OEM (Original Equipment Manufacturer) Contracts in Egypt: A Comprehensive Guide

OEM contracts are manufacturing agreements under which one company (the OEM) produces components or finished products according to another company’s specifications, and the buyer sells them under its own brand. In practice, the buyer provides the product design or core requirements, and the OEM factory manufactures and delivers the goods. The buyer then “packages” or brands the products under its trademark. In essence, an OEM contract ties the factory to produce goods that the buyer will market as its own. For example, a typical OEM deal might require the manufacturer to build 100,000 units of a device per year to the buyer’s specifications, with the buyer retaining all rights to the design and trademark.

How Do OEM Agreements Work in Egypt?

In Egypt, OEM agreements function much like elsewhere: a foreign or local brand-owner contracts an Egyptian manufacturer to produce goods for them. The contract will specify all technical and commercial terms: detailed product lists, specifications, quality standards, and production volumes. It will also spell out delivery terms (e.g. Ex Works or delivered to port), pricing (often different for domestic vs. export sales), and payment schedules. For instance, Chinese market commentators note that OEM contracts typically grant the buyer an exclusive manufacturing arrangement and require the supplier either to meet yearly order quotas or to accept orders on demand. Payments are commonly made after inspection of the goods at the factory or port. The OEM contract will also include technical annexes – often as schedules or exhibits – listing every product to be produced, the bill of materials, acceptable tolerances, and inspection criteria.

In Egypt, these agreements are usually incorporated into a local commercial contract (in English, Arabic or both) between two corporate entities. Often the OEM factory is an Egyptian company (or in a free zone) supplying products to a foreign-owned buyer, or vice versa. The Egyptian manufacturer may import some components (duty-paid) and add value by assembly or additional processing. Sometimes the factory operates under a special license from the Industrial Development Authority, but generally it simply needs the normal business and manufacturing permits (see Legal Framework below). After production, the finished goods can be exported or sold locally. Many OEM arrangements take advantage of Egypt’s robust logistics and ports (e.g. Alexandria, Suez) to ship products internationally. In practice, an OEM buyer might coordinate closely with the Egyptian manufacturer on forecasting and inventory. Regular audits and quality inspections by the buyer’s engineers are common. The contract will typically include clauses on acceptable production tolerances, defect rates, and right-to-reject or rework poor-quality batches.

Key contract provisions mirror global best practice: exclusivity (if any), minimum orders or purchase obligations, quality control processes, lead times, packaging and labeling requirements, and tooling or capital investment. For example, an OEM agreement might require the manufacturer to reserve capacity exclusively for the buyer, in return for minimum purchase commitments. If the buyer insists on a dedicated production line, the contract may cover amortizing any special tooling costs. Pricing is often tied to order volume, with higher costs for smaller runs. Payment may be 30–90 days after shipment or inspection. Many Egyptian manufacturers will also demand payment terms that protect them, such as partial prepayment or letters of credit, especially with new customers. Overall, the working of OEM deals in Egypt is shaped by the same supply-chain principles as elsewhere, adapted to local practice: e.g. Egyptian suppliers expect formal purchase orders, and buyers expect invoices in hard copy due to paper-based banking norms.

What is the Difference Between OEM, ODM, and White-Label Manufacturing?

These terms refer to different levels of design control and customization in manufacturing:

• Original Equipment Manufacturer (OEM): The buyer designs the product, and the manufacturer produces it. The OEM factory follows the buyer’s specifications exactly. The buyer owns all intellectual property (IP) in the design, while the manufacturer simply provides manufacturing services. For example, a company might design a new smartphone and have an Egyptian electronics plant build it to spec. The finished phone carries the company’s brand, not the factory’s.

• Original Design Manufacturer (ODM): Here the manufacturer not only builds but also designs the product. The OEM factory comes up with a design (possibly based on a brief), and sells the finished product to the buyer, who brands it. The buyer gains more design input than a simple white-label, but less than a pure OEM. For example, an Egyptian textile firm might design and produce a clothing line that a foreign retailer sells under its own label. ODM products can have unique features tailored to the retailer, even though the manufacturer created the core design.

• White-Label Manufacturing: The factory produces generic, non-branded products that any retailer can buy and brand. These items come from a common catalog of designs. For instance, a toy manufacturer makes the same doll which is then sold under different brand names by various sellers. White-label offerings are usually off-the-shelf products with no design changes, allowing quick market entry but little product differentiation. In summary, the key difference is who designs the product: OEM means you design it, ODM means factory designs it for you, and white-label means generic product you brand.

Why Do International Companies Use OEM Partners in Egypt?

Egypt offers several strategic advantages for companies seeking OEM manufacturing:

• Cost-Effective Manufacturing: Egyptian labor costs are relatively low compared to Western Europe or North America. Overheads like land or factory space can be cheaper than in many countries. This cost advantage makes Egypt attractive for labor-intensive production such as textiles, consumer electronics assembly, or spare parts.

• Skilled Workforce: Egypt has a large, educated workforce with a tradition in engineering and trade skills. Many technical institutes and universities produce engineers, and there is experience in industries like automotive, consumer goods, and chemicals.

• Strategic Location and Trade Access: Egypt’s geographic position (at the crossroads of Africa, the Middle East, and Europe) and its trade agreements provide access to large markets. Notably, the 2004 EU–Egypt Association Agreement granted immediate duty-free access for Egyptian-made products into EU markets. This means products built in Egypt can enter Europe without customs duties. Egypt also has preferential trade pacts with many partners: for example, it is part of the African Continental Free Trade Area (AfCFTA) and COMESA, and it has a free-trade agreement with the Gulf Cooperation Council (GCC). It is also covered by the U.S. African Growth and Opportunity Act (AGOA) for many goods. These deals greatly expand export opportunities. For instance, toy or apparel manufacturers in Egypt can export to Europe and select African and U.S. markets with minimal tariffs, making the country a regional manufacturing hub.

• Free Zones and Incentives: Egypt’s free zones offer special tax breaks and customs exemptions for manufacturers (see Taxation and Free Zone Incentives below). Many industrial estates (e.g. in Alexandria, Suez, Damietta) are designated for export-oriented manufacturing, attracting foreign investment in OEM production.

• Regulatory and Investment Climate: The Egyptian government actively promotes manufacturing. Recent laws (e.g. Law 15/2017) have streamlined factory licensing, and Law 72/2017 (Investment Law) allows 100% foreign ownership in most sectors. Companies from around the world (GM, Stellantis, Siemens, Unilever, etc.) maintain factories or JV plants in Egypt. An international company may use an Egyptian OEM partner to quickly establish local production capacity without building its own factory. This local presence can be valuable for serving the Middle East and North African region.

• Local Market and Regional Production: While exports are a key focus, OEM partnerships also let foreign firms tap the large Egyptian and African markets. Manufacturing in Egypt can bypass import quotas or high tariffs some countries impose on finished goods (you import raw materials instead). Also, partnering with a local firm helps navigate Egyptian business practices, supplier networks, and labor markets.

In short, companies choose Egyptian OEM partners to combine cost-effective production with market access and incentives. By relying on a qualified local manufacturer, they can scale up production rapidly while leveraging Egypt’s trade agreements and incentives.

Legal Framework for OEM Agreements in Egypt

OEM contracts in Egypt are governed by a combination of general contract law and trade-specific rules. Egyptian Civil Code provisions (based on the French civil law tradition) set out basic rules for contracts: mutual consent, a lawful subject matter, and good faith obligation, just as in any civil contract. This means that any OEM agreement (like any contract) is valid if parties of legal capacity freely agree on lawful terms. The contract must not violate Egyptian public policy or mandatory law (e.g. it cannot legalize bribery or circumvent mandatory labor rules). Otherwise, Egyptian courts will enforce the contract as written.

Since OEM contracts involve commercial transactions between companies, they fall under Egypt’s Commercial Code (Law No.17 of 1999) as well. The Commercial Code supplements the Civil Code with business-specific rules for acts of trade and agreements between merchants. Under the Commercial Code, an OEM sale of goods or manufacturing agreement is treated as a commercial transaction (because it’s typically done by traders). Among other things, this means that parties enjoy “free proof” of their obligations (e.g. they can use emails or oral communications as evidence), and the contract is presumptively governed by merchant rules. In short, yes, the Commercial Code applies to OEM contracts between companies – they are commercial obligations by nature.

Egypt also has specialized courts and laws for commercial disputes. Since 2020, many trade and investment disputes are heard in newly created Commercial (Economic) Courts. Law No.11 of 2020 established dedicated Commercial Courts (e.g. a Cairo Commercial Court of Appeal) to adjudicate business cases more efficiently. In practice, if at least one party is a registered merchant and the deal involves commerce, the case goes to these courts. This can speed up enforcement of OEM contracts, as these courts have experience with business technicalities.

Does the Egyptian Commercial Code apply to OEM contracts?

Yes. By law, any trade contract between merchants is subject to the Commercial Code’s provisions. As noted, Article 104 of the Commercial Code explicitly says that if a sale involves at least one “trader” (merchant), the transaction follows commercial rules. Since OEM agreements typically involve a manufacturing company and a distributor or brand-owner (both merchants), they are considered commercial contracts. Therefore, alongside the Civil Code, the Commercial Code governs these agreements. This means, for example, that any agreed-upon trade customs or the provision of liberal evidentiary rules (e.g. proving the contract by email) will apply.

Do foreign investors need special permits to sign OEM contracts in Egypt?

Generally, no special license is required just to sign an OEM manufacturing contract. Egypt welcomes foreign investment: the Investment Incentives and Guarantees Law (No.8/1997, as amended) explicitly allows foreigners to own up to 100% of projects in most sectors. A foreign company that wants to contract with an Egyptian OEM factory can typically do so by registering the contract or setting up an Egyptian branch or subsidiary. There is no requirement for a special “OEM license.” If the foreign party simply wants to buy goods, it can contract directly. If it also wants to invest or open a factory (more likely in a joint venture), it would register that under the normal Investment Law framework (often via the General Authority for Investment – GAFI).

However, some related approvals may be needed: for example, if the OEM arrangement includes a trademark or technical know-how license, Egyptian law does not require prior government approval for such licenses (except in rare cases of state secrets). In other words, no ministry permission is needed to license a design or brand to an Egyptian manufacturer, other than registering the license contract for legal purposes. (There is a withholding tax on royalties under the Tax Law, typically 20% withheld by law, but reduced under treaties.) In practice, foreign investors must comply with Egypt’s general company formation and industrial licensing rules, but no industry-specific “permission” is needed solely due to an OEM contract.

Key Clauses in OEM Contracts

An effective OEM agreement will address all critical business and legal points. Common provisions include:

• Scope and Exclusivity: Define exactly which products or components are covered, with detailed specifications. If the buyer wants exclusive production (so the manufacturer won’t make the same item for competitors), the contract should state this and may require minimum purchase volumes or exclusivity fees.

• Minimum Orders / Purchase Obligations: Often, OEM contracts require the buyer to purchase a minimum quantity of goods over a period, or alternatively obligate the supplier to accept all purchase orders up to a maximum. This balances risk: the factory invests in capacity, and the buyer commits to a baseline sales volume.

• Pricing and Payment: Specify unit prices and how they may change (e.g. based on volume tiers or currency adjustments). The contract often distinguishes pricing for domestic (Egypt) sales vs. exported units. Payment terms (e.g. 30% upon order, balance on delivery) are spelled out. As noted, it is common in OEM deals to pay after the buyer inspects and approves goods.

• Delivery and Logistics: Define Incoterms (FOB, CIF, DDP, etc.) and delivery schedule. The agreement should address who arranges and bears shipping costs, insurance, export/customs documentation, etc. For exports, often the buyer handles freight from the Egyptian port. The contract will also set lead times and remedies for delays.

• Quality Standards and Inspection: The OEM contract must specify acceptable quality levels and what happens if products are defective. This could include warranties (e.g. free replacement for defects found within X months), inspection procedures, and rights of rejection. Manufacturing runs may require the factory to ship samples for approval before full production.

• Intellectual Property and Confidentiality: The agreement must clarify IP ownership and usage rights. Typically, the buyer retains all IP in the designs, trademarks, or copyrights, and the manufacturer may only use them to fulfill the contract. Clauses should prohibit the OEM from reverse-engineering or using the buyer’s IP for other purposes. A strong non-disclosure clause is essential: it must define what is “confidential information” and restrict the manufacturer’s use of any technical drawings, formulas, or proprietary processes. (See Intellectual Property Protection below for more.)

• Warranties and Liability: The supplier usually warrants that the products will be free of defects and conform to specifications. It should also warrant that it has the right to manufacture the goods (not infringing third-party IP). Liability limits and indemnities (e.g. who pays if the product injures a third party or violates IP rights) should be spelled out. Buyers often require the manufacturer to indemnify against third-party claims related to manufacturing defects or IP infringement.

• Term and Termination: The contract will state its duration (e.g. one year, renewable automatically) and conditions under which either party can terminate. Grounds may include persistent quality failures, insolvency, or force majeure. Notice periods for termination should be specified.

• Dispute Resolution: It is important to include a dispute resolution clause (see Dispute Resolution and Remedies below). Parties should decide whether to use local courts or arbitration, and under what governing law and forum.

• Miscellaneous: Other typical clauses cover force majeure (excusing delays due to events like natural disasters), assignment rights (can the contract be transferred?), language (often Arabic and English versions are both signed), and compliance with laws (the manufacturer must follow all local regulations, export controls, etc.).

In practice, many of the above elements can be handled through an exhibit or annex to the contract (for example, a detailed “OEM specification sheet” with drawings and materials, or a separate “quality manual” referenced by the contract). The key is that nothing critical is left informal or to verbal agreement.

OEM and Manufacturing Regulations

Beyond contract clauses, OEM projects must comply with Egyptian manufacturing regulations. Some key points:

• Industrial Licensing: In 2017 Egypt passed Law No.15/2017 to simplify factory permits. Under this law, setting up a new manufacturing plant requires a one-stop-shop “industrial license,” but the process is fast-tracked (often just a formality for projects meeting regulatory requirements). Essentially, if the manufacturer is building a new facility, it gets an industrial license from GAFI or the relevant authority, which then allows it to operate. Existing factories usually already have their licenses or can transfer them for new products. In short, there are no sector-specific bans on OEM production – the factory just follows the normal licensing path. (The Investment Law explicitly states it does not override any conditions on licenses set by other laws.)

• Standards and Quality Control: Egypt has a national standards body (EOS, Egyptian Organization for Standardization) that issues specifications for many products (especially in food, chemicals, electronics, etc.). An OEM manufacturer may need to ensure products meet Egyptian standards if sold locally, or international standards (ISO, CE, etc.) for exports. Certain regulated products (pharmaceuticals, food, medical devices) will require regulatory approvals. For general OEM products (apparel, plastics, electronics), the main regulatory hurdle is usually the import of raw materials and export customs clearance.

• Labor and Safety Laws: Egyptian labor law and workplace safety rules apply fully. An OEM factory must comply with minimum wage, work hours, social insurance, and safety regulations. The supplier will typically represent in the contract that it follows all labor laws, and buyers often insist on ethical audits. Non-compliance (e.g. using child labor) would breach the OEM contract and be illegal regardless of contract terms.

• Foreign Investment Regulations: If the OEM deal involves a foreign company investing (setting up a JV or subsidiary), the Investment Law No.72/2017 applies. This law grants foreign investors most of the rights of locals and allows 100% foreign ownership in nearly all industries. After getting an “Investment License” from GAFI, a foreign investor can own an Egyptian factory. There are some restricted sectors (e.g. arms, media) where foreign ownership is limited, but typical manufacturing is open. The investor must also register the company and, if importing materials, register as an importer (though Egypt now allows foreign-owned firms to be licensed importers without a local partner).

• Taxes and Customs: Manufacturing can involve import duties on raw materials. Egypt levies customs tariffs (often 2–40%) and a 14% VAT on domestic goods. However, OEM manufacturers may use duty-suspension schemes: for example, bond stores where imported materials are kept duty-free until used in production for export. (If goods are sold locally, duties/VAT must be paid at import.) We discuss taxation in more detail below.

• Currency and Repatriation Controls: Egypt still has some foreign exchange regulations. In the past, the government sometimes limited the amount of foreign currency (e.g. USD) companies could buy for repatriating profits or paying suppliers, to protect reserves. Officially, law now permits repatriation of capital and profits without prior approval, but in practice, there can be delays. It’s not a contract issue per se, but foreign partners should note that high currency controls could slow payments out of Egypt (an important factor when negotiating payment terms).

Overall, while Egyptian regulations add compliance requirements, there are no unusual restrictions on OEM manufacturing. With proper licensing and adherence to labor/customs rules, an OEM project is treated like any other industrial venture. Working with local lawyers or consultants can ensure the contract and project meet all formalities.

Intellectual Property Protection

Protecting the buyer’s intellectual property (designs, trademarks, trade secrets) is a critical concern in OEM contracts. In Egypt, IP is governed by law and by contract.

• Designs and Patents: If the buyer’s product has a novel design or invention, it is wise to register it in Egypt. Patent Law No.82/2002 covers inventions and industrial designs. An industrial design can be registered with the Egyptian Patent Office, granting exclusive rights. While patents can be pursued, many OEM products (electronics, apparel) rely more on design and trademarks than patentable invention. Registration in Egypt is advisable if the design has commercial value to ensure the factory (or anyone) cannot copy it independently.

• Trademarks: The buyer’s brand names and logos should be registered in Egypt if not already. The manufacturer has the right to use the trademark on the products under the contract, but otherwise should have no claim to it. The OEM agreement should require the factory to use the trademark only as authorized, and to keep all branded materials secure.

• Trade Secrets and Confidential Know-How: Unlike patents and trademarks, trade secrets (undisclosed technical information, formulas, processes, source code, etc.) are protected under Egyptian law primarily through contract and the IP Law’s secrecy provisions. Egyptian IP Law No.82/2002, Part II, explicitly protects “undisclosed information” (trade secrets) that are valuable, not public, and kept confidential. In practice, this means if a buyer shares proprietary formulas or processes with the OEM, those can be legally enforced as secrets. However, the onus is on the company to treat them as confidential. A robust non-disclosure clause is therefore essential. The contract should clearly define what counts as confidential information (e.g. technical drawings, software code, customer lists), and explicitly state that the manufacturer will not disclose or use that information except to produce the contracted goods. It should carve out standard exceptions (information already public or independently developed by the manufacturer). The NDA clause should also specify a duration – typically confidentiality lasts as long as the information remains valuable (some contracts say indefinitely, or for several years after termination). In the Egyptian context, a written NDA or confidentiality provision can be enforced in court or arbitration (Egypt’s courts recognize trade secret violations as unlawful). Legal experts recommend that the NDA mention not just “trade secrets” but all “proprietary information” to cast a wide net.

• Other IP Clauses: The OEM contract should state that the manufacturer will not violate any third-party IP (e.g. it will not use unlicensed software or infringing components). If the manufacturer needs to use any licensed technology (e.g. certain chips), that should be the buyer’s responsibility. It’s also wise to include an indemnity: if a product inadvertently infringes a patent or copyright, the supplier should cover the buyer’s losses.

In summary, while Egyptian law provides a basis for IP protection (in line with international norms and TRIPS), the practical safeguard is a well-drafted contract. Register important IP with the Egyptian authorities, and rely on strong confidentiality and IP provisions in the OEM agreement to ensure your rights are enforced.

Foreign and Local OEM Partnerships

OEM arrangements in Egypt can be undertaken by wholly Egyptian firms, by joint ventures, or by foreign-owned companies. Egypt’s investment laws offer flexibility:

• Wholly Foreign-Owned OEM Plants: Under current law, a foreign company can set up a 100%-owned Egyptian subsidiary or a branch, subject to normal company formation rules. Many industrial free zones (e.g. Suez Free Zone, Alexandria Free Zone) allow 100% foreign enterprises. In these cases, the foreign parent simply contracts locally through its Egyptian affiliate.

• Joint Ventures (JVs): Often OEM deals take the form of a joint venture between a foreign brand-owner and a local manufacturer. This could be a registered Egyptian company (LLC or joint-stock company) where each party holds equity. The JV partners typically agree on an industrial license, share capital, and a shareholder agreement that parallels the OEM contract. For example, a foreign car company might join an Egyptian auto assembler, each owning part of the factory. The JV’s corporate charter and contracts will incorporate the OEM terms. Importantly, Joint Venture agreements and shareholdings are subject to the Investment Law and must be approved by GAFI (though the “approval office” process now is largely automatic for eligible projects). Joint Ventures enable foreign investors to leverage local knowledge (labor, suppliers, distribution) while bringing capital and technology.

• Local Partnerships: In some cases, the foreign buyer might simply enter into a contract with an existing Egyptian manufacturer (no joint equity). This is common when the manufacturer is already capable. The foreign company might license technology or provide training to the local factory under the OEM contract. As noted, licensing of IP (e.g. know-how) doesn’t need special government approval. The local partner then produces and sells, sharing profits as agreed in the contract or under a royalty system.

Whatever the partnership form, certain rules apply. The parties must register the company (if a JV) or contractor (if sole proprietorship or branch) with the Investment Authority. They must comply with Egyptian foreign investment limits (almost all industries are open). Profits and dividends can be repatriated in foreign currency, subject to any temporary currency controls in place – though the law now permits it without prior approval. In practice, successful foreign–local OEM partnerships define clear roles (for example, the foreign partner provides designs and marketing, the local partner handles production and local sourcing) and put those into both their corporate governance documents and the OEM contract.

Taxation and Financial Implications

Understanding tax and incentives is crucial for OEM planning:

• Corporate Income Tax: Egypt’s corporate tax rate is 22.5% on net income. (This applies to all companies; there are no special lower rates for manufacturing, except certain oil/petrochemical profits which remain taxed higher.) There is no branch profits tax, so Egyptian subsidiaries and Egyptian shareholders are taxed the same. Profits remitted abroad as dividends are typically subject to 10% withholding tax (5% if paid to a qualifying EU company) under domestic law, unless a tax treaty reduces this. Interest and royalties paid from an Egyptian company to a foreign party are generally withheld at 20%, but many of Egypt’s double taxation treaties cut this rate to 10–15%. For example, the U.S.–Egypt treaty limits royalties to 15%. The parties should plan for these withholdings in their payment terms.

• Value-Added Tax (VAT) and Customs: Egypt’s standard VAT is 14% on domestic sales. However, critically, goods exported from Egypt are zero-rated. Under the 2016 VAT law, exported products and services are subject to 0% VAT. In effect, OEM goods sent abroad incur no VAT. Thus, an Egyptian OEM that ships all its output overseas would charge 0% VAT on its invoices. Imported parts and materials, on the other hand, are generally subject to 14% VAT and any applicable customs duties upon entry. However, manufacturers often use bonded warehouses or duty exemptions: for instance, free zone companies import materials duty-free (see below). It’s important to structure logistics so that inputs are cleared for export if possible to avoid domestic taxes.

• Free Zone Incentives: Egypt has several public and private free zones where manufacturers enjoy major tax breaks. In these zones, all imports of machinery and raw materials (except passenger vehicles) are exempt from customs duties and VAT. Similarly, goods leaving the free zone for export are free of all customs duties and export taxes. Project profits in free zones are subject only to a nominal fee (often 1% of value of goods) instead of the standard income tax. In practice, an OEM factory located in the Alexandria Free Zone (for example, see image below) would bring in components and capital equipment duty-free, assemble products, and export them without incurring VAT or import duties. This can make free-zone manufacturing highly economical. Manufacturing facilities in Alexandria Free Zone benefit from broad tax exemptions. For example, as noted above, free-zone companies import production inputs duty- and VAT-free, and they ship exports without customs charges. In contrast, a domestic factory must pay the usual duties and VAT on imports, though it can claim a VAT refund on exported goods (zero-rating by law). Companies should evaluate whether setting up in a free zone (or qualifying as an exporter) offers significant savings under the current Incentives Law.

• Other Taxes and Incentives: Egypt imposes a one-time capital tax on the share capital of new companies (though this has been revised recently, so check current rates). A “stamp duty” may apply to contracts. Import duties vary by tariff schedule (0–40%). Some sectors (e.g. special economic zones) have additional benefits. Companies should also consider transfer pricing rules: transactions between related OEM parties must be at arm’s length under Egyptian law.

• Finance and Currency: On the financial side, foreign companies should note that invoices and payments are usually denominated in U.S. dollars or euros for cross-border transactions. Egyptian law permits contracts in foreign currencies, but enforcement of judgments or awards will be in Egyptian pounds at the official rate unless otherwise agreed. Exchange controls: while there have been restrictions in the past, current practice (since 2018 reforms) allows converting Egyptian pounds to foreign currency for business needs, subject to market rates. However, there can be volatility and occasional limits if foreign reserves dip, so contracts often stipulate which party bears currency fluctuation risk.

Overall, from a financial perspective, manufacturers benefit from low corporate rates and the export zero-VAT regime, but must plan for withholding taxes on cross-border payments and ensure compliance with import duty rules. Free zones and export incentives can greatly reduce costs, so they are worth considering for any OEM plan focused on exports.

Dispute Resolution and Legal Remedies

Any robust OEM contract should have a clear dispute resolution clause. In Egypt, parties have two main avenues: local courts or arbitration.

• Egyptian Courts: Disputes can be brought before Egyptian courts – typically the specialized Commercial Courts if at least one party is a merchant. Contracts should specify the agreed jurisdiction (e.g. “the courts of Cairo”) and the governing law. Egyptian courts have jurisdiction by default if the contract is executed or delivered there. Under Egyptian Civil Procedure, courts can enforce judgments and award damages or specific performance. Note that Egyptian judges expect written contracts in Arabic or with an authenticated translation; foreign language contracts are valid only if ratified by an Egyptian notary or court translation.

• Arbitration: Egypt is arbitration-friendly. It has ratified the New York Convention (1959) and the Cairo Regional Centre for International Commercial Arbitration (CRCICA) is a well-known forum. Many international OEM contracts choose arbitration (often under ICC or UNCITRAL rules) in a neutral venue. Egyptian law (Arbitration Law No.27/1994) permits arbitration of most commercial disputes. A typical clause might state: “All disputes shall be settled by arbitration under CRCICA rules, with seat in Cairo, under Egyptian law.” International companies often prefer arbitration to ensure a neutral language (English) and expertise. However, if one party is a state entity or the contract relates to a government procurement, special rules apply.

• Contractual Remedies: In either forum, remedies will include damages, contract termination, or specific performance. The OEM contract can specify agreed damages (liquidated damages) for delays, or a termination right if a party breaches repeatedly. Often, the contract requires mediation or negotiation before formal proceedings. Egyptian courts will generally uphold these clauses, but will not enforce terms contrary to public policy (e.g. exorbitant penalty clauses may be moderated).

Egyptian practitioners recommend stating the dispute mechanism clearly in the agreement. As one local guide advises, “Commercial contracts lawyers in Egypt typically recommend including clear dispute resolution clauses specifying method, governing law, and venue”. For example, the clause might nominate either Egyptian law or another legal system to govern the contract (see below). It should also explicitly allow arbitration, if desired. In short, disputes under an OEM deal are handled like any commercial dispute: Egyptian litigation if chosen (via the new Commercial Courts) or arbitration per the agreed process. Either way, remedy options under Egyptian law (damages, interest, seizure of assets, etc.) are generally robust and familiar to international business.

Governing Law and Jurisdiction

When drafting an international OEM contract in Egypt, the parties must decide which law governs the contract and where disputes are heard. Under Egyptian private international law (Civil Code Article 19) and general practice, parties are largely free to choose a foreign governing law. In principle, an OEM contract could be governed by Egyptian law or by the law of another country (e.g. English or New York law). In practice, many choose a neutral or familiar law for predictability. However, Egyptian courts will respect the chosen law unless enforcing it would violate Egyptian public policy or mandatory rules. For instance, provisions that attempt to waive Egyptian worker protections, currency control rules, or mandatory tax obligations would be unenforceable.

The rule is: the parties’ choice of law is upheld “except those mandatory rules of Egyptian law which relate to public policy,” which “cannot be excluded” even if another law was chosen. Thus, an OEM contract governing choice clause might say “This agreement shall be governed by the laws of [Country]”; Egyptian courts will accept that for all except strictly “public” matters. For example, they would still apply Egyptian tax and labor law on issues like withholding and employment rights.

For jurisdiction, parties must specify the forum. They can agree on Egyptian courts (usually a particular governorate, via an “exclusive jurisdiction” clause) or arbitrate (as discussed). If they choose Egyptian courts, the governing law could be foreign or Egyptian. If they choose a foreign law to govern, they should typically also choose arbitration or say the judgment of a foreign court will be recognized. A common strategy is: (a) choose a comfortable law (e.g. English law) for the contract terms and (b) agree to arbitrate in a neutral venue (sometimes using Egyptian arbitration law or CRCICA if both are comfortable with it).

In any case, parties should be aware that certain Egyptian mandatory rules (e.g. those in investment law about resolution of disputes with the state, or in competition law) might impose default procedures regardless of contract. For example, claims against the Egyptian government require special handling (Administrative Courts or arbitration under Law 8/1997). But for typical OEM contracts between private companies, the main limitation is simply that terms must not contravene Egyptian criminal or public economic policy. Otherwise, choice of law and forum are respected.

Contract Negotiation and Structuring

Negotiating an OEM agreement in Egypt involves due diligence and careful structuring. Key points include:

1. Due Diligence: The buyer should vet the Egyptian manufacturer’s capabilities, licenses, and reputation. This may involve company searches through GAFI (to verify ownership), factory inspections, and credit checks. If the OEM is a new joint venture, each partner’s background and financial standing are reviewed.

2. Commercial vs Legal Structure: Decide how to structure the relationship. It could be a simple supply contract between two existing companies, or involve forming a new company/JV. If forming a JV, the partners draft a shareholders’ agreement and articles of incorporation alongside the OEM contract. The Investment Law (72/2017) requires a one-stop-shop “Investment License” for any new company; negotiating can proceed in parallel with that incorporation process. If no JV is needed, the foreign party may simply require the Egyptian supplier to have a valid industrial license and export registration.

3. Language and Formalities: By law, most commercial contracts in Egypt should have an Arabic version. In practice, large companies often sign bilingual contracts (English and Arabic), with a clause saying which one controls in case of conflict. Getting an Egyptian Arabic copy is important for enforcement in local courts. Also, certain clauses (especially arbitration clauses) are more complex in Egypt and may require clear drafting to be upheld.

4. Payment and Security: Given possible delays in payment or currency issues, the buyer may request security (like a letter of credit or guarantee) from the OEM to ensure performance. Negotiation often covers these assurances. Similarly, if the manufacturer must make upfront investments (like tooling), the contract will detail reimbursement or amortization of those costs.

5. Termination and Exit: Negotiating termination rights carefully is crucial. For example, a buyer may want the right to take over production (or move production) if the OEM violates terms or if market conditions change. They might include a buyout option or right to receive the manufacturing line and IP in certain cases. This can be tricky legally, but at least setting clear termination triggers (e.g. breach of quality clauses) is essential.

6. Compliance and Ethics: International OEM buyers increasingly require compliance commitments (e.g. no forced labor, environmental standards). These can be negotiated into the contract, with audit rights and termination rights for violations. This is especially important in Egypt’s context, where factories must comply with labor laws; the OEM contract can put the onus on the factory to uphold legal standards or face penalties.

In structuring the deal, it’s wise to coordinate the OEM agreement with any licensing, loan, or shareholder agreements that the buyer might have with the supplier. For example, if the supplier is a JV, its shareholders’ agreement should align with the OEM contract on key issues like expansion plans, confidentiality, and dispute resolution. Lawyers often craft these documents simultaneously to avoid conflicts.

Foreign vs. Local Law: Governing OEM Contracts

A critical negotiation point is whether to apply Egyptian law or a foreign law in the contract. There are pros and cons to each:

• Egyptian Law: Using Egyptian law can simplify enforcement in local courts. It aligns with mandatory rules (no conflict of law issues). Egyptian law is based on civil law; it lacks some common-law concepts (like “consideration”), but it has a robust contract framework and is predictable. However, Egyptian law is in Arabic, and many legal nuances (like penalty clauses or specific performance remedies) differ from, say, English law. If both parties are comfortable with these, they may choose it.

• Foreign Law: Many foreign firms prefer a neutral law (e.g. English law or New York law) for international contracts, because of familiarity and precedents. Under Egyptian Civil Code Article 19, parties’ choice is allowed: contractual obligations are governed by the law the parties choose, unless the parties share a common domicile (then domicile law applies). In practice, Egyptian judges will honor a foreign-law clause “except those mandatory rules… of public policy”. So, an OEM contract could be written under, say, German law, and an Egyptian court would try to apply German law when interpreting the contract’s terms (pricing formulas, liability limits, etc.). The mandatory Egyptian rules (e.g. certain labor rights or state arbitration rules) would still override any clause to the contrary.

Because of this flexibility, a common approach is to choose a foreign governing law (for substance) but still specify a convenient forum, often arbitration. For example: “This agreement is governed by the laws of England, and any dispute shall be finally resolved by ICC arbitration in Cairo.” This leverages Egyptian neutrality (Egypt is outside Europe but a developed arbitration center) while avoiding applying Egyptian substantive law.

• Public Policy Constraints: It’s important to remember that no choice of law clause can override Egypt’s non-negotiable laws. For instance, if the OEM contract attempted to avoid statutory labor benefits owed to factory workers, an Egyptian court would strike that clause as against public policy. Similarly, clauses that contravene the Investment Law (like forcing all disputes into foreign courts if one party is a protected investor) could be limited.

In summary, OEM contracts in Egypt can be governed by either Egyptian or foreign law. The parties should carefully consider enforceability and comfort with the law. Whatever the choice, it’s best practice to also include an arbitration or jurisdiction clause that specifies where claims will be heard (e.g. CRCICA in Cairo, London courts, etc.).

How Are Joint Ventures Structured in OEM Manufacturing?

When OEM production is set up as a joint venture (JV), the structure typically follows Egypt’s company law. Partners choose an entity form (often a limited liability company or joint-stock company). The JV’s corporate charter and shareholders’ agreement define each party’s capital contribution (money, IP, know-how) and rights. Key features of OEM JVs include:

• Equity Distribution: Law 8/1997 allows any share of foreign ownership. In an OEM joint venture, one partner (often the foreign buyer) may provide technology and the other partner (often Egyptian) provides existing facilities or local expertise. The equity split is negotiated – 50/50 JVs are common, but some parties prefer majority control. Whatever the split, the JV company registers its capital with GAFI.

• Management and Control: The shareholders’ agreement will specify board composition and decision-making rules. For an OEM JV, the buyer usually wants input on key matters affecting production (e.g. changes in factory location, licensing of new product variants). Contracts often tie certain strategic decisions (like selling the company or changing the product line) to joint approval.

• Approved Investment: Under current law, the JV obtains an “investment approval license” from the investment authority when it is formed. This certificate guarantees the JV’s incentives (tax holidays, land lease rights, etc.) under the Investment Law. It also formalizes the business activity (e.g. “manufacture of X”).

• Alignment with OEM Contract: The JV’s formation documents and the OEM contract should be aligned. Often the shareholder agreement will reference the OEM contract’s key terms (for instance, it may obligate one partner to supply designs, and the other to supply capital equipment). Each partner’s obligations under the OEM agreement are mirrored as shareholder obligations. This ensures that breaching the OEM terms (like failing to supply parts) can be treated as a breach of the JV agreement as well.

• Intellectual Property: In an OEM JV, the foreign partner may license IP to the JV company. It’s common to structure this as a separate license agreement (subsidiary to the main OEM terms) so the IP belongs to the foreign parent but is exclusively licensed to the JV for its production. This protects the IP if the venture dissolves.

• Exit Clauses: Because JVs are long-term commitments, OEM contracts (and the JV agreement) often build in exit mechanisms: e.g. buy-sell options if one party wants out, or rights for one party to find a replacement manufacturer. These complex clauses must comply with Egyptian corporate law on share transfers.

Overall, OEM joint ventures in Egypt combine corporate structuring with the OEM manufacturing contract. Both documents are negotiated in tandem. Foreign investors should use experienced local counsel to navigate GAFI approvals, drafting bilingual legal texts, and ensuring that their JV is fully compliant and benefits from available investment incentives.

Are OEM Manufacturers Eligible for Free Zone Incentives?

Yes. Egyptian public free zones (such as Alexandria, Damietta, Suez, Ismailia Free Zones) and several private industrial zones offer attractive incentives to manufacturers. An OEM factory operating in a free zone enjoys broad tax and customs benefits. In practice, free zones are designed to spur exports. For instance, imports of machinery and inputs (except passenger cars) are exempt from customs duties and VAT. Any goods the factory produces that are exported out of Egypt leave the country duty-free. Even domestic sales from free zones are treated favorably: only the value of locally sourced content (if any) is taxed.

To qualify, an OEM manufacturer simply applies for a license to operate in a free zone. The investment law explicitly encourages new projects in industrial cities and free zones. Once accepted, the factory must follow the free-zone regulations (typically including the requirement to export the majority of output; all public free zones now mandate 100% export). If these conditions are met, the incentives automatically apply. Thus, an OEM arrangement might be structured so that the Egyptian company is in a free zone (or obtains a zone license) to maximize these benefits.

In summary, yes – OEM manufacturers can and often do use free-zone status to eliminate VAT and duties on their inputs and outputs. This greatly lowers costs and encourages foreign firms to partner with Egyptian producers located in these zones.

Are OEM Exports Exempt from VAT?

Under Egypt’s VAT law, exports of goods are zero-rated. That means OEM products shipped abroad incur 0% VAT. In effect, exports are exempt from VAT. Egyptian VAT Law No.67/2016 (as amended) explicitly sets exported goods and services at a 0% rate. Thus, an OEM manufacturer does not charge VAT on exported sales. This complements the free-zone benefits: even if a factory is outside a free zone, it can still export products without VAT (though it would have paid VAT on any imported materials used, recoverable via refund). Free-zone production additionally waives VAT on imports.

In practice, this means a foreign OEM buyer receiving goods from Egypt abroad pays no Egyptian VAT (though it will pay any import VAT/duty in its home country). The Egyptian exporter (factory) reports 0% VAT on its export invoices, which allows it to reclaim any input VAT on materials. This export zero-rating is standard OECD practice and is codified for Egypt by law