Egypt
| KEY COUNTRY FACTS | |
|---|---|
 | |
| System of government: | presidential republic |
| Population: | 86.89 million |
| Currency: | Egyptian pound (EGP) |
| FX regime: | floating arrangement |
| GDP: | US$262bn (2013 est) |
| IGTA member: | no |
| FATF member: | Associate member through the Middle East and North Africa Financial Action Task Force (MENAFATF) |
| Treasury association: | ACT Middle East |
| Other professional financial/banking associations: | Bankers Association of Egypt |
Financial regulatory framework
Bank supervision
The Central Bank of Egypt (CBE) supervises financial institutions in Egypt.
Exchange controls
The official currency of Egypt is the Egyptian pound (EGP). Banks are permitted to carry out foreign exchange transactions without specific approval from the CBE, via a general authorisation. Non-banks wishing to carry out foreign exchange dealing must be licensed by the CBE. All direct foreign investment must be registered with the General Authority for Investment. CBE approval must be sought by both resident and non-resident companies wishing to acquire over 10% of a domestic bank.
Taxation framework
Corporate taxation
Resident companies are taxed on worldwide income with a credit for foreign tax; non-resident companies are taxed on Egyptian-sourced income only. The rate of corporate income tax is 20% for taxable profits up to EGP 10m and 25% for taxable profits exceeding EGP 10m for manufacturing, services and trading activities. Companies undertaking exploration or production of oil and gas are taxed at 40.55%. Under the new income tax law, corporate tax incentives have been abolished, except for companies that are established under the free-zone system, projects that are funded by USAID, and companies that were established under Investment Law No. 8 of 1997 (prior to June 2005).
Capital gains
Capital gains realised from the sale of assets in another company are subject to tax as part of business profits at normal rates. Capital gains realised by juridical persons on their investments in securities listed on the Egyptian Stock Exchange are exempt from tax, and losses on those dealings are non-deductible.
Taxation of dividends
There is no withholding tax on dividends.
Transfer pricing
Related party transactions must be in accordance with the arm's length standard. There are three methods to determine the transfer price: 1. Comparative free price method; 2. Total cost plus profit margin method; and 3. Resale price method. Priority is given to the comparative free price method. However, if the information needed to apply this method is unavailable, either of the other methods may be used. If none of the methods are deemed suitable by the taxpayer, any method specified under the OECD transfer pricing guidelines will be accepted.
Thin capitalisation
Thin capitalisation laws in Egypt apply a 4:1 gearing ratio. The interest expense exceeding this amount is non-deductible.
Indirect taxes
The General Sales Tax (GST) applies to the supply of most goods and services. Registration is compulsory for businesses with an annual turnover above EGP 54,000 (for manufacturers and service providers). For importers, registration is compulsory regardless of turnover. GST is collected at three levels:
- manufacturer, importer or service supplier;
- wholesalers; and
- retailers.
The sales tax is charged on the sale of goods, services and imports. Tax rates differ for various types of goods and services as follows:
- zero-rated (e.g. exports, petrol, newspapers and most foodstuffs);
- 5% (e.g. communication services from fixed phones, and local telegrams other than mobile phones);
- 10% (e.g. tourism and communication services);
- 15% (e.g. mobile communication services and international calls);
- 20% (e.g. home electronic devices); and
- either 25% or 30% for luxury items (e.g. cars).
Suppliers of zero-rated and exported goods and services can recover input tax paid on their supplies.
Tax information provided by Deloitte Touche Tohmatsu and Deloitte Highlight 2014 (www.deloitte.com).
Banking service provision
There are five public sector banks, 27 private and joint-venture banks and eight branches of foreign banks operating in Egypt. The Egyptian banking sector is dominated by two state-owned institutions: the National Bank of Egypt and Banque Misr. The CBE has implemented several banking reforms over the past few years, including the application of Basel II standards, which banks are expected to comply with by June 2013. The capital adequacy ratio reached approximately 13.0% in December 2013 compared to the minimum ratio of 10%. Additionally the CBE has exempted banks' deposits from the required reserve ratio, in order to help provide finance to SMEs in the country. Foreign banks are prominent within the financial sector and include Barclays Bank (Barclays Bank Egypt) and HSBC (HSBC Bank Egypt).
Clearing and payment systems
Clearing systems
There are two domestic payment clearing systems operating in Egypt:
- The RTGS system – Egypt's electronic real-time gross settlement system processes large-value and urgent domestic payments denominated in EGP and interbank money market transactions. Transactions are settled irrevocably in real-time and with immediate finality.
- Automated Clearing House (ACH) – Egypt's ACH electronically processes all cheque and draft payments in Egypt, regardless of value. Payments are then sent to the RTGS system for final settlement. Cheques can be cleared on a same day basis if they are drawn at banks in Cairo's clearing house district. Other cheques can take up to a maximum of five days to clear.
Payments
Egypt is a cash-based society, with only around 10% of Egyptians currently holding a bank account. However, the use of electronic payment methods, notably payment cards, is increasing, alongside the continued use of cheques. Egypt's move towards electronic payments has been facilitated by the development of an RGTS payments system, which clears electronic bank transfers centrally. Payment cards are predominantly used for retail payments. Direct debits are widely offered for regular bill payments and giros are also available.
- Credit transfers – The electronic credit transfer is not widely used in Egypt as only a small proportion of Egyptians hold bank accounts. However, the introduction of the central RTGS system in 2009 has led to an increased use of credit transfers, as transaction times are cut and processing costs are reduced.
- Payment cards – Payment card usage is increasing in Egypt. ATM and debit cards are the most widely available types of card. Egypt's Ministry of Finance has initiated a scheme whereby the country's 12 million public sector workers can draw their salaries using ATM cards. There are currently 1 million ATM cards issued under this scheme and 387 Ministry of Finance branded ATM machines have been made available. As of December 2013, there were around 13 million debit cards and 2.19 million credit cards in circulation in Egypt. A national network interconnecting all Egypt's ATMs and POS terminals was implemented in 2004. There were 6,488 ATMs and 48,416 POS terminals in Egypt as of December 2013.
- Direct debits – Intra-bank direct debits are widely available in Egypt. They are mostly used for low-value recurring payments such as credit card payments. A 2012 pilot scheme introduced direct debit processing via the ACH.
- Cross-border – Cross-border transactions are usually settled via SWIFT-based links to correspondent banks and are consequently subject to individual arrangements in terms of charges and value dates.
- Cheques – Cheques are the most popular cashless payment instrument in Egypt in terms of both value and volume. In the 2012/2013 year, 13.3 million domestic currency cheques were cleared in Egypt, with a total value of EGP 727.6bn.
- Drafts – Companies operating in Egypt sometimes use drafts for trade purposes.
- Giros – Giros are widely available in Egypt, predominantly for bill payment purposes. Companies use Giros for salary or pension payments.
Cash and bank account management
Interest bearing accounts
Interest is available on current account surpluses, although high interest rates are usually offered only on accounts with substantial balances.
Account opening requirements
Residents are permitted to open and maintain domestic currency (EGP) accounts in Egypt but are not permitted to hold domestic currency accounts abroad. Foreign currency accounts can be held by residents both domestically and abroad. Accounts in domestic currency are convertible into foreign currency and balances can be converted through the foreign exchange market. Non-resident entities can open and maintain domestic currency accounts, which are convertible into foreign currency. Non-residents can also open ‘free accounts' for foreign exchange. These can be credited and debited with transfers of convertible currencies from abroad, transfers from other free accounts and foreign banknotes. These accounts can also be used for making payments within Egypt.
Money laundering
Egypt has implemented anti-money laundering legislation (Anti-Money Laundering Law 80 of 2002, as amended and supplemented by subsequent decrees, and Laws 78 of 2003 and 181 of 2008). Egypt is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF). Egypt has established a financial intelligence unit (FIU), the Egyptian Money Laundering Combating Unit (EMLCU), within the Central Bank of Egypt, which is a member of the Egmont Group.
Supplied by BCL Burton Copeland (www.bcl.com). Data as at February 2014.
Cash concentration
Cash concentration techniques are permitted in Egypt. Accounts held in the name of separate legal entities and those held by resident and non-resident entities can participate in the same cash concentration structure.
Notional pooling
Notional pooling is available in Egypt. Accounts held in the name of separate legal entities and those held by resident and non-resident entities can participate in the same notional cash pool.
Cross-border issues
Cross-border cash management structures are available in Egypt, with both cross-border notional pooling and cash concentration techniques permitted.
Electronic and internet banking
Electronic banking is widely offered in Egypt by large commercial banks, although low bank account penetration rates mean it is largely utilised by larger businesses. Services available include balance reporting and transaction initiation. Internet banking is slowly increasing but with only around 36 million Egyptians having access to the internet, usage is limited. The lack of internet availability for consumers in Egypt has led some electronic banking providers to focus on mobile phone banking provision. In June 2013, MasterCard, National Bank of Egypt and Etisalat launched a mobile wallet service in the country, which was followed in September 2013 by the launch of the “Phone Cash” mobile payment solution from National Bank of Egypt in partnership with Fawry and Egyptian Banks Company (EBC)..
Short-term investments
Short-term investments include:
- Treasury bills – The Egyptian government issues T-bills via the CBE at weekly auction. Bills are issued with maturities of three months, six months, nine months and the maximum maturity of one year. Online submission of offers for Treasury Bills is now available through a CBE Auction Portal System.
- Repurchase agreements (repos) – T-bill repos issued by the CBE are currently the only type permitted in Egypt. Seven-day and 28-day repo agreements are available.
- Term deposits – Term deposit accounts in local and foreign currencies are available with a range of maturities.
- Certificates of deposit (CDs) – CDs are available in Egypt in foreign and domestic currency. Banks issue CDs for a range of maturities but they are usually for terms greater than three years. The CBE also issues CDs and these can now by bid on online via the CBE's Auction Portal System.
- Commercial paper (CP) – Compared with other countries, very little CP is issued in Egypt. As a result, the market for short-term commercial paper in Egypt is underdeveloped.
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Short-term borrowing
Borrowing instruments include:
- Overdrafts – EGP and foreign currency overdrafts are commonly used by companies. Interest charged for overdrafts is several percentage points above interbank lending rate.
- Bank lines of credit and loans – Short-term advances are a very common method of corporate funding in Egypt, although companies are often deterred from obtaining financing from Egyptian banks due to their high interest rates. International institutions typically provide lines for credit to small and medium-sized business in Egypt.
Websites
Government
Central Bank of Egypt
Ministry of Finance
Ministry of Trade and Industry
Egyptian Financial Supervisory Authority
Central Agency for the Public Mobilization and Statistics
Egypt Ministry of Investment
The Egyptian Exchange
