SETTING UP & OPERATING BUSINESS IN EGYPT

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TYPE OF BUSINESS Business organisations in Egypt are generally in the form of incorporated companies, partnership and sole proprietorship. The unincorporated forms are generally used by Egyptian traders and are of limited interest to foreigners. An interest in a project under the Investment Law is frequently in the form of shares in joint stock or limited liability companies. Full ownership by the foreign investor is allowed where the project concerned is in the free zones. For investment outside the free zones, certain activities may be required to have Egyptian equity participation. Limited Liability Companies (WLL) The form of entity usually chosen by foreign investors is the Limited Liability Company, known as a WLL (with limited liability); this is the equivalent of a French SARL, a German GmbH or UK Private Company. The principal features are : · shareholders must number between two and fifty natural or juristic persons · minimum capital is LE 50 000 · a WLL may not engage in insurance, banking or investment on behalf of others; A WLL is required to transfer 5% of the profits for the year to a statutory reserve, until such time as the reserve amounts to at least 50% of the capital. The Joint Stock Companies (Shareholder Companies) is the most commonly used form of corporate business entities in Egypt. It may be formed by three or more natural or juristic persons. For a company offering its shares to the public, the minimum capital is LE 500 000, whereas for a closed company, which does not offer its shares for public subscription, the capital should be at least LE 250 000. A joint stock company is required to set up a statutory reserve in the same way as a WLL. Branches of foreign companies Foreign investors may carry on business in Egypt through a branch office, rather than through a locally incorporated company. There is, however, no tax advantage in doing so. Where a branch is set up, it must be registered in the commercial register and it must keep separate accounts which are to be approved by locally registered auditors. Registration of a Branch for Carrying out Government Contracts A foreign company which is awarded a contract by a Ministry, Government Authority or Government-affiliated companies is required to register as a branch with the following authorities : · Commercial Register · Tax Department · Social Insurance Department · Companies' Department Agencies If a foreign company's sole interest in Egypt is the exportation of goods to Egypt, then it generally must appoint a local agent (or distributor) for this purpose. Such an agent must be an Egyptian national or company. Labour Supply and Regulations In view of the significant amount of Egyptian labour available on the market, there are certain requirements as to the employment of manpower in all companies whose capital exceeds LE 50 000. Egyptians employed in a company formed under the companies law should not be less than 90% of the total employees and their remuneration should not constitute less than 80% of the total salaries and wages paid. For technical administrative staff, Egyptians should not constitute less than 75% in number, and their total earnings should not be less than 70% of the total wages and salaries paid to all such staff. TAXATION Principal Taxes Egypt levies direct taxes, such as corporate profit tax and income tax on types of personal income, and indirect taxes, such as customs duties, sales taxes and entertainment tax. As of 1 January 1994, all companies are subject to Corporate Profit Tax at a standard rate of 40% except for petroleum companies, which are subject to tax at 40.55% and companies involved in industrial and export activities, which are subject to tax at 32%. Law 187 of 1993 replaced the general income tax with a unified income tax system. No major changes to the corporate profits tax were introduced by the new Unified Tax Law; however, individuals and partnerships are now subject to direct income tax on different types of personal income at the following rates : · Industrial Commercial and Non-Commercial Profits and income from immovable property are subject to tax on annual net income at rates ranging from 20% to 40%. · Income from Moveable Capital, including items such as interest, foreign dividends and directors' fees, are subject to 32% tax on gross income. · Salaries are subject to tax at two rates : 20% on up to LE 50 000 and year and 32% on the excess. · In addition, a 2% Development Duty is imposed on the annual taxable income of individuals and companies that exceeds LE 18 000. · Income derived from immovable property is subject to Land Tax and Building Tax in addition to unified income tax on annual net income. Capital Gains realised by companies are treated as normal business income and taxed accordingly. Individuals are not normally subject to tax on capital gains. However, if capital gains are part of commercial and industrial profits, individuals are taxed on capital gains as part of commercial and industrial profits at normal rates of 20% to 40%. Individuals are also taxed on gains from sales of real estate or building sites within the boundaries of Egyptian cities, at a flat rate of 2.5% of the disposal value of the property. Stamp Taxes are also levied in Egypt on most types of documents and bills, and on some types of debentures and bonds. Zakat, a religious wealth tax, is not statutorily levied in Egypt. Other Taxes · Sales Tax (VAT) introduced in 1991 · Stamp Duty · Real Estate Tax · Custom & Excise Duty · Social Insurance Law number 227 of 1996 cancelled Succession Tax. Tax Administration Four separate tax departments work under the Ministry of Finance to administer the tax system in Egypt. Registration Every taxpayer, except employees must keep a tax card which provides evidence of having opened a file at the tax department. Taxpayers must register within two months from the commencement of a business activity and must notify the tax department within one month after cessation of an activity. INCENTIVES All investment, including foreign investment, is governed by Law No 8 of 1997, the Investment Law. The goal of this law is to offer preferential treatment to foster private sector investment, including that by foreigners, in Egypt. Foreign investments in the petroleum sector are governed by individual concession agreements between foreign companies and the Egyptian General Petroleum Corporation. Other foreign investments such as land reclamation and cultivation, industry, tourism, housing and urban development are welcomed. The government gives priority to projects that aim to generate exports, develop tourism or replace the import of basic commodities and to those that require advances technical expertise. It also actively seeks foreign investors to build luxury hotels and leisure facilities. Investors submit applications for new projects to the General Authority for Investment on forms specially developed to enable a committee to evaluate such projects. The objective of this evaluation is to determine whether the proposed projects offer enough benefits to the Egyptian economy to justify entitlement to special privileges available under the law. The Authority is required to issue its decision on an investment within 20 days of full documentation being submitted. Companies established under Investment Law enjoy a tax holiday of 5 to 20 years. Policy Towards Foreign Investments The recent Government's policy is to offer alternative incentives, including tax exemptions for 5, 10, 20 years, reduced import duties and the cancellation of exchange controls, to encourage foreign investment, particularly in projects that earn foreign currency and reduce the country's reliance on imports. Free zones have been set up where projects can be established without necessarily having Egyptian equity participation. Other incentives granted to foreign investors include freedom from price controls and guarantees against nationalisation and confiscation. Also seizure of a project's assets, other than via the courts, is prohibited. The Government is particularly interested in encouraging tourism, exports, reducing Egypt's reliance on imports and the need for foreign companies providing Egypt with advanced technical expertise. Further privatisation is expected through public floating of shares or the sale of public assets to private shareholders. Accordingly, opportunities for foreign investors are expected to increase significantly. The Government now encourages manufacturing and additional infrastructure projects to promote private industrialisation. It also favours stock market developments to promote private economic diversification. These efforts offer numerous opportunities to foreign investors. Privatisations (in banking, insurance and other vital operations such as tourism and industrial projects) is generally considered to improve efficiency and productivity. The Government will intervene to support these activities only if projects are beyond the capabilities of the private sector. EXCHANGE CONTROL Decree 119 of February 1991 issued by the Ministry of Economy and Foreign Trade removed foreign exchange controls and freed exchange rates to move with market forces. VISA REQUIREMENTS Foreign visitors to Egypt can get a visitor's visa stamped in their passport at the port of entry, except for nationals for certain countries who require a visa to be obtained from Egyptian Consulate in the country where they live. The visitor's visa is valid for one month and can be extended for periods up to six months. Visitors must register with the police within seven days of arrival, this is usually handled by one's hotel. Work permits will be granted to foreigners by the Ministry of Labour on a case-by-case basis. It takes about three months to process an application.