Suez Canal Special Economic Zone Legal Framework
1.1 In 9 August 2015, after three days from the inauguration of the New Suez Canal1, President Abdel Fattah El-Sisi issued Decree No. 330/2015 declaring the areas adjacent to the Suez Canal as a special economic zone (the “SCZone Decree”)2. This zone shall be governed by Law no. 83 of 2002 on Special Economic Zones3 (“Special Economic Zone Law” or “Law 83/2002“) and its Executive Regulations issued by virtue of the Prime Ministerial Decree no. 1625 of 2002.
2. SCZone Borders
2.1 The Suez Canal Special Economic Zone (“SCZone”) shall cover an area of 460.6 km2 which includes 5 geographical locations and 6 maritime ports4.
2.2 The 5 geographic locations are as follows5:
- East Port Said Industrial Area.
- West Qantara Industrial Area.
- Technology Valley.
- El Sokhna (A).
- El Sokhna (B).
2.3 The 6 maritime ports are as follows6:
- West Port Said Port.
- East Port Said Port.
- El-Adabiya Port.
- El-Ein- ElSokhna Port.
- El-Aresh Port.
- El-Tor Port.
3. SCZone Authority
3.1 According to Law 83/2002, a special economic zone is administered by a governmental authority to be established by the Prime Minister and affiliated with the Cabinet. This regulatory authority shall bear the name of the special economic zone, and shall have its headquarter inside the zone or any of its affiliated areas.
3.2 In 19 August 2015, the Prime Minister issued Decree no. 2282 of 2015 establishing the General Authority for the Economic Zone of the Suez Canal (“SCZ Authority“) as the regulatory authority responsible for administering SCZone. SCZ Authority has replaced the earlier General Authority for North-West Suez Economic Zones which was established in 2003.
3.3 The North-West Suez Special Economic Zone was the first special economic zone to be established in Egypt in implementation of Law 83/2002. It was established by virtue of Presidential Decree no. 35 of 2003 spanning over an area of 90 km2 (as an initial phase). Such area was subsequently expanded by virtue of Presidential decree no. 41 of 2007 to reach 96,666 km2.
3.4 According to Prime Minister Decree no. 2282 of 2015 establishing SCZ Authority, all lands and establishments owned by the Government inside the boundaries of the SCZone shall be transferred to the SCZ Authority without the need to take any legal action. All rights and obligations related to such lands and establishments shall be assigned to SCZ Authority. The 6 maritime ports defined in the SCZone Decree shall also be assigned to the SCZ Authority.
3.5 The goal of the SCZ Authority shall be to attract investments, establish competitive agricultural, industrial and services projects, and increase Egypt’s share in the international trade. To achieve such goals, SCZ Authority is required to perform its mandate according to the highest international standards, unify administrative authorities, provide services and utilities according to the highest technical specifications and standards, apply the necessary incentives and exemptions, and provide trained manpower.
3.6 SCZ Authority shall have the powers necessary to enable it to achieve its goals, among these powers are the following:
- Having an independent budget without being subject to the laws regulating public authorities.
- Hiring international and local experts without being subject to the legal restrictions related to the financial treatment of consultants, employees and directors.
- Establishing a one-stop-shop to provide the regulatory and administrative services to the companies and projects established inside SCZone.
- Participating with one or more of the principle developers to establish and develop the areas of SCZone.
- Execute the internal infrastructure works of the SCZone or to assign such works in addition to the marketing and investment promotion works to a principle developer or more.
4. Board of Directors of SCZone Authority
4.1 The SCZ Authority shall have a chairman and a deputy or more, to be appointed for a period of three years by virtue of a presidential decree. The chairman shall be responsible for representing the SCZ Authority before third parties and judiciary bodies, and implementing the decisions adopted by its board of directors.
4.2 The board of directors shall be appointed by the Prime Minister, and shall comprise the chairman and its deputy(ies) and 9 members. 4 of the members shall represent relevant Ministries and Governorates, and 5 of the members are of financial, technical and legal expertise.
4.3 The SCZ Authority is currently chaired by Mr. Ahmed Mahmoud Othman Darwish by virtue of the Presidential Decree no. 442 of 2015. The same Decree appointed Mr. Abdel Kader Mohamed Abdel Kader Darwish as his deputy for a period of three years.
4.4 The Prime Minister Decree no. 3300 of 2015 was issued to appoint the board members of SCZ Authority. This decree was later amended by virtue of the Prime Ministerial Decree no. 193 of 2016 mandating the invitation of the Minister of Transportation and the head of the Suez Canal Authority in all board meetings of the SCZ Authority. The below graph shows the board members of the SCZ Authority as well as the mandated invitees:
- Chairman: Ahmed Darwish
- Deputy: Abdel Kader Mohamed
- Ministries & Governorates
- Minister of Investment
- Minister of Trade and Industry
- Port Said Governor
- Representative of the Ministry of Defence
- Financial, Technical & Legal Expertise
- Khaled Serry Siam
- Ashraf Mohamed Negm
- Nevine Hamdy El Tahry
- Ashraf Kamel Mousa Sabry
Ahmed Fekry Abdel Wahhab
- Members invited by the Prime Minister
- Minister of Transport
- Chairman of the Suez Canal Authority
- Ministries & Governorates
- Deputy: Abdel Kader Mohamed
4.5 The board of the SCZ Authority is delegated with the authorities of all relevant ministers, governors and pubic officers necessary to practice its mandate, except for the ministers of defense, interior, foreign affairs and justice. The board shall be competent with the following:
a. Setting up the conditions and criteria and the rules for urban planning, building, and zoning in a way satisfying international specifications and enhancing competitiveness with similar economic zones.
b. Setting up the conditions and criteria which must be fulfilled for licensing projects inside the SCZone.
c. Determining the conditions and criteria which must be fulfilled by a project to obtain environmental license.
d. Deciding the systems relating to the management of the maritime ports and airports in a way to ensure its effectiveness according to the international standards.
e. Approving the regulations relating to labor and social insurance system inside the SCZone.
f. Approving and implementing the manpower training system.
g. Setting up the system and procedures relating to importation and exportation from and to the SCZone, without being restricted by the regular import and export laws and regulations.
h. Setting up a system to ensure the effectiveness and swiftness of the authentication and notary public procedures.
i. Issue the internal financial, administrative and technical rules including the tenders and bids regulations.
5.1 The board of the SCZone shall be the competent authority to issue all licenses required for establishing and running all kind of business and activities inside the SCZone. It will be specifically competent to issue the following licenses:
- Licenses for agricultural, industrial and service projects.
- Land allocation, as well as building and demolishing decisions.
- Licenses for the construction and management of infrastructure and public utilities inside the zone.
- Environmental and health and safety licenses.
- Internal regulations and decisions related to the financial, administrative and technical affairs of the SCZ Authority.
- Establishing the companies and its registration at the commercial register.
- Licenses for establishment of schools and educational institutes as well as hospitals, scientific, research, medical and cultural centers.
6. Customs and Taxation
6.1 One of the main features of the special economic zones is that they will have special taxation and customs systems which are characterized to be more flexible and autonomous.
Special Customs System
6.2 SCZone shall have a special customs system to be set by the board after the approval of the Minister of Finance. This system shall include the following:
a. Effective and swift checking procedures.
b. Clear and transparent valuation rules according to the international trade agreements.
c. Streamlined customs clearance procedures.
d. Comprehensive and accurate laboratory checking at one location.
e. Accurate and effective procedures for issuing and checking certificate of origins.
f. Clear rules for determining the imported component percentage for products entering the local market.
6.3 A special customs administration shall be established inside the SCZone by virtue of a decision from the Minister of Finance. This administration shall be supervised by a supreme customs committee to be established by the chairman of the SCZone. This committee shall be competent to implement the policies and decisions of the SCZ Authority in this regard.
Special Taxation System
6.4 The SCZone shall have a special taxation system to be issued by the board of director after the approval of the Minister of Finance. This system shall include the following:
a. The special rules related to the tax filing and the related documentary and financial analysis.
b. The conditions and criteria that must be met by auditors who can register at the auditors list at the SCZone.
c. Tax examination rules.
d. Deduction and withdrawals systems.
e. Rules and procedures for deciding and disputing the taxes.
6.5 A supreme taxes committee will be established by a decision of the chairman of the SCZone after the approval of the Minister of Finance. This committee shall be responsible for implanting the tax system at the SCZone.
7. Establishing a Project inside SCZone
7.1 Projects may not be established in the SCZone unless a prior written approval from the board of the SCZ Authority is obtained. The application for incorporation must include, inter alia, the following information:
- founders and their nationalities,
- purpose of the project and its investment cost,
- legal structure of the project and its capital,
- source of financing the project,
- projects’ requirements needed from inside or outside the country,
- required area for the project,
- numbers of employees, and their nationalities and types, and
- project environment effect, and any other information required by the board of directors.
7.2 The project shall take one the corporate structure provided for in the Egyptian Companies Law no. 159 of 1981 which includes:
- joint stock companies,
- limited liability companies,
- simple partnership, and
- limited partnerships by shares.
7.3 A project may also take the form of a sole proprietorship or branches of foreign companies. The board of the SCZ Authority shall issue model articles of associations of the companies and determine the documents necessary for completing the incorporation process.
8. Investment Incentives and Guarantees
8.1 Law 83/2002 sets a number of incentives and guarantees for projects established inside the special economic zones. The following summarizes such incentives and guarantees:
Taxes and Duties
Companies established in the SCZone are exempted from sales taxes, stamps duty tax and the state resources development tax.
Entities operating in SCZone are allowed to import machines, devices, raw materials, spare parts and any other materials or components necessary for performing their licensed activities free of any customs, sales tax and any other taxes or duties. However, customs tax, sales tax and all other taxes and duties shall be imposed on the imported components of the products produced by these entities only when they enter the Egyptian local market.
Also, all kinds of cars and vehicles used in the production or services activities of these projects are exempted from all taxes and duties.
It has to be noted that Law 83/2002 (Special Economic Zones Law), before its amendment in 2015, used to provide for reduced corporate as well as income taxes for project inside the special economic zone. These reductions will continue to apply only on projects previously established at the North-West Suez Economic Zones (the one replaced by the SCZone as mentioned above at point 3.3) until the expiry of its current license. Projects to be established anew or to be renewed in the SCZone will not benefit from such reductions and shall be subject to the regular tax prices.
Labor and Social Insurance
The SCZone shall operate under a more flexible labor and employment rules. Limited period employment contract shall terminate automatically by the expiry of its duration. If the parties continue to execute the contract after its expiration, it will be renewed for another period similar to the period of the expired contract. This is different from the general rule under the Egyptian Labor Law no. 12 of 2003 (“Labor Law”) which provides that in such case, the contract will convert into an unlimited one.
Each of the employer and the employee may terminate a definite employment contract before the lapse of its period with 60 days prior notice.
In case of unlimited employment contract, each party shall have the right to terminate it, at any time, with 90 days prior notice. The employer here is not restricted by the limited causes of termination stipulated in the Labor Law. Employees, however, shall be entitled to compensation in case there is no mistake attributed to them justifying such termination. The compensation will not be less than that provided for in the Labor Law.
The internal labor regulations of entities operating within the SCZone shall be approved by the competent department affiliated to the SCZ Authority.
The board of the SCZ Authority is competent to issue the work permits for foreigners after obtaining the security approvals and to determine the work permits’ requirements. Also, the SCZ Authority has the right to exempt some projects, entities and companies from the maximum percentage of foreigners determined by the law.
The SCZ Authority is also permitted to establish a special system for social insurance more beneficial for employees who working in the SCZone.
Exports and Imports
Entities operating within the SCZone can import or export all its needs from raw materials, equipment, tools, and spare parts for the construction, expansion or operation of its project, without prior permit or being registered in the importers register. At the same time, they may export their products without permit or prior approval, and without being registered in the exporters register.
Products imported from the SCZone inside the country shall be treated as if they are imported from abroad. Accordingly, they shall be subject to customs duties, sales taxes and all other taxes and fees. Products exported from inside the country to the SCZone shall be treated as if they are exported abroad, and shall fulfill all export and monetary requirements.
Settlement of Disputes
The SCZone has an independent dispute settlement center (“Center”), which shall be competent to settle the following disputes:
- tax disputes,
- customs duties disputes,
- individual or collective labor disputes,
- social insurance disputes,
- disputes concerning the execution of contracts, if all or one of the parties operates a business in the zone,
- disputes resulting from tortious liabilities committed in the zone, and
- any other dispute to which the Authority or the development company is party.
The Center shall only have the jurisdiction to settle the above disputes in case the parties agrees to this effect, or in case the residence, work premises, head office or branch of one or all parties to the dispute is located in the SCZone.
Other Incentives and Guarantees
- Projects operating in SCZone may not be subject to nationalization, sequestration, freezing of assets or confiscation except by a judicial judgment.
- Lands and buildings in the SCZone shall be allocated by the SCZ Authority by a long term usufruct agreement which can reach a period of 50 years renewable.
- Entities operating in SCZone have the right to determine the prices of their products and services.
There are also further non-tax incentives for labor-intensive projects and investments in remote areas and in certain sectors such as energy, agriculture, logistics, and transportation. Such non-tax incentives include:
- Subsidizing and facilitating the payment of the price of the power needed to operate the project.
- Refunding the expenses paid to extend infrastructure facilities to the project’s land.
- Subsidizing the technical training programs of the employees as well as the social insurance subscriptions.
- Allocating the land owned by the government by usufruct against trivial or postpone the payment of whole or part of the price.
The application of such incentives is conditional upon the starting of the production.
If you have any questions regarding this paper, feel free to contact us.
- For more information on the New Suez Canal, please visit the official website of the Canal at: http://www.suezcanal.gov.eg/sc.aspx?show=69 ↩
- The SCZone Decree was published in the Official Gazette dated 10 August 2015, Issue no. 32 Seq (c). ↩
- SEZ Law was substantially amended in 2015 by virtue of Law no. 27 of 2015 issued on 23 June 2016. ↩
- The maps attached to the SCZone Decree are published in a legible version. Nevertheless, the official website of the SCZone provides interactive maps at: http://www.sczone.eg/English/Pages/default.aspx ↩
- Please refer to the map at the official website of the SCZone at: http://www.sczone.eg/English/Map/Pages/default.aspx?SiteID=-1&PhaseID=-1&StatusID=-1&SectorParentID=undefined&ActivitiesID= ↩
- Please refer to the map at the official website of the SCZone at: http://www.sczone.eg/English/Map/Pages/default.aspx?SiteID=-1&PhaseID=-1&StatusID=-1&SectorParentID=undefined&ActivitiesID=,10,12,18,11,17,14,16,# ↩