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Buyers Guide
The transfer of title of real estate in Egypt is completed through two distinct phases, namely the execution of a private sale and purchase agreement between the seller and the buyer followed by the registration of title of the purchaser with the Real Estate Department and Public Notary. Foreign nationals are entitled to purchase and own real estate properties in Egypt subject to the restrictions stipulated by the Foreigners Ownership Law (law 230 for the year 1996). The said law restricts foreign nationals' ownership of real estate in Egypt to i) No more than two properties; and ii) Each property should not exceed 4000sq . Meter. Without prejudice to said law, the purchase of real estates in Egypt by foreign nationals follows the same procedural course of action as it is the case for Egyptian nationals. In relation thereto, there are five fundamental steps that should be followed by any prudent purchaser, which are as follows: Step 1: Check the registration status of the property and review of title documentation, as outlined above, the transfer of real estate properties is perfected through the registration of property with the relevant authorities. This said, it is quite common in Egypt for property owners not to register their title in order to avoid paying the governmental registration fees amounting to 3% of the value of the property. Hence, the first seminal step to be undertaken when purchasing property in Egypt is to check said registration status. The status of the registration is determined through the review of the title documentation. Further more, a comprehensive review of the title documentation should be undertaken in light of the original title documentation and not through copies, in order to ensure that no fraudulent title documents are provided by sellers. Step 2: Check if there are any pledges or mortgages registered on the property. Under Egyptian law, mortgages and pledges are recorded on the property itself and are not affected by the transfer of the title. Hence, quite commonly a person who has just purchased a property can discover that his newly purchased property is pledged to a third party. As such factor represents a serious exposure to your title, it is imperative that you ensure that the property you wish to purchase is clear and free from any third party rights such as mortgages and pledges. This check is undertaken through the review of the Official Pledge Registers at the Notary Public located in the district of the property. Step 3: Ensure that all real estate taxes levied on the property are fully paid. Under Egyptian law exists a real estate tax which is levied on the property itself and not on the owners of the property. The rate of said tax differs as per the location and the standard of the property itself. This tax is not affected or prejudiced by the transfer of the legal owners and hence it is common for a new purchaser to discover- after completion of the property purchase- that he has to pay certain amounts to the Real Estate Tax Authorities. Accordingly, any prudent purchaser should instruct his attorneys to check the status of payment of the said tax prior to purchasing the property. Step 4: Drafting and bilingual comprehensive sale and purchase agreement. The execution of private sale and purchase agreement between the seller and the purchaser is the first phase required under Egyptian law to transfer the title. Quite commonly the seller produces an Arabic draft which in many cases is not readable by the expatriate and does not include all the guarantees, representations and protections that a prudent purchaser requires. Hence, it is highly recommendable that a comprehensive bilingual sale and purchase agreement is produced and/or reviewed by the purchaser's lawyers in order to ensure that no contractual exposure persists. Step 5: Registration of purchaser's title, the registration of the title is the second phase required under the Egyptian law to transfer the title from the seller to the purchaser. As a matter of fact, the execution of the sale and purchase agreement creates- from a purely legal perspective- legal and valid obligations between the seller and the purchaser but does not create any rights vis-a-vis third parties and the relevant authorities. In other words, the sale and the purchaser agreement can be used to counter any claims by the seller of the property but does not safeguard the purchaser from potential claims from third parties or the governmental authorities. The registration of the property is the procedure designated to safeguard the purchaser from the claims from third parties and governmental authorities. There are two courses of action to undertake the registration of property which differ as per the initial registration status of the property. The two courses of action can be seen as follows: Registration of the property through the Real Estate Department and the Notary Public. This mechanism is commonly used in the connection with the registration of title for properties which were initially registered by the sellers. The timeframe associated with said procedures differs as per the status of the completeness of the registration documentation but in all cases would remain in the range of three to six months. When agreeing with the seller on the purchase price, the three percent registration fee should be taken into consideration; as such rate is calculated on the stipulated price of the property. We strongly do not advice on illusionary smaller price on the contract to attempt to decrease the registration amount as such action creates a substantial future exposure on the purchaser. Registration of the property through the courts, the second course of action available to register a property is a court action against the seller of the property requesting the court to issue court ruling confirming the validity of the sale of the property and claming the purchaser as the legitimate owner of the property. The name of such court action is claim requesting confirmation of the validity of the sale. This course of action may take six to nine months as per the level of cooperation that the purchaser receives from the seller. This course of action is used primarily to register properties located in the new urban communities and Sinai. We always recommend using an international lawyer who speaks your language whenever purchasing any overseas property. Foreign purchasers have the right to own real estate and land in Egypt. Today the government recognizes the great value foreign investors in property have for the success of the economy and have set about actively encouraging overseas buyers to Egypt. New laws have been established to make the Egyptian property purchase procedure more secure. Once you decide on a property, you will need to pay a holding deposit to take the property off the market while contracts are drawn up. It is completely usual to negotiate a propertys selling price in Egypt, unless you are buying off-plan when the price is fixed. Lawyers Lawyers in Egypt will normally speak English and will be able to produce your necessary paperwork in Arabic, as required by all the authorities. Egypt has many complex real estate registration issues so it is critical to have a lawyer conduct the appropriate searches and provide you with legal advice regarding the purchase. Local lawyers will also help you through the best way to conduct business with the local people who have their own particular idiosyncrasies and customs which are important to be aware of. Fees and Taxes Property registration and legal fees for conveyance total around 6%. Stamp Duty on property is payable by the buyer at 3%. The buyer will also pay a small inspection and measurement fee (approx. 65 euros). Tax on any form of income from property runs at 20 to 22% and is basically the alternative to Income Tax. Many countries enjoy a double taxation treaty with Egypt. Egypt levies no inheritance or capital gains taxes. Agency fee - 3 % Registration Most Egyptian properties are not registered, even though registration is an essential pre-requisite to a purchase. Therefore the lawyers assistance in liaising with the Real Estate Registration Office in Egypt is essential in order to ensure the property is duly registered and prepared for foreign purchase. Registration can take up to four months. After inspections and payment of taxes/fees, you will finally obtain a new title from the Registry. Property Tax Today, taxes on the sale of real estate bear no relation to standard property taxes or real estate registration fees in other countries. The Egyptian government is currently debating a reform of property registration fees and is proposing to impose international-standard property taxes. Tax from the Sale of Property In Egypt, the sale of land and/or buildings is taxed in the same way and the system is very simple. Tax is chargeable at 2.5% of money earned from a sale and it must be filed as tax owed by April 1st. For example: an individual or corporation selling a piece of land for LE 100,000 must file a tax return by March 31st stating that LE 2,500 is owed in taxes. The only exceptions (under Article 42) are income from the sale of inherited land or other real estate is tax which are free, as is any income earned from the sale of land or other real estate you own through a shared capital company, provided you keep your shares in the company for at least five years after the sale. This last provision is designed to prevent the formation of paper companies to dodge tax liabilities from the sale of properties. Stamp Duty / Capital Gains Tax / Inheritance Tax In Egypt there is no stamp duty or capital gains tax payable on real estate and, if you are a British resident, you will also avoid inheritance tax on any Egyptian properties that you decide to pass on to your loved ones. Tax on Rental Received Any person, partnership or company must file a tax return detailing all rent or other income derived from real estate by March 31st of each year. For rental income the basic threshold for taxation is LE 5,000 per annum and, provided your rental income is less than this figure, you need not declare your received income.
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