Financial Due Diligence in Egypt: Scope, Limits and the Legal Frame

Executive summary

• We found no provision in the Companies Law's rules on trading shares and selling quotas (Articles 45 and 118) that requires financial due diligence before shares or quotas in an unlisted company are bought; its scope is whatever the engagement letter says. It is not an audit.
• If it is performed under Egyptian Standard 4400 on agreed-upon procedures, the result is a report of "the factual findings" with no assurance, restricted to the parties that agreed the procedures (paragraphs 4 to 6 of the 2008 edition, in force today).
• The 2025 edition of Standard 4400, issued with Prime Minister's Decree 3725 of 2025, applies to engagements agreed on or after 1 January 2027.
• In a joint stock company, without prejudice to Article 53 of the Investment Law, founders' parts and shares issued for contributions in kind may not be traded before financial statements for two full years have been published (Article 45 of the Companies Law); in a limited liability company, the other partners may redeem a quota sold on the same terms (Article 118).
• Capital gains on the disposal of quotas and unlisted securities are taxed, and a non-resident seller must calculate and pay the tax within sixty days of the transaction (Article 46 bis 3, as replaced by Law 151 of 2026).

What financial due diligence is, and what it is not

A buyer, investor or lender commissions it, or a seller before marketing the company, to identify what affects the price and the terms of the contract. We found no provision in Companies Law 159 of 1981 that requires it: Articles 45 and 118 govern the trading of shares and the sale of quotas without making either conditional on a financial examination, and the statutory auditor examines the annual financial statements, not the transaction (see Egypt's statutory audit requirement). Audited statements are where due diligence starts, not a substitute for it. This bulletin does not cover the rules for listed companies or legislation specific to particular sectors, such as banking and insurance.

If the parties want the work performed under an Egyptian standard, the closest is Egyptian Standard on Related Services 4400, "Engagements to perform agreed-upon procedures regarding financial information", part of the set issued by Minister of Investment Decree 166 of 2008 (Al-Waqa'i' Al-Misriyya, Issue 173 supplement (a), 28 July 2008), which is in force today. Paragraph 4 provides:

"The objective of an agreed-upon procedures engagement is for the auditor to carry out procedures of a nature similar to audit work, agreed with the entity and any appropriate third party, and to prepare a report on the factual findings."

The standard's examples of subject matter include payables, receivables and purchases from related parties (paragraph 3). The auditor expresses no assurance; the users of the report draw their own conclusions (paragraph 5), the report is restricted to the parties that agreed the procedures (paragraph 6), and the terms to be agreed include that the procedures "do not constitute an audit or a limited review" (paragraph 9).

In our view, identifying recurring earnings or the normal level of working capital is a professional judgement that goes beyond a report of factual findings, so its scope and the form of its report should be set out expressly in the engagement letter.

What the 2025 standards change

Prime Minister's Decree 3725 of 2025 (Official Gazette, Issue 41 bis (h), 15 October 2025), as amended by Decree 1274 of 2026, repeals the 2008 decree and its standards "from the date on which the standards accompanying this decree take effect" (Article 2). The new Standard 4400 applies to engagements "agreed on or after 1 January 2027" (paragraph 11); covers "financial or non-financial" subject matters (paragraph 2); defines findings as "the factual results of the agreed-upon procedures performed", excluding opinions, conclusions and recommendations (paragraph 13(f)); and requires the report to include "a statement that the report may not be suitable for any other purpose" (paragraph 30(d)). The transition is covered in Egypt's New Auditing Standards.

What it covers

• Quality of earnings: separating recurring from non-recurring items, and reconciling profit to cash flow and management accounts to the audited statements.
• Net debt: borrowings and debt-like items, such as overdue tax and contributions, less cash that is actually available.
• Working capital: its normal level compared with its level at completion, which underlies any price adjustment the parties agree.
• Contingent liabilities: litigation, guarantees given for others and contractual commitments.
• Related parties: transactions and balances with the partners and their companies, and their pricing. The financial statements of a limited liability company must show "in particular a statement of the debts owed to the company by the partners and the debts owed to the partners by the company" (Article 128). The tax framework is in Transfer Pricing in Egypt and Transfer Pricing Documentation in Egypt.
• Tax exposures: years not yet examined and assessments under appeal; see Egypt tax examinations and Appealing a tax assessment.
• Social insurance: registration of employees and insured wages, and what an inspection may reveal.

Where Egyptian law shapes the deal

Joint stock companies. Article 45, its first paragraph as replaced by Law 4 of 2018, provides: "Without prejudice to Article 53 of the Investment Law issued by Law 72 of 2017, founders' parts and shares issued in exchange for contributions in kind may not be traded before the company's financial statements have been published for two full years, each of not less than twelve months, beginning from the date of incorporation, and the Executive Regulations set the rules and conditions required for this." Due diligence therefore checks which kind of shares are being sold and when the first two years' statements were published.

Limited liability companies. Article 118 provides that "quotas may be sold by an official instrument or one with certified signatures, unless the company's memorandum of incorporation provides otherwise, and in that case the other partners may redeem the quota sold on the same terms". The offer is notified to the other partners through the managers, and once a month passes without any partner exercising the right of redemption, the seller is free to dispose of the quota. The memorandum is read before the price is agreed.

GAFI and the Commercial Register. A limited liability company keeps a register of partners at its head office, open to inspection by any interested person; each January a list of its particulars and of every change is sent to the competent administrative authority (Article 117), which is the General Authority for Investment and Free Zones (Article 5 of the issuing law). Its balance sheet is deposited with the Commercial Register office fifteen days after it is prepared, "and any person concerned may request to inspect it" (Article 128). Company forms are covered in Company forms in Egypt and GAFI's procedures in Company incorporation through GAFI.

Tax on the disposal. Tax applies to capital gains on the disposal of quotas in companies or of securities not listed on the Egyptian Exchange, whether realised in Egypt or abroad, and a non-resident seller must "calculate and pay the tax on the capital gains realised within sixty days of the date of the transaction, in accordance with the procedures set by the Executive Regulations of this Law" (Article 46 bis 3 of the Income Tax Law, as replaced by Law 151 of 2026, Official Gazette, Issue 30 bis (A), 28 July 2026). The gain is the difference between the disposal price and the acquisition cost, after deducting brokerage commission (Article 46 bis 4); the law is covered in Egypt income tax amendments 2026. Article 42 excludes from the real estate disposal tax the contribution of property in kind to the capital of a joint stock company "provided the corresponding shares are not disposed of for five years", so due diligence checks this where the shares being sold were issued for such a contribution (see Egypt's property disposal tax after Law 151).

Special-purpose audits and agreed-upon procedures are covered in detail in Special-Purpose Audits and Reviews in Egypt; the valuation of the company for pricing is covered in Business Valuation in Egypt.

What this requires

Before the work starts, the target company should prepare:

• audited financial statements and the auditor's reports for the years under review, and management accounts to the latest closed month;
• the memorandum or articles of association and their amendments, a recent Commercial Register extract and the register of shareholders or partners;
• schedules of loans, guarantees and pledges, and the main customer and supplier contracts;
• a schedule of related-party transactions and balances, and any transfer pricing documentation;
• the tax position for each tax and each year: returns, examination and assessment forms, and appeals;
• social insurance contribution statements and inspection reports, and a schedule of pending litigation and claims.

The firm's Audit & Assurance Department agrees the scope of financial due diligence, and the standard it is performed under, with the party commissioning it, performs it for buyers, investors and lenders, and prepares selling companies for it.

Nehal Saied, Partner
Chartered Accountant, Ministry of Finance, Egypt

Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation

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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.