Egypt: Commercial Law In Egypt

Last Updated: 13 December 2018
Article by Adams & Adams

GENERAL INFORMATION

The Arab Republic of Egypt, traditionally known as Egypt, is located in north-eastern Africa. It is bordered by the Mediterranean Sea to the north, by Israel and the Red Sea to the east, by Sudan to the south and Libya to the west.

Area: 1 001 450 km2

Population: 80.5 million

Capital: Cairo

Currency: Egyptian Pound

GDP: USD 500.9 billion (2010)

Internet domain: .eg

Languages: Arabic (official language), French, English.

Working week: Sunday – Thursday

Exports: Crude oil and petroleum products; cotton yarn; raw cotton; textiles; metal products; chemicals

Imports: Machinery and equipment; food; fertilisers; wood products; durable consumer goods; capital goods

COMPANY LAW

Business vehicles

There are three forms of companies commonly used by foreign investors:

  • Joint stock companies (JSC), which are utilised in instances where there is major investment involved. JSCs have more organised management structures and more stringent corporate governance requirements than other forms of companies.
  • Limited liability companies, usually formed for small projects that do not require major financing.
  • Partnerships limited by shares (PLS) are partnerships that require 1 or more partners to assume unlimited liability. The partners' liabilities are limited to their respective capital contributions in the form of shares.

Incorporation

The following steps need to be taken in order to incorporate a company:

  • A company name must be reserved with the General Authority for Free Zones and Investment (GAFI).
  • The founding documents for the company, which includes the prescribed application forms and the articles of association, must then be submitted to GAFI.
  • The articles of association must be registered and a certificate of incorporation obtained as well as an operation certificate from the Chamber of Commerce Office.
  • The Companies Department then publishes a notice of incorporation in the Investment Gazette.

The approximate timeframe for incorporating a company in Egypt is seven days.

A JSC must have a minimum of three shareholders and no maximum is prescribed. Limited liability companies and PLS require a minimum of two shareholders and up to a maximum of 50.

Regulatory Reporting

In the case of JSC, the company must keep accounts and publish its semi-annual or annual audited accounts and financial statements, duly audited by a qualified Egyptian auditor.

Share capital

The minimum share capital required for a JSC is approximately USD 35 000 if the company does not offer its shares to the public and approximately USD 70 000 if the company intends to offer its shares to the public. With a limited liability company the number of equity capital is USD 7000. The equity capital should be fully paid upon incorporation. The nominal value of a share cannot be less than approximately USD 14. In respect of a PLS, the minimum share capital required is approximately USD 35 000.

A JSC must have at least 10% of its share capital paid in at incorporation, and subsequently increased to 25% within 3 months following incorporation. A limited liability company's full share capital must be paid upon incorporation.

The nominal value of the issued share capital of a JSC must not be less than approximately USD 0.14 or more than approximately USD 140.

Management

A JSC must have a minimum of three directors who are chosen by the general assembly for a period of three years in the manner determined in the statutes of the company. A PLS is managed by one or more joint partners called partner managers.

A limited liability company is managed by one or more directors of which at least one director must be of Egyptian nationality. The Director must be named in the articles of association but need not be a shareholder.

Are local shareholders required?

In JSC and limited liability companies there are no nationality restrictions.

Branch Company

It is possible to establish a branch in Egypt. A foreign company may only register a branch office in Egypt if the company has a written contract with an Egyptian private or public entity to perform work in Egypt. A branch office may engage in commercial, financial, industrial and contractual activities within the scope of the contracts entered into.

Foreign companies are permitted to establish representative, liaison, scientific or technical offices for the purposes of carrying out market surveys or studying the feasibility of production without entering into any commercial operations in Egypt.

COMPETITION LAW

Law

The executive Regulations on Protection of Competition and Prohibition of Monopolistic Practice Law no. 3 of 2005.

The Act is enforced by the Authority for the Protection of Competition and the Prohibition of Monopolistic Practices, based in Giza.

Mergers

The Act requires parties whose annual turnover exceeds USD 14 million to notify the authority upon their acquisition of assets, rights, shares, establishment of unions, mergers, amalgamations, appropriations or joint management of 2 or more parties.

Although a merger may be implemented prior to notification, failure to notify constitutes a contravention of the Act.

Restrictive Practices

The Act regulates restrictive practices and prohibits anti-competitive agreements between competitors and/or clients and suppliers - in particular, agreements relating to the fixing of prices, division of markets and co-ordination in respect of tenders.

Abuse of Dominance

The Act prohibits the abuse of a dominant position, by a firm whose market share exceeds 25%.

Sanctions

Contravening the provisions relating to restrictive practices and abuse of dominance may result in the imposition of a fine of at least one hundred thousand pounds and not exceeding three hundred million pounds.

Failing to notify the Authority of a merger may result in the imposition of a fine of at least USD 14 000 and not exceeding USD 140 000.

CONSUMER PROTECTION

Consumer protection is regulated by Egypt's Consumer Protection Law, 2006 (CPAL). In terms of the CPAL consumers have certain essential rights and a consumer may not enter into any contract or be involved in any activity which may prejudice such rights. The CPAL further places certain obligations on suppliers, which obligations include, but are not limited to, the following:

  • That the supplier affixes its identifying data on all correspondence that it sends to consumers.
  • To provide consumers with correct information concerning the nature and characteristics of products that it wishes to sell to consumers.
  • To inform the relevant authorities of any defect that it may discover in the products set out in the market. If the product is likely to cause harm, the supplier must send out notices to consumers alerting them to the fact that they should stop using the products, and to replace such products at no extra cost.

Lastly, Egypt is a member of the Common Market for Eastern and Southern Africa (COMESA) which has been established to primarily regulate competition law amongst the different economies of its member states and to ensure that a fair and effective regional competition law framework exists. COMESA also has powers regarding consumer protection matters and promotes transparency among economic operators in the region. As such the key aspects of consumer protection dealt with in the COMESA Regulations will also impact consumer protection in Egypt.

DATA PROTECTION

At present Egypt does not have any official data protection legislation. Rather, data protection is regulated, to the extent that same is required, by means of various other legislative provisions.

These provisions vary from sector to sector and set out obligations relating to, among other things, employee information, information on money laundering investigations, capital markets data and banking secrecy provisions.

DISPUTE RESOLUTION

Court structure

The highest judicial power is the Supreme Constitutional Court, with jurisdiction over the constitutionality of laws and regulations, jurisdictional disputes between the legal bodies or authorities, disputes arising through contradictory rulings and the interpretation of laws. The First Degree Courts (Mahkmat El Daragah El Aoulah) have competence over misdemeanours and civil disputes which are not in excess of USD 700. The Court of Appeal (Mahkmat El Esti'anaf), is the court of first instance for capital crime punishments and also serves to review decisions issued by any first degree court. The Court of Cassation (Mahkmat El Naqd) is approached when there is a breach of law. This court does not re-examine the facts of the case, but was created so as to ensure uniformity in the interpretation and the application of the law.

Security by foreign litigants

Security for costs is not available, except when an injunction or interim order is requested.

Costs

The unsuccessful party is liable to pay court fees and costs for the most part. The court fees may be substantial and are determined as a percentage of the final award. Payment of costs is enforced by the court against the unsuccessful party. In 2009, the Ministry of Justice raised court costs to prevent frivolous proceedings.

Legal practitioners

All lawyers must belong to the Egyptian Bar Association in order to perform any function of a lawyer. There is no distinction between the functions performed by barristers/ advocates and solicitors/attorneys.

Alternative dispute resolution

Arbitration has established itself as a prominent tool to resolve commercial disputes. Arbitrations are governed by the Egyptian Arbitration Act, which was promulgated in 1994. The Cairo Regional Centre for International Commercial Arbitration (CRCICA) is the foremost arbitration institution and it offers arbitration, mediation and conciliation services. It has developed rules to regulate the proceedings.

EMPLOYMENT LAW

Governing legislation

Labour Law No. 12 of 2003; Article 674-698 of Law No 13/1948 (Egyptian Civil Code).

Particulars of employment

An employment agreement must be in writing, provide for a probation period (maximum period is 3 months) and a detailed description of the essential duties and liabilities of the parties.

Forms of contracts

  • Contracts for an unspecified period.
  • Contracts for a specified period or specific work terminates on expiry of the period or completion of the work.

Termination / Dismissal

  • If a contract is for a period of more than 5 years, the worker may terminate it without indemnity upon the lapse of 5 years after notifying the employer 3 months before its termination.
  • If in a contract for specific work completion entails a period exceeding 5 years, the worker shall not terminate the contract before completing the work. If the contract concluded for accomplishing specific work expires and the parties continue to act in terms of the contract following completion of the work, it shall be considered as a renewal of the contract for an indefinite period.
  • If a period for the completion of the original work and the works for which the contract is renewed exceed 5 years, the worker may not terminate the contract before completion of the work.
  • If the contract is for an indefinite period, either party may terminate on condition of giving 2 (employees working less than 10 years) or 3 months (employees working more than 10 years) written notice.
  • If the employer terminates the contract without notice or before the end of the notice period, he shall be liable for an amount equivalent to the worker's wage for that period or part thereof.
  • The worker may terminate the contract if the employer defaults on any of the substantial obligations ensuing from law, the individual or collective labour contract, or the establishment's articles of association, or if the employer or their representative commits a hostile act against the worker or their family member.
  • A worker's resignation must be in writing. He or she may withdraw same in writing within 1 week from the date that the employer notifies him or her of its acceptance in which case the resignation shall be null and void.

Dispute resolution mechanisms and remedies

The Ministry of Manpower and Migration have several offices located in every district of each governorate called labour offices responsible for carrying out work site visits and dealing with complaints.

EXCHANGE CONTROL

There are no strict exchange control regulations that apply in Egypt. Banking laws grant all natural persons and legal entities the absolute freedom to maintain currency and conclude transactions in foreign currency, including the transfer of such currencies from and into Egypt, provided that such transactions are executed through banks or other entities authorised to deal in foreign currency.

Entities authorised to deal in foreign exchange include banks licensed to operate in Egypt, which are permitted to buy foreign currency for their own account and on behalf of third parties. Banking law permits the establishment of foreign exchange dealers that are authorised to buy and sell foreign currency for their own account.

TAX LAW

Income tax

Resident companies are taxed on their worldwide income whilst non-resident companies are taxed on their Egyptian source profits. Foreign tax paid overseas may be deducted from Egyptian income tax payable, but the deduction may not exceed the total tax payable in Egypt.

Types of taxable income

The types of tax payable in Egypt include company tax, dividends and capital gains tax unless shares sold are listed on the Egyptian stock exchange.

Withholding tax is payable on dividends, interest, royalties and technical service fees. Property tax and stamp duty are also payable.

Tax rates

An income tax rate of 25% applies to all companies, except for those that are engaged in the exploration and production of oil and gas which are taxed at a rate of 40.55%.

Dividends received from an Egyptian company are not taxable, whereas dividends received from abroad are included in ordinary tax payable with a deduction allowed for foreign taxes.

Royalties and interest paid to a non-resident is subject to a 20% withholding tax.

There are no specific withholding tax rules governing technical service fees, although the tax authorities may treat such payments as royalties for withholding tax, at a rate of 20%. The majority of property in Egypt is subject to real estate tax at a rate of 10% on the annual rental value, after allowing a 30% deduction from rental value to cover related costs for residential property.

Stamp duty is charged at various rates and fixed charges.

Double taxation treaties

Egypt currently has double taxation agreements with Armenia, Austria, Belgium, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Finland, France, Georgia, Germany, Hungary, India, Indonesia, Iraq, Italy, Japan, Korea, DPR, Korea, Republic, Lebanon, Macedonia, Malaysia, Malta, Morocco, Netherlands, Norway, Oman, Poland, Romania, Senegal, Serbia, Singapore, Slovakia, Slovenia, Spain, Sudan, Sweden, Switzerland, Syria, Thailand, Tunisia, Turkey, United Arab Emirates, the United Kingdom, the United States of America and Uzbekistan.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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