EGYPT Law and Practice Contributed by: Arig Ali and Lana Abd El-Rassoul, Zaki Hashem, Attorneys at Law
6. Exits 6.1 Investor Exit Rights
to the promise to sell until they meet the con - ditions and pay the full price. For the prom - ise to sell to be valid, all essential elements and terms of the sale must be agreed upon, including the sales price and other conditions set by the company for the beneficiaries. 5.3 Taxation of Instruments There is no preferential tax treatment under Egyptian law for stock-based incentives or bonuses. Any gains realised from an ESOP are subject to salary tax at the time of exercise or grant (depending on the structure), and any capital gains from a subsequent share sale are taxed according to standard capital gains tax rules. Similarly, bonuses are treated as ordinary employment income and taxed accordingly. 5.4 Implementation With respect to the implementation of employee incentive plans by Egyptian companies – and their interaction with investment rounds – as noted in 5.1 General – the prevailing practice is for most VC investments and corporate struc - tures to be established offshore, with the Egyp - tian entity functioning primarily as the operating company. In such structures, incentive plans are typically administered at the level of the offshore parent and governed by the legal and tax frame - works of jurisdictions of incorporation such as the Netherlands or Singapore. Nevertheless, in instances where the incentive plan is to be implemented at the level of the Egyptian entity, it is our understanding that investors generally require the ESOP pool to be established prior to their entry. This approach ensures that any resulting dilution is borne by the founders and early shareholders, rather than by incoming investors.
Typical rights include lockups, call options, put options, drag-along rights, tag-along rights and rights of first refusal. Limited exit avenues have increased reliance on contractual exits and acquisitions. However, in Egypt, breaches of contractual provisions – such as call options or tag-along rights – typically lead only to claims for monetary damages. Specific enforcement mechanisms, such as share-transfer orders or injunctions, are not commonly available under local law. As a result, many investors prefer to invest via an offshore vehicle that owns the Egyptian operating entity. 6.2 IPO Exits IPO exits remain largely theoretical in Egypt’s current VC landscape. The Nilex exchange has seen limited activity, and only one SPAC transac - tion took place in 2024. As such, trade sales – particularly via offshore SPV structures – remain the predominant route for VC exits. 6.3 Pre-IPO Liquidity In Egypt, the secondary market for private equity and VC investments is still in its early stages. Unlike more developed offshore markets, where secondary transactions are increasing, Egypt has seen limited activity in this area. A notable attempt was made by an Egypt-founded VC fund to establish a secondary market practice. However, the discounts offered on the second - ary stakes were not attractive enough to entice investors seeking to exit their positions, lead - ing to minimal participation. This contrasts with global trends, where the secondary market has matured significantly, providing liquidity options for investors.
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