Egypt: Clarifications on the free zones fees19 Dec 2020 1014 Views
Free zones are established in order to magnetize the investors via its prominent and premium investment system. As it provides the investors with safeguards and several benefits and incentives related to the goods and their in or out movements without having the hustle to deal with customs, import, export systems and any other investment related procedures, whereas the investor has taken the initiative and invested his money and efforts under the aegis of the free zone system.
This article will mainly discuss the free zones fees that will be paid by investors who established a company before the issuance of the Egyptian Investment Law No. 72 of the year 2017 and after its issuance; it will discuss as well the relinquishment of sites in the free zones, after the completion of the project.
The Investment Law No. 8 of the year 1997 was the first to discuss the fees of the free zones as stipulated, in Article 35 of the Law and Article 51 of its Executive Regulations. It is stipulated that the projects established in the free zones shall be subject to an annual fee amounting to 1% of the value of commodities entering the free zone for storage in respect of warehousing projects, and 1% of the value of commodities on their exit from the free zone in respect of manufacturing and assembly projects. However, Projects maintaining activities, which require no entry or exit of goods, shall be subject to an annual fee amounting to 1% of their total revenue, to be based on. In all cases, projects shall pay a service charge as determined by the Executive Regulations of this Law. Moreover, any project operating in the public free zone shall pay an annual service fee at the rate of a half per thousand of the capital cost of the project concerned, the minimum charge being three hundred Egyptian Pounds and the maximum charge being three thousand Egyptian pounds, or equivalent amount in a convertible currency. This service fee shall be calculated a full calendar year except for the first year for which the calculation shall be proportionate for the period from the date of the issuance of a license to operate till end of the year.
These fees attracted the investors back then to invest in the free zones and after a stable 20 years of paying these fees, the legislator issued a new Investment Law No. 72 of the year 2017, which canceled the old Investment Law No. 8 of the year 1997. The new Investment Law changed the fees of the free zones and differentiated between the “Public Free Zone” and the “Private Free Zone”; each has their own fees as stipulated, in Article 41 of the Law and Article 105 of the Executive Regulations. Further, the General Authority for Investment and Free Zones issued Decree No. 39 of the year 2019 promulgating the regulations of the free zones management system, which stipulated more clarifications with regards the fees.
All projects wishing to work under the free zones system shall pay at least 1,000 US dollars or the equivalent thereof in free currencies, as advance payment for demonstrating the serious implementation; this amount shall be deducted from any dues with the Authority and shall not be refunded in case of non-implementation for reasons ascribed to the project.
Whereas the owner of the project shall, before the issuance of the decree licensing the exercise of the activity, submit a guarantee in cash or by certified by bank check or an unconditional final bank letter of guarantee issued from one of the banks registered in Egypt, for meeting the obligations vis-à-vis the Authority, at no more than 2% of the investment costs, which is applied on all kinds of free zones, according to the following:
The projects established in public free zones shall be subject to a fee of 2% of the commodity value upon ingress (CIF) for the storage projects and a fee of 1% of the commodity value upon egress (FOB) for the manufacturing and assembly projects. Furthermore, 2% of the procurement value in case of direct supply which include goods sale and purchase operation. And with regards the for the projects whose main activity does not require the ingress or egress of goods, it shall be subject to a fee of 1% of the total revenues, without deducing any loads against obtaining such revenues. And 1% of the operation value for industrial and supplementary operations conducted on the goods and materials operated in the Free Zones for account of the other. Further, a fee at 1% of the value of commission in case of direct supply, which is limited to brokerage commission collection, provided that the duty stipulated in this paragraph shall be collected on half-annually basis according to the revenues statement provided by the project for this period.
The Investment Law No. 72 of the year 2017 set different provisions with regards the fee of the private free zones. In case of the manufacturing and assembly projects are subject to 1% fee upon exporting the goods abroad and two percent (2%) of the total revenues realized by these projects upon the ingress of commodities into the Country. For the storage projects, a fee at 2% of the total revenues realized upon exporting the goods based on the sale invoice. However, in case of other projects, they shall be subject to 2% of the total revenues.
The guarantee amount shall be recalculated every three years according to the investment costs of the project based on the last financial statements and final accounts submitted to the competent free zone, or in case the project submits a request that affects the investment costs. The CEO of the Authority may accept to reduce the financial guarantee amount submitted by the project to the half or less than five thousand US dollars for the industry projects and ten thousand US dollars for the warehousing and service projects. Disregarding the increase of the financial guarantee resulting from the increase of the investment costs shall be accepted within half of the required guarantee, in the event of the project’s commitment during the past three years and the soundness of its position towards the Authority. With regard to the projects that exercise more than one activity, which cannot be separated financially, the financial guarantee shall be submitted in the highest category according to the investment costs.
Moreover, with regards those who work in crafts and professions shall submit a financial guarantee at the rate of 50% of the annual usufruct charges, and the projects shall submit a financial guarantee in Egyptian pounds at the rate of 5% of the construction contract amount at no less than twenty thousand Egyptian pounds to guarantee the payment of the compensation for any damages to the zone facilities during the period of the constructions carried out by the project. The guarantee shall be refunded after the project completes these constructions without any violations.
With regards the service fee and in all cases, projects established within the public and private free zones shall pay annual fees, which may not exceed (one in a thousand) (.001%) of the capital, at maximum of one hundred thousand pounds (EGP 100,000). This fee may be paid in the equivalent currency specified by the Competent Minister.
Accordingly, once the Investment Law No. 72 and its Executive Regulations were issued, the investors started to pay in accordance with the new fees set by the Law. However, GAFI issued on the 28th of April 2019 a new internal instruction, in order to preserve the interests of the free zone’s investors and apply the law correctly. The Authority addressed the General Assembly of the Fatwa and Legislation Sections of the State Council to obtain a fatwa regarding the rules prescribed for calculating the Authority’s fee for projects operating in the public and private free zones system at the time of the Investment Law No. 72 of the year 2017. The advisory opinion reached to a conclusion in this regard, whereas projects established and were operating as per the Investment Law No. 8 will pay in accordance with the rules pursuant to Article 35 of Law No. 8 until the expiry of the project’s license period for practicing its activity. The provisions of Article 41 of Law No. 72 of 2017 shall be applied as of the renewal of the project’s activity license.
In light of the conclusion of the aforementioned opinion, the Board of Directors of the General Authority for Investment and Free Zones agreed to circulate the fatwa of the State Council on similar cases and provided the companies its right to recover the financial differences previously obtained from 01/07/2019. This shall be done by deducting 50% of the Authority’s dues collected from these companies every three months