Regulations Governing Customs and Tax Refund Per Investment Law Located on Mainland vs SC Zone

As Egypt continues to attract foreign investment, it is crucial for investors to navigate the complexities of the country’s investment laws and regulations. One crucial aspect to consider is the difference in customs and tax refund policies between investments on the mainland and those within the country’s free trade zones. Egypt’s Investment Law No.72 of Year 2017, aims to provide a comprehensive legal framework to encourage and facilitate both domestic and foreign investment in Egypt. The law offers a range of incentives and benefits to investors, including customs and tax-related advantages.

There are general incentives applicable to companies and establishments that are subject to the aforementioned law as Article 10 enforces a tax bracket of 2% of the value of all “imported machinery, equipment and devices” required for the commitment of the establishment, including imported machinery and equipment.

For manufacturing facilities and exporters based on the Egyptian mainland, Investment Law No.72 offers a robust set of customs and tax incentives. Under this framework, these businesses are entitled to a full customs duty exemption on the importation of machinery, equipment, and raw materials necessary for their operations. Furthermore, Article 11 (1) grants a tax refund of 50% on the net taxable profits of Sector A which are geographic locations that need urgent development as per the investment map issued by the Central Agency for Public Mobilization and Statistics. Whereas Article 11(2), a 30% tax refund for investments of Sector B which includes any other area within Egypt that includes any of the following investment projects:

1. Projects relative to the production of renewable energy
2. Tourism projects
3. Electricity production and distribution
4. Projects relative to exporting items out of Egypt
5. Others

Investment projects are entitled to a significant income tax deduction which amounts to 50% of their total investment costs subject to a cap of 80% of the paid capital. The incentive is available for a duration of 7 years from the beginning of operations, the purpose of this incentive is to encourage investment by reducing the tax burden on investment projects to enhance the overall financial viability and competitiveness of such investment developments.

However, not any company or establishment can make use of the incentives there are specific conditions to be met such as outlined in Article 12:

1. The company must be incorporated within 3 years from the date the law came into force, this may be prolonged by the competent minister.
2. There must be individual accounting books, where if the company works in more than one zone a separate accounting book must be held for each zone.

The cabinet of ministers may issue a decree permitting supplementary incentives to establishments as mentioned in Article 11, as Article 13 includes other incentives such as:

1. Special customs offices are in charge of the investment projects whether exports or imports.
2. The investor will be reimbursed by the state either in whole or in part for the expenses incurred by the investor for extending the utilities to the real estate properties.
3. The state will bear some of the expenses spent on technical training for the employees for the investment project.
4. The state will refund 50% of the value of land allocated for industrial projects provided that the product begins within 2 years of estate delivery
5. The government will assign free land for some activities.

Establishments and companies in the Free zones such as The Suez Canal are subject to the same provisions as Inland establishments under Law No.72 of the Year 2017 and overseen by the General Authority for Investment and Free Zones (GAFI). Suez Canal as a public free zone offers a host of advantages that make them attractive for foreign and local investments.

Initially, Article 33 establishes that the project interacts with a single administrative body which has the power to handle all issues relative to the establishment’s procedural work. Any tools, supplies, machinery, and any means of transportation not used as a passenger vehicle that is necessary for the licensed activities of projects within the Free Zone shall be exempt from customs duties, VAT, and other taxes. Article 39 outlines this tax incentive which is applicable applies even if the nature of the activity requires temporary movement of such items from the Free Zone to the Mainland and back. This provision aims to facilitate the operations of projects within the Free Zone by eliminating customs and tax burdens on the essential equipment and resources required for their licensed activities.

Egypt’s investment landscape offers distinct advantages for businesses based on their location and the applicable regulatory framework. The key differences in customs and tax refund policies between mainland investments and those within the country’s free trade zones, particularly the Suez Canal Special Economic Zone (SCZone), highlight the government’s strategic approach to incentivize and support businesses in designated economic zones.  Mainland investments are subject to standard customs and tax regimes, but Investment Law No. 72 of 2017 provides exemptions and refunds to alleviate financial burdens. In contrast, businesses in the SCZone and other free trade zones benefit from more favorable and streamlined customs and tax environments, including exemptions on imports required for their licensed activities. This differentiated treatment reflects the government’s intent to leverage the advantages of free trade zones to attract higher levels of domestic and foreign investment, foster economic development, and enhance the country’s competitiveness in targeted sectors. Investors should carefully evaluate the options based on their specific business needs and the available incentives in each jurisdiction.