Free Zones in Egypt: The New Start-Youssry Saleh Law Firm

Free Zones in Egypt: The New Start

Youssry Saleh & Partners   22 Mar 2016   857 Views
Industrial and Manufacturing-Youssry Saleh Law Firm

Egypt started its free zones programs in the 70s; during this period the country’s policy was directed at attracting and retaining foreign direct investment and to increasing the percentage of import and export in the country. Therefore, Egypt

has developed nine free zones:

 

  1. Damietta public free zone
  2. Alexandria public free zone
  3. Ismailia public free zone
  4. Media production free zone
  5. Nasr City public free zone
  6. Port Said public free zone
  7. Suez public free zone
  8. Shebin El Kom public free zone
  9. Qeft public free zone

The 2005 case study of USAID on free zones in Egypt it was revealed that from 2000 to 2004 the source of 75% of total investment into Egypt was from Egyptian sources. The finding gives an indication that free zones in Egypt were either not very well promoted, or had limiting factors preventing foreign investment to come in, therefore their contribution to the Egyptian economy was relatively low. The number of employees working in free zones of Egypt constitutes about 2 to 3 % from the total industrial and manufacturing employment force and this percentage is relatively low compared to successful fee zones in other countries where the percentage of employment in the free zones is from 20 to 30% of the total labor force employed in industrial and manufacturing sectors in those countries.

In 2015, as Egypt has undertaken an aggressive course of economic development, several initiatives and steps have been undertaken by the government to revive the free zones programs aiming at attracting foreign direct investment. One of the steps taken in that direction was relevant amendments pertinent to the free zones in the Investment Law.

A) Investment law amendments

The Egyptian president approved the new amendments of the Investment Law no. 8 for 1997 and also the amendments to the Companies Law no. 159 for 1981; Income Tax Law no. 91 for 2005, and Sales Tax Law no. 11 for 1991. The goal of these amendments was to breakdown obstacles facing an investor in Egypt.

Below are relevant articles pertinent to free zones:

1) Article 29 stated that the free zone shall be managed by a Board of Directors and its Chairman; BOD is formed and appointed respectively by a decision of the Chairman of the Authority and the Board of Directors of the free zone and this management will be responsible for implementing the provisions of this law.

2) The first provision of Article 32 mentioned that the goods which are exported or imported are not subjected to the regulations governing imports and exports or customs and also are not subjected to the customs tax, general tax or any other taxes or duties. This Article stated clearly that the products or goods are not subject to taxation on the goods or products of the free zone after taking into consideration Article 29. There as an annual fee of 1% of the value of commodities entering the free zone in respect of warehousing projects and of the value of commodities on the exit from the free zone in respect of manufacturing and assembly projects and only goods in transient are exempted from this fee.

3) According to the first provision of Article 55 the license is obtained in a period not exceeding 15 days after finishing all the approvals required for obtaining this license from the competent agencies through their employees in the Authority or its branches which are competent to issue  such licenses and also it is stated that if this period was over without issuing this license the  Chief Executive of the Authority shall bring the matter within a week to the attention of the Committee as mentioned in Article 101 of the law, to take the suitable decision within fifteen days.

4) In order to encourage investors to invest in certain fields and expand their investment in these fields Article 20 bis stated that its possible to provide the project with extra untaxed concessions and incentives in case these projects depend on labor force integrating local components or develop the internal trade, or in the field of electricity (production, transportation and distribution) from traditional or new or renewable energy, or  agriculture projects, or road transport, maritime and railways projects, or that invest in disadvantaged and development targeted regions.  

Some of the advantages the investor receives is a permit to establish special customs outlets for exports or imports of the investment project upon agreement with the Minister of Finance, low prices or facilitates in paying the energy usage value, payback the whole value or a portion of providing the utilities to the dedicated land to the investment project after the project operation as well as other benefits.

5) The license in the free zone is sufficient to deal with the different institutions to acquire different services, facilities that do not need to be recorder in the Industrial Register.

 B) Promoting for the free zones

The government started to promote for the economic projects in general and for the free zones in specific. Promotion of the free zones commenced during the economic and development conference in Sharm El Sheikh where the government has announced many projects in the free zones in Egypt as well as the new regulation to enable the investor.

 General Authority for Investment and Free Zones (GAFI) started providing investors with information and details about the upcoming and present projects in the free zones in Egypt. Moreover, the promotion of the free zones was happening through the announcement by the government on the development of most of the ports in Egypt to use updated logistic technology in storing goods in the ports.

Recently, many countries have expressed interest in investing and establishing in the free zone areas of the country among which are Russia and China. With the opening of the Suez Canal and recent regulatory changes aimed at improving investment climate, establishment in the free zones might be a very important step in terms of trade and investment in Egypt and the Middle East in general.

The free zone is considered one of the main tools used to increase the direct foreign investment, decrease unemployment rate and to increase the import and export in the country. The Egyptian government took significant steps towards reforming the economy and amending the laws, but the real actions will be in handling the coming investment into Egypt.