Laws and decrees that affect foreign business in Egypt

In the following, we aim to shed some light on the more relevant laws applicable to foreign investors in Egypt. In this respect, we shall focus on the corporate, labour, investment and property laws of the country.

1. Corporate Law

All newly established corporate vehicles in Egypt are subject to the provisions of the Companies Law No. 159 of 1981 (Companies Law), which is the general law of application. The Companies Law prescribes all corporate governance rules and regulations in relation to management, control issues, fiduciary duty and fiscal policies, together with operation of the company’s corporate requirements, such as board of directors’ meetings, ordinary general meetings and extraordinary general meetings.

However, depending on the types of activities, companies may be formed under Capital Market Law No. 95 of 1992 or any other law that may regulate specific activities. Representative offices may also be formed under the Companies Law.

Foreign enterprises wishing to conduct business in Egypt may enter the local market by establishing a permanent legal structure. They are permitted to establish various types of entities under Egyptian law. These entities may have either a permanent presence as limited liability companies (LLCs) and joint stock companies (JSCs) or temporary presence as Foreign Branch Offices and Foreign Representative Offices.

LLCs and JSCs are the two forms preferred by foreign investors intending to incorporate a business in Egypt. JSCs may be fully controlled by a foreigner.

LLCs may also be 100% owned by foreigners, provided that at least one of the general managers is of Egyptian citizenship.

1.1. Joint Stock Companies

JSCs are among the most commonly used legal vehicles in Egypt and are usually employed in cases where there is a manufacturing project to be established within the country that requires major investments. Furthermore, in cases of substantial investments, there are no requirements to pay the full capital upon establishment; the said capital can be paid over a period of five years.

Capital: A JSC may have authorised capital and must have issued actual and paid-in capital. The issued capital may not be less than LE250,000 ($16,500) for closed companies and LE50m ($3.3m) if the company intends to offer its shares to the public. At least 10% of the share capital must be paid in at the incorporation stage and subsequently increased to 25% within three months following the incorporation. Full payment of the issued share capital must be effected within five years after the incorporation. In the case of holding companies established for purposes of stock dealings and investment, the issued capital shall not be less than LE5m ($324,400), of which at least 25% must be paid upon incorporation and the remaining amount must be paid up within five years of the date of incorporation.

Public subscription: A JSC is permitted to offer its shares to the public. For those companies formed by public subscription, at least 49% of the shares must be offered to the public for a period of at least one month, unless the Egyptian founding shareholders pay up this percentage of shares prior to the public offering. If shares are offered to the public, it must be done through a bank licensed to receive subscriptions, a company established for this sole purpose or one licensed by the Egyptian Financial Supervisory Authority (EFSA) to deal in securities.

Number of shareholders: A JSC must have a minimum of three founding shareholders at all times, whether natural persons or legal entities. There is no maximum limit for the number of shareholders. However, if the number of shareholders reaches 100, the company would be considered as having been offered to the public and the rules for public companies would then apply. In general, there are no restrictions related to the percentage of capital owned by foreigners. However, there are some exceptions, such as in cases in which the company is practising a specific activity – like importation or commercial agencies – or if it will be practising its activities in certain geographical zones, such as the Sinai Peninsula.

Objectives: Subject to obtaining permits and licences for certain types of activities – such as industrial projects, which require approval from the Industrial Development Authority; banking projects, which must be approved by the Central Bank of Egypt; hotel management projects, which need authorisation from the Ministry of Tourism; aviation projects, which require the approval of the Ministry of Civil Aviation; and capital market activities, which must be approved by the EFSA – there are no restrictions on the commercial objectives of a JSC, provided they are not in conflict with public policy or morality.

Management: JSCs are managed by a board of directors that consists of at least three members appointed by the general assembly. The board of directors is entrusted with the day-to-day operations of the company, and in this respect, it has full authority to represent the company vis-à-vis third parties. The directors shall hold a term of three years, except for initial directors, who are appointed for a term of five years. Its authority, however, excludes those matters explicitly reserved by law or the company’s constitutive documents for the general assembly. The board of directors shall be headed by a chairman who shall be appointed by and from among its directors.

Profits: A JSC’s after-tax earnings for each fiscal year, as increased or reduced by any profit or loss that is carried forward from previous years, shall be available for distribution in accordance with the conditions of the Companies Law and the JSC’s statutes.

Shareholders may decide at an ordinary general assembly whether to distribute all or part of the dividends, as per the audited financial statements of the company, so long as such distribution will not affect the company’s financial obligations to third parties or its ability to conduct business. The distribution of dividends should be made within 30 days from the date of the approval of the ordinary general meeting on the distribution of dividends. Employees of a JSC shall be entitled to 10% of the dividends, which are approved to be distributed by the ordinary general meeting. The employees’ percentage of the dividends shall not exceed their total annual wages.

Taxation & social insurance: For investment promotion purposes, a newly issued law amended the corporate income tax pursuant to which the rate was reduced to 22.5% of the company’s net profit.

All company employees shall be subject to Egyptian salary tax, and the company must implement the required monthly tax withholdings. Social insurance contributions are required for Egyptian employees from both employers and employees.

Books & records: JSCs are required to maintain financial books and records, and are also required to submit audited tax returns on an annual basis.

1.2. Limited Liability Companies

This type of company is usually formed for small-scale projects that do not require major financing, such as firms that are involved in internal trade and services activities. An Egyptian LLC is a company that is closed due to the limited liability of its quota-holders equivalent to their quotas’ values in the capital of the company. Therefore, it may be defined as a private company whose owners are legally responsible for its debts to the extent of the amount of capital they invested.

Constitutive documents: An LLC’s constitutive document is its articles of association. Model articles of association have been issued by a ministerial decree and any variations made to these models must then be approved by the competent authority, otherwise the registration may be rejected.

An LLC must be registered in the Commercial Register. Any amendments to the articles of association must be reported to the General Authority for Investment and Free Zones (GAFI) and approved by it.

Capital: Unlike a JSC, there is initial no minimum capital required for LLCs. However, capital must be fully paid at the time of the incorporation of the entity. The capital is divided into equal quotas – which are commonly named shares – either in cash or in kind, and the value of each share cannot be less than LE1 ($0.07). No share certificates are issued and the sale of shares is subject to the pre-emptive purchase rights of the remaining partners.

Quota-holders & public subscriptions: LLCs must have a minimum of two quota-holders at all times and can maintain a maximum of 50 quota-holders. Quota-holders may be natural persons or legal entities. Quotas in LLCs cannot be offered to the public.

Objectives: Unlike a JSC, an LLC is precluded from activities in certain limited areas, such as insurance, banking, savings, deposit taking, investment funds, securities brokerage and portfolio management activities. However, an LLC may undertake any other activity provided it can carry out commercial, industrial or service activities similar to other business entities, subject only to general limitations of public policy or morality.

Management: LLCs may be managed by one or more managers, to be appointed among the quota-holders or among others, with the only requirement being that one of them must be an Egyptian national. The managers may be appointed for a definite term that must be specified in the articles of association or for an indefinite term. Moreover, a supervisory board is required if the LLC has more than 10 quota-holders. At least three members of this board must be quota-holders. Management participation, however, is not a requirement.

Taxation & social insurance: A newly issued law amended the corporate income tax rate, reducing it from 25% to 22.5% of the company’s net profit.

All company employees shall be subject to Egyptian salary tax and the company must implement the required monthly tax withholdings. Social insurance contributions are required for Egyptian employees from both employers and employees.

Books & Records: All LLCs are required by law to maintain up-to-date financial books and records, and submit audited tax returns for each financial year.

1.3. Branch Offices

A foreign company may register a branch office in Egypt (in the Commercial Register) if the company has a contract with an Egyptian private or public sector party to perform work in Egypt.

Unlike a representative office, a branch may engage in commercial, financial, industrial and contractual activities within the scope of the contract entered into.

Management: The branch office may be managed by a branch manager(s). The branch manager(s) does not need to be an Egyptian national(s). Branch offices under the full control of its parent company are subject to review by GAFI to ensure compliance with laws and regulations. Moreover, branch offices are required to appoint an auditor .

Taxes & social insurance: Additionally, all employees of a branch office shall be subject to Egyptian salary tax and the branch office must implement the required monthly tax withholdings. The government requires social insurance contributions for Egyptian employees from both the employers and employees.

Profits: The branch office shall also distribute at least 10% of its net profits to its employees, up to a maximum of its total annual payroll. The branch office is responsible for ensuring fair payouts.

Books and & Records: The branch office must maintain accurate and up-to-date financial books and submit annual audited tax returns.

1.4. Representative Offices & Management

undefined Foreign companies are permitted to establish representative or liaison offices, scientific or technical offices, and other offices for the purpose of carrying out market surveys or studying the feasibility of production without having to enter into any commercial operations or commercial agency activities. The representative office shall be managed by a manager(s), who does not need to be an Egyptian national(s).

2. Labour Law

In line with its obligations under the World Labour Organisation and the Arab Labour Organisation, of which Egypt is a member, the Egyptian Parliament enacted Labour Law No. 12 of 2003 (the Labour Law), superseding the former Labour Law No. 137 of 1981. Despite its progressive approach, the Labour Law remains to a large extent – much like its predecessor – an employee-biased law, designed to protect the rights of the employee.

In the following section, we will primarily discuss:

• Employment contracts;

• Dismissal, termination and settlement;

• Closure of business or downsizing; and

• Health care and pension payments

2.1. Employment Contracts Probation & Term

An employment contract may be drawn up for a definite or indefinite term. The Labour Law provides that a definite-term contract may be renewed upon the express mutual agreement of the parties for a consecutive definite-term(s) without being construed as an indefinite term contract. Nevertheless, if the parties neglect to expressly renew the definite-term contract but still perform the same services, it shall then be construed as an indefinite-term contract.

If an employee is hired on a probationary basis, the contract of employment should expressly indicate the length of the probationary period, which shall not exceed three months.

Working hours & overtime: Normal working hours may not exceed eight hours a day or 48 hours per week (excluding a one-hour break per day). Most private sector employees work five days a week, usually Sunday to Thursday. The number of working hours may be increased under certain circumstances. In any event, and in accordance with Article 82 of the Labour Law, working hours and breaks must be organised so that the total working hours do not exceed 10 hours per day, including the break if it is taken at the workplace.

2.2. Dismissal, Termination & Settlement

undefined The Labour Law has introduced several new provisions, including those governing termination of employment.

Pursuant to Article 69, an employee may only be terminated on the grounds that he/she committed a grave fault or due to non-performance of his/her obligations. Furthermore, Article 111 of the Labour Law requires the employer to serve a two-month-prior termination notice to the employee in question, and three months if the employee has served more than 10 years at the company.

Unjustified termination would entitle the terminated employee to claim damages against the employer, and if the court rules in favour of the employee, the awarded damages would not be less than two months of full salary for each year of service, in addition to any other legal entitlements that the party in question may be entitled to as compensation. Salary, in this respect, would extend to include all related acquired rights, such as allowances and bonuses, among other things.

Furthermore, pursuant to Law No. 180 of 2008, which amends certain provisions of the Labour Law, the employee is entitled to request the court to issue an urgent order to the employer for payment of a 12-month salary, pending a judgment on the merits of the employee’s case for unjustified termination.

Amicable termination settlements seek to put a termination package in place with the employee, which would ordinarily include a final resignation and release form. However, it should be noted that pursuant to Article 119 of the Labour Law, the employee has the right to withdraw his resignation within one week of its acceptance by the employer, and in such case the resignation would be considered null and void.

This rule aims to give the employee the chance to reconsider the impact of such resignation in an attempt to protect his or her best interests. Accordingly, the employer should consider that the resignation is effective upon the lapse of such a one-week period.

2.3. Undertaking, Closure Of Business Or Downsizing

The Labour Law of 2003 ensures the rights of employees are fulfilled in the cases of sale, lease or assignment of business. Article 9 specifically discusses such a matter, stating that the transfer of ownership of any establishment does not lead to a termination of employment contracts within such a business. Additionally, the article ensures that both the new owner of the business, as well as the old one, are responsible and jointly liable for fulfilling the obligations specified in the contracts of employment.

2.4. Foreign Employees

Regarding foreign employees in Egypt, the law stipulates the need for foreigners to obtain a permit to carry out any work in the country, with “work” defined as “any vicarious work (meaning employment) of profession or craft, including domestic service.” Exceptions of such a rule include interns, foreign correspondents and diplomatic missions, all of which are exempt from the obligation of obtaining a permit. However, their hiring must still be reported to the authorities. Foreigners are required to obtain an Egyptian residency permit and a work permit to pursue work as an employee, whether in an Egyptian company, a foreign company’s branch in Egypt or independently. Permits are obligatory, whether the field of work lies in the public or private sector.

2.5. Health Care & Pension Payments

All private sector companies in Egypt are required to provide free health care coverage for their Egyptian employees either through the Medical Insurance Plan of the Ministry of Social Insurance, or privately. They must also contribute to the Pension Insurance Fund of the Ministry of Social Insurance.

3. Investment Law

Nearly two years after the Egypt Economic Development Conference that was held in Sharm El Sheikh on March 13, 2015, the Egyptian House of Representatives (Parliament) passed the new Investment Law No. 72 of 2017 on May 7, 2017 (Law No. 72) as part of the ongoing efforts aiming at bringing back more foreign direct investment to the country.

We shall discuss the properties of the new investment law, highlighting the newly offered guarantees and incentives given to investors under the implementation of the new provisions established for the purpose of attracting local and foreign investments to the Arab Republic of Egypt. Egyptian, Arab and foreign investors are entitled to benefit from guarantees and incentives under the investment law.

3.1. Guarantees & Incentives Available Under The New Investment Law

Law No. 72 introduces new safeguards, as well as new rights that create a smoother and more efficient process in the running of the investment projects, along with different new incentives offered to new investment projects. Additionally, the one-stop-shop Investor Service Centre (ISC) creates an investor-friendly environment.

Legal guarantees offered by the new investment law: The new investment law implements a series of safeguards to investors. It guarantees that:

• All investors are explicitly guaranteed fair and just treatment;

• All foreign investors are given the same treatment given to the national investors;

• Exceptionally, foreign investors can be granted a preferential treatment in application of the principle of reciprocity;

• The invested funds will not be governed by any arbitrary procedures or discriminatory decisions as all decisions related to the affairs of the investment project shall be justified and passed to concerned parties in the manner regulated by the provisions of the Law No. 72.

• Investment projects may not be nationalised. Also, companies and establishments may, in principle, not be expropriated. The expropriation of the investments projects’ property may exceptionally take place for public utility, but not without a fair compensation paid in advance without delay and the value of which shall equal the fair economic value of the expropriated property on the day preceding the expropriation decision date.

• Investment projects may not be administratively attached, sequestrated or frozen, except by a final court order or irrevocable judgment. This exception can also take place in case of debts due to the Tax and Social Insurance Authorities, which may be collected through all types of attachment, without prejudice to the contracts concluded by the state or the public legal persons with the investor .

• Investors are ensured more protection and security, as governmental and regulatory authorities may not revoke the investment project licence or suspend it, and may not cancel the land allocation, except after: (a.) Giving notice to the investor of the breach, hearing his views and giving him a period that does not exceed 60 days to remedy the breach; and (b.) After the said period, if the breach was not rectified, the opinion of GAFI must be sought before issuing any decision against the investor, and GAFI shall express its opinion within seven days from the date of receiving the request . (The investor retains the right to appeal such decision before the GAFI Appeals Committee and then the courts, if necessary).

New rights for investors: The new investment law offers more rights to investors, allowing a smoother, more efficient running of their investment projects, as:

• Investors are entitled to set up, operate, expand and finance their projects in foreign currency transferred from outside Egypt, without restrictions.

• Investors are also entitled to own, manage, use and dispose of the project, to make profits from the project and to transfer such profits abroad, as well as liquidate the project and transfer the proceeds of such liquidation in whole or in part abroad without prejudice to the rights of third parties.

• Foreign Investors are also permitted to freely dispose of their assets, liquidate their projects and convert proceeds in local currency into foreign currency through registered banks and repatriate their profits, sale proceeds and/or their capital, in foreign currency, without restrictions or delays.

• Investment projects shall have the right to import, whether directly or through third parties, the raw materials, production supplies, machinery, spare parts and transportation that suit the nature of their activity, which are required for the establishment, expansion, or operation thereof, without the need to be registered in the register of importers.

• Investment projects shall have the right to export their products, directly or through an intermediary, without a licence and without the need to be registered in the register of exporters. Incentives granted to new investment projects: Under the Law No. 72, all investment projects (other than free zone projects) benefit from General Incentives, as follows:

• An exemption from the stamp tax, notarisation and publication fees for contracts of incorporation of companies and establishments, as well as loan and mortgage contracts related to their business for five years from date of registration in the Commercial Register.

• An exemption from the stamp tax, as well as notarisation and publication fees for contracts of registration of lands required to set up the companies and establishments.

• A unified Customs tax bracket in the amount of 2% of the value of all imported machinery, equipment and devices required for the set up or completion of the companies of investments projects subject to the provisions of this law – except for the project established under the free zone regime. This unified Customs tax bracket also applies to all machinery, equipment and devices imported by the companies operating in the public utility sector and which are required for the establishment or completion of those companies.

• An exemption from Customs duties when importing casts, moulds and other similar production supplies for temporary use in manufacturing products and which will be re-exported abroad.

Special incentives: All investment projects set up after the issuance of Law No. 72 will be receiving a special investment incentive, taking the form of a discount off the taxable net profits, as follows:

• Sector A investment projects: all investment projects set up in the underdeveloped geographic zones that urgently need development in accordance with the investment map, such as the economic zone of the Suez Canal, the economic zone of the Golden Triangle and others that shall be determined by a decision of the Council of Ministers. These are commonly characterised by economic underdevelopment; high rates of unemployment; areas that are densely populated, with high rates of illiteracy and poor quality of education and health services and with high rates of poverty. Investment projects in such zones shall receive an investment incentive in the form of a 50% discount off the taxable net profits.

• Sector B investment projects, which cover the rest of the areas in the Arab Republic of Egypt, benefit from a 30% discount off the investment costs. The discount period should not exceed seven years from the activity start-up date and the investment incentive shall not exceed 80% of the paid-up capital until the activity start date.

The Investor Services Centre: Law No. 72 establishes the creation of an administrative unit in the authority, the ISC, which accelerates administrative procedures. The representatives of all licensing authorities in the ISC have the power to address all administrative and legal matters, allocate land and issue licences.

The new investment law represents an attempt by the government to revive the business and investment environment in Egypt following the failure of the latest amendment to the old Investment Law No. 8 of 1997 to achieve its goals. The law grants investors a wide range of new safeguards and rights that aim to create a more efficient work process. The different incentives created by this new law aim to attract new investors from a range of different sectors.

Finally, the administrative procedure has been facilitated with the creation of the ISC which endeavours to be a one-stop-shop for new investors.

Criminal liability: The new investment law focuses on amending the flaws regarding the criminal liability of managers and/or board members. Prior to its issuance, the person in charge of the management of the legal entity was deemed liable for criminal violations. The said liability has been amended by the new law.

Thus, in cases where the offence is committed in the name of and for the account of the entity, the person in charge of the actual management of the company is free of liability, given the absence of his/ her knowledge of the crime and/or intention to commit such crime for his/her own personal benefit and/or for the benefit of a third party.

In case the responsibility of the juristic person is not as stipulated in the previous paragraph, the legal entity shall be subject to a penalty fine of no less than four-fold the fine stipulated for the crime by law and not exceeding 10-fold thereof. Moreover, a verdict may decree the suspension of the activity the legal person is licensed to conduct for a period not exceeding one year. In case of recidivism, a verdict shall ordain the cancellation of the licence altogether or the dissolution of the legal person, as the case may be. The verdict shall be published in two widespread daily newspapers at the expense of the legal person.

Dispute resolution: The amended investment law introduced further amendments to facilitate and expedite dispute resolutions, allowing parties to resolve to arbitration for all disputes arising out of investment contracts. First, the new law established a Ministerial Committee on Investment Contracts Disputes Resolution, which is responsible for dispute resolution specific to investment contractual obligations, of which the state or an affiliate is a party. The ministerial decree also created a Grievance Committee that is responsible for receiving complaints regarding the implementation of the new investment law in Egypt. Lastly, a final committee was established – the Ministerial Committee on Investment Disputes Resolution – that focuses solely on assessing disputes between the government and investors regarding the implementation of the new law.

3.2. Free Zones

Egyptian, Arab and foreign investors may undertake projects in the Egyptian free zones regulated by the investment law. Most goods and materials imported into a free zone are not subject to import duties or regulations. There are two types of free zones: public and private.

Public free zones are established by the Council of Ministers upon a proposal by the competent minister and after the approval of GAFI’s board of directors, to conduct the licensed projects, regardless of their legal forms. Public free zones are mainly aimed at exporting abroad. The issued decision to establish the Public free zones shall state its location and boundaries.

Incentives & tax breaks: Free zone companies can undertake either industrial or service activities. Free zone companies are not subject to income tax and are incorporated for the purpose of exporting the products or services manufactured or provided in the free zone abroad. Under the free zone system, qualifying companies are granted Customs duties and tax exemptions. Both types of free zone companies are exempt from local taxes and Customs.

Accordingly, projects established in the public free zones are subject to a fee of 2% of the commodity value upon ingress for warehousing projects, and a fee of 1% of the commodity value upon egress for the manufacturing and assembling projects. The transit goods trade shall be exempted from this duty as well. However, projects established in the public free zones are subject to a fee of 1% of the total revenue for the projects of which the main activity does not require the ingress or egress of goods, based on the financial statements accredited by a certified accountant.

As for the projects established in the private free zones, they are subject to a fee of 1% of the total revenue realised for the manufacturing and assembling projects upon exporting the goods abroad, and 2% of the total revenue realised by these projects upon the ingress of commodities into the country. And the transit goods trade with determined destination shall be exempted from such duties. Furthermore, projects established in the private free zones are subject to a fee of 2% of the total revenue realised, in relation to the projects mentioned here above.

In all cases, projects established, whether in the public or private free zones, shall pay annual fees to GAFI for which the services may not exceed (0.001%) of the capital, at maximum LE100,000 ($6588).

3.3. Special Economic Zones (Sezs)

Under Law No. 83 of 2002 SEZs were established to provide entities with considerable economic independence, reduced bureaucratic procedures, lower taxation rates – with an average of 10% – and flexible administration and labour regulations.

Aside from tax-related incentives, new legislation issued in 2016 pursuant to which further incentives are granted for heavy employment projects in the free zones, projects prioritising domestic industrial components for production and for renewable energy-related projects. SEZs are self-governed through independent authorities for each zone, giving greater power to each zone’s board of directors. Production in SEZs is mainly focused on areas such as fertilisers, iron and steel, pharmaceuticals, building materials and petrochemicals.

4. Property Law

this includes special requirements and restrictions related to foreign ownership.

4.1. Law No. 230 Of 1996 Concerning The Regulation Of Ownership Of Built Real Estate & Vacant Land

Pursuant to Law No. 230 of 1996 regulating the ownership of built real estate and vacant land by non-Egyptians (Law 230 of 1996), a foreigner who acquires ownership of vacant land is obliged to commence construction within a period of five years from the land purchase agreement being notarised. In the event the five-year period lapses without commencing construction works, the prohibition to dispose of the said vacant land shall be extended to a similar period as that of the delay in construction.

In principle, foreigners who acquire ownership of a building in accordance with Law No. 230 of 1996 may not dispose of such building before the lapse of five years from the date of acquiring it.

4.2. Law 94 Of 2005 Amending Some Provisions Of The Companies Law And The Investment Law

Law No. 94 of 2005 amending some provisions of the Companies Law No. 159 of 1981 and the Investment Law No. 8 of 1997 (“Law 94 of 2005”) stipulates some regulations for the foreign ownership of real estate in Egypt. Law No. 94 of 2005 provides that both companies and entities shall have the right to own land and property which is required to conduct and expand their activities, irrespective of the nationality of the partners, shareholders, their residency or the percentage of their shareholdings and partnerships, with the exception of land and property in areas designated by the Council of Ministers in determining the rules according to which such real estate is transferred.

4.3. Prime Ministerial Decree No. 350 Of 2007

undefined This decree states that all companies and entities shall have the right to own the land and property necessary for conducting their business or expanding their activities, irrespective of the nationality of the partners or shareholders, their residency and the percentage of their partnerships and shareholdings.

This is applied, with the exception of land in strategic areas, such as those adjacent to the western, eastern and southern borders of Egypt; islands located in the Red and Mediterranean Seas; and the Suez Canal area. The decree prohibits foreign companies and entities from owning any land or property in the Sinai Peninsula, including land falling within the geographical scope of Ismailia, Suez and Port Said Governorates.

However, Law No. 14 of 2012, concerning the integrated development of the Sinai Peninsula, stipulates that JSCs with foreign participation are permitted to invest in certain areas of the Sinai Peninsula, provided that at least 55% minimum of the share capital is owned by Egyptian nationals and provided that the activity conducted by the JSC is of a developmental nature.

5. Government Procurement

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5.1. Government Contracts

The Tenders Law No. 89 of 1998 outlines the governmental procurement of goods, services and construction, which must be concluded through a public tender or public negotiations. In very limited cases, a governmental entity may recourse to limited tender or limited negotiations.

In emergency cases only, direct contracting, without recourse to public or limited tenders or negotiations, may be permitted (such as for the procurement of medicines, vaccines and infant milk). Although a government contract must be awarded on the basis of the most qualified and lowest bid, Egyptian domestic contractors shall be accorded priority if their bids do not exceed the lowest foreign bid by more than 15%. Each tender must be accompanied by the payment of a bid bond of up to 2%, which shall be refunded to unsuccessful tenderers.

A final deposit of up to 5% must be paid by the winning bidder and will be released after execution of the contract and the lapse of the guarantee period.

5.2. Procurement Of Goods

Law No. 5 of 2015 aims to promote domestic products and ensure that all Treasury expenditures related to government contracts prioritise the purchase of Egyptian products over imports when securing items related to such contracts. Technically, government procurement must first prioritise products satisfying the proportion of domestic industrial components – all products in which domestic components exceed 40% of the final price of the product. However, there are several exceptions to the 40% threshold. For example, if the products satisfying the proportion of domestic components do not meet the required or approved standards for the intended product or are not available or only available in limited quantities and/or if its price exceeds by 15% the price of similar imported items.

The 40% threshold may be waived by virtue of a decree issued by the Prime Minister. The decree would be based on a proposal from the competent minister, together with the minister of finance and the minister of planning, in accordance with the parameters set out in the Executive Regulations. If these guidelines are approved, then alternatives can be explored.

6. Value-Added Tax (Vat)

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6.1. New Law

A new VAT law was approved on August 31, 2016 and was published in the Official Gazette, taking effect on September 8, 2016. The new VAT Law No. 67 of 2016 replaced the General Sales Tax Law No. 11 of 1991, which has been annulled, as well as any other legal provisions contradicting the new law.

VAT will be applied to a broader range of goods and services that the previous general sales tax; however, a number of basic goods and services which affect low-income earners will be exempt, in addition to other exemptions provided in the law.

A general rate of VAT of 13% was decided for FY 2016/17 and was increased to 14% for FY 2017/18. Different applicable rates include 5% for machinery and equipment used in the production of goods or provision of services (except for buses and passenger vehicles) and 0% for goods and services exported outside Egypt.