The new investment law no. 72 of 2017 is ratified and officially published on the 31st of May 2017 (the “Investment Law”). The law comes into effect the next day and it cancels and replaces the Investment Guarantees and Incentives Law no. 8 for 1997 (“Law 8/1997”). The aim of the law is generally to attract new investments to Egypt through offering further incentives and guarantees, removing obstacles and streamlining the procedure.
The Investment Law kept most of the amendments introduced to Law 8/1997 in 2015, in addition to consolidating many of the investment rules that were scattered under different laws and regulations. The amendments of 2015 offered new non-tax incentives and investment protection guarantees, added new rules for state-land allocation, set new out-of-courts forums to amicably settle investor-state disputes, and authorized the General Authority for Investment and Free Zones (GAFI) to act as a one-stop-shop for all investment related licensing procedures.
GAFI continues, as introduced by 2015 amendments, to be the only competent authority to allocate state-owned land for investment and promote it through its one-stop shop which shall include representatives from the landowners in the process.
The Investment Law introduces a new tax reduction system for investment in certain geographical areas as well as investment in specific sectors. Only new companies established after the issuance of the law can benefit from this tax credit system.
The law allows again the establishment of privately-owned free zones after being banned by virtue of the 2015 amendments. Other types of investment systems under Law 8/1997 are kept under the new law, namely, the internal investment system, investment Zones, technology Zones, and public free Zones.
A whole chapter is added to address the corporate social responsibilities of investors.
The efficient application of the Law depends to a great extent on the executive regulations to be issued and the implementation plan to be put in place. The Law provides that the Cabinet will be the one to issue the executive regulations within 90 days from the date of the new Investment Law, i.e., before 31 August 2017.
This note will focus on the new rules introduced by the Investment Law.
- Scope of Application
- Principles Governing Investment in Egypt
- Investment Guarantees
- Investment Incentives
- Corporate Social Responsibility
- Facilitating and Streamlining Licensing Procedures
- Return of Privately-owned Fee Zones
Scope of Application
The Law applies on all local and foreign investment projects in Egypt. Investment projects are defined as those working in one of these sectors: manufacturing, agriculture, trade, education, health, transportation, tourism, housing, construction, sports, electricity, energy, natural resources, water, telecommunication and technology.
The Minister of Investment can add other sectors in light of the economic development plan of the Government
Principles Governing Investment in Egypt
A new chapter is added to list the principles governing both, the investor and the government in relation to investment in Egypt. Among these principles are the following:
- Promoting fair competition, combating antitrust practices, and supporting entrepreneurship and SMEs.
- Due consideration of social –related aspects, environment protection and public health.
- Following the governance, transparency, and no-conflict of interest rules.
- Assuring stability of investment policies.
- Facilitating and streamlining investment procedures.
Another principle is added to confirm the Government’s right to preserve national security and public interests. A broad statement that can raise controversies in the future as its application in terms of investment and what would constitute ‘national security’ or ‘public interest’.
The law assured the following guarantees to all types of investments in Egypt:
- Fair and equitable treatment to both foreign and Egyptian investors. The Cabinet has the authority, subject to reciprocity, to grant foreign investment, a more favorable treatment.
- Invested money will not be subject to any coercive or discriminatory measures.
- Foreign investors will be given a residence permit throughout the term of their investment project.
- Investment is protected against nationalization. Expropriation is allowed only for public interest and against fair market value compensation to be paid in advance and without delay.
- Seizure of money is only allowed by virtue of a court judgment, except for tax and social insurance contribution dues.
- Licenses given and state-owned land or property allocated to an investment project may not be withdrawn unless the following pre-steps are taken:
- Giving the investor a prior notice.
- Giving the investor a grace period to cure the defect.
- Obtaining the approval of GAFI.
- The right to repatriate profits outside Egypt and receive foreign funds to finance the project without restriction.
- Facilitating liquidation procedure to be finalized within 120 days.
- Importation of machines, equipment, raw materials needed for the purpose of establishing, expanding or operating the investment project does not require obtaining an importation license.
Expats can be employed up to 10% of the total number of employees, this percentage can be increased to 20% if local employees do not have the required qualifications. Expats have the right to repatriate all their money outside Egypt. An exemption can be obtained from these percentages for strategic projects.
Incentives given to investment projects are divided into three types, (1) general, (2) special, and (3) additional.
All investment projects, except free zone projects, shall enjoy the following incentives:
- Registration of the constitutional documents of a company, loan agreements and pledge contracts are exempted from stamp duty tax and notary public fees for a period of 5 years from the date of registering the company.
- Exemption from the registration fees of the land of the project.
- Application of a unified flat customs duty rate of 2% on all machines and equipment needed for establishing the investment project.
Article 11 of the Law provides for a new tax reduction system for a period of 3 years for projects established after the issuance of the Law. The reduction will be from the net taxable profits subject to the following rates:
- 50% of the investment cost of setting up a project in geographical locations that are in most need for development (underdeveloped locations) as will be specified by the Central Agency for Public Mobilization and Statistics (CAPMS). The Law named these locations as Zone A. The executive regulations shall clarify which investment sectors in Zone A can benefit from this 50% tax rebate rate.
- 30% of the investment cost of a project that is set-up in other remaining geographical locations other than Zone A, which the Law named as Zone B, and is working in one of the following sectors:
- Labor-intensive projects.
- Renewable energy projects.
- Strategic projects as specified by the Supreme Investment Council.
- Tourism projects as specified by the Supreme Investment Council.
- Electricity projects specified by the Supreme Investment Council.
- Projects exporting their products outside Egypt.
- Vehicle and related feeders industry projects.
- Wood, furniture, printing, packaging and chemical industries.
- Antibiotic, cancer treatment and cosmetics.
- Food and agricultural products as well as agricultural waste projects.
- Engineering, mineral, textile and leather projects.
The reduction amount shall not in all cases exceed 80% of the paid-up capital of the project up until the date of operation.
Benefiting from this new tax deduction system is subject to the following conditions:
- Establishing a new company after the effective date of the Law and during a period up to 3 years from this date.
- Not to use the assets of any existing company or liquidate an existing company for the purpose of establishing a new company to benefit from the tax reduction system.
- Keeping regular and accurate books.
The following additional incentives can be granted to investment projects listed under Article 11 of the law by a decision from the Cabinet:
- Allowing the project to have its own customs gates for its imports and exports.
- Government to share part of the cost of attaching utilities to the land allocated to the project.
- Government to share part of the cost of the technical training of the employees.
- Refunding half the price of the land allocated to the industrial project in case it succeeded in starting production within two years from having the land allocated.
- Allocating free land for specific strategic projects.
A certificate will be issued by GAFI for those projects benefiting from the special and the additional incentives.
Corporate Social Responsibility
A new chapter is added for CSR. An investment project can allocate up to 10% of its net income profit to participate in one of the following fields, to be deductible from its annual corporate tax:
- Environment protection and enhancement.
- Health, social, cultural services or any other development areas.
- Vocational education, research funding, awareness campaign in collaboration with universities or scientific institutions aiming at developing and enhancing production.
- Scientific training and research.
Facilitating and Streamlining Licensing Procedures
One of the chronicle challenges facing the investment sector in Egypt is the licensing process. The new Investment Law introduced two new alternative facilitated routes an investor can take to obtain required licenses and approvals. This is either through (1) applying directly to the Investors Service Center at GAFI, or (2) Using one of the private Accreditation Offices.
Investors Service Center at GAFI
Under the new Law, GAFI is given the authority to work as a one-stop-shop from where an investor can obtain all licenses and approvals required to set up and operate a project. A special unit at GAFI shall be established to facilitate and simplify the licensing process, it is the Investors Services Center (the “Center”). The Center will be competent with establishing companies, ratifying minutes of its board and shareholders meetings, capital increase/reductions, liquidation and all other company-related matter.
The Center is empowered to issue all kinds of licenses required to set up and operate a project, including allocation of state-owned land. This will be done through the representatives of the competent authorities that will be delegated with full-authorities to work at the Center.
In a trial to accelerate the process and cutting down bureaucracy, the Law mandated the Center to verify licensing applications submitted by investors and give feedback on its completeness and compliance within two days, the application will be considered as complete and no further requirements can be required for the applicant. The Law however does not provide for a specific time cap during which the Center must issue its final approval or license. This is contrary to applying through Accreditation Offices as we will see below.
Strategic projects and PPP project in infrastructure, renewable energy, transportation or ports can be established and operated by virtue of a single license to be issued by the Cabinet.
Accreditation Offices are authorized by GAFI and shall be engaged by investors to review and confirm the completeness of their applications to obtain licenses required to set up, operate or expand a project.
Accreditation Offices will issue, at their responsibility, a certificate confirming that the investor financially and technically complies will all terms and conditions required by the law and that the documents of its application are accurate and complete.
The investor will submit this certificate to competent authorities which can object on the application within a maximum period of 10 days or otherwise the application will be considered complete and accepted. Competent authorities are required to issue their final decision on the application within a maximum of 60 days; non-reply within this period will be considered an approval and GAFI shall issue the required license accordingly.
Return of Privately-owned Fee Zones
Privately-owned free zone projects are allowed again after its cancellation by virtue of the 2015 amendments. Projects in free zones are not subject to applicable tax and customs laws in Egypt. They are rather be subject to the following fees:
Projects in Public Free Zones
- A fee of 2% of the value of goods imported by storage projects on CIF basis, and 1% of the goods exported by manufacturing and assembling projects on FOB basis.
- A fee of 1% of the total revenue of projects that do not export or import products.
Projects in Privately-owned Free Zones
- A fee of 1% of the total revenue achieved from exporting its products outside Egypt for manufacturing and assembling projects, and 2% in case of exporting these products inside Egypt.
- A fee of 2% of the total revenue of projects working in projects other than manufacturing and assembling. Projects in both, public free zones and private free zones shall pay an annual service fee to GAFI equivalent to 0.001% of its share capital with a maximum of EGP 100,000.
Establishing a new Arbitration and Mediation Center
The Law provided for the establishment of a new arbitration and mediation center under the name of the “Egyptian Center for Arbitration and Mediation”. The center is said to be an independent entity having its headquarter in Cairo.
An investor can choose to settle its dispute with other investors or with the Government before this center and according to its arbitration or mediation rules. The center will be managed by a board of five (5) directors with required expertise and qualifications who will be appointed by the Prime Minister. The board members will be appointed for five years and they may not be dismissed throughout their tenure for any reason except for health inability.
The board will be responsible for issuing the articles of association of the center as well as its arbitration and mediation rules.
For a period of three years after the effective date of this Law, the Government will provide the center with needed fund.
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