[Chinese] The New Investment Guarantees and Incentives Law

29 August, 2017

[Chinese] In an attempt to attract new foreign direct investment (FDI) to Egypt, President Abdel Fattah El Sisi had promised to reform the 1997 Investment Law No. 8 at the Egypt Economic Development Conference held in 2015. To that effect, on the 31st of May 2017, under the sponsorship of Sahar Nasr, Minister of Investment and International Cooperation, Law No. 72 of 2017 was issued. This newly updated and significant piece of legislation brings about refreshing reforms to a business climate highly in need of one, along with marking the Egyptian government’s welcoming position regarding foreign ventures to the country. The law sets upon ambitious goals, demonstrated by the institution of a set of enticing guarantees and incentives, a codifying of social responsibility, the establishment of a new arbitration center specific for settling disputes, and new investment systems – overall with an aim of making foreign investment in Egypt a more friendly, and rewarding experience. Further information regarding the law, however, should be outlined in the Executive Regulation document, which will be published within 90 days following the law’s issuance.

Investment Guarantees

A number of guarantees to both potential foreign and domestic investors have been newly revealed within Law No. 72. These guarantees seek to establish and provide a sense of financial comfort and security to the investors, in order to further encourage economic development and growth throughout Egypt. Of these guarantees, the most prominent to note in regards to FDI is as follows:
  • The right of a “fair and equitable treatment” to all investors, domestic or foreign. However, the law does make a note that, contingent on a decision by the Cabinet, a preferential treatment to foreign investors may be exercised[1]. The legislation further expands on its nature of equality, stating the guarantee that no sort of discrimination regarding gender or project size would take place[2].
  • Foreign investors are guaranteed the right to a residence permit for the duration of their investment project[3].
  • All investment projects are guaranteed immunity from nationalization[4].
  • Funds from investment projects are guaranteed not to be seized, except if required for the public good, and not without full compensation preceding the actual date of expropriation[5]
  • Investors have the full right to “create, manage, and expand,” their project whilst abroad, and with foreign currency[6]. In managing their project from abroad, the right is further guaranteed to:
    • Transfer and liquidate project profits without restriction
    • All cash transfers related to foreign investment are guaranteed the right to free movement and full conversion to a recognized currency, without any delay[7]
  • Foreign investors have the ability to import and export any and all raw materials, products, production requirements, machinery, transportation means, and other essentials related to the project without having to register for a license from either the Register of Imports/Exports[8]
  • Foreign Investment projects are allowed to employ up to 20% of the workforce from abroad – a statistic that was increased from the previous 10%[9]
  • Foreign workers employed to a FDI project are also guaranteed the right to transfer their “financial entitlements” freely abroad[10]

  Investment Incentives

Besides the guarantees stated above, the new legislation also works to attract investments via a structural layout of financial incentives[11]. Under this power, all investments will enjoy an exemption from stamp tax and documentation/notarization fees regarding corporate credit facilities and mortgage contracts, for the first five years of their date of registration – as per recorded in the Commercial Registry. Companies and enterprises’ land registration contracts will also be enjoying an exemption from the above-mentioned taxes/fees[12]. In addition to the tax/fee exemptions stated above, all imported machinery, equipment, and tools needed for the project will only be subject to a Customs tariff (in accordance with the Customs Exemptions Law) of 2% of the value of the imported goods[13]. In regards to more industrial and construction based ventures, the law provides the ability to import all and any molds or templates needed for the production of the project — free of any customs fees or duties, under the basis that they are imported for temporary usage and will be re-exported abroad[14].

Special Incentives

The law offers a set of special incentives to companies or enterprises that are newly formed within the noted period of three years following the release of the governing Executive Regulations, with the intention of establishing an investment project[15]. Article 11 of the Law provides tax deductions of 50% to these investment projects pertaining to section A (geographic locations most urgently in need of development) and 30% deductions to the costs of projects pertaining to sector B. Sector B generally includes a large list of project types, including but not limited to: tourism, electricity, food, chemical industries and textile industries[16].

Additional Incentives

According to Article 13, the Council of Minister, through issuing a decree, can grant additional incentives to Article 11 Projects. Such incentives include special customs offices, refunding 50% of value of the allocated land and state support through incurring training fees and other expenses[17].
 
Social Responsibility

As a novel addition, the Investment Law dictates that 10% of the project’s net income can be directed towards social responsibility in certain fields, to be deductible from its annual corporate taxation[18]. The relevant fields include environmental protection, health, cultural and social development areas, as well as vocational education, research or scientific funding and awareness campaigns.

Settling Disputes

The Law called for the establishment of a new arbitration and dispute-settling center by the name of the Egyptian Center for Arbitration and Mediation to be based in Cairo[19]. The primary mandate of the Center is to settle any disputes that may arise between investors or investors and public or private authorities involved. According to Article 91 of the Law, the board of directors managing the Center will consist of “five experienced and specialized directors with good competence and reputation.”

GAFI – General Authority for Investment & the streamlining of investment procedures

With the goal of facilitating and simplifying the investment procedure to potential investors, GAFI has created a new administrative unit, as per the new Law named the Investor Service Center. The Center shall firstly, approve all elements relating to the investment including meeting minutes, increase of capital, liquidation and activity alteration. Secondly, the Center will also receive investors’ applications for permits and licenses. As such, the Center serves as a facilitator for most Investor needs[20].

In addition to the Investor Service Center, the Law has established Accreditation Offices[21], also under the jurisdiction of GAFI that examines documents required for approvals, permits and licenses for investment projects. Following inspection, they issue a certificate, confirming the investor’s compliance with all given requirements of the Law.
By virtue of the new Law, GAFI and other related and involved authorities are obligated to activate new electronic systems (E-Incorporation System) within 90 days of the issuance of the Law, i.e. before the 31st of August 2017[22]. Authorities are required to respond to the application of the incorporation of an investment vehicle within one business day from the date of application. In accordance with Article 51, any Company shall have a unified and certified national number for all of the Investor’s’ transactions.
 
Investment Systems

Not much has changed in the law regarding investment zones, which was already established in by Law No. 19 of the year 2007. However, public free zones were established once more following their removal in the 2015 amendments. The public free zones are created to encompass any licensed project products primarily intended to be exported overseas[23]. According to Article 41, projects operating in the public free zone shall be subject to:
  • A 2% fee of CIF (cost in freight) costs for goods imported by storage projects and a 1% fee of FOB (free on board) at goods exported by manufacturing and assembly projects.
  • A 1% fee of the total revenues gained by projects not engaging in the export and import of products.
  On the other hand, in regards to projects operating in private free zones, they will be subject to[24]:
  • A 1% fee of the total revenues gained from exporting its products in manufacturing and assembly projects, as well as a 2% fee of the total revenue at the entry of goods into the country.
  • A 2% fee of the total revenues in projects working in fields other than manufacturing and assembly.
 

[1] Article 3 of Law No. 72 of the year 2017. [2] Article 3 of Law No. 72 of the year 2017. [3] Article 3 of Law No. 72 of the year 2017. [4] Article 4 of Law No. 72 of the year 2017. [5] Article 4 of Law No. 72 of the year 2017. [6] Article 6 of Law No. 72 of the year 2017. [7] Article 6 of Law No. 72 of the year 2017. [8]  Article 7 of Law No. 72 of the year 2017. [9]  Article 8 of Law No. 72 of the year 2017. [10] Article 8 of Law No. 72 of the year 2017. [11] Chapter 2 of Law No. 72 of the year 2017. [12] Article 10 of Law No. 72 of the year 2017. [13] Article 10 of Law No. 72 of the year 2017. [14] Article 10 of Law No. 72 of the year 2017. [15] Article 12 of Law No. 72 of the year 2017. [16] Article 11 of Law No. 72 of the year 2017. [17] Article 13 of Law No. 72 of the year 2017. [18] Article 12 of Law No. 72 of the year 2017. [19] Article 91 of Law No. 72 of the year 2017. [20] Article 21 of Law No. 72 of the year 2017. [21] Article 22 of Law No. 72 of the year 2017. [22] Article 51 of Law No. 72 of the year 2017. [23] Article 33 of Law No. 72 of the year 2017. [24] Article 41 of Law No. 72 of the year 2017.  
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