Banking and Currency
Foreign Currency Control
In February 1991, Egypt removed most foreign exchange controls, allowing rates to reflect market forces. Soon thereafter, Egypt fully unified its two-tier exchange system and opened the exchange market to non-bank dealers.
Law No. 38 of 1994 enables the free transfer of foreign currency into or out of Egypt and from one person to another within the country. The only foreign exchange restriction provides that the proceeds from sale of real estate in Egypt that is owned by foreigners residing outside of Egypt may not be transferred abroad for a five year period following the sale. The Egyptian pound remains non-convertible and may not be taken outside the country.
The Central Bank of Egypt sets policy for almost all of the country's bank with the exception of three: Misr African International Bank, the Arab International Bank and the Egypt Export Development Bank.
Banks can set their own interest and exchange rates within guidelines set by CBE, such as T-Bill auctions and discount rates. Also, a large increase of foreign and domestic banks operating in Egypt has caused the Central Bank of Egypt (CBE) to set restrictive guidelines for new comers.
From 1957-1974, only fully owned Egyptian banks were permitted to operate. The Investment Law 43 of 1974 allowed foreigners to obtain a less than 50 percent stake in a joint-venture commercial and investment bank. Further laws continued to open the banking system, including permitting foreign bank branches to operate in Egyptian currency. Finally, on June 16, 1995, the government approved majority foreign ownership joint-venture banks.
In 1999, there are numerous American banks operating in Egypt including Citibank, American Express Bank, Bankers Trust, Bank of New York, Chase Manhattan and one Egyptian-American Bank.
At the end of June 1998, total bank assets were $73 billion, deposit base $54 billion and loan portfolio of $48 billion.
Egyptian banks are generally considered overly conservative. They often demand a counter guarantee equal to the amount borrowed as a condition for granting a loan. Short-term lending makes up about 80 percent of the major banks' portfolios.
There are over 100 banks in Egypt including thirty-eight commercial banks that are controlled by four government-owned banks (Banque Misr, National Bank of Egypt, Bank of Alexandria, and Banque du Cairo) and numerous joint ventures and specialized banks. These four government-owned banks hold two-thirds of the banking community's assets.
Presently, some major international investment banking institutions are entering the Egyptian market, including HSBC Investment Banking, ING Barings, Credit Suisse and Morgan Stanley.
The Egyptian Government has revised many of the banking laws and practices. Egypt's banks have benefited from the government's reforms of the exchange rate and interest rate systems, and many have made substantial gains by investing in government bills and bonds. Nonetheless, banks still suffer from low capitalization and heavy debt burden from the former socialist period.
The legal regime regarding patents and trademarks is similar to that of England, and registered owners of intellectual property are provided with adequate protection. Egypt is a signatory to the Paris Convention of the Protection of Intellectual Property and the Madrid Agreement regarding international registration of trademarks. Furthermore, Egypt is a member of the World Intellectual Property Organization.
The law on Patents and Industrial Designs, Law No. 132 of 1949, as amended, grants inventors fifteen years of patent protection from the date of application. In some cases, it may be extended for an additional five-year term. The patent holder has exclusive rights to the invention and may license, assign, pledge or in any other way act with regard to the patent. At the end of the patent protection period, the invention enters the public domain.
A new patent law has been drafted recently. The new law, if approved, would extend the patent protection period to twenty years and widen the definition of an "invention" as protected by the law. Unlike the current patent law, the draft law provides for a substantive examination of the patent application before granting the patent. The draft law also provides that not only the patentee but also any other party who introduced adjustments, improvements or additions to a patent invention shall have the right to apply and obtain an independent patent.
Egypt has adopted the Paris Convention, and, accordingly, a patent application filed in a member country entitles the applicants to apply for a patent in Egypt within one year.
The Trademarks Law No. 47 of 1939, as amended, grants a ten year protection period to trademark holders from the date of application. The trademark is renewable for similar periods without restriction; an application must be filed for each renewal period.
The Copyright Law No. 354 of 1954, provides copyright protection for, inter alia, written works, paintings, sculpture and architecture, theater and musical pieces, photographs and cinematographic films, television and radio works for publication, maps, and speeches. A 1992 amendment to the Copyright Law stiffened the penalties available under the Copyright Law and also provides for protection of videotapes.
A 1994 amendment to the Copyright Law treats computer software as literary work and guarantees it a fifty-year term of protection. Protection under the Copyright Law terminates fifty years following the demise of the author. Should the copyrighted material be owned by a legal entity rather than a natural person, then the fifty year protection period begins on the date the material was first published. The author may assign the rights granted to him by the law to other persons, subject to certain limitations set by the law.
Industrial Designs and Models
Some industrial designs and models (such as design features of products and designs new in many items) can be registered with the Office for Registration of Industrial Designs. Registration provides protection for a period of six years and is renewable for two additional five-year terms.
Unified Intellectual Property Act Draft
A committee was formed at the Ministry of Commerce and Supply to draft a unified act to govern all elements of intellectual property. The new act is to include the existing laws concerning copyrights, models, industrial designs, and patents of invention and trademarks. In addition, the act will extend the protection period for industrial designs and models to renewable periods of ten years. It will also provide for substantive examination of the model, design or patent to ensure that it is novel and innovative. The proposed act sets severe penalties for intellectual rights infringement.
Taxes in Egypt may be divided into two categories. The first one concerns direct taxation of individuals and legal entities on their income or profit. The second involves indirect taxation of goods, services and events. The Egyptian taxation framework is statutory based. Tax administrators are given, under the relevant legislation, few discretionary powers. Courts are primarily responsible for the interpretation of statutes. The nature of the Civil Law system operating in Egypt allows precedent to have an influential but not necessarily a binding effect.
Over the last several years, Egypt has made many changes in its tax system. Some of these changes are merely cosmetic while others are rather substantial. Given this trend, it is advisable to seek up-to-date advice on recent and future changes to the tax law before pursuing commercial plans in Egypt.
Taxation of Companies
The Egyptian corporate tax regime applies to joint stock companies, limited liability companies, partnerships limited by shares, foreign companies and branches of foreign companies whose head office is situated abroad. This tax is also applicable to banks and public sector companies.
As of January 1, 1994, companies are subject to corporate profit tax at a standard rate of 40 percent. Special rates, however, apply to companies engaging in the following activities: (1) Petroleum companies - 40.55 percent; (2) Companies with export activities - 32 percent; and (3) Industrial (manufacturing) companies - 32 percent.
Corporate income tax is based upon taxable profits computed according to generally accepted accounting principles and certain modifications as provided by statute, the most important of which involve depreciation, inventory valuation and inter-company transactions. Capital gains arising from the sale of fixed assets are treated as ordinary profits. Dividends received by resident companies from foreign sources are subject to tax on income from moveable capital at a rate of 32 percent, but foreign taxes paid on such dividends are deductible. Interest derived from securities listed on the Egyptian Stock Exchange is exempt from income tax.
Virtually all legitimate business expenses are deductible including depreciation, other taxes and duties, interest and royalties, bad and doubtful debts, rent, director's remuneration, profit sharing payments to employees, legal expenses, pension and Egyptian state social insurance contributions. Losses may be carried forward and applied against future profits for up to five years.
All operations owned by the same company must be aggregated for reporting purposes. If operations are carried out by separate companies that are owned or controlled by one parent company, however, consolidation is not permitted.
It should be noted that general partnerships and simple limited partnerships are not taxable entities under Egyptian law. The partners in such partnerships, are personally liable for the tax due on their respective shares in the partnership's profit. Partners, therefore, are taxed in the same manner as individuals.
Taxation of Individuals
Law No. 187 of 1993, also known as the Unified Tax Law, abolished the general income tax previously levied on individuals pursuant to Tax Law No. 157 of 1981. Under the new Unified Tax Law, individuals, including partners in partnerships, are subject to tax at various rates on income from five sources:
* Income from Movable Capital: This tax is levied at a rate of 32 percent of gross income usually collected through withholding. This category refers to interest (other than interest on deposits), foreign-source dividends (less foreign taxes paid), executive director's fees and attendance fees.
* Income from Immovable Capital: This tax is levied at rates ranging from 20 percent to 48 percent. This category applies to net income derived from land and buildings.
* Commercial and Industrial Profits: This tax is charged on a sliding scale at rates ranging from 20 percent to 48 percent. This category applies to net commercial and industrial profits of enterprises which are not subject to corporate tax.
* Professional Fees: This tax includes rates that range from 20 percent to 48 percent. This category covers the net income of professionals such as engineers, accountants and lawyers.
* Salaries: This is a tax imposed on salaries paid in Egypt or abroad for services performed in Egypt. Taxable salary includes the value of all benefits, apart from housing allowances given to foreign experts. The salary tax is levied at 20 percent on the first £E50,000 of net taxable salary, after deductions and allowances, and 32 percent on the excess.
General Tax on Income
In addition to the specific taxes that are levied on specific types of income as mentioned above, the Egyptian legislature has imposed a general tax on income which is applicable to individuals. This tax is an additional tax, and the tax base is regarded as the total net income that the individual receives during the year. Only income that is subject to a specific tax is included in the tax base for the general tax on income.
The general tax on income is progressive and reaches 65 percent for income in excess of £E200,000 per annum. It should be noted that foreign employees in Egypt are subject to this tax unless there is a particular statutory or regulatory provision exempting them from the tax.
Real Property Tax
Real Estate taxes are levied on the assessed annual rental value of improved and agricultural property at rates ranging between 10 percent to 40 percent.
Most classes of documents, contracts, checks, receipts, bills, letters of guaranty, various banking transactions, transfer of unlisted securities, leases and many other instruments require payment of stamp duties. For example, between £E150-£E300 of stamp duty is charged upon the formation of companies, £E50 is charged for the registration of companies in the Commercial Registrar and £E0.01 is levied on bank checks.
There are no withholding taxes as such in Egypt, apart from scheduled income taxes which are withheld at source in many cases. Dividends distributed by an Egyptian company are not subject to withholding tax. The main instances where taxes are withheld are summarized below.
Tax on income derived from moveable capital is withheld in many cases, including payments to a foreign company that has no branch in Egypt and payments to non-resident individuals. Royalties and technical assistance fees paid to a foreign company with no branch in Egypt are normally subject to the 40 percent corporate income tax rate. The tax is imposed on the net amount after an arbitrary deduction for expenses. Amounts are also withheld on account of taxes due at 10 to 15 percent on the amount payable for professional services, at 3 percent on commercial services and at 10 percent on commissions paid to commercial agents. Lastly, employers must withhold the scheduled tax on salaries and wages from their employee's pay.
Inheritance and Gift Taxes
Succession tax is imposed on gifts and inheritances at rates between 3 to 15 percent. No tax is charged on an inheritance of less than £E 10,000. Resident foreigners are subject to inheritance and gift taxes on real estate and moveable assets. Non-residents are subject to these taxes only on real estate assets located within Egypt.
A 2 percent development duty is levied on the annual taxable income of individuals and companies that exceeds £E 18,000.
Social Insurance Contributions
Employers and employees must pay social insurance contributions to the Ministry of Social Insurance and Social Affairs. The social insurance laws do not apply to expatriates. The rate paid is based on the employee's monthly salary and is contributed to at a rate of 26 percent by the employer and 14 percent by the employee.
Law No. 11 of 1991 provides for a general tax on sales. The tax applies to most goods and certain types of services (mainly tourism, telecommunications and entertainment services). Goods imported from abroad for commercial purposes are also subject to the tax. The tax rate for goods ranges from 10 percent (the general rate) up to 50 percent for certain specified goods. The tax rate for services ranges from 5 to 10 percent. The tax is added to the price of the goods or services in question and is payable by the consumer at the point of sale and remitted by the billing entity to the tax authorities.
Treaties for the Prevention of Double Taxation
Egypt has concluded treaties for the prevention of double taxation with a number of countries, including: Austria, Canada, Cyprus, Denmark, Finland, France, Germany, India, Iraq, Italy, Japan, Libya, Norway, Oman, Pakistan, Romania, Singapore, Sudan, Sweden, Switzerland, Syria, Tunisia, the United Kingdom and the United States. Draft treaties which have not yet been ratified were concluded with Indonesia, Korea, Malaysia and Morocco. It is notable that since Egypt does not levy withholding tax on dividends, its tax treaties provide reduced withholding tax rates only for interest and royalties.
In the absence of a tax treaty, unilateral tax relief is available by way of deduction rather than by a tax credit. A taxpayer who derives foreign-source income which is subject to foreign as well as to Egyptian taxes will be allowed to deduct the amount of foreign tax paid in order to compute the taxpayer's taxable income for Egyptian tax purposes.
© 2000 Mena Report (www.menareport.com )