Guide for Starting a Business in Egypt

The real estate market in Egypt is becoming more attractive to foreigners due to favourable conditions such as prices, accommodation and the procedures of purchase. Compared with countries such as Turkey (the main competitor of the Egyptian real estate market for foreigners), Bulgaria, Cyprus, Greece and Montenegro, more and more foreigners are attracted to Egypt.

With the increased popularity of properties in the touristic centre of the Egyptian Red Sea coast, what remains a constraint is the lack of the complete information about the possibility of opening a business by foreigners in Egypt. Many potential buyers of villas and apartments in Hurghada, El Gouna, and Safaga, used to combine a relaxation period, with running their own business or a high-paying job.

One of the important conditions for opening a business under the Egyptian law is the age limit; for a person to open a company, he or she must be at least 21 years of age. The person who opens the company must be capable, without any mental abnormalities. Local authorities will conduct mandatory safety checks on his security clearance (based on information regarding his behaviour in Egypt).

Opening one’s own business, according to Egyptian law, does not have to work in any public bodies. The Laws of the Arab Republic of Egypt, N 159/1981 “The Companies” and N17/1999 “About Commerce” determine the legal forms of the companies and the conditions of their establishment, including foreign companies.

Legal forms of commercial companies:

1. A Private enterprise can be opened by one individual, when the limits of the authorized capital are not installed. If the trading capital is less than 20 000 LE, then the financial statements cannot be maintained. The founder must be an Egyptian, except when he is engaged in export activities.

A Private Entrepreneur (PE): the trade capital of 20 000 LE or more, shall maintain proper accounting records prescribed form. The annual profit of emergency is taxable, and other income is also taxed; the total income tax shall be at the following rates:

• First 5,000 L.E. -0%;
• From 5000 L.E. 20 000 – 10%;
• From 20 000 L.E. 40 000 L.E. -15%;
• More than 40,000 L.E. -20%

2. A Limited liability company – the number of partners is not less than 2 but not more than 50 people. The minimum share capital is 50 000 LE (About 8,880 U.S. dollars), paid prior to the registration of the company, which after registration, can be used for business needs. A liability company is limited to the size of your investment. The authorized capital is wholly owned by foreigners; they pay their quota, or total capital, in convertible foreign currency. If the foreign partner (owner) wants to transfer his capital from Egypt, he should sell his quotas and or liquidate the company, to place funds from sales in one of the accredited banks in Egypt, and the bank will hold the requested transfer of funds.

A management company may be transferred to one or more managers. In this case, at least one of them must be Egyptian. The manager at the same time should have the same legal status as director of the company. If the number of partners is over 10, it is required to form a Supervisory Board consisting of three persons, who are full partners.

3. Joint-stock company:

• Open Joint Stock Company – a minimum of three shareholders. Minimum share capital – 250 000 LE, half the amount is free after registration;
• Closed Joint Stock Company – a minimum of three shareholders. Minimum share capital – 250 000 LE, half the amount is free after registration;

For companies that are open or closed, and offering their shares for public subscription, the minimum share capital must be 1,000,000 LE. In this case, at least 50% of the share capital must belong to the founders, and not less than 25% of the share capital must be paid in the period of formation of the company, and the rest within a maximum of 5 years. Sale of shares on the Egyptian Stock Exchange can only be done after 2 years from the date of the incorporation.

A foreign shareholder may sell his shares on the Egyptian Stock Exchange and freely translate from the sale proceeds abroad without any restrictions, taxes or duties. Shares of closed or open types can be fully owned by foreigners. In this case, they must pay the cost of their shares in the company in convertible foreign currency. Creation of a joint-stock company usually takes 4-5 weeks. SA is the governing body of the Board of Directors, consisting of an odd number of members – at least three. Council members, including Chairman of the Board of Directors, may be foreign nationals. A joint-stock company is controlled by the Department of Companies.

4. Partnerships:

• General Partnership – a minimum of two partners, no limit on the share capital.
• Limited partnership on equal footing – at least 3 partners. Two types of partners – general partner and limited partner (“sleep”). Liability of partners depends on the size of individual contributions. The minimum total share capital is 250 000 LE (45,000 dollars approx).

The capital is divided into two categories: First, the shares owned by the founding partner (the value of shares in accordance to the sum paid in capital); Second, the shares of equal value owned by shareholders. Partners, shareholders bear full responsibility and liability of shareholders, determined by the total size of their shares. Aliens may participate in the partnership as a limited (“sleep”) partner, with a proportion of fixed capital of no more than 49%.

The Status (form) of the company is determined by the Charter, which is (assures) the lawyer-notary. Company registration and declaration of its status will be made in the commercial register. On registration of the company, an advertisement is published in The Journal of Legislative ads, and a copy of the Charter is passed to the Directorate General for Investment (GAFI).

In the Limited Partnership, shares should be created by the Supervisory Board, consisting of not less than three shareholders or third persons, selected at a general meeting of shareholders. A foreign company may be opened in Egypt or a branch office. In this case, the activity of the foreign company is limited. However, to be independently engaged in mediation or commercial activities is prohibited. If the foreign company is required to arrange services, sales networks, or promotions on the territory of Egypt, for their products or services, it needs to conclude a contract sales agent (dealer, distributor) and register its representative office in accordance with the Law on Commercial Agencies.

By Iana Roginska

References:

1. Laws of the Arab Republic of Egypt: N159/1981, “The Companies”; N230/1989, “On investments”; N8/1997, “On investment promotion and guarantees for investors”; N17/1999, “About Commerce.”