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As a way of encouraging foreign direct investment in Egypt, the General Authority for Investment (GAFI) has issued new regulations tightening control on representative offices existing in Egypt by virtue of Decree no. 742 of 2018 (“Decree”).
On the other hand, Decree no. 256 of 2018 issued by the Minister of Investment and International Cooperation (“Ministerial Decree”) has relaxed regulation on limited liability companies in order to further incentivize companies to establish their presence in Egypt with relative ease.
Representative offices in Egypt are legal vehicles designed to encourage investment by allowing foreign companies to study the market on the ground without the need to register as a company or branch. The status of representative offices allow them obtain several tax exemptions as they are not meant to make profits. They are also meant to exist for a finite amount of time before deciding to finally invest in Egypt. However, more than occasionally, foreign companies have used representative offices to establish a presence in Egypt and operate commercially, while also being able to obtain visas for their employees. As such, the Decree has resolved to regulate some of the governance challenges in relation to representative offices.
The Decree requires representative offices to submit a detailed list of its employees, details of the work conducted and sent to the mother company as well as a timeline of the market studies. These documents must be submitted annually for GAFI’s review of the representative office in order to renew the representative office’s license.
The representative office is also given a deadline of three years from its registration to establish a company or open a branch, subject to renewal from GAFI or its Chairman. This provision comes in stark contrast with previous legislation that allowed representative offices to function with no time limit.
Representative offices that violate the purpose of studying the market and engage in commercial activities will be required to open a branch or incorporate a company within six months; otherwise, they will be delisted.
The Ministerial Decree has removed the requirement on limited liability companies to have at least one Egyptian manager at all times. This requirement was an impediment for foreign companies who do not have local managers on their payroll. Usually, foreign companies appointed a manager from outside their organization and provided them with limited management and signatory powers. As such, the requirement was both burdensome and futile. This amendment will prove to be a very positive step towards modernizing the Egyptian corporate environment.
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