New law alert: deductions on income to offset the economic impact of the spread of epidemics and natural disasters

Since early 2020, the Covid-19 pandemic has caused massive human suffering across the world, both through its health impact and economic ramifications. With healthcare systems being overwhelmed, and resources being stretched to their limits, all countries, regardless of their level of socio-economic development, have struggled to contain the pandemic and its economic implications.

Egypt has not been immune to the economic impact of the pandemic and lockdown measures applied during such time, generally resulting in the slow-down of the economy. In light of the above, the Egyptian government has taken measures to mitigate the economic impact of the spread of epidemics or the occurrence of natural disasters through- among other things- the enactment of the Law 170 of the Year 2020 in relation to the collection of Solidarity Contributions to Alleviate some of the Economic Implications of the Spread of Epidemics or the Occurrence of Natural Disasters (the “Law”). The Law has been issued on August 13, 2020 with the purpose of increasing the state’s capacity to financially offset the economic impact of such hazards.

Purpose of the Law

The Law is essentially a mechanism for the collection of social solidarity contributions from State and Private Sector employees and pensioners to allow the State to mitigate the economic impact of Covid-19 and other future natural thrSeats.

As of the effective date of the Law, on August 14th of 2020 and, for a period of 12 month, employers must withhold 1% from the monthly net salary of their employees (be it under an employment contract or under any other legal arrangement for their scope of work). Further, pensioners will be subject to the monthly deduction of 0.5% from the monthly net pensions in accordance with the provisions of the relevant insurance and pension laws.

Duration of the Law

The Law has initially been enacted for a period of 12 months from the date of its application (“Duration of the Law”).

Meanwhile, the provisions of the Law allow the increase or decrease of the frequency of contributions periods, within the limits of the Duration of the Law, by virtue of a Cabinet’s Decree based on a proposition of the Minister of Finance.

In any case, the Duration of the Law can only be extended by the Parliament.

Scope of application of the Law

Contributions will be deducted from:

 Public Authorities Employees: employees working in government offices, ministries, local administrative units, public utility entities, and other such entities under the State’s public budget.

 Public Economic Entities Employees: employees working in public economic entities and entities and agencies that have independent budgets.

 Public Sector Companies Employees: employees working in the public sector companies, public business sector companies, and private companies with State contribution.

 Bank Employees.

 Private and cooperative sector employees.

 Employees whose employment is regulated by special laws and regulations.

 Employees holding public positions and those under a prefixed income scheme.

 Chairmen and members of boards of the abovementioned bodies and entities as the case may be.

 Employees working in special units, private accounts and funds subordinate to such entities.

The above applies to employees employed permanently, temporarily, as consultants, as national experts, or in any other capacity.

Exemptions

This Law does not apply to:

 Employees whose net monthly salary is less than or equal to two-thousand Egyptian pounds.

 Pensioners whose net monthly pension is less than or equal to two-thousand Egyptian pounds.

Disbursement in a Special Account

Amounts withheld by the competent authorities shall be disbursed in a special account opened for this purpose, by the Minister of Finance, in the Central Bank, under the name “Account for the Alleviation of the Implications of Epidemics and Natural Disasters”. Said account will include the deducted contributions, grants, donations, and subsidies that are in connection with its purpose and approved by the Prime Minister.

Allocation of the Collected Deductions

The finances generated by the deductions will be allocated towards entities suffering from the damaging impact of the spread of an epidemic or the occurrence of a natural disaster as follows:

 Allocating financial support to the various economic and production sectors, as well as establishments, companies, and projects which have been affected by an epidemic or natural disasters.

 Provision of financial aid to employees of the economic and production sectors, and provision of financial aid to affected establishments, companies and projects.

 Provision of financial aid and in-kind allowances, as decreed by the President, to the individuals and families.

 Contributing to the financing of medical research and public health, and to develop and maintain the healthcare system.

 Other areas of spending as decreed the Egyptian Cabinet to fulfil the Law’s objectives.

For any questions or inquiries, please feel free to contact:

Omar Bassiouny

Founding Partner and Head of Corporate and M&A

omar.bassiouny@matoukbassiouny.com

Suzanne El Akabaoui

Of Counsel

suzanne.elakabaoui@matoukbassiouny.com

Sherif Roushdy

Associate