Conducting Business in Egypt

A guide to the legal aspects of business in Egypt

Prepared by Trowers & Hamlins LLC in conjunction with its associated Egyptian firm Nour Law Office

Trowers & Hamlins LLC, 1 El Gabalaya Street, 3 Floor, Zamalek, Cairo, Arab Republic of Egypt t +20 (0)2 2735 7332 f +20 (0)2 2735 7314 www.trowers.com Sara Hinton e shinton@trowers.com Tim Armsby e tarmsby@trowers.com

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Contents 1 2 3 4 5 6 The Egyptian Legal System Company And Investment Incentives Setting up in Egypt direct investment Arms length or indirect investment Other relevant legislation and regulations Disputes

Page 2 3 4 6 7 14

Conducting Business in Egypt

Introduction
Egypt today is an attractive business location that can offer major business opportunities to informed investors. During the last few decades, an ongoing policy of economic reform and openness has led to wide-ranging economic and social development and progress, which is reflected in the large body of investor-friendly commercial legislation recently enacted. Nevertheless, Egypt remains a highly centralised, bureaucratic and complex country with only a small business elite despite its more than 70 million inhabitants. Further amendments were made to the 1971 constitution in 2005 and 2007. One of the most significant changes was to Article 76 which deals with the election of the President of the Republic. As amended, this provides that the election for the president will be carried out through direct, public, secret ballot. Candidates running for the presidency should be supported by a minimum of 250 elected members of the People's Assembly, Shura Council and the local People's Councils of the Governorates. Furthermore, political parties making a nomination should have been established for at least five consecutive years and its members to have obtained at least three percent of the elected seats of the People's Assembly and Shura Council. Such parties have the right to nominate any of their high panel members who has been a member of the panel for a minimum of one year. The Shura Council must be consulted in respect of laws complementary to the Constitution. The Supreme Constitutional Court has judicial control over the constitutionality of laws and regulations and has shown itself willing to exercise its power.

1.2
Source: I Stock Photo

The legislation

Successful entry into Egypt, whether through direct or indirect investment, will primarily be determined by the quality of the information and advice upon which the decision to enter is based. Likewise, continued success is also dependent upon an ability to navigate the laws and practices of Egypt. Trowers & Hamlins in association with its local associate, Nour Law Office, with its combination of international standards and indepth local knowledge can provide the necessary guidance.

1 1.1

The Egyptian Legal System The legislature

Egypt is a parliamentary republic. In accordance with the Constitution of 1971, power is divided between the President, the Prime Minister and Council of Ministers, the Peoples Assembly and the Supreme Constitutional Court. Executive power rests with the President who is the head of State while legislative authority at a national level rests with the Peoples Assembly. The Shura Council, established pursuant to amendments to the Constitution following the referendum of 1980, has a consultative role in relation to the legislative powers of the Peoples Assembly.
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The Constitution of 1971, as amended, is the supreme law and can only be further amended by referendum. Other laws are enacted by the Peoples Assembly and are the primary source of legislation. The President and every member of the Peoples Assembly has the right to propose draft laws for consideration by the Peoples Assembly. Draft legislation is referred to the Legislative Department of the Council of State (maglis al daula) for review. The President, Ministers and Governors may issue Decrees which have the force of law upon authorisation from the Peoples Assembly. The President also has the power to issue laws by Presidential Decrees which have the force of law in cases of necessity or in exceptional cases. The President is empowered to issue implementing regulations and has the right to vest such power in others. A law may determine who shall issue decisions required for its implementation. Executive regulations to a law are usually issued in the form of a Ministerial Decree and concern the mechanics of implementing the relevant law. Guidelines and Codes of Practice may be published by a Minister to assist in implementing or understanding legislation. In certain cases, a contract between a Governmental body and a private sector entity may have the force of law insofar as the provisions of the contract override the provisions of the primary legislation, e.g. oil and gas exploration and production concession

agreements between the State and the foreign operator. Provisions of law only apply from the date the law enters into force. They may not be retroactive except in relation to a civil matter and with the approval of the majority of the members of the Peoples Assembly. All laws must be published in the Egyptian Official Gazette within two weeks of issue and enter into force a month following the date of publication unless another date is specified.

and their assets cannot be attached, seized or expropriated by administrative order. Furthermore, no administrative body may interfere in setting prices or profit margins or revoke or suspend a license for the use of property except where the license terms are violated. In addition, two principal pieces of legislation have been issued over the last decade to encourage investment in Egypt: the Investment Guarantees and Incentives Law No. 8 of 1997 and its executive regulations (the Investment Law); and the Special Economic Zone Law No. 83 of 2002 and its executive regulations (the SEZ Law).

1.3

The Court System

Egypt has a long established court system and judiciary. Under the terms of the Constitution the Egyptian judiciary is independent and subject to no other authority but the law. The Council of State is an independent legal entity with competence to rule on administrative cases involving Ministries and other Government agencies. The Supreme Council is responsible for supervising the affairs of the judiciary. The Supreme Constitutional Court is an independent legal entity with competence to rule upon the legality of legislation thereby upholding the principle that the State is subject to the law. There are two levels of civil courts of primary jurisdiction: the Courts of First Instance and the Summary Courts. The Summary Courts deal with matters involving small claims (less than LE 40,000) and certain personal status matters, whilst the Courts of First Instance deal with disputes involving larger amounts. The Courts of First Instance also hear appeals from the Summary Courts. The Courts of Appeal, which are situated in the principal cities of Egypt, hear appeals from the Courts of First Instance and generally cases are reheard in their entirety. The Court of Cassation is the supreme court of appeal and reviews legal issues the subject of appeals from the Courts of Appeal. It will not review the facts of a case. If the Court of Cassation breaks a previously accepted principle of law the matter has to be referred to the General Assembly of the Court of Cassation. Administrative disputes involving Governmental bodies are subject to the jurisdiction of the Council of State. The Council of State also has a department that issues formal legal opinions on matters submitted to it by the Government. The Socialist Public Prosecutor is responsible for securing the peoples rights and is subject to the control of the Peoples Assembly.

2.1

The Investment Law

The Investment Law regulates companies that carry out activities within one of the approved fields of investment. Currently the approved fields of investment include the following: manufacturing and mining; tourism projects (including tourist transportation, hotels and hotel-related facilities); agricultural projects; aviation, maritime and transportation services; oil exploration services; housing and infrastructure projects; finance leasing; venture capital projects; information technology, software development and development of technology zones; development of industrial zones and urban communities; and factoring and underwriting.

Company Incentives

And

Investment

All companies established in Egypt are granted guarantees against expropriation and nationalisation
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Articles of Association, mortgages and loan agreements connected with the activities of an investment company are exempt from stamp duty and notarization fees for a period of five years from the date of the companys registration with the Commercial Register. Land purchased for use is also exempt from the payment of real estate registration fees.

Investment Law companies also have the right to import by themselves or via third parties whatever is needed for their establishment, expansion or operations without the need to be registered in the register of importers. They may also export their products by themselves or through third parties without the need to be registered in the Register of Exporters. Free Zones The Investment Law also regulates investment under the free zone system. There are two types of free zones, public and private. Public free zones are established in specific locations, including areas in Alexandria, Suez, Port Said and Nasr City in Cairo. Private free zones are established exclusively for a specific project or company and are typically suited for large export-oriented manufacturing projects. The types of activities permitted in the free zones include repackaging, manufacturing, assembling, processing and repair operations and storage, although on condition that a certain minimum is exported out of Egypt. Certain service activities may also be approved. Goods and materials imported to a free zone are not subject to import duties or regulations. However, it should be noted that currently free zone status is not being granted to projects working in the fields of chemical fertilisers, iron and steel, the manufacture, liquidation and transportation of natural gas, and the manufacture of petroleum products. A free zone company is exempt from all Egyptian taxes and duties for the lifetime of the company. However, free zone companies are subject to a duty of 1% of the value of goods entering the free zone for storage in respect of warehousing projects and 1% of the value of goods leaving the free zone in respect of manufacturing and assembly projects. Projects maintaining activities that require no entry or exit of goods are subject to an annual fee equal to 1% of their total gross revenue, based on audited accounts.

investor representation. The SEZ Authority is responsible for the affairs of the SEZ including the establishment, alone or jointly with third parties (provided that the Authoritys share is more than 50%), of a Main Development Company to execute and manage the internal infrastructure of the SEZ and optionally to promote the SEZ. Some of the attractions of an SEZ compared to either inland investment or investment in one of the existing free zones are as follows: A degree of private sector participation on the board of the SEZ Authority in addition to possible private sector involvement in the Main Development Company; SEZ specific regulations concerning, in particular, customs, taxation inspection, import and export, labour and social insurance, registration and notarisation, environmental protection and urban planning; 10% corporate profits tax and 5% salary tax and the non-application of Sales Tax and Stamp Duty or any other direct or indirect taxes (see Section 5.2 for details of the inland tax regime); and Egyptian certificate of origin for all goods produced in the SEZ in comparison to existing free zones.

Setting up investment

in

Egypt

direct

3.1

Choice of structure

2.2

The Special Economic Zones Law (the SEZ Law)

As in any legal system, there are many potential business structures and commercial vehicles under Egyptian law, although there is no such thing as an off the shelf company. Choosing the correct structure depends on a number of factors, including nationality of the investors, size of the capital investment and the nature of the activities to be undertaken. We are happy to assist investors in making this choice, and set out some of the options below. Sometimes a combination of different options will be appropriate. sole proprietorship (only available to Egyptian nationals); simple partnership - general and limited; partnership limited by shares; limited liability company;

The SEZ Law was promulgated on 5 June 2002. The SEZ Law provides for the establishment by Presidential Decree of special economic zones (each an SEZ) for industrial, service or agricultural activities to be located outside existing urban areas and possibly attached to a port. Each SEZ is headed by its own Authority whose board consists of representatives of relevant Ministries and Governmental entities in addition to a degree of
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joint stock company private or public; and branch or representative office of a foreign company.

It is worth noting that foreign investors rarely choose a partnership structure as there is a requirement for an Egyptian majority. We set out below the main features of the structures commonly adopted when foreign investment is present. (a) A Limited Liability Company ("LLC") An LLC is a closed company, and the liability of each of its 'partners' is limited to the value of his or her shares (or quotas) in the capital of the company. The shares are non-negotiable on the stock exchange and an LLC cannot raise share capital or loan capital through a public offering. There cannot be less than two or more than 50 partners in an LLC. An LLC may not be used for insurance, financial or banking activities. The day to day running of an LLC is performed by one or more managers, at least one of whom (although not necessarily the general manager) must be of Egyptian nationality. The manager of an LLC has a similar status to a director of an SAE, although the decisions of the managers are not officially minuted. The minimum share capital of an LLC is LE 200 which must be fully paid-up on incorporation. The capital of an LLC can be 100% foreign owned. A Joint Stock Company (SAE) An Egyptian joint stock company has many of the traits of limited liability companies in other jurisdictions. The capital is divided into shares; the liability of each shareholder is limited to the value of his or her shares; and the shares can be traded on the stock exchange. At least three founders are required, although shares may also be subscribed to by subscribers. The founders cannot sell their shares for two fiscal years from incorporation. There are no restrictions on the transfer of shares of subscribers. (c)

An SAE may be closed or listed on the Egyptian stock exchange. A closed SAE must have a minimum issued share capital of LE 250,000. The capital must be 10% paid-up upon incorporation rising to 25% within three months and to 100% within five years. If it is an Investment Law company the capital, if in a foreign currency, must be fully paid-up on incorporation, although upon incorporation it is possible to have both founders and subscribers with the subscribers being free to transfer their shares. The shares of an SAE, private or public, may be 100% owned by foreigners. An SAE is run by a board of directors, comprising any number of directors subject to a minimum of three. Minutes of meetings of the board are officially minuted. Any or all of the directors can be non-Egyptian nationals. A branch office

Egyptian Law permits foreign companies to establish branch offices in Egypt in order to carry out work or activities pursuant to a contract with an Egyptian public or private sector entity. Typically, activities for branch offices of foreign companies in Egypt are construction work, hotel management, and foreignowned energy companies. Branch offices must be registered on the Commercial Register and are subject to Egyptian tax laws and audit requirements. Exceptionally, branch offices are entitled to treat up to approximately 4.5% of their turnover as head office expenses, although such amount is always subject to negotiation. Independent tax advice should be sought on this point. The parent company is represented through the branch manager. The branch manager does not have to be of Egyptian nationality. Branch offices are subject to profit share distribution requirements. Remaining net profits can be repatriated abroad to the parent company. (d) A representative office

(b)

A foreign company may open a 'representative office' for the limited purposes of studying the Egyptian market and the possibility of engaging in business in Egypt. Representative offices must be fully funded in hard currency from abroad and are not subject to local audit requirements. There are particular rules concerning pharmaceutical companies opening scientific offices in Egypt.

(e)

Joint Ventures

government department in order to be able to engage in certain types of commercial activities; it is insufficient merely to register a commercial entity, foreign branch or representative office. It is also necessary to register one or more individuals as the authorised representative, director or manager in order to operate the business. Specific procedures must be followed for the appointment of such people and for their removal and replacement; for businesses intending to undertake industrial projects, it may be necessary to obtain an industrial licence (white card) and to register on the Industrial Register. The requirements for the issue of the licence will vary according to the nature and scale of the project; any document which originates outside Egypt and which is to be presented to or relied upon by any government body in Egypt in respect of the registration process must be correctly authenticated and translated into Arabic.

There are many different ways of creating a joint venture, either between foreign companies or between a foreign company and an Egyptian company. The choice may be influenced by the nature of the activity to be undertaken. Instead of creating a separate Egyptian entity to run the joint venture activity, it may be possible, subject to the necessary registrations, licences and appointments, to run a joint venture through a contractual agreement.

3.2

Shareholders Agreements

It is often desirable for the shareholders in a company to define and protect their interests through a separately negotiated shareholders agreement, in addition to the usual form of constitutive contract or articles of association. A shareholders agreement typically deals with such questions as the roles of the owners in the day to day management of the company and how major decisions (such as increases in capital, acquisitions and disposals, and other critical matters) are made. It may also be appropriate for the company to be party to agreements incorporating arrangements for the provision of technical and other services, service contracts for key staff, and licensing arrangements for intellectual property.

Only once all necessary consents and licences have been issued is it possible to transact business lawfully in Egypt and for a business to employ its own staff, to purchase and register vehicles in its own name, to open bank accounts and to undertake other commercial activities.

Arms length investment

or

indirect

For those investors who do not wish to set up in Egypt the following types of indirect investment are available:
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appointment of a commercial agent; appointment of a distributor; franchising; and direct sales.

3.3

General comments on registration

Registration formalities vary according to the structure chosen. Despite improvements over recent years, procedures often remain lengthy and overly complex. Whatever the means adopted to do business in Egypt, a number of other matters must be borne in mind regarding the relevant governmental authorisations: registrations are often subject to periodic renewals and late renewals can attract administrative fines; in addition to being entered in the Egyptian Commercial Register, it may also be necessary to obtain a business licence from the relevant
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4.1

Commercial Agency

A foreign company may appoint a commercial agent if it wishes to establish a scientific office in Egypt (see section 3.1(d) above), achieve broad penetration of the Egyptian market without a direct presence or if it wishes to tender for Egyptian government agency work, other than sales to the Ministry of Defence, because in the latter case the tender must be made through a local commercial agent.

There are two types of commercial agency under Egyptian law as follows: Commission Agency is an agency arrangement under which the agent's contracts are in the agents own name but on terms agreed with the principal and for the account of the principal. In particular, the sale price and the agents margin should be agreed and the agent must account to the principal for any remuneration in excess of the agreed price and bear any shortfall. Contract Agency - is an agency arrangement under which the agent undertakes, on an ongoing basis and in relation to a specific activity to promote, negotiate and conclude transactions and deals in the name of and for the account of the principal in return for pay. A contract agent may or may not have the power to execute contracts in the name of the principal. The contract agent receives a non-commission based remuneration on the basis of sales by the principal under contracts introduced by the agent. [Note: commission meaning the margin at which the agent resells].

Please also refer to Section 5.5 on transfer of technology.

4.4

Direct Sales

A foreign party wishing to sell directly to an Egyptian counterpart (other than the Government see comments below) does not need to appoint a commercial agent. Furthermore, the contract of sale may be subject to a foreign law, although it is important to be aware of any matters of Egyptian public policy which could void provisions of the sale contract. It is also important to be aware of any tax consequences and your ability to enforce your rights in the event of a dispute, particularly where an Egyptian counterpart has no assets outside of Egypt. Accordingly, advice should be sought.

Other relevant regulations

legislation

and

Other laws of relevance to an established business or newcomer to the Egyptian market are detailed in this section.

5.1

Employment law

In general, a commercial agent must be a person of Egyptian nationality or an Egyptian legal entity. The agent's name must be registered at the Register of Commercial Agents and Intermediaries held at the Ministry of Commerce and Industry. A copy of the agency contract must also be registered. Egyptian law contains specific requirements in respect of the form of the contract. It should also be noted that contract agency is subject to the mandatory application of Egyptian law and the Egyptian courts as a matter of public policy and that the law contains various mandatory requirements in relation to compensation payable in the event of the termination of a commercial agency agreement. Professional advice should be sought.

Key provisions under the Egyptian labour law of relevance to investors are set out below: (a) Types of employment contracts A definite term employment contract in which the employment continues for a specified duration. Multiple definite term employment contracts are permitted. An indefinite term employment contract in which the employment continues until the retirement, resignation or dismissal of the employee. A temporary period employment contract used in case of temporary work which requires a limited period of time for its execution or which is linked to a certain assignment and ends upon the termination of the said assignment.

4.2

Distributorship

Advisory, consultancy and simple distribution arrangements do not fall under the provisions of the Egyptian Agency Law and are governed by general contract law principles as set out in the Egyptian Civil and Commercial Codes.

A copy of the employment contracts of all Egyptian employees must be filed with the Egyptian Social Insurance Authority. (b) Probation Period

4.3

Franchising

Franchising as the term is generally understood is permitted in Egypt and has been protected under executive regulations made under Law No. 82 of 2002 on the protection of intellectual property rights.

Under Egyptian law an employee may only be placed on probation by an employer once and the probation period may not exceed three months.

(c)

Salary

Salaries must be stated in Egyptian Pounds save in the Free Zones where payment may be made in Egyptian Pounds but by reference to a hard currency salary. (d) Employees' Files

may terminate the contract prior to the expiry of its term by giving the employer three months' prior notice. As an exception to the above, if a contract is created for particular work (for example, the construction of a building) the employee may not terminate the contract prior to the completion of the assigned work even if the assignment lasts for more than five years. Either the employer or the employee may terminate an indefinite term employment contract by prior written notice subject to the provisions of the Labour Law (see below). If the period of employment is less than ten years the period required for the notice of termination is two months. If the period of employment exceeds ten years the period required for the notice of termination is three months. In the case of the employee, the decision to leave shall be based on legitimate and adequate reasons related to his health, social or economic conditions and in all cases it shall take place at an appropriate time bearing in mind work requirements. The employer may not terminate an indefinite term employment contract except in cases where the employee commits a grave mistake as prescribed in the Labour Law (note: grave mistake is fairly narrowly defined) or in cases where the employee's inefficiency is established according to the employer's approved work regulations. In practice, this is hard to do. In case of wrongful termination, the Labour Law provides for a minimum payment of two months salary per year of service. (h) Redundancy Egyptian law allows for the termination of employees for redundancy provided approval is given by the relevant governmental authority. Upon termination for redundancy, the employer is required to pay redundancy pay of one month's salary for each year of service for the first five years and one and a half month's salary for each year of service thereafter. (i) Strikes Egyptian law grants employees the right to strike, although such right is effectively neutralized by various administrative hurdles to

The employer must maintain a complete personal file for each employee. The employee files are subject to official inspection to ensure compliance with the law. (e) Leave In general, employees are entitled to 21 working days' paid vacation, although the entitlement, in particular cases, rises to 30 days for those employees who have been employed with the current or previous employers for an aggregate period of ten years or more or who are over 50 years of age. Egyptian law provides for 13 paid public holidays each year. Female employees are entitled to fully paid maternity leave of 90 days duration twice during their total employment with one or more employers. Employees are entitled to sick leave for a period of 90 days at 75% of their socially insured salary and for a further period of 90 days at 85% of their socially insured salary. However, in practice, most private sector organisations allow for an initial period with full pay. The annual vacation shall be increased by seven days for those carrying out dangerous or harmful activities as specified in Ministerial Decree No. 77 of 2007 issued in this respect. Working hours

(f)

In general, working hours should not exceed eight hours per day and 48 hours per week. Traditionally, the working week is six days, but in practice a five-day working week is currently the norm for private establishments, save for the industrial sector. (g) Termination In general, neither the employer nor the employee is allowed to terminate a definite term employment contract during its term. However, if the aggregate term of multiple definite term employment contracts is more than five years, after five years the employee
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be surmounted in order for the strike to be legal. (j) Foreign Labour Companies wishing to appoint foreign labour must submit a request to the central department at the Ministry of Manpower and Immigration, for the purposes of issuing a work permit. The percentage of foreign labour in a company, notwithstanding the sector to which it belongs, should not exceed 10% of the total labour. Exceptions to this rule include representation offices, branch office managers, employers and establishments in which the number of employees does not exceed five. In Free Zones the percentage of foreign workers may rise to twenty five percent.

Stamp Duty stamp duties are levied on most types of documents used or executed in Egypt. Social Insurance Egyptian employees are subject to the social insurance system which requires contributions by the employer and the employee on the basis of the salary of the employee. At the time of writing, the maximum aggregate social insurance contribution is LE 775

5.2

Tax law
The Egyptian tax system includes direct taxes, such as corporate profits tax and income tax on personal income, as well as indirect taxes, such as sales tax and customs duties. A new income tax law has recently been enacted. The principal taxes are summarised below:

Egypt has a system of withholding by the payer on account of the payees tax liability which applies to, in particular, payments on account of professional services, rent, commission and supply contracts. Withholding tax on payments made locally ranges between 0.5% to 5%, depending on the type of payment. For payments made to overseas persons, other than by a free zone company, a deduction on account of tax is made at the rate of 20%.

Corporate Profits Tax in general this tax is levied on the profits of corporations at a rate of 20% per annum. Salary Tax salary tax is levied at a rate of 10% on the first LE 20,000 of income, 15% for further income up to LE 40,000 and thereafter at 20%, subject to personal allowances. Salary tax must be withheld at source by the employer. Income Tax direct income tax at the rates mentioned above for salary tax, at a maximum of 20% is applicable to, in particular, the remuneration of directors of joint stock companies and the managers of limited liability companies, interest and foreign dividends. Egyptian income tax at a rate of 20% is also applicable to the income of non-resident corporations which are the recipients of technical know-how fees, royalties and interest. Taxable income from moveable capital must be withheld by the payer. Sales Tax - sales tax at rates of between 5% and 25% (although most commonly 10%) is applicable on certain goods and services. Customs Duties goods imported into Egypt are subject to customs duties. The rates are usually between 1% and 55%.
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In respect of any foreign partys potential Egyptian tax liability, Egypt is a signatory to a number of double taxation treaties, including with the United Kingdom, United States, France, Germany and Italy, which may reduce the rates of taxation payable on Egyptian generated income, in particular, interest and royalties.

5.3

Public tender law

Any supply, service or construction contract to be entered into with an Egyptian governmental entity must comply with the Public Tender Law 89/1998. This prescribes that such contracts must be the product of public tenders or by public negotiations between the Government entity and the contractor. However, there are certain exceptions: local tender when all contracts (maximum value of LE 200,000) are confined to local suppliers; limited tender procedure (Egyptian and foreign suppliers) when the nature of the contract

requires certain types of suppliers, contractors, consultants, technicians or other experts; limited negotiations when manufactured products are only available from particular suppliers or locations, where works require particular technical expertise, or in connection with national security; direct contracting in extraordinary cases.

This requirement does not apply to works published in newspapers, magazines and periodicals, unless the work is published separately. Punishment for breach is a fine of LE 5,000 10,000 or imprisonment of up to one month or both. For repeated infringements, the penalty is imprisonment for no less than three months and a fine of not less than EGP 10,000 and not more than EGP 50,000. Patents are awarded for new, industrially applicable inventions or improvements to existing inventions. Patents will not be granted for inventions that may affect national security, disturb public order or morals, or cause serious damage to the environment. Nor will they be awarded for scientific discoveries or theories, or diagnostic, therapeutic or surgical methods for the treatment of humans or animals. Patent protection is granted for 20 years from the date of filing the application for registration in Egypt. The penalties for infringement of a Patent are a fine of not less than EGP 20,000 and not exceeding EGP 100,000. For repeated infringements, the penalty is imprisonment for no more than two years and a fine of not less than EGP 40,000 and not more than EGP 200,000. In certain circumstances the competent authorities may grant a licence to a third party against fair consideration. The following activities will not be considered to breach an owner's rights: work connected with scientific research, educational or training purpose, non-commercial activities, or manufacturing or selling spare parts.

There is no standard government procurement contract and each Government entity has its own form of contract. However, all of these Government contracts conform with the Public Tender Law. Government contracts must be awarded on the basis of qualifications and price. However, there is an exception for Egyptian domestic contractors whereby they can be awarded the contract if their bid does not exceed the lowest foreign bid by more than 15%. There are other technical and procedural aspects to tender applications on which bidders should take local advice.

5.4

Intellectual property rights law

Law No. 82 of 2002 on the Protection of Intellectual Property Rights has updated Egyptian intellectual property legislation. This law provides for the protection of patents and utility models, layout designs of integrated circuits, trade marks, trade names, geographical indications and industrial designs, copyright and related rights, undisclosed information, and new plant varieties. Intellectual property rights may be transferred or mortgaged. The new law protects trademarks for a period of ten years. Punishment for breach is a maximum fine of LE 20,000, imprisonment of up to two months or both. Copyright protection is provided for in respect of: artistic and literary works; computer programs; audio-visual works; books and computer programs; and sound recordings.

Industrial designs and models are protected for renewable periods of 10 years. Punishment for breach is a fine of up to LE 50,000 or imprisonment of up to three years or both.

Copyright protection lapses after 50 years from the date of the demise of the author. Registration is not required for protection although publishers, printers and producers of works are required to deposit copies with the concerned ministry.
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5.5

Technology transfer law

Technology transfer agreements (TTAs) relating to technology to be used in Egypt are governed by the Egyptian Trade Law No. 17 of 1999 (the Trade Law). The Trade Law applies irrespective of the nationality

or place of residence of the parties to the agreement or in the event that transfer of technology clauses are included in contracts which primarily deal with other matters. A TTA is defined in the Trade Law as any agreement under which one party agrees, against payment, to transfer to the other some form of technical know-how or expertise, whether for the production or development of a particular commodity, the installation or operation of equipment, or for the provision of services. A straightforward sale or rental contract will not be a TTA, nor will sale or licensing of a trademark the essence of a TTA lies in payment for some form of know-how. In relation to TTAs, it is common to think in terms of some form of factory production or electronic system but it is important to appreciate that the broad drafting of the Egyptian legislation means that it is also capable of applying to, for example, franchise arrangements in which the essence of the agreement is being able to provide a particular product or service to a specific formula in exchange for a fee to the franchisor. The Trade Law provides for the mandatory application of Egyptian law to TTAs and for the Egyptian courts to have jurisdiction in relation to any disputes arising from TTAs. Any attempt in a TTA to adopt a foreign (i.e. non-Egyptian) law will be void on grounds of public policy. The use of arbitration is permitted subject to hearings being carried out in Egypt and to the arbitration being carried out in accordance with the substantive and procedural laws of Egypt. The Trade Law contains a number of provisions intended to protect the technology purchaser or transferee, and which a foreign technology supplier needs to be aware of when entering into a TTA. For example, a contractual provision may be voided if it seeks to restrict the freedom of the technology purchaser or transferee to become familiar with, use or develop the technology. Professional advice is therefore strongly recommended before entering into a TTA with an Egyptian counterpart.

environmental review under the auspices of the EEAA forms part of this approval process. In particular, Law No. 4 of 1994 requires a licence for the handling of hazardous substances and wastes or the construction of any establishment for treating such substances. The law also prohibits the importing of hazardous waste or the passage of such waste through Egyptian territories.

5.7

Banking and foreign exchange law

Currently, the banking industry is seeing the advent of a number of new products with the boom in retail banking. E-banking is flourishing, and most banks are investing in IT and Human Resources. The legal environment is changing to meet the developmental needs of the banking sector. Law No. 88 of 2003 promulgating the Law on Central Bank, the Banking Machinery and Exchange has given rise to mergers and acquisitions including that of the Bank of Alexandria, one of the four state owned banks, which was sold to Intesa Sanpaolo in November 2006 following a vigorously contested tender. The Egyptian Government has also made an attempt to sell upt to 67% of Banque du Caire, the second largest stateowned bank in Egypt, and whilst initially unsuccessful, it is expected to make a further attempt. The Central Bank of Egypt (CBE) has the following responsibilities: to issue national currency notes and determine their denominations and specifications to manage the States gold and foreign currency reserves to act as the Governments bank to manage Government debt to act as the licensing and regulatory body for other banks. to influence banking credit in a way that fulfils the actual needs of different aspects of economic activity. to control the units of the banking machinery. to reorganize and manage the foreign exchange market. to determine and monitor the government's foreign debt as well as the debts of the economic and service authorities, the public sector, the

5.6

Environmental law

Egyptian law requires all those who produce or handle dangerous materials to take precautions to ensure that no environmental damage shall occur. The Egyptian Environment Affairs Agency (the EEAA) was created by Law No. 4 of 1994. The EEAA formulates general environmental policy and prepares, oversees and polices plans for the protection and promotion of the environment. An approval process must be undertaken for all proposed projects in Egypt that will involve an environmental impact. An
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public business sector, and the private sector in accordance with the standards set out by the board of the CBE in this respect. Under the law, any establishment seeking to operate banking activities in Egypt must adopt one of the following forms: a joint stock company, all shares of which must be nominal. a public juridical person, the purposes of which must be comprised of banking activities.

promotion and underwriting of securities; holding and investment companies; venture capital; CASE clearing and settlement; Securitisation; promotion and management of investment funds and investment portfolios; and CASE brokerage, including the activities of marginal trading, short-selling and marketmaking; and securitization of financial rights.

a branch of a foreign bank, the head office of which enjoys a defined nationality, and is subject to control by an exchange authority in the state where its head office is located.

Each of the above categories of banks must be licensed by the CBE. However, currently, new licenses are not being granted as the sector is believed by the Government to be over-banked. A foreign bank may also open an Egyptian representative office primarily to liaise with Egyptian correspondent banks. Licensed banks are not subject to limits on the amount of interest that they may charge. CBE approval is required prior to the acquisition of more than 10% of the shares of an Egyptian bank or any other percentage that would lead to actual control, although there is no limit on the proportion of foreign shareholdings in Egyptian banks. Furthermore, notice to the CBE is required after the acquisition of any percentage over 5% but less than 10 % in any Egyptian bank. The banking law allows for the possession of foreign currency and the right to freely carry out foreign exchange operations, provided that the operations are carried out through a licensed bank or exchange office. However, the banking law contains provisions requiring the transaction of all domestic dealings in the fields of goods or services to be transacted in Egyptian Pounds.

CASE maintains Official and Unofficial Listing registers. A company may be officially listed if (i) a minimum of 30% of its capital has been offered to the public and has been subscribed to by not less than 150 shareholders or (ii) the company is a Government or public-sector company. Other securities, including foreign securities, are listed in the Unofficial Register. Holding companies may also be listed in the CASE in the register where most of its underlying companies are registered. All transactions of shares of joint stock companies have to be executed by a licensed broker. Bearer shares are provided for under Egyptian law and may be traded, although this is not usual. For listed companies settlement is T + 2, although some companies are now eligible for same day settlement. For unlisted companies there is no particular period but generally settlement takes at least four days. The Depository and Central Registry Law No. 93 for 2000 was enacted to cover all activities of depository, registration and clearance and settlement procedures of financial positions resulting from trading transactions and registry of the collateral rights in them. The law aims at limiting the risk in the trading of physical securities; which may include damage, forgery or loss. It also aims to minimise the risks associated with the possible bankruptcy of a custodian by ensuring that whilst legal title to the securities remains with the custodian, the beneficial interest is deemed to be at all times with the actual owner of the shares. The law aims at; ensuring central possession and fast circulation of securities as well as enhancing market liquidity. A central depository, Misr for Clearing, Settlement and Central Depository, was established in 1996. Listed company shares are registered with MCSD and

5.8

Capital markets law

The Capital Market Law No. 95 of 1992 (Law No. 95) regulates the Egyptian capital market. The regulator is the Capital Market Authority (the CMA). The CMA, in particular, is responsible for regulating the Cairo and Alexandria Stock Exchanges (CASE). Law No. 95 also provides the regulatory framework for companies engaged in the following activities:

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transfers of share ownership and pledges are evidenced by the issue of a depository receipt.

5.9

Property law

Under a concession, the foreign oil or gas company is granted an initial exploration phase. This phase may be extended at the option of the foreign oil or gas company, although usually no more than two renewals are granted. The concession will automatically terminate at the end of the agreed period (or extensions if any), provided that there has been no commercial discovery of oil. The concession usually imposes a minimum number of explorations that must be made during an exploration phase in addition to minimum financial obligations on the foreign oil or gas company. Following discovery of oil and gas, a development lease will be awarded to the foreign oil or gas company and an operating company will be established to be jointly owned by the contractor and EGPC/EGAS. The operating company will be exempted from the Egyptian Companies Law and will be governed principally by its constitutive documents and the relevant concession agreement.

In general, limited liability companies and joint stock companies with foreign shareholders may own land in Egypt, although special regulations apply to desert land. Also, in the Sinai peninsula companies may only have a real right by way of usufruct. In addition, foreign individuals may own land for their personal non-commercial purposes provided that such land is non-agricultural and subject to a limit of two plots of maximum 4,000 m2 each.

5.11

International treaties and conventions

Source: I Stock Photo

Foreigners are treated in the same way as Egyptians with respect to ownership of residential properties in certain areas of Egypt, for example some areas on the Red Sea. There are no restrictions on the lease of office and factory premises by companies with foreign participation. Expatriates living in residential property. Egypt may directly lease

Egypt is signatory to a number of international treaties and conventions which provide protection to foreign and local investors. In particular, Egypt is a party to the following: The World Trade Organisation (signed on 30 June 1995), The Euro-Mediterranean Partnership Agreement (signed on 25 June 2002); New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards (in force in Egypt from 7 June 1957); The Washington Convention of 1965 on the settlement of Investment Disputes between States and the Nationals of other States; The Convention of 1974 on the Settlement of Investment Disputes between the Arab States and the Nationals of other states; The Basle Convention on the disposal of hazardous materials (signed 8 January 1993); Trade Related Aspects of Intellectual Property Rights (TRIPS); The Paris Convention of 1883 (concerning patents) (in force in Egypt from 1 July 1952);

5.10

Oil and gas concessions

Development of Egypts reserves of oil and gas is done by way of concessions. The basis of oil and gas concessions in Egypt is the sharing of production arrangements between the Government of Egypt and the Egyptian General Petroleum Corporation (EGPC), the state-owned organization for oil, or the Egyptian Holding Company for Natural Gas (EGAS), and Ganoub El Wadi Holding Petroleum Company the state-owned organization for gas, and a foreign oil or gas company. A special law is passed for each oil or gas concession. The standard practice is for the foreign oil or gas company to take all of the risks that relate to the exploration.
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The Madrid Convention of 1891 (concerning trademarks) (in force in Egypt from 1 July 1952); and The Berne Convention of 1886 on copyright (in force in Egypt from 7 June 1977).

the contract should be agreed at the outset. This is because whilst contracts prepared in languages other than Arabic are enforceable before the Egyptian courts, all pleadings and supporting documentation (including copies of the contracts in dispute) must be prepared in or translated into Arabic.

Egypt is also a member of the Common Market for Eastern and Southern Africa (COMESA), in addition to being a party to a number of treaties with various counties for the encouragement and reciprocal protection of Investment, including the United Kingdom, France, Italy and the United States.

Professional Advice
This guide has been produced by Trowers & Hamlins Cairo office in association with its associate firm in Egypt, Nour Law Office. Please ask for a copy of our Cairo Office Information Sheet for more information about the association and our lawyers. This guide is only intended to provide a brief overview of a large body of legislation and regulations affecting business activity in Egypt and should be used for introductory guidance only. It should also be noted that the Egyptian legal system, including the practical application of current regulations, is in a state of ongoing development and should always be the subject of current professional advice. Trowers & Hamlins also publishes a regular journal entitled The Middle East Business Law Review covering developments in business law and practice in Egypt and the Gulf region. This publication is sent to clients and contacts around the world in order to update them on new legal development. Please let us know if you would like to be put on our mailing list.

Disputes

The parties to a contract including an Egyptian counterpart should always give careful thought to how any disputes will be resolved. Whether the Egyptian party has any assets outside of Egypt will always be a significant factor as will be the chosen governing law and jurisdiction. Arbitration should always be considered as an alternative means of dispute resolution. It is common practice for international contracts including Egyptian counterparts to include provisions for international arbitration as a dispute resolution mechanism. The Egyptian Courts have confirmed, on a number of occasions, the validity of such arbitration clauses and will stay proceedings brought before them. The Cairo Regional Centre for International Commercial Arbitration is an Egyptian arbitral body which applies the rules of the United Nations Commissions on International Trade Law (UNCITRAL) unless the parties agree to use different rules. However, Egyptian law does not require that arbitration be conducted under its auspices. In general, professional advice is recommended in respect of any decision concerning method of dispute resolution. In the event that the Egyptian courts are chosen to have jurisdiction over disputes, or if it is likely that the contract will at one time or another, for example upon enforcement come before the Egyptian courts, thought should be given as to whether an Arabic translation of

October 2008
Trowers & Hamlins LLC Ref 06/09 For more information please contact Sara Hinton or Tim Armsby at the Cairo office of Trowers & Hamlins. t +20 10 25005060 f +20 (0)2 27357314

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