On April 16th 2019, the Egyptian government passed a law to regulate non-cash payment methods. The law entered into force the day following its issuance, and according to article 2, those addressed by the law were given a six-month period to adjust their status, calculated from the date of the implementation of the Law's Executive Regulation.
The Executive Regulation of the Law was issued pursuant to Prime Ministerial Decree no. 1776 of 2020 and was published in the Official Gazette on September 7th 2020, to come into force the day following its date of publication.
Thereafter, the Council of Ministers agreed to extend the period for reconciliation for an additional 6 months, expiring on September 7th, 2021. Hence, the law will now be effective as of September 8, 2021.
Furthermore, the Financial Regulatory Authority simultaneously issued a book with the requirements for the implementation of the law, whilst also clarifying the obligations resulting from its issuance, and obligating companies and entities subject to the authority to speed up implementation.
Definitions as per the New Law:
- Non-Cash Payment Method: Any means of payment resulting in an addition to a beneficiary's bank account, such as deposits, transfers, debit, credit cards, and payments by mobile or other means approved by the Central Bank of Egypt.
- Bank Account: A contract between a natural or legal person and a bank registered with the Central Bank or one of the entities authorized to engage in deposit or credit activity in Egypt to open an account at the bank that allows all transactions such as deposits, withdrawals and settlement of mutual debts in cash or via electronic means.
- Cash Financing: Finance provided by banks, mortgage companies, financial leasing,, microfinance/microenterprise companies or associations or any other authorized to work in these fields
The Following was Addressed by this Law:
1. All authorities and agencies of the state
2. Public legal persons
3. Companies in which the state owns all or the majority of its capital
4. Private legal persons and establishments of all types
Obligations Covered by the Law
- All state authorities, public legal persons and companies in which the state owns all or the majority of its capital, are obliged to pay their financial dues to their boards of directors, committees, employees, experts and social insurance subscriptions through non-cash methods.
- Private legal persons and establishments of all types are obliged to pay amounts dues of their employees, experts, chairmen and members of the boards of directors and social insurance subscriptions through non-cash methods, whenever their number of employees exceeds 25 or the value of their monthly wages exceeds EGP 100.000.
- All state authorities, legal persons and establishments of all
types are obliged to make the following payments through non-cash
methods, whenever they exceed the below limits:
Maximum cash payment Payments EGP 1 All amounts dues to suppliers, contractors, service providers, and other contractors paid by the authorities or agencies of the state or public legal persons and companies in which the state owns all or the majority of its capital EGP 5000 All amounts due to suppliers, contractors, service providers, and other contractors paid by private legal persons and establishments of all types EGP 2000 Cash payment EGP 2000 Distribution of profit resulting from the contribution to the capital of companies or investment funds EGP 500 Amounts due from syndicate members EGP 5000 Private insurance funds' members and insurance compensation EGP 500 The disbursement of subsidies and donations through charities and national institutions EGP 10000 Amounts due as a result of purchasing or mortgaging land or vehicles EGP 5000/month Amounts due as a result of rent, exploitation, use of land, or mortgaging express transport vehicles
The regulation imposes the following penalties:
- Penalty no less than 2% and no more than 10% from the total amount of cash payments, with a cap of 1 million EGP. The same penalty applies to those who pay partially to circumvent the limits of this law.
- Penalty no less than 100,000 EGP and no more than 300,000 EGP to those who collect an additional amount for the use of non-cash payment methods
- Such penalties will be duplicated in case of repetition.
Without prejudice to the criminal liability of natural persons, individuals responsible for the management of the legal person shall be subject to the same penalty if his/her awareness is proven, and this breach of his duties has contributed to the crime committed.
Aim of the Law
This legislation is an unprecedented legislative shift to encourage and regulate the inevitable transition to the digital economy, provide a safe environment for investment, and reduce financial crimes and tax evasion.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.