|KEY COUNTRY FACTS
|System of government:
|Egyptian pound (EGP)
|US$284.9bn (2014 est)
|Associate member through the Middle East and North Africa Financial Action Task Force (MENAFATF)
|ACT Middle East
|Other professional financial/banking associations:
|Bankers Association of Egypt
Financial regulatory framework
The Central Bank of Egypt (CBE) supervises financial institutions in Egypt.
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.
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 25% flat rate on annual net profits. A 5% temporary annual tax applied for the period 2014-2016 on net income exceeding EGP one million and was levied in addition to the 25% rate. Companies undertaking exploration or production of oil and gas are taxed at 40.55%. Projects established under the free zone system are not liable to tax and duties in Egypt. Projects established under the Special Economic Zone regime are taxed at a reduced corporate income tax rate of 10%.
Capital gains derived by a resident company from the sale of shares listed on the Egyptian stock exchange are subject to a 10% corporate income tax in a separate income pool; gains derived from unlisted shares are included in taxable income and taxed at the standard corporate rate. Capital gains derived by a non-resident entity from the disposal of shares in Egyptian companies are subject to a 10% withholding tax.
Taxation of dividends
Dividends paid to a resident or a non-resident entity are subject to a 10% withholding tax (the tax withheld is deductible from corporate income tax where the dividends are paid to a resident corporate entity). The withholding tax rate is reduced to 5% where the recipient holds more than 25% of the capital or voting rights in the distributing company for at least two years. The rate for non-residents may be reduced under a tax treaty.
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 laws in Egypt apply a 4:1 gearing ratio. The interest expense exceeding this amount is non-deductible.
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
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 2015 (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. 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
There are three 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 direct credit and direct debit payments, including government cheques. Direct debits are settled on a next-day basis.
- Cheque Clearing House (CCH) - 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 next 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.
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 – Electronic credit transfers are primarily used for high-value payments 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 around 2 million ATM cards issued under this scheme and 387 Ministry of Finance branded ATM machines have been made available. As of December 2014, there were around 14.5 million debit cards and 2.4 million credit cards in circulation in Egypt. There were 7,290 ATMs and 50,808 POS terminals in Egypt as of December 2014.
- 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 volume. In the 2013/2014 year, 12.9 million domestic currency cheques were cleared in Egypt, with a total value of EGP 789.2bn.
- 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.
Egypt has implemented anti-money laundering legislation: Anti-Money Laundering Law 80 of 2002, as amended and supplemented by subsequent decrees; Law No. 78 of 2003; Law No. 181 of 2008 and the Decree of May 2014; Decree No. 164 of 2002 and Decree No. 951-2003 of 2003, as amended. 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 January 2015.
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 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 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 46 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, 'Flous', 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). Flous currently has around 200,000 users in Egypt. A third mobile payments service was launched in November 2013 by Mobinil, Egypt’s oldest mobile carrier, called ‘MobiCash’. Vodafone in partnership with the House and Development Bank has also launched a mobile payment service. In March 2015, the government also announced plans to issue every adult in Egypt a mobile-based MasterCard debit card account that will double as a national ID card, though no timetable has been announced.
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.
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.
Central Bank of Egypt
Ministry of Finance
Ministry of Trade and Industry
Egyptian Financial Supervisory Authority
Egypt Ministry of Investment and International Co-operation
The Egyptian Exchange