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Corporate Investment Regimes

Corporate Investment Regimes, Egypt
Region: Egypt
Created: Jan 12, 2010, modified: Jan 12, 2012, overall rating: 0.000
1- Inland Investment

Investment Law No. 8 is known as "the favorable non-free zone regime." The law was enacted to attract foreign investors and thus applies only to a specific number of activities.

Investors engaged in sectors not covered by Law 8 are sub­ject to Corporate Law No. 159 of 1981. In both cases, the Gen­eral Authority for Investment and Free Zones (GAFI) acts as the official regulator for all incorporations and licenses. Among the incentives and guarantees are protection against ex­propriation and compulsory pricing; full right of profit and div­idend repatriation; no export requirements; access to dispute-resolution committees administered by GAFI; and unfettered access to land in Upper Egypt.

Other incentives include a standard income tax rate of 20% (oil and gas sector companies at 40.55%); a 10-year tax exemp­tion for land cultivation and production activities related to livestock, poultry and fish; export duties ranging from 5-25% of the value of all sales transactions; and import duties ranging from 2-32%.

2- Investment Zones

In July 2007, the Egyptian government passed a new decree that allows private-sector investors to establish, develop, pro­mote and manage investment zones dedicated to specific indus­tries and services.

The aim of the investment zones is to promote more private-sector involvement in the development of business clusters. The zones provide businesses with a non-bureaucratic environment that is run by its own regulatory board made up of the primary developers of the zone as well as government officials to super­vise relevant licensing procedures.

The regulatory board is granted authority by law to incorpo­rate and license projects within each zone. Businesses working within the zone will find a number of incentives, among them: Goods manufactured within investment zones abide by rules of origin necessary for bilateral and multilateral agreements; cus­toms procedures for production inputs will be administered in the investment zone, not airports/ports; equipment, customs and sales taxes are paid in 5-10 year installments; exported goods are tax exempt. Each zone is to have its own One-Stop Shop. Companies established within Investment Zones are in­corporated under Investment Law 8/1997 or 159/1981 (Inland Investment).

3- Southern Egypt Development Program

The Egyptian government believes that Upper Egypt is a re­gion that has the potential to develop into a new hub for both manufacturing and services projects. Governorates located in southern Egypt are equipped with many competitive advantag­es: 30% of Egypt's total population, abundant natural resources and a diversified economic base.

The government has put in place various initiatives to en­courage investment in Upper Egypt: the establishment of clus­ters, investment incentives and employment grants; free land to investors in Upper Egyptian governorates (with the exception of

Fayoum); technical assistance through Egypt's Industrial Mod­ernization Center (IMC): and technology centers and training.

The Upper Egypt Development Company is a company that has been established to encourage private-sector investment in Upper Egypt. The company currently has two branches in Cai­ro and Assiut and has begun to launch projects in several gover­norates. A new road has been established to link Upper Egyp­tian governorates with Safaga Port and the Sohag Airport. Companies established within southern Egypt are incorporat­ed in accordance with Investment Law 8/1997 or Law 159/1981 (Inland Investment).

4- Special Economic Zones (SEZ)

Law 83/2002 established Special Economic Zones (SEZ) that provide significant incentives and competitive advantages for investors. Each of the zones is autonomous and has its own Board of Directors who handle incorporation, licensing proce­dures as well as other and investor services.

The North West Suez Special Economic Zone was the first /.one created under the said law, and will serve as a model for the future development of other SEZs in Egypt. The North West Suez SEZ stretches over 20 square kilometers strategically located directly adjacent to the Sokhna Port about 45 kilometers southeast of Suez City, near the southern entrance of the Suez Canal.

A master development company (MDC) was established by the SEZ Authority in 2006 to create a master plan for the promotion and management SEZs. The final zoning and infrastructure strat­egy for SEZs will be put in place by the second half of 2008.

 
   


Within close proximity to the North West Suez SEZ are sev­eral projects incorporated under the general Inland Investment regime, which create an additional How of commercial activi­ties to the Sokhna Port.

The privately managed Red Sea port of Sokhna is being hailed by the cargo industry as a quiet revolution in Egyptian logistics, the port will serve more than 20.000 vessels sailing through the Sue/ Canal each year. The Sokhna port is strategi­cally positioned to serve as a trade and logistics hub between the EU, the Far East and Wesl Africa.

SEZ. incentives and guarantees include a 5% Hal rate on per­sonal income tax: integrated custom administration, tax admin­istration, dispute settlements, licensing as well as general inves­tor services for projects incorporated within the zones: a 10% tax rate on all activities within the SEZ: and Egy ptian certifi­cates of origin for SEZ-based exporters, allowing them to make use of Egypt's international trade agreements.

5- Qualifying Industrial Zones (QIZs)

The QIZ protocol between Egypt and the United States grants certain products manufactured in Egypt preferential access to the United States as long as they satisfy the rules of origin relat­ed to local content. There are currently 19 QIZs located within 4 geographical areas: Greater Cairo, Middle Delta, Alexandria and the Sue/ Canal Zone.

Both Egyptian and Israeli companies must contribute and maintain at least 10.5% of the minimum 35% local content re­quired under the legislation in order to qualify for duty-free ac­cess lo the I IS

Manufacturers on both sides must also contribute and main­tain at least 20% of the total cost of production of goods eligi­ble for duty-free access, excluding profits, even if the costs can not be considered as part of the 35% minimum content require­ment.

For this purpose, costs may include originating materials, wages and salaries, design, research and development, depreci­ation of capital investment and overheads.

The QIZ protocol was signed in December 2004. and today there are 705 companies eligible to export under QIZ. QIZs are expected to help further develop Egypt's robust textile and gar­ment industry as well as supporting sectors. QIZ, incentives and guarantees include duty-free access to the US market for prod­ucts that comply with the rules of origin requirements; flexible application of the requirements: no quotas on exported prod­ucts: and open-ended validity, in that the QIZ. protocol does not have an expiration date.

6- Free Zones

Egypt has been advocating the creation of Free Zones since the early 1970s in an attempt to increase exports, attract foreign in­vestment, introduce advanced technology and create more job opportunities. Free Zones are located within national territo­ry but are considered offshore areas. Investors operating inside the Free Zones must export more than 50% of their total pro­duction. To facilitate import/export procedures. Free Zones are usually located adjacent to sea ports and airports.

There are two different kinds of Free Zones: public and pri­vate. Egypt currently has nine Free Zones located in: Nasr City. Alexandria. Port Said. Sue/. Ismailia. Damietta. Shebein

II Кош. Media Production City and Keft. Two additional free /ones are under development in Badr and East Poll Said.

Among the Free Zone incentives and guarantees are a life­time exemption from all taxes and customs; exemption from all import/export regulations: the option lo sell a certain percent­age of production domestically if custom duties are paid: and limited exemptions from labor prov isions. lax incentives for energy intensive industries operating in Free /ones (fertilizers; iron and steel; petroleum production; and production, liquefac­tion and transportation of natural gas) have been abolished as of May 200X. In addition, all equipment, machinery and essential means of transport (excluding sedan cars) necessary for main­taining the licensed activities of a project are exempted from all customs, import dulies and sales taxes. All licensing proce­dures are handled by GAFI.

Egypt's Free Zones Offer Competitive Utility Prices: A new pricing mechanism lor electricity used by energy-intensive in­dustrial sectors (above 50 million kilowatts) is currently being applied to all sectors vv ith the exception of food processing and textiles. Electricity costs are approximately 4 cents/kilowatt (KW). Potable water costs are approximately 20-30 cents per-eubic-meter.

Fees and Charges Applicable to Free-Zone Companies: Manufacturing or assembly projects pay an annual charge of l"i> of the total value of their products excluding all raw materi­als. Storage facilities arc to pay l"o of the value of goods enter­ing the Free Zones while service projects pay 1% of total annu­al revenue. Goods in transit to specific destinations are exempt from any charges.

Land Rental Prices are as Follows: US$ 3.50 per square me­ter per year for industrial projects; US$ 7.00 per square meter per year for all other projects (storage and services). A reduc­tion of 50% of the above rate is available in three of the nine public free zones: Ismailia (for industrial and service projects only), Damietta and Shebein F.I Kom.

Private Free Zones: In addition to public Free Zones, private zones may also be established, each limited to a single project. The same privileges and incentives granted to public free zones apply to private zones as well.

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