New Circular Confirms the Obligation to Pay Contribution of 1% of Net Profit to the Vocational Training Fund
On 18 May 2022, the General Secretary of the Vocational Training Fund (“Fund”) issued a circular confirming the obligation on employers to pay a contribution of 1% of their annual net profit to the Fund (“Contribution”) which is stipulated under Article (134) of the Labor Law (“Circular”).
The Circular confirmed the obligation to pay the Contribution after the settlement of a long controversy about its constitutionality.
The Constitutional Court in Egypt decided, in more than one lawsuit, the last of which was decided in March 2022, that the obligation to pay the Contribution to the Fund is constitutional and must be fulfilled by employers.
According to the Circular and Ministerial Decree 1543/2003, companies are obliged to pay the Contribution to the Fund within a maximum of one month from the date of approving its annual financial statements. A copy of the approved financial statement of the company should be sent to the Fund (to verify the amount of the due contribution).
Pursuant to the Circular, officers in the labor offices received instructions to start inspecting companies and undertake the necessary procedures towards collecting the due contributions from companies.
In case a company rejects to pay the contribution, a police report shall be filed against the company and legal proceedings will be taken noting that the contributions of the Fund are treated as “public funds/money”.
Most importantly, the Circular states that paying the outstanding contributions in the Fund will have a retroactive effect since the issuance of the labor law in 2003 or the incorporation date of the company, whichever is earlier.
We urge our clients to take note of these new instructions and start to consider their implications.
If you have any questions regarding the Circular, please contact Dr. Eman Riad.