Doing_business_in_egypt_2010_HSBC

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Doing business in Egypt

Contents Executive summary

Foreword 6 Introduction – Doing business in Egypt

Conducting business in Egypt

Taxation in Egypt

Audit and accountancy

Human Resources and Employment Law

Trade 32 Banking in Egypt

HSBC in Egypt

Country overview

Contacts 38

Disclaimer This document is issued by HSBC Bank Egypt SAE (the ’bank’ ) in Egypt. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. This document is produced by the Bank together with PricewaterhouseCoopers (‘PwC’). Whilst every care has been taken in preparing this document, neither the Bank nor PwC makes any guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or PwC be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and/or PwC only and are subject to change without notice. The materials contained in this publication were assembled in November 2010 and were based on the law enforceable and information available at that time.

Executive summary Egypt’s location is one of the main attractions that make it a unique place for investment. It overlooks the Mediterranean Sea, in which several ports are located to facilitate transportation of goods in and out of the country. Also, Egypt overlooks the Red Sea which is an important stimulator to the tourism sector, being one of the most important sectors of the Egyptian economy. Moreover, the Suez Canal plays an integral role by linking both seas together. Needless to mention that the Nile River, flowing from the Delta all the way through upper Egypt, is the cradle of one of the World’s greatest ancient civilizations and has recorded history that dates from approximately 3,200 BC. Egypt has a stable economy in the Middle East and North Africa, enjoying growth of 4-5% in the past 25 years. The Egyptian economy developed through various phases starting from 1952 to date. Furthermore, Egypt has jumped 11 places in the World Economic Forum’s Global Competitiveness Report 2009/2010. Egypt is now 70th in the rankings, up from 81st in 2008/2009.

When considering doing business in a foreign country, language becomes one of the most crucial points. Fortunately, most Egyptian international business people speak English, French, or both (this is of course in addition to their mother tongue which is the Arabic language). Egypt’s Foreign Direct Investment (FDI) has tremendously improved, reaching US$6.1bn in the current year versus US$3.9 bn in 2005, and it is expected to reach between US$7.5 and 8bn in the coming year. • According to the latest reports from the IMF and UNCTAD, Egypt was ranked second (after South Africa) in terms of attraction of FDI to Africa, jumping from the fifth rank last year. Moreover, it is expected to be first next year. • The legal regime regarding patents and trademarks is similar to that of England, and registered owners of intellectual property are provided with adequate protection. • There is no minimum capital required to establish an Egyptian Limited Liability Company. Nonetheless, the establishment of such a company takes only 3 to 4 weeks.

• An Egyptian Limited Liability/ Joint Stock Company can be fully owned by foreigners, however this restricts the Company from importing for trade. • T here’s no restriction on repatriation of profits as long as the transaction is well documented. • There are no currency exchange controls in Egypt. • The Corporate Tax rate is 20%, which is considerably lower than many other countries. In addition, deduction of expenses is allowed (under certain conditions). • Tax losses can be carried forward for a period of 5 years. • Individuals are taxed at intervals starting from 0% to 20%, depending on the level of yearly income, with an annual exemption of LE4,000. NonEgyptian tax residents are taxed at a flat rate of 10%, with no exempt amounts being given. • Capital assets can be imported on a temporary basis (this means that they must be re-exported), in which case they are subject to an annual fee of 20% of the original Customs Duty amount imposed on the imported product.

Foreword Egypt, considered to be one of the fastest-growing emerging countries, and relatively unscathed by the financial crisis, has been identified by the Group as one of the top priority markets. The economy demonstrated clear recovery from the financial crisis with a GDP growth rate of 5.8% by 3Q10 versus 4.3% 3Q09. Privileged with a strategic geographic location, a worldclass infrastructure network, high quality suppliers and service provid足ers, vast availability and strong capability of qualified and trained human resources, and competitive corporate and personal tax rates, Egypt has a comprehensive Public Private Partnership strategy aiming to enhance the quality of services available in the country. Driven by the sustainable level of GDP growth, a diversified and resilient economy and the ability to attract foreign direct investment, Egypt is regarded as one of the strategic countries of the Mena region.

At HSBC Bank Egypt, we are ideally located to grow business and trade activities, offering opportunities to develop crossborder initiatives in all countries where HSBC is present. Our extensive knowledge of the local market can leverage global synergies, linking Egypt with countries and territories around the world. HSBC Bank Egypt S.A.E. was established in 1982 and is one of the leading multinational banks operating in Egypt. It provides a comprehensive range of banking and related financial services through a network of branches and outlets in prominent cities in Egypt, including a wholly owned head office building in Cairo. With the successful performance of HSBC Bank Egypt over the past years and the favourable economic environment (with double digit growth rates), we hope that you find this guide useful and that we become your selected business partner in Egypt.

Abdel Salam El Anwar Chairman & CEO HSBC Bank, Egypt S.A.E

Introduction Doing business in Egypt Egypt, officially the Arab Republic of Egypt, is a country in north-east Africa and southwest Asia. Its northern border is the Mediterranean Sea, on the east lies Israel and the Red Sea, Sudan is to its south, and on the west is Libya. The land of the Nile River, Egypt is the cradle of one of the world’s greatest ancient civilizations and has a recorded history that dates from approximately 3,200 BC.

Economic environment. Egypt has a stable economy in the Middle East and North Africa enjoying continuous growth, averaging 4-5% in the past quarter-century. The economy embarked on various stages of development during which the public and private sectors played roles varying in relative importance: • Import substitution and nationalisation, 1952-1966, during which the first programme of industrialisation in 1957 was established and led by the public sector. Accordingly, nationalisation reduced the relative importance of the private sector. • Inter-War, 1967-1973, adversely affected the performance of the economy and public sector role in import substitution. • Openness Euphoria, 19741982, various policies introduced to encourage Arab and foreign investment; the economy expanded but this proved unsustainable and growth consequently scaled back.

• External Debt Crisis, 1982-1990. • Economic Reform, 1991-2007, reform policies were introduced. • The World Food Crisis, 2008, soaring food prices, especially for grains, led to calls for the government to provide more immediate assistance to the population of more than 40% in the ‘poverty tunnel’ and to strike a ‘new deal’ on agriculture policy and reform. • The World Global Financial Crisis, 2008-present, Egypt to face the repercussions of the global financial crisis on the national economy. The Egyptian tourism industry is one of the most important sectors in the economy, as Egypt has many constituents of tourism such as historical attractions, beaches and sea activities, and amazing city life. Therefore, the government is always trying to encourage tourism in Egypt since it is a major source of foreign currency and investments. The Egyptian Ministry of Tourism is responsible for tourism in Egypt.

Position in global market Egypt has also jumped 11 places in the World Economic Forum’s Global Competitiveness Report 2009/2010 as a result of the recent liberalisation efforts in the country. Egypt is now 70th in the rankings, up from 81st in 2008/2009. The World Economic Forum attributed the improvement in Egypt’s ranking to the upgrading of its infrastructure across all categories and to positive developments related to labour market efficiency. The first half of FY2009/10 provides further evidence of a pick-up in growth and external demand. After falling rapidly from 24%, headline inflation has risen above 13% in recent months, although much of the impetus appears to be idiosyncratic. Core inflation remains within the central bank’s informal comfort zone. According to the 2006 census carried out by the Central Agency for Mobilisation and Statistics (CAPMAS), Egypt has a total workforce of just under 22 million from a population of just over 72.5 million, with an unemployment

rate of 9.31%. Egypt’s main trading partners are the USA, Germany, the UK, France, Italy and Japan. Ease of leaving the territory

• Submit all the necessary documents and requirements to the General Authority for Free Zone and Investment to obtain an approval for the closure process for each entity.

The formal procedures for closing a Branch Representative office can be summarised as follows:

• Cancel the branches from the commercial register.

• Notify the tax authority in a formal letter.

There are no tax incentives for foreign investors, however, in accordance with the General Authority for Investment, some incentives are allowed, as summarised below:

• Obtain a declaration letter from the head office company indicating its approval of the closure of the entities, signed and stamped by the Egyptian consulate abroad. • Prepare a dissolution financial statement for each branch. • Finalise and settle the group entities’ inspections, regarding all the liable taxes to the date of dissolution. • Close the social insurance entities’ file and employees’ file at the social insurance office. • Obtain a declaration letter from the branches’ managers and the representative office’s manager indicating that they have no financial or legal obligations towards any government bodies or authorities.

Tax and grant Incentives

1. Companies and establishments

may not be nationalised or confiscated. 2. No administrative authority may intervene in pricing the products of companies and establishments, nor in determining their profits. 3. Customs duty at a fixed rate of 5% of the value shall apply to the companies and establishments in respect of all of their imports of machinery, equipment, and appliances necessary for their establishment.

Foreign Direct Investment 1. According

to the latest statistics issued by the Ministry of Finance and the Ministry of Investment and the CBE, the following could be concluded:

• W ithin the framework of the efforts undertaken to attract FDI and improve the investment climate, FDI in the coming year is expected to reach between US$7.5 and 8bn, versus US$236m in 2003, US$3.9bn in 2005 and US$6.1bn in the current year; thus representing 6.5% of GDP. • This increase in FDI is accompanied by a structural change in favour of the nonpetroleum sector, which currently attracts more than 80% of FDI. This takes into consideration the government’s plan to offer investment opportunities in non-traditional fields such as education, agriculture and reclamation, as well as PPP projects in water and sewage projects.

• T he reforms undertaken by the government for the aim of promoting investment and applying transparency and creating an investment-friendly climate were highly appreciated by several international economic organisations and credit assessment agencies such as IMF and UNCTAD which, according to its latest report on world investment, ranked Egypt second after South Africa in terms of the ability to attract foreign direct investment (FDI) to Africa. This constitutes an improvement in Egypt’s position as it held the fifth rank last year, moreover, Egypt is expected to be ranked the first next year. 2. D uring

the Arab strategic forum in Dubai, the prime minister assured that the government succeeded in implementing the ambitious economic reform programme, thus achieving a growth rate as high as 7%. This is in addition to the FDI boom, as a result of a comprehensive strategy aimed at improving the business climate, including tax law amendments and removing obstacles facing investors, as well as the restructuring of GAFI (General Authority for Investment and Free Zones).

IP protection regime 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 Organisation. Infrastructure • Transport in Egypt is centred in Cairo and largely follows the pattern of settlement along the Nile. • Egypt Air provides reliable domestic air services to major tourist destinations from its Cairo hub. • The Suez Canal is a major waterway of international commerce and navigation, linking the Mediterranean and Red Sea. Major ports are Alexandria, Port Said, and Damietta on the Mediterranean, and Suez and Safaga on the Red Sea.

Cost of living

Local business etiquette

Cairo is currently ranked the 188th most expensive place in the world for expatriates to live, out of 300 international locations.

• ‘Personal space’ etiquette among members of the same sex may be much closer than North Americans and Europeans are generally comfortable with. Egyptians will tend to stand close and moving away may be seen as a sign of aloofness. On the other hand, men and women stand farther apart from each other than is the custom in United States and Europe.

Prohibited/Restricted Industries There are no prohibited industries in Egypt, other than those that are environmentally harmful. The Tobacco industry in Egypt is practiced through a monopoly by Eastern Company for Tobacco. Currency/exchange control The unit for Egypt currency is the pound (LE; symbol E£) = 100 piastres. Notes are in denominations of LE£100, 50, 20, 10, 5, 1, 50 piastres and 25 piastres. Coins are in denominations of 1 pound, 50, 20, 10 and 5 piastres. There are no rules/regulations controlling the currency exchange.

• In Egypt, when receiving a business card, rather than simply accepting the card, it is polite to examine it, and perhaps even ask a simple clarification question, such as, ‘when are you available at this phone number ’. It is considered polite to make such enquiries about business cards in Egypt.

• Try not to sit with your legs crossed. Showing the sole of your shoe is considered an insult to another person.

• Giving a small gift in a business meeting is an old and established custom in Egypt. The gift need not be too expensive, and in this regard, usually should not be, as it might be an embarrassment.

• It is common to smoke in public. Be considerate to others present and offer your cigarettes.

Nearly all Egyptians speak Arabic. Most international business people will also speak English, French or both.

Conducting business in Egypt Forms of business In order for companies to operate in Egypt, they should establish a legal entity which takes one of the following forms in accordance with, amongst other considerations, the purpose of the entity, the number of partners and the capital invested. In Egypt, there are four types of Legal entities as follows: 1. Joint

Stock Company Joint Stock Companies are permitted to carry out all types of activities. The company may be 100% owned by foreign investors, however, it is not permitted to import for trade. Based on that, there should be at least three shareholders who can all be foreigners and at least three members of the Board of Directors. The minimum capital required for such entities is at least LE250,000 or its equivalent in foreign currencies, where 10% of such capital must be paid up. Such entities can be registered in the Egyptian Stock Exchange. It is important to be aware that 10% of the companyâ&#x20AC;&#x2122;s annual profits must be distributed among the employees. The establishment process takes between 3 and 4 weeks 14

following the availability of certain documentation, whereby the company can then open its own bank account and obtain the bank certificate. 2. Limited

Liability Company All activities are permitted in a Limited Liability Company in Egypt and it may be also owned by foreign investors. However, it is not permitted to import goods or equipment for the purpose of trade. In order to form such a company, there should be at least two partners (who may all be non-Egyptian) and at least one manager who must be responsible for the administration work. There is no minimum capital required and once the capital is agreed upon, all of it must be paid at once. Limited Liability Companies cannot be registered on the Egyptian Stock Exchange. If the capital of the company exceeds LE250,000, 10% of the companyâ&#x20AC;&#x2122;s annual net profits must be distributed among the employees. The establishment process takes between 3 and 4 weeks following the availability of certain documentation whereby the company can then open its own bank account and obtain the bank certificate.

3. Representative

Office T his type of business establishment is limited only to studying the markets without practicing any type of commercial activity. There are no partners required, however, a manager should be appointed by the head office abroad to perform the administrative work based on their responsibilities, which are determined by the head office. This manger can be Egyptian or from overseas. There are no capital requirements, however, the parent company should transfer a minimum amount of US$1,000 to be deposited in the representative office’s account under foundation. All of the representative office’s expenses should be met by the overseas head office. The representative office is not liable to corporate tax since it is not performing any commercial activity, however, it will be required to pay salary tax on a regular basis to the tax authority. It is also liable to stamp duty and local withholding tax. The establishment formalities take approximately 6 to 8 weeks once all required documentation is available. 16

4. Branch

A foreign company can also operate in Egypt under a branch. The establishment of such entity is limited to the purpose of implementing a specific contract in Egypt. No partners are required. However, the head office appoints a manager who is entitled to perform the administrative work based on their responsibilities determined by the head office. The manager may be Egyptian or non-Egyptian. There are no capital requirements, but a deposit of LE5,000 is required. The branch is entitled to deduct a head office charge of an amount up to 7% of its taxable income. Other than this, the branch is subject to normal Egyptian taxes. The establishment of such an entity is sometimes challenging and it could take 3 to 4 months to be incorporated after all required documentation is available.

General Notes The Companies Law obliges Egyptian companies to maintain legal books and to use an auditor to review the financial statements of the Egyptian entity. The Income Tax Law also lists further obligations to which the company should adhere. Books and registers must be kept where: • The capital of the business exceeds LE50,000; or • The annual turnover is greater than LE250,000; or • The annual net profit, according to the last tax assessment, exceeds LE20,000. Supporting documents must also be kept for the entries in the books, and receipts are required to be issued for any payments received. Electronic recording of the books and registers is also permitted. The Company is required to complete and submit quarterly salary returns at the end of January, April, July and October and an annual conciliatory return, which should be lodged during January of the following year. The company is also required

to submit an annual income tax return within four months from the end of the Financial Year. There are no restrictions on repatriation of profits as long as it is supported by documentation. The limit of the company’s capital will be set by the General Authority for Investment at the same time as the application for incorporation is dealt with, and will be based upon the total investment costs. It should be adequate for the company to perform its activities. It is permissible to increase the level of the company’s capital, dependent upon the company’s needs. It is, however, prudent to advise the General Authority for Investment of any intended project that may cause the level of capital to be increased significantly.

Taxation in Egypt Corporation Income Tax In Egypt, companies are liable to corporate tax at a flat rate of 20%, although there are different rates for the Suez Canal Authority, the Egyptian Petroleum Authority, the Central Bank of Egypt, and oil and gas exploratory and production companies.

• Rental amounts, license fees, royalties received; and

Corporate Tax is imposed on: • Companies that are resident in Egypt, with regard to all profits they realise whether from Egypt or from abroad;

In addition, companies are required to assess the amount due in the form of a selfassessment, through preparing their annual tax return.

• Companies that are non-resident in Egypt with regard to the profits they realise through a permanent establishment in Egypt;

The taxpayer is likely to have a credit balance arising from local withholding taxes suffered (see further details below). Credit is given for such advance payments made on the taxpayer’s behalf against the total tax liability arising from the tax return.

• Capital gains are not taxed separately under the Egyptian Income Tax Law, they are included in the Company’s annual net profits, and are taxed accordingly. The income of a company may include any, or all, of the following: • Profits from a commercial or industrial activity; • Income from the use and disposal of buildings; • Amounts received on shares of associations of capital; • Yield paid by the government, local government units, public juridical persons; 18

• Income from any other activity performed in Egypt. Companies must submit their returns within four months of the end of their financial year.

The balance of the tax is due and payable on the date on which the return is submitted. Deductions allowed while calculating taxable income: In calculating the taxable profits of the commercial or industrial activity, deductions are allowed for any costs and expenses that are necessarily incurred in realising them. In order for such deductions to be certified by the tax authority, certain conditions must be met as in the following examples:

• Interest on business loans, or the portion of a loan used for business purposes. The amount is calculated by: – Deducting the interest paid from the interest received; – Applying the thin capitalisation rules (see Thin Capitalisation rules section below); and –C onsidering the rate of interest – whether it is in excess of the twofold of the credit and discount rates announced by the Central Bank of Egypt. • Depreciation of assets, but within the limits calculated in line with the provisions of the Income Tax Law; • Tax paid and borne, except that paid or payable under the Income Tax Law; and • The company’s share of Social Insurance premiums paid on behalf of workers. The Egyptian Entity can deduct expenses such as: • Costs of importation (taxes, duties etc); • Costs of setting up in Egypt; • Administrative and other related expenses; and • Depreciation expense.

Among the non-deductibles are particularly: • Reserves and appropriations; • Financial fines and criminal penalties; and • Income Tax Payable. Permanent Establishment: The idea of a Permanent Establishment was introduced as a new concept to Egyptian tax law in Law 91 in 2005. In applying the provisions of the Domestic Income Tax Law, permanent establishment means; ‘a fixed place of business through which the business of an enterprise is wholly or partly carried on.’ It could specifically include: • Headquarters; • Branch; • Building used as sale outlet; • Office; • Factory; • Workshop; • Places of extraction of natural resources; • Farms;

• Building site, construction or assembly point, installations, supervisory activities of the same, which exists for more than 6 months; and • An agent, who has the power to sign and ratify contracts. A foreign company that is deemed to have a Permanent Establishment in Egypt according to the above definition is required by Egyptian Companies’ Law to establish a local entity and apply all Egyptian Laws and Regulations. Withholding Tax: Payments made to Local Entities: Any Egyptian entity has a liability to withhold tax against any payments in excess of LE300 that are made to any local supplier of goods or services, at the time of payment. The rates of Withholding Tax applicable to local payments for local services and supplies are as follows: Contracting and supplying 0.5% All types of services 2.0% Commissions 5.0% Professional Fees 5.0% These payments of Withholding Tax are prepayments of the provider’s/suppliers liability

to Income Tax. The amounts received are included in the natural or juridical person’s income and taxed to Income Tax under the prescribed rates. However, a credit is given for the Withholding Tax already paid against the total tax liability. Payments made to non-residents: Any Egyptian entity which makes payments of the following to non-residents (whether natural or juridical) must withhold a 20% Withholding Tax at the time of payment. Please note this is a final tax: • Interest; • Services; and • Royalties.

Losses: Losses can be used based on the provision of ‘Article 29‘ of the Income Tax Law (91 of 2005). If a company’s activities result in a net loss, the loss should be deducted from the following year’s profits. If the loss remains, it can be transferred annually to the following years, until the fifth year after which transferring the loss is not allowed. In the case of a merger, the surviving company can carry forward its own losses (resulting from preceding years) for a maximum period of 5 years. However, according to ‘Article 55‘ of the Egyptian Income Tax Law, the surviving company would not be able to benefit from any losses carried forward if the following three conditions are all met: • if the surviving company acquires a percentage exceeding 50% of shares, quotes, or voting rights of the merging companies; • the merging companies’ activities are changed; and • the merging companies are either Joint Stock Companies or Companies Limited by Shares whose shares are not listed on the Egyptian Stock Exchange. If any of the above conditions are not met,

the company would have the right to carry forward its losses, as prescribed above. Transfer Pricing: Transfer Pricing rules were issued in Egypt as part of a new tax law enacted in 2005. The law contains an anti-avoidance article as well as an article in the executive regulations that provides guidance on the preferred methods used in order to establish the arm’s length price. The tax authorities have been taking positive steps to ensure smooth application of transfer pricing in Egypt. Since the issuance of the 2005 law, the corporate tax return has had a disclosure requirement for related-party transactions and transfer pricing. At the beginning of 2009, the authorities provided guidance on the tax return on which documents to file. The documents were basically the makings of an OECD Transfer Pricing documentation report. In July 2009, the authorities released a draft of the guidelines which were found to be very OECD compatible. There is still no information, however, upon when the final version of the guidelines will be issued. No specific penalties exist for transfer pricing, however general penalty provisions found in articles (136) and (133) of the tax law no.91

for 2005 will be applied on transfer pricing. Such penalties relate to the under-assessment of the tax where the taxpayer will be liable to a fine, based on the percentage of the omitted tax amount. Fines may be as high as 80%. With regards to practical application, we expect to see Transfer Pricing audits soon, due to the fact that the end of the statute of limitations is approaching (5 years). Given the closing statute and the evolution of the Egyptian tax authorities and its preparation to enforce transfer pricing laws in Egypt, the window of opportunity for taxpayers to revisit their policies under the current law is closing.

Personal Income Tax

Sales Tax

Individuals are taxed on salaries earned from work performed in Egypt, regardless of where the payment is made. Where the salary is earned from an Egyptian entity, the individual recipient is liable to tax regardless of where the service is performed.

The Income Tax Law exempts some payments of expenses and benefits paid to individuals, for example:

Types of Natural Persons’ Taxable Income: Taxable earned income is defined as payment from employment, including salaries, wages, overtime, bonuses, paid leave, commissions, profit shares and all cash and in-kind benefits.

• Employees’ subscriptions to special insurance funds;

Reimbursement for expenses of spouses and dependants is considered taxable income. In addition, school tuition fees, long-term living expenses, and overseas and hardship allowances are taxable.

• Severance pay; • Meals distributed to workers;

• End-of-service payments and pensions; and • Employees’ payments of Social Insurance. Rates of Tax: Natural persons are subject to the following rates of income tax dependent on level of income: LE0-5,000 LE5,001-20,000 LE20,001-40,000 LE40,001 and over

0% 10% 15% 20%

A natural person who is not physically present in Egypt for more than 183 days is taxed at a flat rate of 10%, with no exempt amounts being given.

Egyptian resident employers are required to withhold the tax payable from the employees’ salaries according to the above mentioned rates, and remit it to the tax authority within 15 days of the end of the month in which the payment has been made. The resident company is also required to complete quarterly salary returns and submit them to the tax authority, in addition to an annual conciliatory return, which should be submitted by the end of January of each year. If the employer is not resident in Egypt, or has no centre or establishment in it, the obligation to deliver the tax transfers to the employee. The employee must calculate his Egyptian tax liability and submit an individual tax return to the concerned tax district office on the first of January of each year, or at the end of his stay in Egypt, whichever is sooner.

In Egypt, there is not yet a VAT system, however, there is a Sales Tax system which is similar to Value Added Tax (VAT), but it does not cover all the aspects of VAT. The liability of a person under the Sales Tax Law is defined as any person, natural or juridical, who is a local manufacturer, trader or supplier of a taxable service, and whose revenue has reached the registration threshold. The general rate of Sales Tax levied on commodities and services is 10%, except for some specific commodities and services which are detailed in the Sales Tax Law. Sales Tax becomes due on the issuance of an invoice, upon the delivery of the goods, or the rendering of a service. Registrants are required to prepare a monthly Sales Tax return within 60 days of the end of the month, even if no taxable sales have been made in the month to which the return refers. Sales Tax paid on services is generally not refundable, and cannot be set against a liability that arises under another tax law.

Audit and accountancy Other Taxes Stamp Tax: The main situations in which stamp taxes can arise are: • L and registration/property transfers/transfer of deeds (including lease agreements); • Banking Transactions; • Insurance Premiums; and • Payments by Governmental Bodies. Therefore any person who executes such a document will be liable to stamp tax. There are two distinct types of tax: • N ominal Stamp Tax, which is imposed on certain documents, regardless of their value; and • Proportional Stamp Tax, which is imposed at prescribed rates on the values of certain financial transactions. Additionally, there are some other types of Stamp, which are levied by the Laws of the Engineering Syndicate and the Technical Syndicate. The rates of tax differ here according to the nature of the document being exercised, and whether it is liable to Nominal or Proportional Stamp Tax.

A proportional tax is due at the rate of four per thousand on the balances of the credit facilities and the loans and advances provided by Egyptian banks during the financial year, with the bank to pay two per thousand on the balance at the end of each quarter of the year. The bank and the customer bear the tax on a 50-50 basis. In addition, a specific rate has been set for payments made by a Governmental body. These are subject to Stamp Tax at a maximum rate of 2.4% of the amount of the payment. Real Estate Tax: • Real Estate Tax is levied on all constructed real estate units. • By virtue of Real Estate Tax law, the tax is due as of the first of January of the year that follows the application of the assessment measures. • T he tax due will be collected over two equal installments; the first of which is collected at the end of June, while the second is collected at the end of December of the same year. A taxpayer may pay the tax in full at the date of paying the first installment.

• T he tax due must be paid at the relevant real estate tax directorates in each governorate, as well as at their respective tax inspectorate affiliates offices. • The annual rental value of the constructed real estate units will be assessed according to the provisions of the law. The assessment will be applicable for a five-year term. Reassessment procedures will be initiated at least a year before the end of each term, or three years at most before the end of the said term. • Rental value assessments; set by the committees after approval of the Minister or whoever he delegates, will be published in an Official Journal, which is designed solely to provide guidance on rental values. Based on that announcement, any taxpayer can appeal on the rental value assessment. • A taxpayer will have the right to file a challenge against the assessment of the rental value of real estate, or part thereof, within sixty days following the date of the notification for the assessment of the rental value. • The committee will issue its decision on the challenge within thirty days from the date of filing and that decision will be final.

During incorporation a company should state the name of the Auditor performing the audit in its Articles of Association. Certain types of businesses, for example banks and Insurance companies, are required to have two auditors mentioned in the Articles of Association. The financial accounts and the tax return should be prepared on an annual basis for each financial year, which is usually a 12-month period and there are no exemptions available. Filling accounts should be prepared in accordance with the Egyptian Accounting Standards and presented to the following Legal authorities. There are no filing fees: • Egyptian Stock Market (obligatory for Banks); • General Authority for Investment; and • Tax authority.

In addition, it’s obligatory for certain types of businesses such as banks, to publish their annual Financial Statements in two national newspapers and the statements should be prepared in accordance with the Egyptian Accounting Principles. International Financial Accounting and Reporting Standards may be prepared for management purposes only. It is legally required to maintain local books and records in Arabic.

Human Resources and Employment Law Employment contract Employment contracts are required to be in writing, in triplicate and in the Arabic language. The employer, employee and social insurance office each keep one copy of the employment contract, which must include certain information as specified in the Labour Law. A typical labour contract would include: • Name of the employer and the address of the workplace; • Name, qualifications, occupation and address of the employee and the documents required to prove his identity, and his social insurance number; • Nature and kind of work subject to the contract; and • The wage agreed upon and method and time of payment. If an employee is hired on probation, the employment contract should indicate the probationary period, which cannot exceed three months. An employment contract may be drawn up in one of the following types: 1. Indefinite

period of time: issued for indefinite period of employment.

2. Always

be definite (including article 106 from labour law): It remains definite all the time and it’s renewed by another mutual written agreement between the two parties for another definite period or more. 3. Definite contract: The contract is issued for a definite period and gets converted into indefinite after the lapse of the definite period.

Annual Leave

It is necessary that both the employer and employee agree on essential matters in the law concerning wages, job description, and contract period.

Employees are entitled to a minimum annual paid leave of 21 days for every full year of service and a proportional amount if the period of service is less than one year (eligible to be used after 6 months of employment). This annual leave is increased to one month after the employee has worked for 10 consecutive years or is over 50 years old. In addition, every employee is entitled to full pay for official holidays designated by the Ministry of Manpower and Immigration, not to exceed 15 days a year.

It is also important to state the kind of work which the employee is obliged to do, and the entity to which he/ she is answerable if work is not performed. Working Hours As per the Labour Law, the employees should not work more than eight hours a day or 48 hours over a six-day working week. It is common practice that private sector employees work 5 days a week, usually Sunday to Thursday. The number of working hours may be increased to 9 hours a day including a one-hour break.

If employees are required to work during official holidays, the employees are entitled to overtime (paid at twice their normal rate). The weekly days off and the official holidays shall not be counted as part of the annual leave. Accidental Leave Accidental leave is the leave taken by an employee, as a result of unexpected circumstances, in which he has no choice except to be absent from work. He should inform the employer with the reasons of absence. The Labour Law states that absence from work for accidental reasons should not exceed six days per year and this leave will be counted from the annual leave of the employee.

Sick Leave The Labour Law provides that an employee whose sickness is established and determined by a responsible medical professional is entitled up to six months of paid sick leave annually at between 75% and 85% of the employee's normal wage. This is provided that the company is participating in the governmental medical insurance which is mandatory by the law, otherwise the company’s policy can take its place in this respect. Performing Pilgrimage or Visiting Jerusalem Regarding religious respects, the Labour Law states that an employee who has spent five consecutive years in the service has the right to full paid leave for a period not exceeding one month for performing pilgrimage or to visit Jerusalem and such a leave shall be enjoyed only once during the period of service.

Maternity and Child Care Leave A woman who has been employed for 10 months is entitled to a maternity leave of 90 days with full wage payment including the period preceding giving birth. The female employee is not entitled to this maternity leave more than twice during her working period. During the 24 months following the date of child birth, the mother is also entitled to one hour's rest per day for child care.

Benefits/Rights 1. The Social Security System

and Public Health Insurance Social security is a public programme designed to protect individuals and their families from income losses due to unemployment, old age, sickness, or death and to improve their welfare through public services (e.g. Medical Care). For Egyptian employees, who must constitute a significant part of a company‘s workforce, there is a social security system under which the employer pays contributions equivalent to approximately one quarter of the salary earned, up to a limit. Contributions in the private sector under social security regulations are levied only on Egyptian nationals who are in full-time employment. Contributions are required at the following rates: On the monthly basic salary up to LE850, at 26% and 14% for employer and employee, respectively; and on any amount in excess of the basic salary (LE850), or other allowances or overtime, up to LE900 monthly, at 24% and 11% for employer and employee, respectively. For seasonal and temporary workers employed by construction contractors, a different system applies, Social Security contributions

by the contractor amount to 18% of the percentage that labour costs bear to total contract costs. This levy may significantly increase labour costs on projects. Benefits provided under the social security scheme are pensions, disability payments, sickness payments, maternity and death allowances, and unemployment insurance. These benefits are not given to non-Egyptians. All private sector companies in Egypt are required to provide free health care for their Egyptian employees either through the Medical Insurance Plan of the Ministry of Social Insurance (Government medical insurance) or privately. They are also required to contribute to the Pension Insurance Fund of the Ministry of Social Affairs and Insurance. 2. Annual

Increment Employees are entitled to a periodic annual increment of not less than 7% of the basic salary on which the social insurance subscriptions are calculated. The National Council for Wages issues the decisions regulating the payment of that increment.

Pay The minimum overtime premiums are 35% of normal pay for overtime worked during daylight, 70% for that worked at night, and 100% on rest days and 200% on official holidays.

– Selecting CVs through professional sites; – Using external recruitment agencies; and – Internal referrals.

4. Bonuses

Visas Tourists and visitors are generally permitted to enter the country with a minimum of immigration formalities. Except for nationals from certain countries who must obtain visa from the Egyptian Consulate in the country where they live, most visitors require temporary visas to enter Egypt. These are issued at ports.

3. Overtime

There is no obligation to pay annual bonuses. Minimum Wage The minimum wage is LE150 for non-graduated labour and up to LE300 for graduated labour. There are two key types of labour available for recruitment: – a readily available number of new graduates who are looking for new jobs; and – a number of employees who wish to leave their original employers looking for better advantages and benefits. Usually foreign companies use professional firms to undertake a market survey and guide the employer on how to ensure competitive advantage among competitors recruiting in the same field. Other commonly used methods for recruitment are as follows : – Newspaper advertisement; – Web advertisement;

Immigration

1. Tourist

Visas Tourist visas are issued to foreign nationals visiting Egypt for recreational purposes or to foreign nationals whose stay in Egypt will not exceed three months. It is possible to renew this visa for similar durations. 2. Temporary

Visas Temporary visas are issued to foreign nationals who are entering Egypt for reasons other than recreational purposes and whose stay will exceed three months but will not exceed one year. Work Permits All Egyptian workers, except part-time or temporary staff, must obtain work certificates.

Foreigners interested in employment in Egypt have to obtain work permits and follow the corresponding regulations issued by the Ministry of Manpower and Migration in this regard. After a work permit is obtained, the foreign national‘s visa (whether tourist or temporary) is converted into a work visa, with the same duration as the work permit. Work permits are easier to obtain for technical staff than for unskilled or semi-skilled workers. Work permits are usually granted to foreigners for a period of one or less than one year. It may also be issued for a period exceeding one year after settling the relative fee for the requested period. Points to be considered for work permit processing: – The expatriate might be asked to stay outside Egypt for a certain period until a temporary visa is applied for to bring them into Egypt – an experience certificate must be authenticated from the Egyptian consulate abroad. – A security check will be carried out to make sure that the employee doesn ‘t have a criminal record abroad – this takes around two months and a copy of the individual ‘s passport is needed for this step.

– A blood test will be requested from the expatriate to make sure he/she is clear from serious infections. – Once the blood test result is shown, the work permit and residency will be confirmed. Unions There are professional syndicate unions representing the labour rights in the private sector to bargain with the government in different areas, for example: 1. Annual salary increase; 2. Special salary increase; 3. Minimum level of wages; and 4. The labour disputes between employers and employees. Termination of Employment Duration of Probation A probation labour contract should not exceed three months and an employee should not be appointed under probation more than once. A probation contract is a conditional labour contract, in case the employee proves unsuitable for the job during the allotted period. This allows the employer to cancel the contract at the end of the period. Dismissal and Termination Dismissal under ‘Always be definite‘ contract: The employer has the right to terminate the employment 30

contract upon its expiry without any indemnity to be paid to the employee. In the event of dismissing the employee within the period of the contract, the employee will be entitled to compensation equal to the equivalent salary of the remaining period of his signed contract. To illustrate, if the contract is issued for one year and the employer decides to terminate the hiring after eight months, he has to pay the remaining four months salary in the contract. Dismissal under indefinite employment contract: An employee is entitled to 60 days‘ notice for dismissal if his period of service does not exceed 10 years, and 90 days‘ notice if that period exceeds 10 years. (Should the employer desire to dismiss the employee without giving him the relative notice period, the employee shall receive two or three months‘ salary instead of such notice). Court decisions have tended to award payments of not less than the wage of two months‘ salary for each year of employment for wrongful dismissal. Throughout the notification period the labour contract shall remain ruling.

Legal terminations: Grounds for legal termination without notice include the expiry of a fixed-term employment contract, retirement, resignation, death or the incapacity of the employee to perform the relevant job based on a report from certain governmental committees.

Customary obligations: Customary obligations and benefits to be paid to employees include the following:

Legal obligations: There are other legal obligations to consider, for example, the legal annual increase and profit share. Under the profit share, employees of a Joint Stock Company, Limited Liability Company, or Foreign Branch are entitled to a share in the distributable profits. The share is fixed at an amount not less than 10% of distributable profits and not more than the total annual salaries of the employees. However, Limited Liability Companies with capital less than LE250,000 are not subject to this distribution of profit share.

• Profit share;

• Overtime; • Bonus or performance pay; • Allowances;

• Private medical insurance; • Tuition reimbursement; • Fellowship fund; and • Stock Options. With respect to the pension or fund contribution, when the employer registers the employee under the government social security system, a monthly contribution is paid every month to the competent social insurance office, whereby the employee will be entitled to a certain pension upon retirement or disability. No other fund contribution is mandatory.

Trade Customs Duty Custom Duty is a liability that rests with the person who is importing the goods from abroad. Customs Duty rates on imported goods range from 5% to 40%, with the exception of vehicles. Where entities import machines and equipment as capital assets, and to establish the company’s project, the machines and equipment will be charged to Customs Duty at 5%. Machines, equipment and similar capital assets (with the exception of private motor cars) imported on a temporary basis, are subject to fees at 20% of the original Customs Duty for each year or fraction of a year during which they remain in Egypt until they are exported.

Banking in Egypt Egypt has signed several bilateral and multilateral agreements to promote and develop competitiveness of the Egyptian exports, enhance trade, and improve the Balance of Trade. The Ministry of Foreign Trade displays a summary of key agreements for the use and benefit of the Egyptian exporters: 1. Free

and Preferential Trade agreements between Egypt and the Arab countries.

2. Comesa 3. EU

Agreement.

Partnership Agreement.

Egyptian banks offer a wide range of banking services and facilities, including direct debits, standing orders, cheque clearance and processing of credit card repayments. The main types of accounts include: • Current accounts – typically pay low interest rates on account balances, unless the account has a substantial balance; they are mainly used for everyday banking needs. Many current accounts are provided with an automatic teller machine (ATM) card, and some current accounts offer cheque facilities. You may also be offered credit and charge cards, but spending restrictions usually apply based on your account type and balance. Most current accounts offer customers easy access to funds held in the account, and many offer accounts in a selection of major foreign currencies. • Savings accounts – designed for short to mid-term savings which may provide limited access to your money, but in return for a higher rate of interest than a current account.

• Deposit accounts – specifically for longer-term savings, and typically opened for a set period of time (e.g. one or two years) with a fixed rate of interest. Deposit accounts may offer a higher rate of interest, but account holders may have limited or no access to funds until the account matures. In addition to these accounts, some banks offer Islamic banking services that function within the rules of Islamic Sharia. The banking system comprises 57 state owned commercial banks. This includes 28 commercial banks, four of which are state-owned, 26 investment banks (11 joint venture banks and 15 branches of foreign banks), and three specialised banks. Although private and joint venture banks are growing, many remain relatively small with few branch networks. Egypt’s banking system has undergone major reforms since the 1990s and today operates in a liberalised and modernised system which is supervised and regulated according to internationally accepted standards.

The Central Bank of Egypt (CBE) has improved the Egyptian banking systems in the following ways: 1. Introduction

of laws giving more independence to the CBE, and an electronic signature law;

2. Regulation

of connected and related-party lending;

3. M anagement

reforms of the four public sector banks, making clear the responsibilities of managers and boards of directors; and

4. Development of an automated

credit risk information system (CRIS), from which participants would be able to gain online access to clients‘ credit profiles.

HSBC in Egypt Overview Who we are

Staff

Corporate Sustainability

HSBC Bank Egypt S.A.E. was established in 1982 as Hongkong Egyptian Bank S.A.E. and adopted its present name in April 2001 following an increase in shareholding by the HSBC Group from 40% to 94.5%.

At 30 September 2010, the Bank employed 2,268 staff.

Our goal is to be one of the world‘s leading brands in corporate sustainability. This is not solely an environmental or social agenda, nor is it confined to governance and ethics. Sustainability is about bringing all of these issues together and about maintaining the long-term growth of a successful business for the benefit of our stakeholders.

HSBC Bank Egypt S.A.E. is one of the largest multinational banks operating in Egypt, providing a comprehensive range of banking and related financial services through a network of 88 branches and outlets in prominent cities in Egypt. Head Office 306, Corniche El Nil Street, Maadi, Cairo, Egypt. Network HSBC Bank Egypt is supported by a wide branch network. The 88 branches cover 16 cities (Cairo, Giza, Helwan, 6th October, 10th of Ramadan, Obour, Alexandria, Borg El Arab, Alamein, Hurghada, Sharm El Sheikh, Luxor, Mansoura, Damietta, Port Said, Assuit and Ein El Sokhna). HSBC also serves its customers through a huge ATM network that comprises of 259 ATMs.

Customers From small businesses to large multinationals. Awards for Excellence • Best Internet Bank Award, 2008 & 2009. • Deal of the Year, The Banker, 2007. • Bank of the Year, The Banker, 2001, 2003 & 2005.

Knowing that education is the key to prosperity, at HBEG, we seek to open doors of opportunity for young people. The projects we support contribute to the alleviation of poverty through opportunities for success, a positive attitude, and hope for a better future. With this in mind HBEG focused on substantial educational contributions including sponsoring a 160-seat Lecture Theatre, within a 5-year payment schedule for Nile University, officially inaugurated in 2007. Aspiring to be a world-class internationally-recognised leading university in technology and business education in Egypt, Middle East and North Africa.

HBEG extended its commitment to The American University in Cairo (AUC) Public School Scholarship Fund Programme, intended as an endowed scholarship for talented students from Egypt‘s public schools and has been working closely with Association of Upper Egypt through sponsoring educational fees for a number of students reaching 50. Two fullyequipped classes applying the ‘Montessori Arabic System‘ were established at Giza for Mother and Child Welfare Association – a system that is based on auto-education theory designed for revealing the child‘s mistakes and finding solutions. Contributed to Al Yasser Charity complex with a fully-equipped library, a computer centre and a polyclinic. A charitable project that aims at extending comprehensive service to the poor. HBEG also contributed with a 50% payment, sponsoring five Egyptian candidates through Mosaic, a Muslim-led initiative, founded by HRH The Prince of Wales, aiming to positively affect key issues surrounding young Muslims and their communities. HSBC Bank Egypt has for four consecutive years sponsored Egypt‘s National Competition ‘SIFE Literacy Programme‘ with an intention

to mobilise university students to create economic opportunity for others. HBEG also combines efforts with the British Council to promote intellectual and cultural diversity through a Chevening Scholars scheme, which enables exceptional students from all over the world to pursue postgraduate courses or university research in the UK. In the process of helping those with special needs, HBEG financially sponsored the education of four students enrolled by The Right to Live Association for Intellectually Disabled. In addition, HBEG extends a hand to Egyptian society for Developing the Skills of Special Needs Children ‘ADVANCE‘, by regularly equipping their resource library with books, tools, software and flash cards for the use of autistic children and their parents, together with covering their therapeutic programmeme. Furthermore, the Demonstration Centre for the Rehabilitation of the Blind was donated both Ibsar software (an advanced reading solution that helps bring the world of the internet and email to the blind. It additionally comprises a tutorial that trains the beginners on using the keyboard) and Optical Character Recognition (OCR) software

(able to recognise bilingual documents: Arabic/English, Farsi/English and Arabic/ French and to open multiple documents at the same time). HBEG has built a strong reputation by funding major cultural projects believing in preserving cultural heritage, HSBC Bank Egypt donated a substantial amount of money for the Restoration of Old Cairo and the Grand Egyptian Museum sponsoring 10-25 desk classrooms located in the Grand Egyptian Museum and furthermore committed to sponsoring Bahaa El Din Cultural Centre in Eldoweir village in Assuit Governorate, for the purpose of providing a sustainable educational and cultural system to its inhabitants. The project is meant to enhance youth skills in various fields of knowledge. 25298000

Country overview

Capital city

Cairo

Area and population

Area of 1,001,449 sq km and population of 77,269,524 million

Language

Arabic

Currency

Egyptian Pounds ‘LE‘

International dialling code

+20

National Holidays

Scheduled Public Holidays for 2011 Birth of the Prophet

15 February

Sinai Liberation Day

25 April

Coptic Easter

25 April

Labour Day

1 May

Evacuation Day

8 June

Revolution Day

23 July

Flooding of the Nile

15 August

Bairam Feast (End of Ramadan)

30 August

Coptic New Year

11 September

Armed Forces Day

6 October

Egyptian Naval Day

21 October

Suez Day

24 October

Islamic New Year

26 November

Suez Victory Day

23 December

Business and banking hours

Business hours: 08.00-17:00 (Sun-Thur) Banking hours: 08.00-16:00 (Sun-Thur)

Stock exchanges

Cairo and Alexandria Stock Exchange (CASE)

Contacts Abdallah El Adly Tax Partner Tel: +202 27597700 Ext: 7887 Email: Abdallah.Eladly@eg.pwc.com http://www.pwc.com/gx/en/ worldwide-tax-summaries Website: www.hsbc.com.eg Phone: +202 25298000 1st Edition: December 2010 Copyright Copyright 2010. All rights reserved.

‘PwC ‘ and ‘PricewaterhouseCoopers‘ refer to the network of member firms of PricewaterhouseCoopers International Limited (PwCIL), or, as the context requires, individual member firms of the PwC network. Each member firm is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. No member firm is responsible or liable for the acts or omissions of any other member firm nor can it control the exercise of another member firm’s professional judgment or bind another member firm or PwCIL in any way.