FRA Issues Interpretation on Calcul

On 5 August 2019, the Egyptian Gazette published the Financial Regulatory Authority (“FRA”) Decision No. 90 of 2019[1] clarifying the manner of collecting the FRA’s development fee from holding companies in accordance with the provisions of Law No. 10 of 2009 on non-banking financial markets (the “NBF Law”), and FRA Decision No. 66 of 2009[2] on the same matter.

Background

Article (14) of the NBF Law imposes a “development fee” on companies that are subject to FRA supervision in exchange for the services that FRA provides to develop/improve the fields in which these companies operate. The NBF Law gave FRA the authority to determine this fee for each type of activity, given that the fee does not exceed two in every one thousand of the company’s annual turnover. A few months after the enactment of the NBF Law, FRA issued its decision No. 66 of 2009 (“Decision 66/2009”) with some elaboration on the development fee. Decision 66/2009 has since undergone several amendments, but as it currently stands, it clarifies the basis for the calculation of the development fee with respect to different non-banking financial activities. Companies are required to inform FRA with their revenues and the calculated development fee every three months (within a maximum of 45 days following the end of each three-month period), while payment of the development fee is made annually. Delay in payment for over three months after the end of the fiscal year subjects the company to a daily fine. Decision 66/2009 also sets out the manner of calculation of the development fee. Companies that undertake more than one FRA-supervised activity pay the fee separately for each activity provided that their financial statements clearly separate between these activities. In the event that the company does not clearly differentiate between its different FRA-supervised activities, the development fee is calculated on total revenue based on the higher activity fee. Finally, Article (5) of Decision 66/2009 states that the calculation of the development fee for holding companies is to be based on the holding company’s stand-alone financial statements, as opposed to the consolidated financial statements of the holding company and its subsidiaries.

FRA’s Recent Decision No. 90 of 2019

The new decision provides an interpretation of Article (5) of Decision 66/2009 on the calculation of the development fee with respect to holding companies according to which the revenues of FRA-supervised subsidiaries are explicitly excluded from the revenues of the holding company for the purpose of determining the basis upon which the development fee is calculated. This is to avoid double payment of the fee once at the level of the subsidiary and then again when the revenues of the subsidiary are reflected as part of the holding company’s total income. Accordingly, FRA-supervised holding companies that own non-FRA supervised subsidiaries pay the development fee on the basis of their total revenue, whereas holding companies all or some of the subsidiaries of which are also FRA-supervised companies carve out the revenues of the FRA-supervised subsidiaries from their revenue for the purpose of calculating the development fee to avoid a double charge.   [1] FRA Board of Directors Decision No. 90/2019 providing an interpretation of Article (5) of its Decision No. 66/2009, Egyptian Gazette, Issue No. 176, 5 August 2019. [2] FRA Board of Directors Decision No. 66/2009 on the development fee to be collected from companies that are subject to FRA supervision, Egyptian Gazette, Issue No. 297, 29 December 2009.