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Tax Law No. 95 of the year 2005

TAXATION

Under the Egyptian law, there are different taxes that shall be paid for different transactions; such taxes are stipulated under different laws mainly the Income Tax Law No. 91 of 2005, VAT Law No. 67 of 2016, Customs Law No. 66 of 1963, etc.

  1. Income Tax

Income tax is the tax imposed on the income generated by a natural or juristic person; and it is regulated by the Law No. 91 of 2005 promulgating the Income Tax Law. Regarding the tax rates of the income tax, a distinction is made between the tax rates imposed on natural persons and those imposed on juristic persons.

1.1 Tax Rates

1) Natural Persons:

Tax rates on the income generated by natural persons are classified into 5 tranches as follows:

First tranche: up to EGP 7,200 pounds per year is exempted.

Second tranche: more than EGP 7,200 to EGP 30,000 per year (10%).

Third tranche: more than EGP 30,000 to EGP 45,000 per year (15%).

Fourth tranche: more than EGP 45,000 to EGP 200,000 per year (20%).

Fifth tranche: more than EGP 200,000 per year (22.5%).

 

2) Juristic Persons:

Juristic persons are subject to tax rate (22.5%) of their annual net profits.

The net taxes of the year is approximated to the nearest less 10 pounds while calculating the taxes. Tax losses can be carried forward for five subsequent years maximum.

1.2 Tax Report

The tax report for natural persons shall be submitted before the 1st of April of each year following the end of fiscal year. For legal person’s, it shall be submitted before the 1st of May or within four months following the fiscal year end date.

1.3 Penalties for Violations

  • Imprisonment and/or a fine not less than EGP 10,000 and not exceeding EGP 100,000 is imposed on the registered accountant or auditor in case of concealing important incidents concerning the taxpayer’s activity or in case of concealing facts that may give false impression of decreased profits or increased losses.
  • Imprisonment for a period not less than six months and not more than five years and/or a fine equivalent to the tax that shall have been paid in case of tax evasion.
  1. Value Added Tax (VAT)

According to VAT Law No. 67 of 2016, all local and imported goods and services are subject to VAT except those specifically exempted.

2.1 Exempted Goods

There are 57 exempted goods and services under the VAT Law, they include, interalia:

  • Tea, sugar and milk;
  • Gas, electricity and water;
  • Banking services that are legally restricted to banks only;
  • Medicines and the active substances used in the manufacture of medicines, whether locally manufactured or imported;
  • Health services except plastic surgery and weight loss services other than for medical purposes;
  • Public education and scientific research services, including schools offering international curricula;
  • Public hospitals, public Medicare services, public clinics, and non-profit organizations;
  • Free radio and TV transmission services;
  • Sale and lease of vacant plots, agricultural lands, buildings and housing and non-housing units;
  • Advertisement services.

 

2.2 Registration Threshold

The annual turnover registration threshold for natural and juristic persons, for VAT purposes, is EGP 500,000. A natural person or legal entity, meeting this threshold after the enactment of the VAT law is obligated to register within 30 days from the date of reaching the VAT registration threshold. Voluntary registration is available for who so ever desires.

 

2.3 Tax Rates

The general VAT rate is 14%. Machinery and equipment used in producing taxable or non-taxable goods or rendering services are subject to a 5% VAT. Exported goods and services are subject to a zero VAT rate. Special rates apply to a number of goods and services listed in table attached with the VAT Law.

  1. Real Estate Tax

The real estate property falls under the real estate tax law No. 196 of 2008. The taxpayer is the natural or legal person who owns usufructs or uses the property. The lessee is not responsible for paying the tax; nevertheless, he is in solidarity with the taxpayer in paying the tax within the limits of the lease value.

3.1 Exemptions

The real estate unit taken as a private residential home for the taxpayer and his family shall be exempted from the real estate tax as long as the net annual rental value of which is less than EGP 24,000. Each unit used for a commercial, industrial, administrative or professional purpose is exempted from the foresaid tax as well, if its net annual rental value is less than EGP 1200.

3.2 Tax Rate

The tax rate is 10% of the annual rental value after deducting:

  • 30% of such value for residential properties, 32% for the non-residential properties; such deductions cover all the expenses incurred by the taxpayer, including maintenance expenses.
  • Tax threshold, which is EGP 24,000 for the private residential homes; and EGP 1200 for units used for commercial, industrial, administrative or professional purposes.

Example: Tax calculation for a non-residential (administrative / commercial) unit whose annual rental value is EGP 2700 is as follows:

Net Annual Rental Value = Annual rental value – 32%

Net Annual Rental Value = 2700 * 68% = EGP 1836

Tax Base = Net Annual Rental Value – Threshold

Tax Base = 1836 – 1200 = EGP 636

Tax = Tax Base * Tax Rate

Tax = 636 * 10% = EGP 63.6 per year

 

3.3 Tax Report

The tax report shall be submitted before the 1st of January each year. The tax shall be collected over two installments; the first installment shall be for the period until the end of July, while the second shall be for the period until the end of December.

  1. Stamp Duty

It is a tax levied on documents.  Stamp duty is regulated by the Law No. 111 of 1980, amended by the Law No. 143 for the year 2006 and its executive regulations. It applies to the deeds, publications, certificates and statements, abstracts, requests, contracts and alike, personal documents, banking transactions, insurance, commercial advertisement, incorporation, all governmental documents, etc.

The stamp duty mainly applies to all kinds of transactions with a very small rate different from one transaction to another depending on the transaction value.

  1. Customs Duty

It is the tax applied to the goods and products imported to the Arab Republic of Egypt. Custom duty is regulated by the Customs Law No. 66 of 1963 and its executive regulations. The custom duty has no unified value or rate and it varies from one imported good to another.

 

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Branches and Representative Offices

Branches & Representative Offices

 

 

  1. Branches

Foreign companies are allowed to open branches in Egypt to execute works of contractual nature. A branch must be registered in the Commercial Register; it must also be registered in a centralized register of foreign companies kept at GAFI.

To establish a branch of a foreign company in Egypt, the board of directors of the foreign company must issue a decision to incorporate the branch in Egypt. This decision must be authenticated by the Egyptian Embassy abroad as well as the Ministry of Foreign Affairs in Egypt. Such decision has to be translated into Arabic.

A branch does not enjoy a separate legal existence from its parent company. Accordingly, the establishing foreign company is fully liable for all the obligations and liabilities of the branch.

The equivalent of a minimum of EGP 5,000 must be transferred in foreign currency to a bank account in Egypt in the name of the branch.

A branch general manager shall be appointed to manage the branch and to legally represent it in all matters related to its activity and existence. The manager may be a foreigner.

The branch may carry out construction works, hotel management, commercial, financial and industrial activities as well as works of contractual nature.

 

 

 

  1. Representative Offices

Foreign companies can establish representative or liaison office in Egypt. The representative office must be registered in the Register of Foreign Representative Offices kept at the Ministry of Economy and Foreign Trade (MEFT), the Imports and Exports Authority, GAFI, as well as the Central Bank of Egypt (CBE).

To establish a representative office in Egypt, the board of directors of the foreign company must issue a decision to incorporate a representative office in Egypt. Such decision must be authenticated by the Egyptian Embassy abroad or by the Authentication Office at the Ministry of Foreign Affairs in Egypt; Arabic translation of such decision is required as well.

A representative office is under the full control of the parent company, where by the latter is liable for the actions of the former. The equivalent of a minimum of EGP 5,000 must be transferred in foreign currency to a bank account in Egypt in the name of the representative office. The management of a representative office may be handled by a foreign manager.

The scope of activity of a representative office is restricted to conducting market research, market surveys, and production studies. Representative offices are prohibited from the exercise of any trading activity.

Since, the representative office does not gain any profits; it is not subject to taxation. However, the income of the employees and managers in a representative office is subject to taxation.

 

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Agencies and Distribution and franchise Contracts

Agencies and Distribution and franchise Contracts

 

 

  1. Commercial Agencies

Commercial agencies are regulated by the Law No. 120 of 1982. According to the aforementioned law, foreign companies wishing to engage in any type of consulting or other services, or to tender on government agency bids (except sales to the Ministry of Defense) may do so only through a registered local agent or intermediary. A foreign company cannot establish in Egypt a scientific, technical, consulting office or any similar kind of offices unless it appoints an Egyptian commercial agent. In addition, any foreign company wishing to store its goods in Egypt for the purpose of selling or distributing them must appoint an Egyptian commercial agent to carry out these activities.

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.

 

 

 

 

 

 

  1. Distributors

Distributors are business entities that act as a customer for the foreign goods and buy them only to resell them for a profit gain. No registration for distributors is required.

The foreign producers have the option of appointing a distributor in Egypt to purchase the products from them and resell further. The distributor is not obliged to hold an Egyptian nationality. The taxation policies apply on the net profit realized by the distributor.

 

  1. Franchising

A franchise is an agreement by which the owner of an intellectual right, a potential property, or a brand product who is called the “franchisor” gives another person called the “franchisee” the exclusive right to use or exploit this intellectual right or property, or to produce or just sell the brand product within a designated area for a remuneration which is commonly called a license fee or a royalty.

The license fee or royalty can take the form of a fixed amount of money payable by the franchisee to the franchisor for using the right during a specific period of time, or it can take the form of a percentage of the turnover or sales realized by the franchisee during a specific period of time, or it may combine between these two forms of remuneration.
The Intellectual Property Rights Law No. 82 of 2002 applies the rules of the Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS Agreement) and makes protection of intellectual profits under a franchise agreement more secure. Being a member of the World Intellectual Property Organization (WIPO), Egypt is a signatory to a number of major international agreements such as Madrid International Convention Protecting Trade and Industrial Marks.

The Egyptian market is one of the most attractive markets when it comes to establishment of a franchise, especially fast food franchises, as they are the most common franchises in Egypt such as KFC, Dunkin Donuts and McDonalds. In addition to that, garments franchises are widely established in Egypt for example, Adidas, Nike, and Timberland.

 

 

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Companies Law No. 159 of the year 1981

Companies Law No. 159 of the year 1981

 

Companies Forms

 

  1. Joint Stock Companies (SAE)

A Joint Stock Company is a company whose capital is divided into shares of equal value; such shares are negotiable in the manner prescribed by law. A JSC must be registered in the Commercial Register at the General Authority for Investment and Free Zones (GAFI). Any amendments to be introduced to its Articles of Association must be reported to GAFI and approved by it. The JSC is incorporated once it is registered in the Commercial Register. JSC must have at least three founding shareholders.

The company shall have a trade name derived from the purpose of its establishment. The trade name of the company may include the name or title of one or more of its founders.

The liability of a shareholder in a JSC is limited to the value of the shares to which he subscribed.

The minimum capital of a JSC is EGP 1,000,000 if the JSC offers its shares to the public (public subscription) and EGP 250,000 if it is private (private subscription). The capital must be divided into shares of equal value, with a nominal value of between EGP 5 and EGP 1,000; where 10% of the nominal value of each share is to be paid at the time of incorporation; to be increased to 25% within three months as of the incorporation date; and the remaining amount is to be paid within five years from the incorporation date.

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

A JSC may carry out all the legal commercial activities like any other legal person with the general limitations provided for in the applicable laws and regulations.

  1. Limited Liability Companies (LLC)

A limited liability company is a company, the capital of which is composed of quotas owned by 2-50 partners. An LLC must be registered in the Commercial Register at the General Authority for Investment and Free Zones (GAFI) as it is subject to its supervision. Any amendments to its Articles of Association must be reported to GAFI and approved by it. The LLC is incorporated once it is registered in the Commercial Register.

The form of entity usually chosen by foreign investors is the LLC, the structure of which is equivalent to a French SARL, a German GmbH or a UK Limited Company (Ltd).

The name of an LLC must be derived from the object of the company and may include the name of one or more of its partners. Additionally, the words “Limited Liability Company” must be included in its name. Each partner is liable to the extent of the value of his quotas.

The Articles of Association of an LLC determine the minimum capital to be paid in full upon incorporation and the value of quotas. All quotas must have the same face value of no less than EGP 100.

The management of an LLC may be vested in one or more managers. At least one manager must be of Egyptian nationality. The manager(s) must be named in the Memorandum of Association, but need not be a partner(s).

LLCs are not allowed to carry out insurance, banking, saving, receipt of deposits, or investment of funds for the account of other parties.

  1. Partnership Limited by Shares

Partnership limited by shares is a company whose capital is composed of one or more quotas owned by one or more joint partners, as well as from shares of equal value subscribed for by one or more shareholders whose shares are negotiable in the manner prescribed by law.

At incorporation, a partnership limited by shares must have at least two founding parties, one of which must be a joint partner (with unlimited liability).

The capital of a partnership limited by shares is divided into two categories:

(1) Quotas owned by joint partners.

(2) Shares of equal value subscribed to by shareholders.

The joint partners have unlimited liability while the shareholders’ liability is limited to the value of their respective shares.

 

 

 

  1. One-Person Companies (OPCs)

An OPC is a company wholly owned by one person, whether natural or juristic. The founder of an OPC is not liable for the latter’s obligations except within the limits of the capital allocated to it.

OPCs are prohibited from carrying out any of the following:

  • Establishing an OPC.
  • Public subscription, whether at the time of incorporation or when increasing the capital.
  • Dividing the company’s capital into negotiable shares.
  • Borrowing through issuing negotiable securities.
  • Carrying out insurance, banking, saving, receipt of deposits, or investment of funds for the account of other parties.

The founder of an OPC is in charge of all of its affairs, he is entitled to:

  • Amend the company’s Articles of Association.
  • Dissolution and liquidation of the company.
  • Merge the company with another company, or convert it to another legal form.
  • Increase the capital of the company or reduce it.
  • The appointment of one or more managers, specify their competencies and powers, and the approval of their signatures. The director shall represent the company before the courts and other parties.
  1. General Partnerships

A general partnership is a company that is incorporated by two or more partners, who are jointly responsible in all their funds for the debts of the company.

The general partnership name consists of the name of one of the partners as well as the phrase “and partners”. Each and every partner in a general partnership is considered a trader even if he did not acquire this character before general partnership incorporation, provided that the purpose of the company is commercial.

The quotas of a partner in a general partnership may not be transferred to third parties or the heirs of any of the parties after his death. Unless agreed otherwise, the general partnership is dissolved upon the death of any of the partners.

  1. Limited Partnerships

A limited partnership is a company that is held between one or more partners, holding the management of the company, and one or more shareholders, who are excluded from the management.

Partners hold joint responsibility and are liable in all their funds for the company’s debts. Contrary to joint partners, the shareholders in a limited partnership enjoy limited liability restricted to the value of their shares.

The company name is derived from the name of one or more of the joint partners. The name of a limited partnership may not include the name of a shareholder, otherwise, he will be transferred into a joint partner and hence, liable in all of his funds for the company’s debts.

 

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WHY INVESTMENT IN EGYPT?

WHY INVESTMENT IN EGYPT?

  1. 1. New Economy

The Egyptian Economy’s resilience is capable of overcoming its economic challenges as it did in the 2008 financial crisis, and thus, long-term investors will see many opportunities.

Egypt has started its transformation towards a stable, democratic and modern economy, where the dividends of growth and prosperity will be shared by all who participated in its achievement.

The Egyptian economy’s ability to post positive, real economic growth rates amid the global economic downturn as well as during the political unrest that prevailed in 2011-2013 indicates how resilient the economic activity in Egypt is.

  1. Large, Trained and Competitively Priced Labor Force

At about 28 million, Egypt’s labor pool is the largest in the region. For decades, Egypt has had a reputation as a net regional exporter of educated and skilled labor. However, as domestic demand for skilled labor rises, along with the increase of youth searching for job opportunities, a national industrial training program is provided for labors through world-class universities.

  1. Large Consumer Market

Egypt has emerged as a consumer market of significant importance in the region, as witnessed by the arrival of dozens of global brands and the sharp expansion of retail sales in the past two years. This is partly due to the sheer size of Egypt’s population (98,610,000) that put it as the most populated country in Africa and the Middle East.

  1. Developed Infrastructure

Egypt boasts a world-class infrastructure base. Four mobile (cellular) phone networks cover nearly 100% of the country’s inhabited land. Wire line broadband is readily available in urban centers. The country’s 15 commercial ports serve the nation’s exporters and importers alike, while an expanding and upgrading airport network caters to both passengers and cargo traffic. Egypt’s Air Cargo Airport currently has three cargo terminals, dealing with textiles, vegetables and many industrial products. In addition, the country has a well-established network of railways and roads. The road network has reached 108,784 KM, Railway network 9,570 KM and 20 Airports.

Egypt also provides competitive prices and reliable supplies of power, water and gas. The country possesses abundances in natural resources that can easily meet the needs of agricultural, industrial and mining activities.

  1. Competitive Tax Rates

Corporate taxes top out at only 22.5% in Egypt.​

The nation’s newly overhauled tax code is easy to navigate. The nation’s largest corporate taxpayers are served by a special and highly trained unit at the Tax Authority.

​6. Preferential Access to Key Global Markets

Egypt has access to large key markets through various multilateral and bilateral trade agreements with the USA, European, Middle Eastern and African countries, which secures benefits to Egyptian-based producers supplying these markets.

  1. Proximity to Global Markets

Key global markets in Europe, the Middle East, Africa and the Indian Subcontinent are all readily accessible from Egypt. Closer to the European and North American markets than other major exporters including India, China and the Philippines, Egypt is also located on key international logistics routes.

Egypt enjoys the existence of the Suez Canal, which is considered to be the shortest link between the east and the west due to its unique geographic location. Approximately 8% of the world’s maritime shipping passes through the Suez Canal each year.

Vessels transiting through the canal from east to west or vice versa make significant saving in distance, time and operating costs.

Moreover, the maritime transport is the cheapest means of transport, with more than 80% of world trade volume transported via waterways (seaborne trade).

  1. Diversified Economy

Egypt’s economy is among the most diverse in the Middle East and North Africa and such diversity is a key strength in its economy, whereby growth is driven by many sectors, ensuring long-term growth prospects for all sectors.

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