Legal Articles

Preface:

Egypt offers a favorable environment for establishing branches of foreign companies. This would definitely enhance the promotion of the economic growth and the attraction of foreign investment. However, why would the foreign companies seek to establish a branch in Egypt instead of establishing a new separate vehicle? This article explores the purposes of establishing a branch of a foreign company in Egypt, provides the benefits that the foreign company would gain in case it registered a branch in Egypt instead of setting up a new Egyptian company, and highlights the key requirements for foreign companies to establish a branch.

 

I. Legal Framework:

The establishment of a branch of a foreign company in Egypt is primarily governed by the Egyptian Investment Law No. 72 of 2017, and its executive regulations. These law provides the legal framework for foreign investment and outline the procedures and requirements for setting up a branch in the country.

II. Purposes of Branch Establishments:

One of the goals that the foreign company may seek to achieve through establishing a branch under different territory is to execute certain project or contract in such territory; Establishing a branch can facilitate the execution of these specific projects or contracts. This may be particularly relevant for foreign companies involved in infrastructure development, construction, or large-scale projects that require a local presence.

However, under the Egyptian law the existence of a specific project or contract is not only one of the goals that the foreign companies may seek, but also a preliminary condition for permitting the establishment of a branch in Egypt.

This means that foreign company will not have the option to either establish a branch of a foreign company or set up an Egyptian company, unless it has a project or contract with an Egyptian entity in exist even before the commencement of the establishment process.

 

III. Benefits of Branch Establishments:

The choice between these two forms of investment carries distinct benefits and incentives as follows:

1. Market Expansion: Establishing a branch in Egypt allows foreign companies to expand their presence in the Egyptian market, tap into new customer bases, and explore business opportunities. It enables them to establish closer relationships with local partners, suppliers, and customers.

2. Knowledge Transfer and Technology Exchange: By establishing a branch, foreign companies can transfer knowledge, expertise, and advanced technologies to Egypt. This contributes to capacity building, skills development, and the transfer of best practices, ultimately benefiting the local workforce and economy.

3. Brand Recognition and Reputation: A branch of a well-established foreign company can enjoy brand recognition and reputation, which can enhance its market position and credibility in Egypt. This can create a competitive advantage and attract potential clients, partners, and investors.

4. Transfer of foreign currency: the mother company is entitled to get back the profits gained by its branch in Egypt in foreign currency.

5. The subjection to ICSID Convention guarantees: The ICSID Convention refers to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (International Centre for Settlement of Investment Disputes). The ICSID is an international arbitration institution established under the World Bank Group that provides a framework for the settlement of investment disputes between states and foreign investors.

The ECSID Convention guarantees certain protections and benefits to foreign investors who have invested in a country that is a party to the convention. These guarantees aim to provide a stable and predictable investment environment, protect the rights of foreign investors, and encourage investment flows between countries.

 

Here are the key guarantees provided under the ICSID Convention:

1. Consent to Arbitration: The ICSID Convention ensures that both the state and foreign investor consent to arbitration as the primary method for settling investment disputes. By ratifying the convention, states agree to submit investment disputes to international arbitration rather than resorting to national courts.

2. Investor-State Arbitration: The ICSID Convention establishes the framework for investor-state arbitration, where foreign investors can initiate arbitration proceedings against a host state in the event of a dispute. This provides foreign investors with a neutral and independent forum to seek remedies for alleged violations of their investment rights.

3. Independent and Impartial Tribunals: The ICSID Convention guarantees the establishment of independent and impartial arbitration tribunals to adjudicate investment disputes. These tribunals are composed of arbitrators who are selected based on their expertise and impartiality, ensuring a fair and unbiased resolution of disputes.

4. Enforcement of Awards: The ICSID Convention provides for the recognition and enforcement of arbitration awards rendered under its auspices. Member states are obliged to recognize and enforce these awards as if they were final judgments of their own courts, facilitating the enforcement of arbitral decisions across borders.

5. Protection against Expropriation: The ICSID Convention includes provisions to protect foreign investors against unlawful expropriation or nationalization of their investments by host states. It ensures that investors are entitled to prompt, adequate, and effective compensation in the event of expropriation or measures having an equivalent effect.

6. Fair and Equitable Treatment: The ICSID Convention guarantees that foreign investors are entitled to fair and equitable treatment by host states. This includes protection against arbitrary or discriminatory actions, ensuring that foreign investors are treated in a non-discriminatory manner and with due process of law.

 

Foreign investors considering investments in countries that are parties to the ECSID Convention should assess the availability and scope of these guarantees, consult legal advisors, and review the specific investment protection provisions and dispute resolution mechanisms provided under bilateral investment treaties (BITs) or other investment agreements between the host state and the investor’s home country.

 

IV. Requirements for Establishing a Branch:

1. Legal Form and Activities: A foreign company seeking to establish a branch in Egypt must be a legal entity in its home jurisdiction and engaged in activities that are permissible under Egyptian law. The branch must operate within the scope of the parent company’s business activities.

2. Registration and Licensing: The foreign company must register the branch with the General Authority for Investment and Free Zones (GAFI) and obtain the necessary licenses and permits. The registration process typically involves submitting required documents, such as the parent company’s articles of association, a power of attorney for the branch’s representative, and a statement of capital.

3. Capital Requirements: Egyptian law does not prescribe a specific minimum capital requirement for establishing a branch. However, GAFI may require the foreign company to demonstrate sufficient financial capacity to support the branch’s operations.

4. Local Representative: The branch must appoint a local representative who will act as the company’s official agent in Egypt. The representative must be an Egyptian national or a foreign resident with a valid work permit.

5. Tax Obligations: The branch is subject to Egyptian tax laws and regulations. It is required to fulfill tax obligations, including filing tax returns and paying corporate income tax on its generated profits.

 

Conclusion:

Establishing a branch of a foreign company or setting up an Egyptian company in Egypt presents distinct benefits and incentives for foreign investors. Establishing a branch allows for immediate market presence, leveraging the parent company’s brand recognition and streamlined operations. It also enables access to the parent company’s resources and expertise. On the other hand, setting up an Egyptian company offers advantages such as local ownership and control, access to local financing, contractual autonomy, and potential preferential treatment in government tenders.

Both options provide opportunities to benefit from investment incentives, including tax benefits, customs duty exemptions or reductions, and access to free zones. These incentives aim to attract foreign direct investment, promote economic growth, and support job creation in Egypt.

Foreign investors should carefully evaluate their investment objectives, market entry strategies, and the legal and regulatory requirements to determine the most suitable form of investment. Consulting with legal and investment professionals, as well as relevant government authorities such as the General Authority for Investment and Free Zones (GAFI), can provide valuable guidance in navigating the incentives and requirements associated with establishing a branch or an Egyptian company in Egypt.

Ultimately, by choosing the appropriate investment structure and leveraging the available benefits and incentives, foreign companies can establish a strong presence in the Egyptian market, contribute to the country’s economic development, and capitalize on the numerous opportunities available in Egypt’s growing economy.