SUBSIDIARY ENTITY SET UP IN EGYPT

International companies planning to boost their global profile can set up a subsidiary overseas to “test the market”. But establishing a presence in a foreign country can be costly both in time and money. The risks come without any guarantee that the effort and financial outlay will bring success.

Egypt’s strategic location, which includes control of the globally-vital Suez Canal, attracts companies and corporations worldwide. Foreign entities must set up a subsidiary to hire staff there and operate payroll. The typical choice is a limited liability company, which generally protects the parent company and its shareholders from liability. The subsidiary complies with the Companies Law and Investment Law and needs approval from the General Authority for Investment and Free Zones (GAFI). However, expanding overseas is a significant step. If the move fails, companies face the extra expenditure and stress of closing their operation, selling property and paying off employees. It is easy to stumble while chasing two objectives – advancing your company at home while crossing the world into new territory.

The sensible alternative is to use a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to locate the finest local talent and administer your payroll in Egypt. Your company will be up-and-running in days rather than weeks or months without any risks.

How to Set Up an Egyptian Subsidiary?

Companies planning to establish their presence in Egypt must decide on the business structure best suited to their vision for expansion. A popular choice is setting up a subsidiary as a limited liability company, which operates under the Companies Law and Investment Law after obtaining approval from the General Authority for Investment and Free Zones (GAFI).

In general, procedures and requirements for setting up a limited liability subsidiary include the following:

  • Commercial Registry must confirm the choice of a unique company name
  • Obtain a certificate of establishment from GAFI after approval
  • Bank certificate confirming deposit of at least 10% of any issued share capital
  • Notarized Articles of Incorporation, Power of Attorney for all partners/founders/quota holders of the subsidiary, including IDs for Egyptians and foreigners
  • The subsidiary has a minimum of two founders etc., and a maximum of 50
  • Verification from the Register of Accountants that the auditor is certified to audit company accounts and complete details of the company’s legal advisor, who must be qualified for Court of Appeal level
  • Obtaining the company’s Tax Identification Number (TIN), also known as the Employer ID Number (EIN) from the Egyptian Tax Authority of the Ministry of Finance
  • Register with the National Authority for Social Insurance

After incorporating the subsidiary, the employer must undertake other procedures to comply with payroll regulations. Essential requirements include:

  • Contracts must be completed before employment starts, composed in Arabic with copies for the employer, employee and the social insurance authority
  • The third copy is deposited with the local authority verifying work permits for foreign employees.
  • Contracts can be indefinite or fixed-term.
  • Employees must be registered with the relevant local authority with confirmation of their contract, plus ID/passport, educational qualifications, birth certificate, work permit if required, Form (1) for social insurance
  • Registration with the relevant Tax Authority office of the Ministry of Finance to obtain their Tax Identification Number

Responsibilities include:

  • Remitting employee’s contributions for tax and social insurance by the 15th of the following month
  • Submitting all employees’ reconciliations for gross income and taxes paid by January 1 following the financial year
  • Maintaining employees’ employment records and payroll accounts and keeping them for a minimum of five years

Benefits of Setting Up an Egyptian Subsidiary

A significant benefit for international companies establishing a subsidiary is that it is a separate legal entity from the foreign parent corporation. The parent company’s liability is generally restricted to the invested share capital; neither is it responsible for any debts or liabilities. The same applies to its shareholders, founders and members, whose liability is also confined to their contribution to the capital.

Establishing a subsidiary needs approval from the General Authority for Investment and Free Zones (GAFI) and is regulated under the Companies Law and Investment Law.

The subsidiary provides the parent company with the potential for further expansion throughout Middle East North Africa (MENA) region, the Mediterranean and the Near East and as a stepping stone into other regional economies. Additionally, the subsidiary can ‘test the market’ by following its business ideas and entering into different areas of operation for the owning company. The subsidiary can also draw up contracts and agreements independently with clients.

Other benefits for a subsidiary:

  • Easier to obtain potential tax incentives and enter into contracts with other Egyptian and regional corporations
  • More impact with clients and suppliers, as subsidiaries imply more permanency than branches
  • Employees feel there is more stability and job security than from being with a branch

However, there is a more straightforward option to bypass the risks and costs of setting up a subsidiary in Egypt. Using a global PEO such as Bradford Jacobs means staff can be sourced, placed in their roles and be up and running within days rather than months. All the payroll, taxation and compliance difficulties are under control thanks to our EOR services.

Subsidiary Laws in Egypt

Companies registered in Egypt are regulated by the Companies Law and Investment Law and need approval from the General Authority for Investment and Free Zones (GAFI). The Financial Regulatory Authority (FRA) must also give consent and permission if involved in the capital market.

The Companies law dictates that various procedures must be completed in establishing a limited liability company (LLC) as a subsidiary, including:

Registration and Documentation:

  • Commercial Registry must approve a unique name for the subsidiary
  • Obtain a certificate of establishment from GAFI after approval
  • Copies of Power of Attorney for all partners/founders/shareholders, quota holders etc., in the LLC
  • All Powers of Attorney and Articles of Incorporation must be notarized along with documents proving the IDs of all members involved with the company
  • Proof, the company’s Egyptian legal advisor, is qualified to appear at the Court of Appeal level
  • Obtaining the company’s Tax Identification Number (TIN), also known as the Employer ID Number (EIN) from the Egyptian Tax Authority of the Ministry of Finance
  • Register with the National Authority for Social Insurance
  • All necessary work permits and visas

Accounts and Taxation:

  • Bank certificate proving at least 10% of any issued share capital has been deposited
  • Verification from the Register of Accountants that the auditor is certified to audit company accounts
  • There is no minimum requirement for share capital, which the members’ Articles of Incorporation determine
  • Liable for Corporate Income Tax at 22.5%
  • A withholding Tax of 10% applies to distributed dividends; shareholders or quota holders holding at least 25% of the capital for a minimum of two years are liable for Tax at 5%
  • Where turnover exceeds EGP 500,000 (€25,000, US$26,740), companies must register for Value Added Tax with the Tax Authority
  • File annual tax returns and monthly VAT returns
  • A local corporate bank account must be opened

 Management:

  • An LLC must have an Egyptian manager
  • There must be a minimum of two founders/quota holders/shareholders and a maximum of 50
  • Where there are more than 10, the company is managed by a board of control comprising at least three quota holders
  • Shareholders supervise the management of the company through board meetings
  • Shareholders’ board meetings must be held once a year in the three months following the end of the financial year when they can decide on amendments to the Articles of Incorporation.
  • There is no requirement under Companies Law for a board of directors.

LOOKING TO EXPAND INTO EGYPT?

For more information, download our free guide or get in touch with our consultants here