Significant Changes to the investme

On 1 November 2016, the Supreme Council for Investment (“SCI”) convened under the chairmanship of the President and issued 17 influential decisions that have a direct impact on the investment climate in Egypt. It should be noted that SCI was established in last October by virtue of Presidential Decree No. 478 of 2016.[1] SCI has specifically been mandated to formulate general investment policies in Egypt and oversee its implementation. SCI includes among its members the Prime Minister, Ministers of Investment, Finance, and Trade and Industry, the Governor of the Central Bank of Egypt, and the Heads of the General Authority of Investment and Free Zones (“GAFI”), the Administrative Control Authority, the Federation of Industries, and the Federation of Investor Associations, as well as the Ministers of Interior, Defence and Military Production, and Justice, and the Chief of General Intelligence. The meeting is the first since the SCI was established. Review of these recent decisions is based on information that has been circulating in the press – as they have not been published in neither the Official Gazette nor the Egyptian Gazette. The decision includes:

1. Tax Exemptions

• Industrial land in Upper Egypt has been allocated to investors free of charge. This is to be done in accordance with the rules and conditions set by the Industrial Development Authority (“IDA”) and in accordance with the State’s investment plan;

• Tax exemptions on the profits of agricultural land reclamation projects, specifically those that produce essential, otherwise imported, crops as well as those that produce crops primed for exportation;

• Five-year tax exemptions on profits made by new agricultural and industrial investments in Upper Egypt. The five years begin from the date of receiving the land;

• Five-year tax exemption on profits made by new projects manufacturing strategic goods and products that are typically imported or else primed for exportation;

• The decision to stay the implementation of the capital gains tax has been extended for another 3 years and will thus end in May 2020.

It is important that we clarify that the aforementioned decisions, which involve various types of tax exemptions, will not come into effect merely by being enacted by SCI. Rather, they have to be presented as bills to parliament, which in turn has the right to approve and issue them as laws or otherwise reject them. This is because the Egyptian Constitution does not grant the right to impose new taxes, or the right to exempt from existing taxes, to anyone except Parliament (when in session). Accordingly, the foregoing decisions are in fact merely policies that have been approved by the State and are still awaiting referral to the Cabinet and, subsequently, the Parliament.

2. Reducing Land Prices

• A temporary 35% discount has been applied to lands at the time of settling its value as determined by the Supreme Committee for State Land Reclamation, which has been working for over a year on reclaiming lands that have been granted to investors in violation of the law. This discount shall only be valid for two months until the end of December 2016;

• Publicly offering land intended for the New Administrative Capital and for new cities in East Portsaid, al Alamaein, Al Galala, and New Ismaliyya at a 25% discount of the exact price. The discount is valid for 3 months from the date of the IPO;

• Concerning new cities in Upper Egypt (New Minya, New Sohag, New Assiut, New Beni Souif), the price per square meter is 500 EGP on the condition that this land along with its facilities be delivered after a year.

Unlike tax exemptions, these three decisions do not require parliament issuing laws to put these decisions into effect. Instead, the cabinet and the concerned ministries and bodies have to issue executive regulations to help effectuate these decisions.

3. Promoting Small Enterprises

• Undertaking all necessary legal measures to allow for tax reconciliation for Small and Medium Enterprises that have hitherto not filed taxes. This is to be accomplished by specifying a fixed symbolic amount to be paid, within two months, for every year of unreported activities until 2017 – a measure intended to catalyse the process of registering informal enterprises as well as facilitate integrating them into the formal sector.

• Authorising the IDA to issue temporary industrial licences for a one-year term until industrial plants have been able to regularise their status and comply with the regulations. The whole process would be governed in accordance to regulations specified by the Minister of Trade and Industry. The notion of temporary licenses is also intended to promote the launching of Small and Medium industrial projects;

• Forming a National Payments Council as the competent authority responsible for implementing a national program aiming to limit cash interactions in the economy, gradually moving it towards a cashless model that is more dependent on electronic and banking payments.

4. Privatization

• Increasing the number of State-owned companies, 20-24% of whose capital will be publicly offered over the next 3 years, on condition that those publicly offered companies include agricultural projects companies, the new administrative capital, the new Alamein city, and power plants;

• Activating the public private partnership program that is being administered by a specialized unite in the Ministry of Finance.

5. Improving the Investment Climate

• Requiring that all ministries and concerned bodies implement all decisions issued by the Ministerial Committee for Investment Dispute Resolution within 15 days;

• Commissioning the Technical Secretariat of SCI with the task of holding periodic meetings with members of the business community to examine their various proposals on how to effectively remove impediments to investments. The conclusions reached in these meeting have to be presented to SCI immediately;

• Forming a permanent committee within the Ministry of Investment to study investors’ complaints, which would directly report to the SCI.

• Commissioning GAFI with the establishment of a company for internal and external investment promotion.

The business sector welcomed these decisions as they indicated a pro-investment policy. Nonetheless, the necessary regulations need to be issued to bring many of these decision into effect. In addition, new laws still need to be passed to effectuate the aforesaid tax exemptions and this is expected to be a point of contention in the Parliament.   [1] Presidential Decree No. 478/2016 establishing the Supreme Investment Council, Official Gazette, Issue No. 41 (bis) (b), 16 October 2016.