Egypt’s Investment Regulations
- Scope of Application
- Investment Law Objectives and Principles
- Investment Guarantees
- Investment Incentives
- Expansion of Existing Projects
- Corporate Social Responsibility
- FDI Reporting Requirements
- Return of Privately-owned Fee Zones
- Facilitating and Streamlining Licensing Procedures
- Dispute Resolution
Egypt’s new investment law no. 72 of 2017 was ratified and officially published on the 31st of May 2017 (“Investment Law” or the “Law“). The Investment Law came into effect the next day and it canceled and replaced the old Investment Guarantees and Incentives Law no. 8 for 1997 (“Old Law”). The aim of the new Investment 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 incentives and guarantees introduced in 2015 under the Old Law, in addition to consolidating many of the investment rules that were scattered under different laws and regulations.
On 28 October 2017, the executive regulations of the Investment Law was issued by virtue of the Prime Ministerial Decree no. 2310 for 2017 (“Executive Regulations“) and has entered into force on 29 October 2017. The Executive Regulations comes to regulate the implementation of the Investment Law and set out the requirements and procedures for its enforcement.
The General Authority for Free Zones and Investment (“GAFI”) continued to be the authority concerned with promoting the investment.
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 or expanded after the issuance of the Law can benefit from this this tax reduction system.
The Law allows again the establishment of privately-owned free zones after being banned by virtue in 2015. Other types of investment systems under the Old Law are kept under the new law, namely, the internal investment system, investment Zones, technology Zones, and public free Zones.
This note will focus on the new rules introduced by the Investment Law.
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:
- wholesale and supply chain;
- natural resources, water, and
- telecommunication and technology.
Other sectors can be added by virtue of a ministerial decree in light of the economic development plan of the Government.
Investment Law Objectives and Principles
A new chapter is added to list the objectives and principles of the Investment Law. The main objective of the Investment Law is announced to be the achievement of comprehensive and sustainable development through:
- increasing the national economic growth rates and the domestic production rates;
- enhancing employment opportunities;
- promoting exports; and
- boosting competitiveness.
The main principles governing investment in Egypt includes 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. This broad principle can raise controversies in the future as to 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.
- Governmental entities may not issue regulatory decisions that would result in adding financial or procedural encumbrances upon investment projects except after obtaining the opinion of GAFI and the approval of the Cabinet and the Supreme Council of Investment.
- 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 temporary tax reduction system for a projects established within 6 years from the effective date of the Executive Regulations, i.e., until October 2023. 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 determines ‘Zone A’ as covering:
- The Suez Canal Special Economic Zone,
- The Golden Triangle Special Economic Zone,
- The New Administrative Capital Zone,
- South of Giza governorate,
- Governorates affiliated to the Suez Canal which are Port Said, Ismailia, Suez (east of the canal),
- Border governorates, including the Red Sea governorate from south Safaga,
- Upper Egypt’ governorates, and
- other areas that are in most need for development as decided by the Prime Minister.
- 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.
The 30% and 50% incentive will be calculated from the investment cost of the project, and in all cases the incentive may not exceed 80% of the paid-up capital of the project until the start of its operation.
The investment cost is defined to be the sum of the following:
- equity fund,
- long term loans used to finance the establishment of the movable and immovable assets of the project, on the condition that it will be repaid in cash; and
- working capital.
Benefiting from this new tax deduction system is subject to the following conditions:
- Establishing a new company before 29 October 2023.
- 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 incentive amount will be deducted from the net taxable profit of the project. The deduction can be accrued for a maximum duration of 7 years as of the operation date of the project.
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.
In order to benefit from these additional incentives, the project company should have started operation of the project plus meeting one of the following conditions:
- Finance its project through foreign currency from resources outside Egypt.
- Export at least 50% of its production.
- Increase the local component of their products by not less than 50% according to the IDA requirements.
A certificate will be issued by GAFI for those projects benefiting from the special and the additional incentives.
Expansion of Existing Projects
Expansions of existing projects can obtain the same incentives as the newly established projects upon fulfilling the following conditions:
- The expansion should be in one of the above-mentioned investment sectors specified under the Investment Law.
- The Expansion took place after March 2020.
- The expansion shall involve adding new assets to the existing project which results in increasing its production capacity.
- The expansion shall have its separate accounts and financial statements.
The term ‘Expansion’ has been defined under the Investment Law as means increasing the capital used in the project by adding new assets to increase the production capacity.
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, such as using renewable energy, working on waste recycling, wastewater treatment or the safe disposal of waste.
- 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.
FDI Reporting Requirements
GAFI is now allowed, by virtue of an amendment to the New Investment Law in 2019, to request information and data relating to the assets of direct and indirect foreign investments from public and private entities for statistical purposes. Such collection of information will be in accordance with the applicable international practices and without prejudice to the national security and the rights of privacy and confidentiality as well as the protection of third parties’ rights.
The executive regulations of the Investment Law have been also amended in 2019, by virtue of Decree no. 2731 of 2019 (“Decree“), by adding two new Articles (126 bis and 126 bis/A) to determine certain details to the FDI reporting requirement and setting out the timeframe and deadline for such reporting requirement upon public and private entities. According to the Decree, private entities with foreign element are required to submit to GAFI:
- quarterly reports within maximum 45 days from the end of each calendar quarter (i.e. before the end of March, June, September, and December); and
- annual reports within 4 months following the end of the fiscal year.
- Companies are also required to report any changes to their capital, objective, shareholding structure or the board of directors’ structure within 30 days.
The required forms and questionnaires to be filled by the relevant entities have been prepared and published in the Official Gazette by virtue of the Prime Ministerial Decree no. 2732 of 2019. These forms and questionnaires are required to be filled by any means including the electronic ones. Online submission is also available through GAFI website.
Companies which do not comply with the FDI reporting requirement will be subject to a fine of no more than EGP 50,000. This fine will be imposed on the manager of the company if proven to be aware of the non-compliance and contributed thereto due to her or his managerial position.
Return of Privately-owned Fee Zones
Privately-owned free zone projects are allowed again after its cancellation by virtue of the 2015 amendments of the previous Investment Law no. 8 of 1997. Projects in free zones are not subject to applicable tax and customs laws in Egypt. They are rather 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.
GAFI Fees for Projects in Public and Private Free Zones
Projects in both, public free zones and private free zones shall pay an annual service fee to GAFI, according to the below percentages, subject to a maximum of EGP 100,000, as following:
- 0.5‱ (half per thousand) of the issued capital for industrial and assembly projects; and
- 1‱ (one per thousand) of the issued capital for the storage, service projects and those licensed to practice multiple activities.
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.
Accreditation Offices are authorized and licensed 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 complies will all or parts of the terms and conditions required by the law and the related regulations and that the documents of its application are accurate and complete. This certificate shall be valid for a period of one year.
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.
Strategic and national projects as well as PPP projects in infrastructure, renewable energy, transportation, roads or ports can be established and operated by virtue of a single approval/license to be issued by virtue of a Cabinet’s decree.
Such approval shall cover the establishment, operation, and management of the Project, including the building licenses and allocation of lands required for the project. It may also provide for the application of one or more of the incentives set forth in the Investment Law. This approval shall be effective without need for any further procedures.
Dispute Resolution Committees
The Investment Law created special committees for the settlement of conflicts and disputes relating to investments and investment contracts. One of these committees is the ‘Ministerial Committee for the Settlement of Investment Disputes’. This Committee is responsible to settle any disputes that may arise between an investor and the Government or any of its administrative bodies or affiliated companies under the Investment Law. The familiar short name of this committee is the Dispute Resolution Committee.
Another committee is competent to settle disputes between investors and the Government arising out of investment contracts. This committee is known as the ‘Ministerial Committee for the Settlement of Investment Contacts Disputes’. In carrying out its job, the committee can reschedule financial dues, rectify inaccurate formalities followed to enter into the contract, or extend limitation periods specified in the contracts.
To ensure efficiency, the Investment Law provides that the decisions of these Committees will be final and enforceable against the Government once approved by the Cabinet of Ministers. Investors, conversely, retain the right to resort to state courts or arbitral tribunals to initiate the claim anew.
The establishment of these Committees resulted in the successful conclusion of a substantial number of investment arbitration cases. According to announced information, Egypt concluded 11 investor-state settlements between 2014 and 2020.
Establishing a new Arbitration and Mediation Center
The Investment 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.
This note is intended for general guidance only. It should not be relied upon as legal advice. In case you have any questions on issues reported here please send an email to Dr. Fatma Salah