Arig Ali, Partner, Zaki Hashem & Partners

Investment in Egypt is currently governed by more than one law. With a view to attracting more foreign direct investment and to lessen the bureaucratic burden that dragged Egypt down to an unattractive ranking in the World Bank’s most recent “Doing Business” report, a new investment law was promulgated on the 31st of May 2017, which came into effect from the first of June 2017 (“Law No. 72 of 2017” or the “New Investment Law”). The new law, involving a set of new incentives, replaces the Investment Law No. 8 of 1997 and its amendments. The law’s package of incentives includes: inter alia, administrative reforms to complement other legislation and regulations currently in place and other aggressive but necessary reforms, such as the introduction of a floating exchange rate system.

Egypt is keen to improve its investment climate in general and to make it more attractive, not only to local investors, but equally to foreign investors, with a view to improving the country’s international rankings. For that purpose, a new council, the Supreme Investment Council, was established within the framework of the New Investment Law to monitor, among other things, Egypt’s rankings in international investment indicators and reports. Other measures include the introduction of provisions related to Corporate Social Responsibility (“CSR”).

Messages of reassurance to foreign investors

What is remarkable about the New Investment Law is that it is directly addressing foreign investors and sending them messages of reassurance as to their equal treatment alongside Egyptian investors and even, in some exceptional cases, more favorable treatment in the application of the principle of reciprocity. Furthermore, the New Investment Law reinstates the ability of investors to repatriate their funds, including dividends and proceeds of liquidation. The availability of foreign currency may remain an obstacle to the effectiveness of such a guarantee. In addition to the above, the right to grant non-Egyptian investors a residency in Egypt for the duration of the project is expressly reflected in the New Investment Law.

Streamlining of business procedures and other system upgrade measures

One of the most obvious obstacles that foreign investors have been facing is the lack of a practical one-stop shop allowing them to deal with only one governmental authority to facilitate the establishment of their business in Egypt. The New Investment Law not only introduces the Center for Investors’ Services, with representatives of various administrative authorities in charge of issuing relevant licenses, but also introduces what the media is calling the “Golden License”. This Golden License allows the Cabinet to issue a single approval for strategic, national or public private partnership infrastructure or renewable energy projects, by one decree. In addition, Law No. 72 of 2017 aims at upgrading the system through which companies are established, licenses are issued and post incorporation procedures will be effected by (i) the implementation of an e-system for the provision of these services; (ii) setting deadlines for the delivery of these services; and (iii) the establishment of accreditation offices, which are entrusted with a service that consists of reviewing the projects and the documentation of licenses, as well as  issuing a certificate regarding the same against administrative fees.

Expansion of the scope of the New Investment Law

As to the scope of the law itself, we note that the New Investment Law has extended its application to new sectors which were not covered by the old investment law, such as the education and sports sectors. The Minister of Investment may add, together with other line Ministries, other sectors according to the current economic development plan.

Special incentives

In addition to the general incentives which were covered in the previous legislation, the New Investment Law introduces special incentives to new projects established in certain geographical locations. The incentives involve deductions from taxable net profits ranging from 30% – 50% of total investment costs, depending on the area in which projects are located. To benefit from such incentives, the project must meet certain conditions. Notable among this are the stipulations that the projects must be established within three years of the upcoming Executive Regulations coming into effect, and that they must maintain regular accounts. This investment incentive must not exceed 80% of the company’s paid-in capital and shall only apply for a maximum of seven years.

Additional Incentives

Upon a Cabinet decree, the projects benefiting from the aforementioned special incentives may be granted additional incentives including: (i) the granting of permission for the establishment of special customs outlets for the exported and imported goods used in these investment projects; (ii) the State may bear – after the completion of the investment project – the costs incurred by the investor to connect the utilities to the buildings allocated to the investment project, or a portion thereof; (iii) the State may bear a portion of the costs related to technical labor training; (iv) half of the value of the land allocated for industrial projects may be refunded if production starts within two years of the date of delivering the land; (v) the allocation of land free of charge for certain strategic activities. By a Cabinet decree based on a proposal by the relevant minister, other non-tax incentives might be introduced, whenever necessary.

CSR

Under the New Investment Law and for the purpose of achieving comprehensive and sustainable development, an investor may allocate part of his annual profits to establishing a community development system, aside from the main investment project. He can participate in all or some of the following areas: (i) protecting and improving the environment; (ii) providing services or programs in the health, social or cultural care sectors, or in other areas of development; (iii) supporting technical education or financing research, conducting studies and awareness campaigns targeting the advancement and enhancement of production, in collaboration with universities or scientific research centers; and (iv) conducting training and scientific research.

The amounts spent by the investor in one of the aforementioned sectors and up to a maximum of 10% of his profits shall be deductible pursuant to the provisions of the Income Tax Law. The Ministry of Investment, in cooperation with other relevant ministries, may establish a list of the best investment projects that run community development activities and announce it to the public.

Private Free Zones  

The New Investment Law has brought back private free zones, which were removed in the latest amendment of the previous investment law. Private free zones may be established by Cabinet decree and may include only one project or a number of projects that carry out similar activities.

Technological Zones

The New Investment Law has introduced specially designated technological zones, encompassing industrial activities, designing and developing electronics, data centers, software development activities, technological education and other activities related or complementary thereto. Technological zones do benefit from a specific set of incentives set out in the New Investment Law, including the special incentives.

Dispute Resolution

Under the New Investment Law the Egyptian Center for Arbitration and Mediation has been established, to settle investment-related disputes which may rise between investors or between the state and investors if they so agree.

Next Steps

The New Investment Law does indeed include provisions, which if applied as intended by the letter of the law, will have a very positive impact on the investment climate in Egypt. Two main issues remain outstanding to date, these being (i) the issuance of the Executive Regulations to the New Investment Law, which should be issued within 90 days from the date of the promulgation of the New Investment Law; and (ii) the training and the continuous professional development of the governmental officials who will be entrusted with the application of this law.

 

 

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