Egypt looks to be removing barriers to companies seeking to exit through the country’s stock exchange. Only a few weeks after approving the formation and licensing of companies formed solely for the purpose of acquisition, or SPAC, the country has unveiled a series of stock market incentives aimed at improving the investment and business environment, and more specifically targeted at startup investors invesing in the country.

What Are The New Incentives In Place?

The new incentives include that: 

• All stamp duty fees levied on shares bought and sold on the Egyptian stock markets have been stopped. 

• If any person trading on stocks in Egypt incurs expenses in the course of such trading, the expenses will be substracted from any taxes to be paid in relation to such trading. Where the person, however, chooses not to trade the stocks but to hold or preserve them, any expenses incurred in trying to preserve them will also be substracted from any taxes arising from such preservation. 

• If the person also invests in any stock markets in Egypt and makes profit, the individual will also be allowed certain deductions on the taxes which are supposed to be paid on the invested amounts. 

• New procedures for determining profits on the Egyptian stock market have also been established, one of which being that the purchase price or closing price of the shares (whichever is higher) will now be considered in proportion to the shares’ selling price to determine profit.

• Going forward, if any company sells its shares to the public on the Egyptian Exchange (EGX) — the country’s leading stock market — the company will receive a 50 percent reduction in the tax it will have to pay on the profits it made through such first public sales. However, the company can only benefit from this type of incentive if it goes public within the first two years these incentives were introduced.

• Interestingly, the new incentive also targets Special Purpose Acquisition Companies, or SPAC, which are now popularly used to assist startups sell their shares to the public early. According to the new incentive, if a SPAC now goes public on the Egyptian Exchange, it will not pay any tax to government until it fully buys (that is, fully pays in cash for such transaction) the company it is targeting to acquire. This attempts to encourage publicly traded corporations to buy unlisted companies and form giant conglomerates that assist the market expand.

• There is perhaps one more incentive of interests for investors trading on the Egyptian stock market. Going forward, no more new tax files will be opened on the heads of those investors in Egypt. Instead, at the end of each year, their taxes will be calculated after substracting the expenses , and adding other incentives they have gained for their investments in the Egyptian stock market. So basically, the investors will now have to wait for the end of every year to pay all taxes due them, instead of paying them on a case-by-case, as they arise. 

• Again, from now on, if a person makes any profit on the stocks traded on the stock market in Egypt, there is now a 5% reduction in the amount to be paid as tax on the profit. More particularly, all investment funds that invest through share purchase are now free from paying any form of tax on the shares they purchase. The investment funds also, now, need not open any tax files, henceforth. 

• For investors investing in Egyptian startups (that is venture capital funds), they are now free from paying any tax on shares — which have no restriction based on the conditions under which they were issued — in startups they have invested in. 

• In the event of profits, policyholders are, now, also eligible for a 5% tax discount.

• Mostafa Madbouly, Egypt’s Prime Minister, has also ordered the creation of a special unit within the General Authority for Investment and Free Zones (GAFI) to provide a fast track for stock exchange companies, as well as the study of amending the preferred share system to allow for more flexibility and freedom in their issuance.

• The Prime Minister, Ministers of Finance and Public Enterprise Sector, EGX Chairperson, FRA Chairperson, parliamentarians, and market leaders met multiple times to discuss these incentives.

The Egyptian Cabinet Spokesperson, Nader Saad, claimed that this package of incentives was offered in collaboration with the Ministry of Finance, the EGX, the Financial Regulatory Authority (FRA), and securities sector stakeholders, with the goal of increasing the stock market’s competitiveness.

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