EGYPT Law and Practice Contributed by: Nadia Abdallah, Zahra Ashraf, Beshoy Mounir and Yasmine Attia, Matouk Bassiouny & Hennawy
• Book-Value Continuity: Assets and liabilities must be recognised at book values at the change date for tax purposes. • Tax Attributes: Depreciation, provisions and reserves continue under pre-change rules. • Lock-Up: The shares/quotas issued on the reor- ganisation are not disposed of for three years. Note that deferred capital gains tax becomes due if there is a subsequent change of legal form, or a dis- solution, within the three-year lock-up period (ie, the disposal of the new shares/quotas within that period). The statute characterises the relief as a deferral and does not expressly impose a charge after the three- year period unless there is another trigger. It is best described as “roll-over/deferral relief subject to claw- back” rather than an exemption. Stamp Duty Tax and State Development Fee Under the Stamp Duty Tax Law, issued by Law No 111 of 1980, several stamp duty taxes apply. For example, any contract is subject to a nominal stamp duty tax at the rate of EGP0.9 for each page of the contract, and such nominal tax is borne by the party that uses its counterpart in Egypt. With respect to the State Development Fee, accord- ing to Article (1) paragraph 9 of law No 147 of 1984, fees of EGP2 are imposed on each and any tax base which is subject to stamp duty tax of an amount equal to EGP0.5 or more. From an Egyptian tax perspective, a spin-off could potentially avoid direct tax implications in Egypt if it occurs at an offshore mid-layer that does not directly affect the Egyptian entity’s shareholders. However, this should be assessed in light of the tax regulations applicable in the jurisdiction where the spin-off takes place. 3.3 Spin-Off Followed by a Business Combination Undertaking a sale of shares following the completion of a spin-off is possible in Egypt, and such sale may take any form agreed between the parties (eg, share transfer, subscription by a new investor, etc) provided that no statutory or contractual lock-up restrictions
apply. Below is a brief overview of the applicable regu- lations regulating spin-offs. • The Companies Law defines a demerger as the separation of an existing company’s assets, activities, liabilities and ownership rights (Parent Company) into two or more companies (Resulting Company), whether vertically or horizontally. • The Companies Law differentiates between two types of demergers: (a) Horizontal Demerger: The Resulting Company should have the same shareholding structure and percentages as the Parent Company. (b) Vertical Demerger: The Resulting Company is affiliated to and owned by the Parent Company. • The Resulting Company may exist in any legal form (except for sole shareholder companies) irrespec- tive of the legal form of the Parent Company. • The Resulting Company is deemed a legal succes- sor of the Parent Company where it shall legally replace it in all its obligations, liabilities and rights within the limits and in respect of the transferred rights and obligations. The approval of the credi- tors of the financing instruments issued by the Par- ent Company shall be obtained prior to proceeding with the demerger process, subject to the regula- tions under applicable laws. • Whether the demerger is horizontal or vertical, the split of the assets and any liabilities thereof should be based on the book value, unless GAFI approves any other valuation method. The shareholders’ rights in the capital, reserves, and retained earn- ings are split pursuant to a resolution adopted by the Parent Company’s extraordinary general assembly, approved by shareholders representing three-quarters of the company’s capital. • As a result of the demerger, the Parent Company issues new shares corresponding to the net asset value remaining after the demerger, either by amending the number of shares or adjusting their nominal value. The Resulting Company issues new shares reflecting the value of the assets allocated and transferred to it. • The shares of the Resulting Company may be transferred upon issuance without restriction, sub- ject to any pre-existing limitations. • The corporate documents of the Resulting Com- pany and the Parent Company should be amended
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