Amendments to the Regulations for R

The General Authority for Investment and Free Zones (“GAFI”) published Decision No. 742 of 2018 on its website regulating the operations of representative offices of foreign companies (the “Decision”).[1] The Decision amends the process of registering the representative offices by setting a fixed term for registration after which renewal is required. It also amends the penalties for violating authorized activities.

Background

Foreign companies that do not have headquarters in Egypt can open branches or representative offices in the country as per the Companies Law No. 159 of 1981 that was issued almost four decades ago. In case of representative offices, these are limited in terms of their activity to conducting market and productive capacities studies, without any commercial undertakings, including the work of commercial agents.

GAFI’s New Decision

• Required Notifications and Reporting

GAFI’s new Decision modifies the required notifications and reporting from representative offices. The Executive Regulations to the Companies Law, as per the Minister of Investment and International Cooperation Decision No. 96 of 1982, required representative offices to annually present GAFI with a list of their employees’ names, job titles, nationalities, and salaries; the total wages; the percentage of wages given to Egyptians; and the activities the offices have undertaken. The new Decision makes this notification compulsorily set at the beginning of each year. The Decision also adds to the list to be presented to GAFI a schedule of completed and remaining studies, with particular emphasis on the practical studies conducted, as well as any amendments that might have occurred to the office’s activities or operations within the year with proof that these have been made with the knowledge of or through decisions taken by the parent foreign company. Representative offices are also now required to submit proof of the parent company’s decision to establish a company or open a branch in Egypt, within three years from the registration date of said company/branch in Egypt, notwithstanding the parent company’s obligation to submit to GAFI copies of its branch’s registration papers as well. The three-year period could be extended upon the submission of acceptable justifications and approval from GAFI.

• Registration and Renewals

As for the registration of representative offices, the Executive Regulations only outlined the required documents, information, and fees to apply for listing in the relevant registry. The Decision, however, elaborates on this, specifying that registration is for a set period that does not exceed a year, with the possibility of renewal. Acceptance of the renewal application will take into consideration whether the representative office has been annually submitting the aforementioned information and documents required of it regarding the office’s personnel, finances, activities, amendments, and studies. However, it will not be affected by the representative office’s failure to submit proof of the parent company establishing a company or opening a branch in Egypt.

• Violations and Penalties

As for violations, the Executive Regulations stipulated that representative offices undertaking any activity other than the authorized market research and productive capacities studies would be delisted from the registry upon the approval of the relevant committee. The new Decision, however, makes delisting a last resort. Indeed, when a violation of authorized activities occurs, the representative office must either establish a company or open a branch for the parent company in Egypt within six months from being notified of the violation. Otherwise, delisting of the office would be considered.

Conclusion

GAFI’s new Decision seems to be aimed at increasing the government’s awareness and access to information in terms of the market research and productive capacities studies undertaken in Egypt by representative offices. It also seems to be aimed at facilitating their work in Egypt by toning down the penalties on said offices and thus possibly increasing foreign investments. But it also seems to assume that the final aim of such offices is to prepare the ground for company establishment, which may not always be the case.   [1] GAFI Decision No. 742/2018 with regulations on the operations of representative offices of foreign companies in Egypt.