Investment Regulations And Investment Incentives
Sunday، 25 September 2022 12:01 AM
Egypt seeks to attract more domestic, regional and international investments with the aim of achieving high growth rates. In support of such approach, investment-relevant laws have been enacted, in order to attract foreign investors, among which, Investment Law No. 72 of 2017 and its Executive Regulations. The General Authority for Investment and Free Zones (GAFI) is the official regulator for all documentation related to incorporation of companies and granting licenses. Investment Law includes many incentives and guarantees; special, general, and additional granted to projects, which aim to protect investors against expropriation, compulsory quotation; grant them full right to profit and distribute profits, and resort to the dispute settlement committees managed by GAFI. According to Investment Law No. 72 of 2017, there are various investment frameworks in Egypt that can be listed as follows:
Internal Investment Framework
Free Zones Investment Framework
Investment Zones Investment Framework
Technological Zones Investment Framework
A. Internal Investment Framework:
According to Investment Law No. 72 of 2017, competent Ministry proposes the investment plan, including putting investment policies into effect and the priorities of targeted investment projects in line with the State's public policy and the economic and social development plan.
The investment plan encompasses defining an investment map that exhibits the type and framework of investment, its geographic regions and sectors.
Moreover, GAFI implements the Investment Map project in cooperation with all State entities, provided that both the plan and Investment Map are reviewed every three years at least, or whenever necessary.
GAFI, in coordination with competent Bodies, issues a guide containing the terms and conditions and procedures for the allocation of lands and real estate, permits and licenses related to investment activities subject to the provisions of such Law, provided that this guide is reviewed and updated periodically in light of the legislative amendments in force in the country.
Investor Service Center (ISC) provides services of incorporation of companies and their branches, ratification of BoD and general meetings, increase of the capital, change of the activity, and liquidation procedures.
B. Free Zones Investment Framework:
In Egypt, Free Zones Investment Framework is one of the distinct investment patterns among other frameworks of investment since it helps attract more investments, either local or foreign, and is one of the mechanisms for increasing exports, increasing GDP, and providing more job opportunities.
Free Zones are established in distinguished areas since they are one of the most important economic factors that help improve the national economy in Egypt. Development of the national economy can be achieved through the establishment of many export industries in Free Zones, which in turn help attract the latest technological systems and provide new job opportunities, as well as increase foreign exchange.
Free Zones provide many advantages as they allow the country, in which they operate, to have a direct link with companies in other countries around the world, in addition to the special treatment regarding import rules, customs regulations, and monetary transactions compared to other investment frameworks.
Projects operating within Free Zones Investment Framework enjoy many incentives, guarantees and exemptions granted by Investment Law No. 72 of 2017, the most important of which are as follows:
Profits of companies and establishments subject to Free Zones Investment Frameworks are exempted from tax on return of commercial and industrial activities, or tax on dividends.
Capital assets and equipment owned by the project and necessary for production are exempted from the value-added tax imposed in Egypt.
Imports and exports of companies operating within Free Zones Investment Framework are exempted from taxes and customs duties.
Local components are exempted from customs duties when products are exported to the local market.
Projects within free zones and the profits they distribute are not subject to the provisions of the applicable taxes and fees laws in Egypt. However, these projects are subject to the following treatment:
Projects in public free zones are subject to:
For a fee of 2% of the value of goods upon entry (CIF) for storage projects and for a fee of 1% of the value of goods upon exit (FOB) for manufacturing and assembly projects, and the transit trade in goods with a specified destination is exempted from fees.
For a fee of 1% of the total revenues generated by the projects whose main activity does not require the entry or exit of goods, based on the financial statements approved by one of the certified public accountants.
Projects in private free zones are subject to:
For a fee of one 1% of the total revenues generated by manufacturing and assembly projects when exporting goods outside the country, 2% of the total revenues of these projects when entering the country, and the transit trade of goods with a specified destination is exempted from fees.
For a fee of 2% of the total revenue generated by the project; This is in relation to other projects not mentioned in the previous item.
C. Investment Zones Investment Framework:
Investment Zones are deemed a distinguished investment framework for issuing licenses and approvals in accordance with Investment Law No. 72 of 2017, which aims to support economic and social development in Egypt, attract foreign investments, encourage local investments and provide job opportunities.
Investment Zone is an area designated for some Developers to set up investment activities, whose boundaries are defined by a Decree by the Prime Minister. Developer is the authority responsible for building, developing and implementing the infrastructure of Zone, which can be a private company or a government entity.
D. Technological Zones Investment Framework:
Investment projects that are set up within Technology Zones are projects operating in the field of communications and information technology, which include industrial activities, electronics design and development, data centers, outsourcing activities, software development and technology education.
The Law guarantees a fair treatment for local and foreign investors alike. It also protects the invested capital and projects from any arbitrary measures, as investment projects may not be nationalized, and sequestration of projects, attachment or freeze of funds may not be allowed except on the basis of a court ruling. Moreover, the Law guarantees foreign investors the freedom to transfer profits in foreign currencies without any restrictions. In the event of liquidation, the company under liquidation shall be informed of all the financial frameworks due within a maximum period of 120 days, which would ensure the safe exit of the investors in a timely manner. The most important guarantees according to the Law are as follows:
All the investments established within the Arab Republic of Egypt shall receive fair and just treatment.
The State shall ensure to the foreign investor the same treatment granted to the national investor. Under a decree issued by the Cabinet of Ministers, an exception can be made granting the foreign investors a preferential treatment in application of the principle of reciprocity.
The invested assets shall not be subject to any arbitrary procedures or discriminatory decisions.
The State shall grant the non-Egyptian investors residence in the Arab Republic of Egypt throughout the term of the Investment Project without prejudice to the provisions of the relevant regulating laws.
The State shall honor and enforce contracts entered into thereby. The Investment Project set up on a basis of fraud, fraudulent misrepresentation, or corruption may not enjoy the protection, guarantees, privileges, or exemptions established under the provisions of this Law, proof of the foregoing shall be produced by a res judicata judgment – delivered by the judicial authority of competent jurisdiction – or by an arbitration award.
All decisions on investment project affairs shall be reasoned decisions.
The parties concernedshall be notified with a service of notice of such decisions.
The Investment Projects may not be nationalized.
Assets of Investment Project may not be expropriated unless for public utility and in return for a just compensation to be paid in advance without delay. The value of the compensation shall amount to the fair economic value of the expropriated assets on the preceding day to the issuance of the expropriation decision. Such compensation shall be freely transferrable.
Subject to the situations specified in law, Investment Project may not be sequestrated through administrative procedures, save when warranted by virtue of a final court judgment, nor may it be subject to attachment, save when warranted by virtue of a court order or judgment.
Assets of Investment Project may neither be seized nor confiscated nor frozen, save when warranted by virtue of a court order or final judgment, with the exception of tax debts and social insurance subscriptions due to the State; such debts and subscriptions may be collected by all kinds of seizure, without prejudice to the contracts entered into by the State or public juridical persons with Investor.
Any administrative body may not issue general regulatory resolutions that add financial or procedural burdens in respect of the setup or operation of the projects governed by this Law, nor may it impose or amend the fees or consideration for services prescribed for the projects, except after having obtained the opinion of the board of directors of GAFI ("GAFI BoD") and upon the approval of both the Council of Ministers and SCI.
An administrative body may not revoke or suspend the licenses issued for Investment Project, nor may it reclaim the real property allocated for same, unless it has served a notice on Investor comprising the violations with which Investor is charged, has heard Investor's evidence and has given Investor an adequate grace period to rectify the violations.In all cases, GAFI's opinion shall be obtained before taking any of the actions referred to in the aforementioned paragraph. GAFI shall give its opinion within seven (7) days from the date on which GAFI receives a request to that effect satisfying all prescribed legal procedures.Investor may file a grievance against the aforementioned actions before the committee stated in Article (83) of this Law.
Investor shall have the right to set up, launch and expand Investment Project, and shall fund same from abroad without any restrictions and with foreign currencies. Investor shall have the right to own, manage, use and dispose of Investment Project, to make profits from Investment Project, to transfer such profits abroad, to liquidate Investment Project and to transfer, whether in whole or in part, the proceeds of such liquidation abroad, without prejudice to the rights of third parties.
The State shall permit all cash transfers in respect of foreign investment to be freely and promptly transferrable to and from the State using a freely convertible currency. The State shall permit conversion of local currency into a freely usable currency without delay.
In case of liquidation, the appropriate administrative bodies shall, within maximum one hundred and twenty (120) days from the date on which the liquidator has filed an application of liquidation enclosing the required documentation, serve on GAFI and the company under liquidation a notice comprising a statement of liabilities of such company. The expiry of this period without notification of such liabilities shall be deemed a discharge on the part of companies under liquidation from said liabilities, without prejudice to the criminal and disciplinary liability of the person responsible for issuing a false statement or the person responsible for the lapse of the aforementioned time limit without replying to the application.
Without prejudice to the provisions of the laws, regulations and decrees regulating importation, Investment Project governed by the provisions of this Law shall have the right to import, whether directly or through third parties, the necessary raw materials, production requirements, machinery, spare parts and means of transportation – compatible with nature of business of Investment Project – for the setup, expansion or operation of Investment Project, without the need to be registered in the Register of Importers.
Investment Projects, subject to provisions of the Law, shall have the right to export its products, whether directly or through an intermediary, without a license and without the need to be registered in the Register of Exporters.
An Investment Project shall have the right to employ foreign workers up to ten percent (10%) of the total number of Investment Project workers. Thispercentage may be increased up to twenty percent (20%), should employment of national workers having the required qualifications be not possible. For some strategic projects with special significance as listed by a resolution of the SCI, exceptions from the aforementioned percentages may be made, conditional on providing training to the national labor.
Foreign workers in Investment Project shall have the right to transfer their financial dues, in whole or in part, abroad
Investment Incentives Acoording To Investment Frameworks
A. General Incentives:
All Investment Projects governed by the provisions of this Law, exception being made for Investment Projects set up under the Free Zone System, shall enjoy the following incentives:
Memoranda of incorporation of companies and establishments, along with credit facility and pledge contracts pertaining to the business thereof, shall be exempt from stamp duty as well as notarization and publicity fees for a period of five (5) years from the date on which such memoranda and contracts are entered in the Commercial Register.
Contracts of registration of lands required for formation of companies and establishments shall be exempt from the aforementioned duty and fees.
The provisions, on the collection of a uniform customs duty at two percent (2%) of the value of all imported machinery, equipment and devices required for formation of companies or establishments, as stipulated in Article (4) of Law on the Regulation of Customs Exemptions enacted by Law No. 186 of 1986, shall apply to the companies and the establishments governed by the provisions of this Law.This uniform customs duty shall apply to all machinery, equipment and devices imported by companies and establishments, operating on public utility projects, and required for the formation or completion thereof.
Without prejudice to the provisions of temporary release stipulated in the Customs Law enacted by Law No. 66 of 1963, Investment Projects of industrial nature, governed by the provisions of this Law, may import casts, molds and other production requirements of a similar nature without customs duties, to use them for a temporary period in the manufacture of their products, and re-export them abroad. The release and return abroad shall be according to the arrival documents, provided that the entry and reshipment documents are recorded in records prepared for this purpose at the authority, in coordination with Ministry of Finance.
B. Special Incentives :
Projects set up, after the coming into force of this Law, in accordance with the investment map shall be granted an investment incentive, in the form of a discount of f the taxable net profits, as follows:
50% discount off the investment costs of Sector(A): This sector comprises the geographic areas designated as most in need of development, based on the investment map, the data and statistics issued by the Central Agency for Public Mobilization and Statistics (“CAPMS") and the distribution of investment activities in such areas as specified by the Executive Regulations of this Law.
30% discount off the investment costs of Sector (B): This sector covers the remaining geographic areas of the Republic, as per the distribution of investment activities, in respect of the following projects:
Labor-intensive projects, subject to the controls prescribed in the Executive Regulations of this Law;
Small and Medium Enterprises;
Projects depending on or producing new and renewable energy;
National and strategic projects to be listed under a resolution of the Supreme Investment Council;
Tourism projects to be listed under a resolution of the Supreme Investment Council;
Electricity generation and distribution projects to be listed under a decree of the Prime Minister, based on a joint proposal of the Appropriate Minister, the minister concerned with electricity affairs and Minister of Finance;
Projects exporting products thereof outside the geographic territory of the Arab Republic of Egypt;
Automotive manufacturing and the supplying industries thereof;
Wood, furniture, printing, packaging and chemical industries;
Antibiotics, tumor drugs and cosmetics industries;
Food, agricultural crops and agricultural waste recycling industries; and
Engineering, metallurgical, textile and leather industries.
Pursuant to the provisions of the Income Tax Law enacted by Law No. 91 of 2005, an investment incentive may not, in all cases, exceed 80% of the capital paid up until the date on which engagement in the activity starts.The discount period may not exceed 7 years from the date on which engagement in the activity starts.
Conditions to Enjoy special incentives:
An Investment Project shall, in order for it to enjoy the Special Incentives, satisfy the following conditions:
A new company or establishment shall be incorporated to launch such Investment Project;
Said new company or establishment shall be incorporated within a period not exceeding 3 years from the Executive Regulations enforcement date; upon a resolution of the Council of Ministers and pursuant to a proposal of the Appropriate Minister, such period may be renewed for once only;
Said new company or establishment shall keep regular accounts; should such company or establishment be operating in more than one zone, it may benefit from the percentage prescribed for each zone respectively, provided it keeps separate accounts for each zone respectively; and
Neither shareholders nor partners nor owners of establishments have offered, contributed or used any of the tangible assets of a company or an establishment, existing since the date on which the provisions of this Law come into force, in setting up, incorporating or launching an Investment Project enjoying the incentives accorded by this Law, nor have they liquidated such company or establishment, within the time period specified in Item 2 of this Article, for the purpose of setting up a new Investment Project enjoying the incentives of this Law; violation of this condition nullifies said incentives, and accordingly such company or establishment shall pay all taxes due.
C. Additional Incentives :
Permission to establish special customs ports of entry for Investment Project importations or exportations, in agreement with Minister of Finance;
Upon Investment Project becoming operational, payment, whether in whole or in part, by the State for the expenses incurred by Investor in course of providing utilities to the premises of Investment Project;
Payment by the State for a part of the expenses incurred in course of providing personnel technical training;
Refund at 50% of the value of the land allocated for the industrial projects, should production start within 2 years from the date on which the land was handed over;
Allocation of lands free of charge to some strategic activities in accordance with the legally prescribed rules in this respect.
Conditions for additional incentives:
In order for companies and establishments to be granted the Special Incentives stipulated in Article (13) of the Investment Law, they must have started production or engaged in activity, as the case may be, in accordance with the report approved by GAFI, and shall satisfy one of the following conditions:
The Arab Republic of Egypt is one of the principal places of production of products in which such companies and establishment specialize, or the principal place of the products in which such companies and establishments specialize is the Arab Republic of Egypt;
Such companies and establishments, in course of financing their projects, depend on foreign cash transferred from abroad through an Egyptian bank in accordance with the rules specified by CBE BoD;
Such companies and establishments export abroad no less than 50% of their products;
The activity of a company or an establishment includes operationin any cutting-edge modern technology field and cutting-edge technology transfer into Egypt, and support of industriessupplyingsuch field or transfer;
The local component is strongly included in the products of an Investment Project, provided that the percentage of local components, including raw materials and production requirements, in the products of the Investment Project, is no less than 50%, in accordance with the applicable rules of the Industrial Development Authority;