holding company and companies operating in a non-banking financial activity);
• prior consent of the General Authority of Investments and Free Zones on the transfer of ownership of companies established in a free zone;
• prior consent of the Central Bank of Egypt on the change of ownership of an Egyptian licensed bank;
• prior consent of the Ministry of Health on the transfer of ownership of hospitals;
• prior consent of the Ministry of Education on the transfer of ownership of schools;
• foreign ownership restrictions apply in some industries such as commercial agency, where an agency company shall be fully owned by Egyptians (unlike the case for importation where 51% of the share capital of a company operating in importation activity shall be Egyptian); and
• prior consent of the Sinai Development Authority on the transfer of shares of a company owning assets or operating in the Sinai Peninsula.

With respect to operation in the Sinai Peninsula, Sinai law stipulates that foreign ownership of companies operating in the peninsula may not exceed 45% of the total share capital of the company. Egyptian ownership, however, must always be sustained at 55%, unless an exception is issued by the president under their discretionary power and after consultation with the NSA, General Authority for Investment and Free Zones and the FRA, and subject to, among other things, a declaration to be provided by the company that the shareholding structure will not be changed until the winding-up of the company. 

Corporate Income Tax

Egyptian Companies (whether capital corporate or partnerships, except for sole proprietorship) are subject to corporate income tax (CIT) as imposed by the Egyptian Income Tax Law, as amended (the “EITA”) and its executive regulations. CIT is levied annually on the net profits of juristic persons. Furthermore, CIT is applicable to income realised by juristic persons residing in Egypt and irrespective of whether the income is generated within Egypt or abroad. CIT is also levied on the income generated within Egypt, through an entity residing in Egypt, by juristic persons that are not residing in Egypt. 

The fixed tax rate applicable to all Egyptian companies/corporations is 22.5% except for (i) certain government authorities that are subject to a fixed tax rate of 40%; and (ii) oil and gas exploration and production companies that are subject to a fixed tax rate of 40.55%.

Double-Taxation Treaties

It is worth noting that Egyptian companies that have a residing entity in a certain jurisdiction, or non-Egyptian companies that have a residing entity in Egypt, can also benefit from the double-taxation treaties concluded between Egypt and numerous countries such as Algeria, Austria, Bahrain, Belgium, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Hungary, India, Italy, Japan, Kuwait, Lebanon, Libya, Malaysia, Malta, North Korea, Norway, Oman, People’s Republic of China, Poland, Romania, Russia, Singapore, South Africa, Sweden, Switzerland, Tunisia, Turkey, Ukraine, the United Arab Emirates, the United Kingdom and the United States.

VAT

Furthermore, the Value Added Tax Law (VAT Law) came into force in 2016 and imposed VAT at 13%. As of mid-2017, the standard VAT was increased to a fixed rate of 14%. Such standard rate is applicable on all goods and services, except for machinery and equipment utilised for the purpose of manufacturing a commodity or rendering a service, which are subject to 5% VAT. Buses and passenger vehicles, however, are subject to various tax rates.

The VAT Law exempts certain basic goods and services that affect low-income individuals, in addition to other exemptions listed within the VAT Law. The latter also encompasses a reverse-charge mechanism, whereby transactions involving non-resident services/royalties providers to Egyptian resident entities are subject to VAT in Egypt.

Miscellaneous Taxes

Aside from CIT and VAT, companies may be subject to other miscellaneous taxes such as stamp duty tax, customs duty, and real estate tax. 

Pursuant to the EITL, and unless there is a double-taxation treaty, payments, including interest and charges for services and royalties made to non-residents in Egypt by partnerships and juristic persons that are resident in Egypt, and by non-resident entities having a permanent entity in Egypt, shall be subject to withholding tax at 20%. 

As an exception to the foregoing rule, the interests on loans and credit facilities obtained by the government, local government units or other public juristic persons, are exempt from withholding tax. Additionally, public and private sector companies are also exempt from such tax, provided that the loan or facility period is a minimum of three years.

Generally, restructuring business transactions may be eligible for tax deferral treatment, if subject to the scrutiny of the ETA.

Furthermore, foreign investors may enquire about tax treatment with regard to their investment before the ETA, to ensure the most favourable tax treatment possible.

Pursuant to the EITL and its executive regulations, capital gains are deemed as taxable income. Therefore, the capital gains tax treatments under the EITL and its executive regulations are as follows. 

Capital Gains Tax Treatment

Resident companies

• Capital gains realised by resident shareholders from the disposal of shares listed on the EGX will be subject to capital gains tax at 10% (such tax will be applicable from 1 January 2022). Such suspension of tax is not extended to the gains realised from treasury bonds.
• Furthermore, capital gains realised from the sale of unlisted shares/securities will be subject to a rate of 22.5%. 
• Capital gains realised from shares invested abroad (ie, foreign shares/securities) will be subject to capital gains tax at a rate of 22.5%, with a credit to be given for foreign tax paid.

Non-resident companies

• Capital gains realised by non-resident shareholders from the disposal of shares listed on the EGX will not be subject to capital gains tax, including treasury bonds.  
• Capital gains realised from the sale of unlisted shares/securities will be subject to capital gains tax at 22.5%, with the exception of treasury bonds, which are not taxable.
• Capital gains realised from shares invested abroad will not be taxed in Egypt.

It is worth highlighting that a capital loss can be offset against a capital gain arising during the same tax year, provided that they both arise from the sale of shares (ie, the gain and loss of listed shares are in a separate pool from the gain and loss of unlisted shares, so the loss from the sale of listed shares can only be offset against the gain from listed shares and cannot be offset against the gain of unlisted shares). Excess capital losses that are not utilised during a tax year can be carried forward for a period of three years and can be offset against capital gains from the sale of shares.

In principle, the EITL stipulates that all business transactions between related parties must be concluded on an arm’s length basis. Where there is violation of this rule, the ETA may apply tax adjustments to the transactions as detailed below. The ETA may also investigate the related party transactions and review transfer pricing documents.

Furthermore, the ETA recently issued its Egyptian Transfer Pricing Guidelines (ETPG). These guidelines are generally consistent with the Organisation for Economic Co-operation and Development (OECD) Guidelines, and were developed to give Egyptian taxpayers detailed guidance on how to prepare documentation to support the arm’s length requirement for their business transactions, as mandated by the EITL.

The EITL and its executive regulations define the arm’s length rule, related parties, and the transfer pricing methods, together with the cases in which such methods should be applied. It is worth highlighting that the EITL together with its executive regulations are applicable to all business transactions whether concluded internationally or domestically between related parties. As such, the EITL and its executive regulations are applicable to business transactions carried out with related parties in foreign tax jurisdictions or to domestic business transactions with local related parties operating within Egypt.

Furthermore, pursuant to the EITL and its executive regulations, there is a disclosure requirement for related party transactions and general disclosure regarding a taxpayer’s transfer pricing policies. To this end, a taxpayer’s contribution in resident and non-resident subsidiaries and sister companies, particularly, the ratio and the value of the contribution as well as the annual yield from such contribution, are usually investigated. 

Finally, certain details are required to be disclosed concerning direct and indirect related party transactions, especially, the related party name, the type of relationship, characterisation of the transaction, and the value of the transactions for the return year and the preceding year. Additionally, the taxpayer is required to disclose the transfer pricing method as stated under the EITL and its executive regulations.

The employment relationship between the employer and the employee is mainly governed in Egypt by: 

• Egyptian Labour Law No 12 of 2003 (the “Egyptian Labour Law”), based on which the employment contract and/or collective bargaining is entered into between the employer and the employee, subject to the provisions of said law;
• Egyptian Social Insurance Law;
• national regulations and decrees issued by relevant government authorities, specifically, the Ministry of Manpower and Emigration; and
• local regulations and policies issued by local government authorities, in particular, and the Social Insurance Organisation.

Labour Unions

Labour unions are established in accordance with Labour Unions Law No 213 of 2017 and its executive regulations. The said law has established a General Association of Labour Unions, general labour unions and labour committees. The general labour unions are established based on the nature of the activity of their members and, ordinarily, labour committees are established for each industry. In principle, a labour committee looks after the interests of the employees, including salaries and wages and terms of employment. The extent and involvement of the labour union will differ from one case to another, depending on the strength and ability of the relevant committee.

Foreign Employees

With respect to foreign employees, the Ministry of Manpower and Immigration has issued Decree No 146 of 2019 (the “Decree”) regarding the conditions for issuing work permits for foreign employees. The Decree sets out the new rules/procedures that allow the issuance of work permits for foreign employees intending to work in Egypt as well as the authorities competent for issuing such permits. It also specifies the maximum percentage of foreigners that may be employed by local corporate entities and the fees applicable in this regard. To this end, foreign labour may not exceed 10% of the total labour force of an Egyptian company. Nevertheless, exceptions can be made in light of the aforementioned. In fact, the said percentage may differ by virtue of a special committee (Committee of Exceptions) and upon the approval of the competent minister. Furthermore, the Decree authorises the renewal of work permits and sets out the procedures and fees applicable in this respect. Certain criteria constitute important factors in determining whether to issue work permits, such as: 

• the foreigner’s qualifications and expertise must be adequate for the prospective position; 
• any other required approvals that must be obtained by the foreigner to work in Egypt; 
• the foreigner may not compete with the local workforce; 
• the real need of the establishment for the foreigner’s expertise; 
• the country’s economic status; 
• the commitment of the establishment in hiring the foreign experts or technical personnel, as it must hire at least two local assistants with qualifications similar to those of the experts or technical personnel and prepare annual reports of their progress; and 
• a foreigner who was born and resides in Egypt shall be given preference. 

Additionally, the said Decree identifies the categories of employees that are exempt from the stated requirements and the activities that cannot be undertaken in Egypt by foreigners. Finally, it sets out the obligations imposed on corporate entities that employ foreign employees, along with the circumstances under which the work permit may be rescinded. 

Having stated the foregoing, it is worth highlighting that Egyptian courts have taken the stance that members of the board of directors of joint stock companies are not deemed to be employees of the company, and, accordingly, are not subject to the Labour Law. It has therefore been the practice of the authorities to exclude directors of joint stock companies from the 10% foreign labour ceiling set by the Labour Law when granting work permits.

Healthcare

In Egypt, all private sector companies are required to provide free healthcare coverage for their Egyptian employees either through the medical insurance scheme of the Ministry of Social Insurance or privately. They must also contribute to the Pension Insurance Fund of the Ministry of Social Insurance.

Overtime

Pursuant to the Egyptian Labour Law, if the employee works more than eight hours per day, they are entitled to receive the equivalent of 35% for each extra hour worked during daylight hours and 70% for each extra hour worked at night, which is defined under said law as being the “period between dusk and dawn”. In other words, the employee will receive overtime for each extra hour worked during the day at 135% of their regular hourly wage; and at 170% thereof for hours worked during the night. Pursuant to the Egyptian Labour Law, those employees required to work during weekends are entitled to double their salary and another day in lieu of their rest day during the following week, and those working on their holiday will also be entitled to receive double salary for the day(s) worked over and above their salary.

Annual Leave

Employees are entitled to minimum annual paid leave of 21 working days after completing one full year of service. However, employees may take paid leave on a pro rata basis after completing six months of employment. The annual leave will be increased to one month after the employee has worked for ten consecutive years or reaches 50 years of age. All employees are entitled to full pay for national holidays.

Severance

Under the Egyptian Labour Law, a change in the controlling shareholder(s) of the target company (under any form of business combination) will not affect the validity of the employer’s employment contracts. On the other hand, such change in control will not entitle employees to additional compensation as a matter of law unless their employment is terminated, in which event, severance based on the law and mutual consultation between all the parties may apply.

Statutory Severance

Generally, employees will not be entitled to any further rights or end-of-service compensation as a result of the acquisition or change of control or other business combination, unless the principals (ie, the acquirer and the target) agree to this following the closing of the transaction. Nevertheless, if the target (ie, the employer) opts for termination of the employment relationship (being an agreed point in the business transaction), the employer will have to pay the statutory severance as stipulated under the Labour Law, which usually depends on the duration of employment and, in most cases, two months’ prior written notice. Accordingly, and unless otherwise agreed between the parties, the employee’s salary and benefits terminate as of the termination date.

Asset Deal

In an asset deal, the transfer of employees from the target entity to the new entity requires mutual agreement among all the parties (including the employee). It sometimes happens in the asset sale that the target (ie, the employer) and the acquirer often offer the employees the opportunity to transfer their employment to the acquirer. If an employee agrees to do so, either the target will pay the transferred employee’s severance based on the employee’s years of service, with the employee then being deemed a new hire of the acquirer, or the latter will recognise the employee’s previously accumulated years of service in a new tripartite employment contract.

Notification Procedures

From a practical standpoint, and particularly in an asset deal, when the target employer decides on matters that directly impact the interests of an employee, the target employer will need to notify the employee. The notification will allow the target employer to receive the employee’s comments on the transfer and find out if the employee wishes to transfer. In a share deal, the acquirer usually assumes employees’ liability to the target employer, as per Egyptian Labour Law. In the event of collective bargaining, comments from the employee representatives or the labour union, as the case may be, are expected to be discussed before being finally decided and agreed.

The protection of intellectual property in Egypt is very important to the country’s ability to attract FDI.

The protection of intellectual property changed significantly when Egypt became a party to several international treaties to ensure the protection of intellectual property.

Egypt is one of the signatory states to the world’s most important intellectual property treaties, such as:

• the Paris Convention; 
• the Patent Co-operation Treaty; 
• the Madrid Convention – of 1954; 
• the Berne Convention of 1886 (with a reservation to Article 33 regarding the jurisdiction of the International Court of Justice); and 
• the Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms – of 1971. 

Furthermore, Egypt is a member of the World Intellectual Property Organisation (WIPO). It is worth noting that in September 2022, the Prime Minister launched the national IP strategy consisting of a set of measures formulated and to be implemented by the Egyptian government. These measures encourage and facilitate the effective creation, development, management and protection of IP at the national level. The Director General of WIPO, Mr Daren Tang, expressed great happiness with Egypt’s launch of the National Intellectual Property Strategy: “I feel great pride to see Egypt launch the National Intellectual Property Strategy, as Cairo made many efforts in that, and a number of countries joined it.”

On a related note, it is worth highlighting that technology transfer agreements are regulated under the Egyptian Commercial Law (the “Commercial Law”). A technology transfer agreement is defined as an agreement in which the technology provider undertakes to transfer, for consideration, technical information to a technology importer so it can be used in a special technical manner to manufacture or develop a specific product or to install or operate equipment or devices or to provide services. Also, the Commercial Law excludes the sale, purchase and lease of goods, as well as the sale of trade marks, trade names, or their relevant licence of use as a technology transfer agreement, unless the same is separate or pertaining to a technology transfer agreement.

While technology transfer agreements can be resolved by way of arbitration, the Commercial Law stipulates that technology transfer agreements shall be governed by Egyptian laws. 

IP Rights

Generally, intellectual property rights are protected under Egyptian Intellectual Property Law No 82 of 2002 (EIPL) and its executive regulations. The EIPL brings the Egyptian IP regime into compliance with global intellectual property standards as set out by the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The EIPL is divided into four chapters:

• chapter 1 covers patents, utility models, layout-designs for integrated circuits, and undisclosed information;
• chapter 2 addresses trade marks, trade names, geographical indicators, and industrial designs;
• chapter 3 regulates copyright and related rights; and
• chapter 4 tackles plant varieties.

Patents

With respect to patents, the EIPL does not consider certain items as patentable items, such as:

• inventions, the exploitation of which would affect national security, be a breach of public policy or manners, or cause severe damage to the environment, or the health or life of humans, animals or plants;
• discoveries, scientific theories, mathematical methods, programs, and schemes;
• methodologies related to the diagnosis and treatment of, and surgery on, humans or animals; and
• organs, tissues, living cells, natural biological substances, DNA and genomes.

Although the EIPL provides comprehensive protection to intellectual property rights, on a few occasions the EIPL has imposed compulsory licensing for the exploitation of an invention. However, the financial rights of the patent holder when issuing such licences will be determined by the competent patent office. It is worth highlighting that the protection term of the patent is 20 years, commencing as of the date of the applicant’s registration application in Egypt.

Trade secrets

Trade secrets (being undisclosed information as classified under the EIPL) will be protected if the information:

• is confidential, in a way that such information as a whole or its components are not generally known or in common use among the technicians who are exposed to such information or its components;
• derives its commercial value from the fact that it is confidential; and
• relies on effective measures taken by its legal possessor to keep its confidentiality.

Trade marks

Although trade marks, as broadly defined under the EIPL, can be registered, there are a few marks that cannot be registered, such as: 

• marks that violate public policy/manner;
• public slogans, flags and other symbols of the Egyptian state, other countries, and international or regional organisations, as well as any counterfeits thereof;
• marks that are identical or similar to religious symbols;
• the Red Cross, the Red Crescent, or other similar symbols, as well as any counterfeits thereof; and
• geographical marks and indicators that mislead or confuse the public or contain false data on the source of the products/services or their traits, as well as marks containing a counterfeited or forged trade name.

The protection term of the trade mark is ten years and this is extendable to a similar term(s) upon a renewal request submitted by the trade mark owner in the last year of each ten-year term, or, exceptionally, within six months of the expiration date of each ten-year term. It is worth highlighting that internationally renowned trade marks, including within Egypt, are protected under the EIPL, even if such renowned trade marks are not registered in Egypt. Accordingly, the Trademarks Registration Office will automatically refrain from accepting any registration application for a mark that is identical to a renowned trade mark or contains usage of that renowned trade mark to brand other identical products labelled by such renowned trade mark, unless the registration application is submitted by the renowned trade mark’s owner.

Industrial models and designs

Industrial models and designs are defined under the EIPL as every line arrangement and three-dimensional figure that is in shape, colour or colourless, if it takes a businesslike, distinctive appearance and is capable of industrial use. 

Industrial models and designs are protected for ten years commencing as of the application date in Egypt. Said period may be prolonged by an additional five years in the event the relevant IP right holder submits a renewal motion during the last year of the initial protection term or within a maximum of three months of the expiration of such initial term. 

Non-commercial activities, works related to scientific research and training and educational purposes are among the exceptions stipulated under the EIPL with respect to non-infringing uses of IP protection rights granted to industrial models and designs.

Copyright

According to the EIPL, copyright is broadly granted and copyright protection covers, among other things, architectural designs, speeches, theatrical productions, musical works, software, photographic and cinematographic works, maps, and works broadcast on television or radio. Thus, in the event the creation of the content complies with the specifications and requirements under said law, it will be protected as soon as the content is created without going through further formalities, knowing that ideas and concepts are not subject to copyright granted under the EIPL. The copyright is granted for a period ranging from 20 to 50 years, commencing as of the death date, publication or release date, depending on the classification of the copyrighted content under the EIPL.

Plant varieties

The EIPL also protects plant varieties if they meet the requirements stipulated under the above-mentioned law. 

The first-ever Personal Data Protection Law No 151 of 2020 (PDPL) was enacted on 13 July 2020, and came into force three months after its publication date in the Official Gazette (ie, on 14 October 2020). The executive regulations were to be enacted within six months of the publication date of the PDPL in the Official Gazette (ie, supposedly 13 January 2021); however, the executive regulations have yet to be issued. 

The PDPL provides for clear extraterritorial application with respect to the crimes classified under the mentioned law. 

The PDPL vests the Personal Data Protection Centre (the “Centre”) with the power to enforce the provisions of the law, as well as monitoring the application of such provisions. Furthermore, the Centre is given the power to license and sort data processing as defined/classified under the PDPL. The Centre’s role is expected to increase in the coming years, as the law was only issued in 2020. 

Furthermore, and due to the newness of the PDPL, the latter provides a transition period of one year, during which the addressed parties can justify their status in accordance with the provisions of the said law. 

Violations of the PDPL will result in fines ranging from EGP50,000 up to EGP5 million and/or imprisonment, depending on the violation committed. Said penalties may be doubled in the case of recurrence.

The market’s response to the enforcement of the PDPL is still to be observed in the coming years. 

There are no significant issues not covered elsewhere in this chapter.