Boosting MSMEs: Egypt's Legislative Framework

Based on Egypt belief in the vital role played by youth in achieving economic growth and increasing investment in the country, it works hard to encourage these cadres to start projects and investments whose primary goal is to eliminate unemployment, create job opportunities, and increase investment and production.

Therefore, a law was enacted to finance projects that young people seek to achieve, whether for small, medium or micro projects. Many advantages are granted to help starting these projects by allowing them to receive fund from other entities and enjoy tax incentives for companies and institutions that support such enterprises. Consequently, Law No. 152 of 2020 promulgating the Micro, Small and Medium Enterprises Development was codified, in addition to its Executive Regulation issued pursuant to Ministerial Resolution No. 654 of 2021, which we shall discuss below: 

• What are Micro, Small, and Medium Enterprises (MSMEs)?
• The Licensee Authority 
• The Funding Providers.
• How are these enterprises financed by banks, funding institutions and financial institutions?
• Regulating the right of usufruct for real estate allocated for Micro, Small, and Medium Enterprises.
• How to obtain project licenses.
• Cases in which the competent entities notify the MSMEDA of the licensing decision after fulfilling the required conditions.
• Is it permissible for the enterprise owner to amend the final or temporary license issued by the Agency?
• The MSMEDA licensing for Accreditation Offices to issue the necessary approvals for the activity.
• MSMEs with non-tax incentives stipulated by Law No. 152 of 2020.
• Non-tax incentives for Micro, Small, and Medium Enterprises.
• Tax incentives for Micro, Small, and Medium Enterprises.
• Incentives granted to companies and establishments that support MSMEs.

Medium-sized Enterprises: any enterprise with an annual turnover of EGP 50 million or more and does not exceed EGP 200 million, any newly incorporated industrial enterprise with a paid up or invested capital (as the case may be) between EGP 5 million and EGP 15 million, or any newly incorporated non-industrial enterprise with a paid up or invested capital (as the case may be) between EGP 3 million and EGP 5 million.

Small-sized Enterprises: any enterprise with an annual turnover between EGP 1 million and EGP 50 million, any newly incorporated industrial enterprise with a paid up or invested capital (as the case may be) between EGP 50 thousand and EGP 5 million, or any newly incorporated non-industrial enterprise with a paid up or invested capital (as the case may be) between EGP 50 thousand and EGP 3 million.

Micro-sized Enterprises: any enterprise with an annual turnover of less than EGP 1 million, or any newly incorporated enterprise with a paid up or invested capital (as the case may be) of less than EGP 50 thousand

The Competent Licensing Authority: 

The Micro, Small and Medium Enterprise Development Agency (MSMEDA) was established pursuant to Prime Ministerial Resolution No. 947 of 2017. It has a legal personality and is affiliated to the Prime Minister.

Units affiliated to the (MSMEDA) are designated in its offices and branches or in the General Authority for Investment and Free Zones or in its branches in the governorates. Such Units provide approvals, permits, operating licenses, cards and registration procedures necessary to practice the activity legally.

The accreditation offices licensed by the (MSMEDA) are responsible for examining the extent to which the requirements and documents of the license applicant are met, whether a license for incorporation, operation or expansion. The license applicant is granted an accreditation certificate to be submitted to the (MSMEDA) and other relevant entities.

Funding Providers: 

Banks, companies, funding institutions, financing agencies and other entities licensed to fund or provide credit facilities for projects, may finance these enterprises.

How are MSMEs funded by banks, funding institutions, financing agencies?

 The entity that has the authority to exploit and dispose of real estate allocated for MSMEs, and has jurisdiction over vacant lands in industrial zones and tourist zones, urban communities, agricultural reclamation lands and other plots of land, and after coordination with the (MSMEDA) to determine the percentage allocated (not less than 30%) and in accordance with the nature of the licensed activities.

MSMEs are financed based on the desire of those in charge, provided that the allocation of the use, exploitation, leases or lease-to-own of the property is temporary, pursuant to the allocation contract and MSMEs bear the obligations arising thereto.

Any disposition or arrangement of a real right on the property during the period of the temporary allocation, without the approval of the funding provider, is void.

The temporary allocation may not be terminated, cancelled or rescinded except with the approval of the funding provider or by paying all obligations arising from the funding contract.

The funding provider may relinquish the temporary allocation of real property issued to him to another funding provider, and such transfer is considered effective against third parties, without the need to follow any procedures set in other laws, in accordance with the following procedures:

1. A waiver contract including all the basic data of the MSME, the funding amount, the funding provider’s dues, and any other related data.
2. Notifying the funding provider and the MSME of this waiver after completing its procedures.
3. The waiver shall be recorded in the designated register by the Authority and by the funding provider.

Regulating the priority of use on real estate allocated for the MSMEs purposes:

The MSME has the right to use the real estate allocated for it. Such right does not expire except at the end of the specified period, even if the beneficiary dies or his legal personality is removed, as the case may be.

The mortgage remains in effect for the benefit of the mortgagee creditor even if the usufruct sale contract is declared invalid or is terminated for any reason, except for the end of the specified term in the contract.

The mortgagee creditor may request an extension of the term of the usufruct right or its renewal in return for specified conditions, provided that the funding provider notifies the applicant of its reasoned decision. If the application is rejected due to the defect of abuse of the right, or if the mortgagee has an interest worthy of protection, the applicant may request the Authority to extend the term or renew it.

MSME licenses: 

The Service Units affiliated with the (MSMEDA) are responsible for issuing the licenses and approvals necessary for operation, cards, and registration procedures necessary for MSMEs to practice their activity. These approvals, permits, and licenses may be issued by representatives of the relevant authorities, ministries, and public utility companies in those Units, under the supervision of the (MSMEDA)

The representatives are obligated to complete the necessary documents to obtain approvals, permits, licenses or cards within five (5) working days from the date of submitting the applications; otherwise they will be considered completed. No additional documents may be requested from the MSMEs after that period has passed, provided that those documents include the following:

1. Approval of the Organization Department.
2. Approval of the licensing authority.
3. Approval of the competent Civil Protection Department.
4. Tax card.
5. Commercial register.
6. Title deed, lease or possession of the project headquarters.
7. Proof of identity of the MSME owner.
8. Any other approvals or documents necessary for the validity of the project and the suitability of its operation, according to the nature of each activity, as determined in coordination with the competent authorities.

Service Units may, upon the request of the MSME owner or his representative, address the competent authorities to obtain the necessary approvals. The approval or rejection response shall be within 10 days from the date of notification, with an explanation of the reasons for rejection.

In the event that these entities request any conditions to issue the approvals, he the MSME owner shall be notified of them to be fulfilled, and the approval shall be issued within a maximum of fifteen (15) days from the date of re-notification that the license applicant has complied with these conditions. If the license applicant does not comply with these conditions for a period of 12 months from the date of his notification, his application shall be void, provided that he may submit a new application.

The license applicant shall be issued a temporary license for a period not exceeding one year, renewable once, within a maximum of fifteen (15) days from the date of filling the designated form.

The administrative body to which the MSME belongs shall be notified after the issuance of the temporary license by any means of notification, whether by hand, electronically, by mail, or by any other method specified by the Agency, and it shall be effective immediately upon its issuance. The temporary license shall expire and its validity shall end upon the expiry of its term, or upon the issuance of the final license. Temporary licenses shall be recorded in a paper or electronic register that includes the owner’s data, the MSME data, and the license issuance and expiration date.

Cases in which the competent entities notify the MSMEDA of the licensing decision after fulfilling the required conditions are:

The competent entities are obligated to provide the MSMEDA with their decision regarding the license within 30 days from the date of fulfilling the required documents and conditions, according to the following cases:

1. Approval of the competent authority: The competent authority is obligated to provide the service units of the MSMEDA with the final license to be delivered to the MSME's owner or his representative through the service provision units.
2. Requesting the completion of some necessary requirements according to the nature of the activity based on the inspection of the MSME location: The service units shall examine the response of the competent authority and notify the MSME owner or his representative of the requirements. When the violation is removed and those conditions are met, the competent authority is notified to complete the issuance of the final license within a maximum of fifteen (15) days from the date of notification.
3. Postponing approval of the license application for violating some or all of the requirements related to the safety of the project and its suitability for operation, with the possibility of amending the postponement decision in the event of removing the violation: In this case, the service units shall examine the response of the competent authority and notify the MSME owner or his representative to remove the reasons for rejection, granting him the necessary time period for that. Upon the removal of the violation, the competent authority is notified to complete the issuance of the final license within a maximum of fifteen (15) days from the date of notification.
4. Final rejection of the license application for violating some or all of the requirements related to the safety of the project and its suitability for operation, and the impossibility of fulfilling them in the future: In this case, the service units notify the project owner or his representative of the final rejection of the application.

Is it permissible for the enterprise owner to amend the final or temporary license issued by the Agency?

It is permissible by submitting request on a designated form attached to the documents indicating the amendment; provided that the amendment is not material related to the project's safety requirements or its suitability for operation, otherwise it shall be considered a new license application.

The MSMEDA is obligated to notify the competent authority of the requested amendment to assess the extent of the amendment's materiality and take the necessary measures for that.

The competent authorities may authorize the MSMEDA to grant operating licenses, activity practice, and other necessary licenses and approvals according to the following:

1. Licensing Centers in the local units: The MSMEDA is authorized to grant operating licenses.
2. The New Urban Communities Authority: The MSMEDA is authorized to grant operating licenses for MSMEs.
3. Egyptian Tax Authority: Authorizing the MSMEDA to issue tax cards for MSMEs.
4. Internal Trade Development Authority: Authorizing the MSMEDA in any of its competencies regarding the commercial register for the MSMEs.
5. The Industrial Development Authority: Authorizing the MSMEDA in any of its competencies regarding the industrial register and industrial operating licenses for the MSMEs.
6. Ministry of Agriculture and Land Reclamation: The MSMEDA is authorized to grant licenses for agricultural, animal, poultry and fish production MSMEs.
7. Ministry of Communications and Information Technology: The MSMEDA is authorized to grant licenses for communications and information systems MSMEs.
8. Ministry of Environment, Environmental Affairs Agency and Waste Management Regulatory Agency: The MSMEDA is authorized to grant environmental approvals.
9. Ministry of Tourism and Antiquities: The MSMEDA is authorized to grant licenses for tourism MSMEs.

MSMEDA licensing for Accreditation Offices:

Accreditation Offices: are the offices licensed by the MSMEDA to check the MSME compliance with the terms and conditions, and that the required documents necessary to obtain the license for establishment, operation or expansion, and grant the license applicant an accreditation certificate to submit to the MSMEDA and the relevant authorities.

The Offices license is for a renewable period of one year, provided that the Office is re-evaluated before approval of the renewal.

Services offered by the accreditation offices for projects, based on the request of the MSMEDA or enterprises, are:

1. Clarify the general and special conditions for necessary approvals, permits and licenses.
2. Inspect the project headquarters to ensure its eligibility for registration, licensing and practicing the activity.
3. Review the documents related to establishing, managing, operating or expanding the MSMEs.
4. Determine the extent to which the MSME fulfill the required conditions by law and related regulations of the licensee.
5. Providing accredited certificates indicating the eligibility of the project headquarters to establish, manage, operate or expand the activity in accordance with the applicable regulations.

MSMEDA may add any additional services it deems necessary to provide through the Accreditation Offices.

MSMEs with non-tax incentives stipulated by Law No. 152 of 2020

The MSMEDA Board of Directors may grant these projects non-tax incentives, provided that they meet the controls stipulated by law, which are:

• MSME operating in the informal sector and request to enter the formal sector.
• Entrepreneurship projects.
• Digital transformation and artificial intelligence projects (projects that rely on technological techniques, such as: computational computing, programing, mobile phone applications,  Internet of Things platforms, social networking, communications, in addition to 3D printing and remote sensing devices licensed by the Ministry of Communications and Information Technology.
• Industrial projects that work to enhance the use of the local component in their products, or projects that use them to replace and renew machines, equipment and technological systems related to the production process, provided that a related certificate is issued by the Ministry of Commerce and Industry.
• Projects that serve agricultural or animal production activities, including the agriculture and land reclamation sector, and animal, poultry and fish production.
• Projects operating in the field of information technology or related services, including information technology projects, communications, computer systems and their development.
• Projects that provide new innovations in the field of industry and technology systems.
• Projects that invest in developing intellectual property rights, including patents, industrial models and designs.
• New and renewable energy projects, including bioenergy, thermal, hydroelectric, solar and wind energy, or any other future energy sources, within the framework of achieving energy security and enhancing economic growth, taking into account reducing carbon emissions. 

The MSMEDA Board of Directors may decide to create new activities or fields whenever necessary.

For these projects to enjoy non-tax incentives, they must meet the controls approved by the MSMEDA Board of Directors, which are:

• Sustainable development for Egypt 2030.
• Economic empowerment of women.
• Enhancing the use of the local component.
• Empowering youth and people with disabilities.
• Spatial development.
• Creating sustainable job opportunities.
• Sectoral development.
• Taking into account the environmental dimension (Green Economy).
• Taking into account the trade balance (rationalizing imports and increasing exports).

These projects enjoy some incentives pursuant to Article (24) of Law No. 152 of 2020 as follows:

1. Refund the value of connecting utilities to the lands allocated for the project – or part thereof – after its operation.
2. Granting projects a deferred payment for the value of installing utilities, including total or partial exemption from late fees.
3. The State bears part of the cost of technical training for workers.
4. Allocating lands for free or for a nominal fee.
5. Refunding no more than half the value of the land allocated for the project.
6. Exemption from providing the necessary guarantees until the activity begins when allocating the necessary properties for the project, or reducing the value of these guarantees.
7. Refunding the value of participation in exhibitions, in whole or in part.
8. The MSMEDA Board of Directors may grant other cash incentives, within the limits of what is allocated annually from the state's general budget, and not exceeding three tenths of a thousand of the gross domestic income and a minimum of EGP 1.5 billion annually, according to the following:

• The programs are consistent with the goals of sustainable development.
• Each program has clear key performance indicators, a timetable and a specific cost.
• Clarifying the monitoring and evaluation systems, on which spending is based.

The activities decided for these programs and their annual cost shall be included in the state's annual plan.

Tax incentives for Micro, Small, and Medium Enterprises

1. MSMEs and informal economy projects that apply for regularizing their status are exempted from stamp duty, documentation and registration fees for establishment incorporation contracts, credit facility contracts, mortgages related to their business, and other guarantees provided by the projects to obtain funding, as well as land registration contracts necessary to establish these projects, for a period of five years from the date of registration in the commercial register.
2. A customs tax of 2% of the value shall be collected on all machinery, equipment and devices imported by MSMEs for their establishment, except for passenger cars. 
3. Capital gains resulting from the disposal of assets, machinery or production equipment for projects subject to the provisions of this law shall be exempted from the tax due if the proceeds of the sale are used to purchase new assets, machinery or production equipment within one year from the date of disposal.
4. MSMEs may be exempted from the tax on real estate for a specific period or periods, based on a decision by the Cabinet. 
5. The distribution of profits resulting from the activity of a single-person company from projects subject to the provisions of this Law shall not be subject to the tax prescribed in this regard in accordance with the law regulating income tax, if the sole partner is a natural person.

Incentives granted to companies and establishments that support MSMEs.

Funding providers for MSMEs enjoy non-tax incentives within the limits of the businesses that support these projects only and contribute to developing a stimulating environment for them, and in accordance with the controls decided by the MSMEDA Board of Directors, which are:

1. Establishing industrial, production, craft or service complexes that include spaces for small and micro enterprises.

2. Business incubators and accelerators that provide their services to projects, especially newly established projects and entrepreneurship projects.