[i] The Investment Law
The Investment Law provides certain incentives for foreign investors who carry out activities in Egypt in accordance with its provisions. To qualify for these benefits, and in order to receive Government consent, GAFI must approve the foreign investor’s application.
[ii] Qualification
The investment Law grants privileges to companies that carry out any of the following activities: land reclamation and the cultivation of barren land; animal, poultry and fish production; manufacturing and mining; tourism projects (including tourist transportation, hotels and hotel- related facilities); transport of goods in cooling vans, cold stores for agricultural and industrial product preservation; aviation and transportation services; overseas maritime transportation; oil exploration services; housing and infrastructure projects (including installation, operation and management of cable and wireless communication systems); medical facilities that offer 10% of their capacity free of charges; lease financing; underwriting securities, venture capital projects; information technology; projects funded by the Social Fund for Development and other activities as may be added by the Council of Ministers.
The types of investments that benefit from the Investment Law were recently expanded by the Council of Ministers to include an expanded definition of the scope of some of the above activities as well as: construction and operation of the underground transportation systems and tunnels; new towns and industrial zones; software development, establishing technology and incubator zones; market and credit analysis; financial planning; factoring and securitization activities; river transport; utilities for industrial projects; and waste treatment. Egyptian, Arab and foreign investors are entitled to guarantees and incentives with respect to activities falling under any fields of investment outlined under the Investment Law. There are no minimum Egyptian capital requirements.
Incentives for Special Zone of Development
[iii] Guarantees and Incentives Available Under the Investment Law
Under the Investment Law, investors are granted guarantees against expropriation and nationalization. Companies and their assets cannot be attached, seized or expropriated by way of an administrative order. The Investment Law further provides no administrative body may interfere in setting prices or profit margins or revoke or suspend a license for the use of property except where the license terms are violated.
- Companies established under the Investment Law enjoy a basic tax holiday from revenue tax of commercial and industrial activities and corporate income tax for a period of five years from the first fiscal year following the commencement of production or the company’s activities.
- Projects that are established in designated new industrial zones, remote areas, new projects funded by social fund for development and new urban communities enjoy 10 year tax holiday. Likewise, projects established in areas outside the “old valley” enjoy 20 years tax holiday. The Council of Ministers is authorized by the Investment Law to issue Decrees specifying those areas.
- The companies’ statutes, establishments and mortgage and loan agreements connected to its activities are exempt from stamp duties, registration and notarization fees for three years from the date of the company’s registration with the Commercial Register. Land purchased for use by such company is also exempt from the payment of real estate registration fees.
- A flat rate of 5% of the value of machinery and equipment that are imported which are deemed necessary for the company’s project is assessed as customs.
- The Investment Law grants various exemptions from certain labor requirements under the Companies Law and the Labor Law. For example, companies establishes under the Investment Law are exempt from the requirement that certain types of employees (such as drivers and messengers) be hired in the order of their registration at the employment offices.
[iv] free Zones
Egyptian, Arab and foreign investors may carry out projects in the Egyptian free zones, regulated by the Investment Law. Most goods and materials imported to a free zone are not subject to import duties or regulations.
There are two types of free zones, public and private. Public free zones are established in specific locations by cabinet resolution upon the proposal of GAFI. Such locations include areas in Alexandria, Suez, Port Said and Cairo. Private free zones are established exclusively for a specific project or company.
The following should be the grounds on which GAFI grants its approval for converting a project set up inside the country to a private free zone:
1- The project shall have already started its activity. 2- The project’s exports shall be at least half of its products. 3- The project shall fulfill the requirements of free zones administration regarding buildings, fences and security
A company formed to operate in a free zone is exempted from all Egyptian taxes for an unlimited period.
However, free zone projects are subject to a duty of 1% of the value of goods entering the free zone for storage in respect of warehousing projects and 1% of the value of goods leaving the free zone in respect of manufacturing and assembling projects. Projects maintaining activities that require no entry or exit of goods are subject to an annual fee equal to 1% of their total revenue, based on audited accounts.
A project by establishing a Private Economic Zone “Zone”.
A project by establishing a new economic zone is expected to be submitted to parliament. The project propose establishing a governmental entity “Institution” that shall be responsible for developing the Zone and specifying the conditions and requirements for licensing projects established therein.
The Institution shall substitute the Companies Authority ,Commercial Register ,Taxes Authority and Tariffs Authority in all its powers and jurisdictions .The institution shall establish a supreme committee for taxes and another one for tariffs . The challenges against the resolutions of the supreme committees shall be submitted to the Mediation committee in the settlement of disputes center of the Zone. It is not permitted to submit taxes or tariffs challenges to Arbitration or judiciary prior to Mediation committee resolution.
Under the project, companies located at the Zone are granted guarantees against expropriation and nationalization. Companies and their assets cannot be attached, seized or expropriated unless by a court order. The project further provides no administrative body may interfere in setting prices or revoke or suspend a license for the use of property except where the license terms are violated. The regulations regarding the employees’ share in profits and the employees’ participation in management are not applicable to companies conducting its activity at the Zone.
Under the project persons or companies located at the Zone are subject to a unified tax equal to 20% from there net revenue from movable capitals , property, non commercial carriers , commercial and industrial activities in addition of a unified income tax equal to 10%. The Zone is not subjected to sales tax laws, stamp duty law nor notarization and publication fees and not subjected to any taxes (except stated above). Companies located at the Zone are exempted from taxes on loans’ interest rates.
[v] currency Regulation
The Foreign Exchange Law and its Executive Regulations regulate foreign exchange operations in Egypt. The Executive Regulations list entities authorized to deal in foreign currency. These include almost all banks licensed to operate in Egypt. Under the Executive Regulations banks are permitted to buy foreign currency for their own account and on behalf of third parties. Banks are the only entities allowed to transfer currency abroad.
The Foreign Exchange Law permits the establishment of authorized foreign exchange dealers. Foreign exchange dealers are authorized under the Foreign Exchange Law to buy and sell foreign currency for their own account and under their own responsibility. However, foreign exchange dealers are not authorized to transfer foreign currency abroad.
Individuals or entities may deal in foreign currency but only through licensed banks or foreign exchange dealers.
Maintaining Foreign Currency
Both natural persons and legal entities are free to maintain any amount of foreign currency. Foreign currency accounts may be held with any approved bank in Egypt and may be maintained abroad at the owner’s discretion. Funds kept in foreign currency accounts may be used in Egypt or remitted overseas.
Buying Foreign Currency
The purchase of unlimited amounts of foreign currency from any of the authorized banks or dealers is permitted. Banks and dealers are allowed to sell foreign currency either in cash or by means of wire transfers to individuals or to private or public sector companies. Furthermore, banks and dealers are authorized to sell foreign currency to allow for repatriation of dividends earned on Egyptian stocks and interest from Egyptian bonds.
The Executive Regulations of the Foreign Exchange Law introduced the concept of forward exchange transactions whereby the purchase or sale of foreign currency at an exchange rate established at the time of agreement can be effected, with payment and delivery at a specified future date.
Free Foreign Exchange Market
A single market for foreign exchange transactions, called the Free Foreign Exchange Market, was established by Ministerial Decree. Exchange rates for transactions effected on the Free Foreign Exchange Market are determined by the Central Bank of Egypt (“CBE”), other approved banks and dealers in accordance with the free market mechanism.