Foreign Direct Investments in Egypt

Investments in Egypt, from both Egyptian and foreign investors, are regulated by Law No. 72 of 2017 (the "Investment Law") irrespective of the size of the investment. Investment projects performed under the Investment Law provide many advantages and guarantees for the investor.

Recently, Egypt has introduced amendments to the Companies Law (Law No. 159 of 1981) under Law No. 4 of 2018, which are considered the most important amendments made to the Companies Law since 1981. Among the many modifications, the Companies Law now, for the first time, recognizes the concept of piercing the corporate veil for corporate shareholders and allows the setting up of a One Person Company (with limited liability) ("OPC"). Further, limited liability companies are no longer required to have at least one (1) Egyptian manager, and it can now be simply managed by at least one manager of any nationality.

The new Importation Registrar Law (Law No. 121 of 1982) was amended by Law No. 7 of 2017 and further liberated the Egyptian market for foreign investors, whereby:

• non-Egyptian investors can hold up to 100% of the entire capital of production and services companies operating in Egypt; and
• non-Egyptian investors are now allowed to hold or acquire up to 49% of the share capital in any company carrying out importation business for re-sale purposes in Egypt.

The General Authority for Investment and Free Zones ("GAFI") is the responsible authority for incorporating the investment projects.

The Investment Law provides, among others, the following incentives to the investment projects:

• fair and equitable treatment to both foreign and Egyptian investors; however, the Prime Minister will be having the right, subject to the principle of reciprocity, to grant favorable treatment to foreign investors;
• granting a residence permit to foreign investors throughout the term of their investment projects in Egypt;
• none of the Egyptian Authorities will have the right to suspend or terminate any license and/or allocation of properties granted to any investor without satisfying the following conditions:
• serving a notice to the said investor outlining the relevant breaches and/or violations made thereby;
• giving a reasonable time to the said investor to legitimize the breaches and/or violations above; and
• taking an opinion from GAFI before issuing the said suspension or termination.
• the right to directly import raw materials, equipment, spare parts, and/or transportation means as necessary for investment project without requiring the registration with the Importers' Registry;
• the right to export the investment projects' products, whether directly or indirectly, without requiring the registration with the Exporters’ Registry;
• free Zones can be established in the form of Public or Private Free Zones under a Decree from the Prime Minister mainly for the exportation purpose. Free Zones can be established in all Investment Sectors except for:
• oil, fertilizers, and steel production;
• transportation, liquidation, or production of natural gas;
• heavy energy usage industries as specified by the Supreme Energy Council;
• alcohol and wine productions; and
• weapons, artillery, and explosive production, as well as any other products related to national security.
  

All foreign investments and foreign investors are subject to a mandatory security clearance during the incorporation period of the company, branch, or representation office in Egypt. When investing as a legal entity as opposed to a natural person, the company's ultimate beneficiary owners ("UBO") as well as the legal representatives of all foreign shareholders holding more than 10% of the nominal capital of the Egyptian investment company, are subject to a security clearance.

Moreover, the money transferred from abroad shall be subject to money laundering inspection by the Central Bank of Egypt ("CBE"). All the Egyptian banks have to abide by the CBE's regulations in this regard.

During the incorporation phase, certain forms regarding the foreign company's shareholders’ structure and the foreign managers need to be submitted to the competent GAFI department. It is important to note that security clearance does not hinder the incorporation process. The incorporated Egyptian entity may operate freely from the day of its registration with the commercial registrar until the security clearance process ends. Should, however, the security clearance – which can take 6 – 12 months - prove negative, the already incorporated Egyptian entity will have to be liquidated, or the foreign manager will have to be removed, as the case may be. These cases are, however, sporadic.

The new Investment Law explicitly allows investors to allocate up to 10% of the net profits thereof to social development systems by contributing to any of the following fields:

• taking necessary measures for environmental protection;
• provision of healthcare, social or cultural services or programs or any other development areas;
• technical education support or financing of researches or studies aiming at developing or improving production in collaboration with any university or scientific researches institution; and
• scientific research and training.

Investors also have the right to deduct the allocated percentage's aggregate amount as a part of the deductible expenses to calculate income tax.

Subject to the stratification of specific criteria, the new Investment Law allows investors to use foreign employees up to 20% of the total number of the investment project's personnel.