Doing Business in Egypt KPMG HAZEM HASSAN

Transcription

1 Doing Business in Egypt KPMG HAZEM HASSAN

2 2 Contents Introduction 3 Doing Business in Egypt 4 Alternatives of Investment in Egypt 6 th 1 Free Zones Investment System nd 2 Inland Investment System rd 3 Investment at the Special Economic Zones th 4 Investment Zones:

3 Introduction Doing Business in Egypt 3 1) The Companies Law No. 159 of 1981 is the general Law which regulates the common business in Egypt. 2) The Investment Guarantee and Incentives Law No. 8 of 1997 is the Investment Law that allows certain activities to be undertaken according to which. 3) According to the Income Tax Law No 91 of 2005, the tax exemptions have been cancelled from the Investment Law and the Corporate Tax rate has been reduced to become 20% instead of 42%. The investors can establish their projects either under the Investment Law or under the Companies Law. Both Laws are having the same incentives, privileges and guarantees. The General Authority for Investment and free zone (GAFI) acts as the official regulator whom will be the governmental body responsible for project s approval and reviewing their articles of association. 4) The above mentioned laws do not cover the activities related to capital market, finance lease, Insurance,..etc as it should be practiced according to other Laws. 5) The companies shall comply with the provisions of the laws, regulations and decisions in force and shall be committed to obtain the licenses necessary for practicing its activities.

4 4 DOING BUSINESS IN EGYPT

5 5 In order to carry out any activity in Egypt, the foreign investors must either establish a branch, or an Egyptian subsidiary (entity). The Egyptian subsidiary can be fully-owned by foreigners (except for some activity i.e. importation and investment in Sinai and certain strategic areas that require a prior approval from the relevant authorities). Foreign Investors usually operate in Egypt through one of the following legal entity structures: (i) Branch of a Foreign Company; (ii) Joint Stock Company (JSC); or (iii) Limited Liability Company (LLC). The significant requirements for the entities structure: i. Branch: A branch of a foreign company can be only registered in Egypt to carry out construction works or generally work of contractual nature according to a contract concluded with any Egyptian entity either the Egyptian Government, Public Sector or Private Company. Although the branch can engage in commercial, financial, industrial and contractual activities, the activities that the branch will carry out will be limited to those stated in its contract in Egypt. ii. Joint Stock Company (JSC): 1) The name of the company should be derived from its purpose. 2) The founders should not be less than three (individuals or corporate bodies). 3) The board of directors should be composed of at least three members of individuals or corporate bodies. 4) The issued capital should not be less than L.E ) The paid in capital upon establishment should not be less than 10% to be raised 25% within three months from the company entry into Commercial Registry and the remaining (75%) should be paid within five years. However, we recommend settling 25% upon establishment. 6) All the company s founders, shareholders and board members could be non-egyptian (except for some activity i.e. importation,.. that require 100% Egyptian). iii. Limited Liability Company (LLC) 1) The name of the company could be derived from its purpose or any of the partners names. 2) Number of partners (founders) should not be less than two (individuals or companies). 3) There are no minimum limit for the capital that should be fully paid. 4) The Company is managed by one manager or more, provided that, at least, one of them should be Egyptian. 5) All the company s founders, shareholders could be non-egyptian (except for some activity i.e. importation,.. that require 100% Egyptian).

6 6 ALTERNATIVES OF INVESTMENT IN EGYPT

7 7 1st : Free Zones Investment System: There are two types of the Free Zones: Public Free Zone. Private Free Zone. Free Zones projects are located in Egypt but are considered offshore areas. Projects operating according to the Free Zones are committed to export more than 50% of their total production. Exemptions: 1) The projects established in the free zones and their profits shall not subject to the provisions of laws of taxes and duties applicable in Egypt (so long as such projects limit their activities to that included in their practice activity license). 2) Goods exported abroad or imported by the free zones projects to exercise their activities shall not subject to imports or exports rules, or customs procedures related to exports and imports. It shall also not subject to the customs taxes, sales tax or any other taxes or duties. 3) Except for the passenger cars, all the equipment, supplies, machines and transportation vehicles necessary for exercise the activity licensed for the projects in the free zones shall not subject to the customs taxes, sales tax or any other taxes or duties. 4) The articles of incorporation of the companies and establishments as well as the loan and mortgage contracts related to their works shall be exempted from the stamp duty and the notarization & registration fees for (5) years from the date of registering in the Commercial Registry, the contracts of registration the land which are necessary for establishing the companies and establishments, within the private free zone system, shall also be exempted from the aforementioned tax and fees. Guarantees & Incentives: 1) The companies and establishments shall not be nationalized or confiscated. 2) Sequestration shall not be imposed administratively on the companies and establishments nor shall their property and funds be distained, seized, retained in protective custody, frozen or confiscated. 3) No administrative quarter shall interfere in pricing the companies and establishments products, nor in determining their profits. 4) No administrative quarter shall cancel or stop the license granted for using the realties of which the usufruct rights is licensed to the company or the establishment wholly or partially, except in case of infringing the license conditions. 5) Contracts of incorporation of companies and establishments and loan and mortgage contracts related to their business shall be exempt from the stamp tax as well as notarization and publication fees for a period of five (5) years. Contracts of registration of lands necessary for the establishment of companies and establishments shall also be exempted from the above mentioned tax fees. 6) The companies and establishments shall have the rights to possess and own building s lands and properties as necessary for exercising their activities and expanding them, whatever the nationality or place of residence of the partners, or the percentage of their partnership.

8 8 7) The companies and establishments shall have the right to import by themselves or via third parties whatever they need for their establishment, expansion or operation, comprising production inputs and requisites, materials, machines, equipment, replacement and spare parts, and means of transport as suitable to the nature of their activities, without need for recording in the Register of Importers. 8) The companies and establishments shall have the right as well to export their products by themselves or through middlemen without being licensed therefore and without need for recording themselves in the Register of Exporters. Financial Liabilities of the free zones projects: 1) Charges against services rendered by GAFI: Free zones companies pays charges against services at an annual rate of 0.5% of the project investment costs at a minimum amount of US $ 100 and maximum of US $ 1000 or its equivalent in foreign currency. 2) Financial guarantee to cover the project liabilities: Prior to issuance of the resolution licensing the practice of the activity, the companies should provide GAFI with a financial guarantee to cover its liabilities before GAFI either in cash or by L/G issued by a bank registered in CBE, the value of L/G shall be determined as follows: For industrial projects: 1% of the project investment costs at a minimum of US $ 5000 and maximum of US $ For storage projects: 2% of the project investment costs at a minimum of US $ and maximum of US $ For other projects: 1% of the project investment costs at a minimum of US $ and maximum of US $ The financial guarantee shall be abated by 15% in case of cash payment, provided that it does not fall below the prescribed minimum amount. 3) Annual charges: For industrial projects: 1% of the cost value of manufacturing portion introduced there into or the assembly process made to them. For storage projects: 1% of the commodity value upon the entry of the commodity (CIF) on their entry. For service projects: 1% of total realized annual revenues to GAFI as per the accounts approved by a public accountant.

9 9 2nd: Inland Investment System: Projects operating according to the Inland Investment System shall be subject to the provisions of Law No. 159/1981 and Law No. 8/1997. The project shall practice covered the activities stated in the Executive Regulation of Law No.8/1997. Exemptions: 1) The articles of incorporation of the companies and establishments as well as the loan and mortgage contracts related to their works shall be exempted from the stamp duty and the notarization & registration fees for (5) years from the date of registering in the Commercial Registry, the contracts of registration the land which are necessary for establishing the companies and establishment shall also be exempted from the aforementioned tax and fees. 2) Machines, equipment, and instruments imported thereby as necessary for establishment the company shall be subject to a unified rate of 5% of their value. This according to the provisions of article (4) of the law No. 186 for the year 1986 which regulating customs exemptions. Guarantees & Incentives: 1) The companies and establishments shall not be nationalized or confiscated. 2) Sequestration shall not be imposed administratively on the companies and establishments nor shall their property and funds be distained, seized, retained in protective custody, frozen or confiscated. 3) No administrative quarter shall interfere in pricing the companies and establishments products, nor in determining their profits. 4) No administrative quarter shall cancel or stop the license granted for using the realties of which the usufruct rights is licensed to the company or the establishment wholly or partially, except in case of infringing the license conditions. 5) The companies shall have the right to possess and own building lands and built realties as necessary for exercising their activities and expanding them, whatever the nationality or place of residence of the partners, or the percentage of their partnership. 6) The companies and establishments shall have the right to import by themselves or via third parties whatever they need for their establishment, expansion or operation, comprising production inputs and requisites, materials, machines, equipment, replacement and spare parts, and means of transport as suitable to the nature of their activities, without need for recording in the Register of Importers. 7) The companies and establishments shall have the right to export their products by themselves or through middlemen without being licensed therefore and without need for recording themselves in the Register of Exporters. 3rd: Investment at the Special Economic Zones: Benefits & Exemptions: 1) Corporate tax rate 10%. 2) Labor tax rate 5%. 3) Yields of bonds and loans as well as financial facilities granted for the Authority (Special Economic Zone Authority), the development company or the companies, establishments and branches licensed to work inside the special economic zone shall be tax exempted.

10 10 4) No cancelling or stopping for the license granted for the usufruct rights of realties of the companies, establishments and branches inside the special economic zone, except in case of infringing the license conditions. 5) The lands and realties necessary for practicing the activity of the companies and establishments inside the special economic zone shall be allocated for fifty years against annual usufruct rights fees. 6) The companies, establishments and branches inside the special economic zone shall have the right to import by themselves or via third parties whatever they need for their establishment, expansion or operation, comprising production inputs and requisites, materials, machines, equipment, replacement and spare parts, and means of transport as suitable to the nature of their activities, without need for recording in the Register of Importers. 7) The companies, establishments and branches inside the special economic zone shall have the right to export their products by themselves or through middlemen without being licensed therefore and without need for recording themselves in the Register of Exporters. 4th: Investment Zones: Exemptions: 1) Contracts of incorporation of companies and establishments and loan and mortgage contracts related to their business shall be exempt from the stamp tax as well as notarization and publication fees for a period of five (5) years, Contracts of registration of lands necessary for the establishment of companies and establishments shall also be exempted from the above mentioned tax fees. 2) Machines, equipment, and instruments imported thereby as necessary for establishment the company shall be subject to a unified rate of 5% of their value. Guarantees & Incentives: 1) An integrated customs services for the projects in Investment Zone. 2) All relevant services are centralized in One Stop Shop implemented in Investment Zone. 3) The companies and establishments shall not be nationalized or confiscated. 4) Sequestration shall not be imposed administratively on the companies and establishments nor shall their property and funds be distained, seized, retained in protective custody, frozen or confiscated. 5) No administrative quarter shall interfere in pricing the companies and establishments products, nor in determining their profits. 6) No administrative quarter shall cancel or stop the license granted for using the realties of which the usufruct rights is licensed to the company or the establishment wholly or partially, except in case of infringing the license conditions.

11 11

12 12 Contacts KPMG Hazem Hassan Pyramids Heights Office Park Km 22 Cairo / Alexandria Desert Road Al Ahram P.O.Box 48 Al Ahram Giza - Cairo Egypt Moataz Ahmed Empowered Director Tel: (202) /11 Ext Fax: (202) /03 [email protected] Hatem Salem Empowered Director Tel: (202) /11 Ext Fax: (202) /03 [email protected] Egypt Disclaimer The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. Egypt Copyright 2010 KPMG Hazem Hassan, the Egyptian member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Arab Republic of Egypt. The KPMG logo and name are trademarks of KPMG International. KPMG International, as a Swiss cooperative, is a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. Designed and produced by KPMG s Egypt Design Services