Eligibility for Free Land

The Egyptian Investment Law,^[1] as amended in 2015, reiterates the right of the government to allocate lands in specific areas in Egypt free of charge with a new time limit set at five years starting from April 2015 and for the sole purpose of development.^[2] It provides that the areas subject to this incentive shall be determined by a presidential decree and the persons who may benefit from such incentive shall be determined by a prime ministerial decree. In April 2016, a presidential decree^[3] was issued determining such areas to be the lands not yet allocated to investors in the industrial zones located roughly in the southern governorates in Egypt, namely Menia, Assiout, Souhag, Qena, Aswan, al-Wadi al-Gadid, Beni Suef and Luxor. Lastly, in January 2017, the Prime Minister issued a decree determining the technical and financial conditions for investors eligible to benefit from this incentive (the “2017 PM Decree”). ^[4]

Background

Allocating lands in industrial zones in the southern governorates at no cost was originally provided for in 1996, when a law was passed authorizing the disposition of desert lands owned by the state or by any of its public entities at no cost or renting such lands against a nominal fee (the “1996 Law”).[5] The President was then also required to issue a decree determining the lands subject to the 1996 Law. In this respect, two presidential decrees were issued in 2001[6] and 2004[7] determining such lands to be specific areas dedicated for industrial development in the governorates of Menia, Assiout, Souhag, Qena, Aswan, al-Wadi al-Gadid, and Beni Suef. The 1996 Law determined that ownership of lands allocated at no cost does not get to be transferred until the project is established and production is commenced. In case of leasing such land against a nominal value, the term of the lease agreement may not be more than 40 years. In the event that the project owner does not comply with the timeline provided in the allocation decision for building the project and starting production, the competent authority will be entitled to withdraw the land and re-allocate it to the project owner while requiring him to pay the dominant market price for the land (whether as a sale price or rental value). Beneficiaries of such scheme were prohibited from disposing of the allocated land or giving others any proprietary rights thereon prior to the transfer of ownership to them.

The New Rules

In 2015, the Investment Law was amended[8] to, among other things, reiterate such incentive scheme. It now provides that, for the purposes of development and for a period of five years starting from the first of April 2015, specific lands, which shall be determined by a Presidential Decree, may be disposed of free of charge to the investors who qualify for such scheme in accordance with the technical and financial conditions to be determined by the prime minister. Investors who are allocated lands under this scheme are required to provide a cash guarantee or any other form of guarantee to the disposing authority to be returned after a certain period. As mentioned before, a Presidential Decree was issued in April 2016 determining the lands that may be allocated under this scheme. This decree mainly referred to the decrees previously issued in connection with the 1996 Law (as well as to a third decree covering specific lands in the governorate of Luxor)[9] stating that all lands subject to these decrees which have not been allocated to date, may be allocated in accordance with the new scheme.

The New Prime Minister’s Decree

Finally, earlier in January 2017, a Prime Minister’s Decree was issued setting out the technical and financial conditions that must be met by investors who wish to be allocated industrial lands at no cost, in accordance with the above scheme. Technically, investors are required to invest in one of the industrial fields covered by the Investment Law and to submit a feasibility study (including the execution timeline and the proposed methods of financing) acceptable to the Industrial Development Authority. The 2017 Decree gives preferential treatment to specific projects, including - but not limited to - micro, small and medium enterprises, projects that export its products, renewable and conventional energy projects (production, transport and distribution), and projects that heavily rely on labor from the governorates they operate in. These projects are to be given priority in case more than one investor wishes to buy a specific plot of land. The 2017 Decree further requires investors allocated lands in accordance with this scheme to:

• begin building the project within one year from receiving the land; and
• complete building and commence production within three years from delivery of the land.

In addition, investors are prohibited from disposing of the land except after the lapse of five years from the date on which actual production commences and after obtaining the approval of the Industrial Development Authority.

Conclusion

The concept of allocating lands in the southern governorates at no cost to encourage investment in these geographical areas is not new. As shown above, the concept was previously provided for in a separate law. By including this concept in the Investment Law, the legislature is restricting its application to companies working in one of the fields covered by the Investment Law but at the same time offering the same investment guarantees and incentives to all projects benefiting from this scheme. It has also brought this scheme under the light in the wake of the latest investment push supported by the presidency.   ^[1] Law No. 8/1997 on Investment Guarantees and Incentives, the latest amendment of which promulgated by Law No. 17/2015 was reviewed in the April 2015 Issue of the Egypt Legal Update. ^[2] Article 74 of the Investment Guarantees and Incentives Law No. 8/1997. ^[3] Presidential Decree No. 158/2016 determining the industrial zones that may be disposed of to investors free of charge, Official Gazette, Issue No. 13 (bis), 5 April 2016. ^[4] Prime Minister’s Decree No. 42/2017 determining the technical and financial conditions for investors eligible to benefit from disposed of lands in certain governorates free of charge, Official Gazette, Issue No. 1 (cont.), 5 January 2017. [5] Law No. 5/1996 on the rules for disposing of desert lands owned by the state or any of its public entities free of charge, Official Gazette, Issue No. 4 (bis) (a), dated 30 January 1996. [6] Presidential Decree No. 158/2001 on the application of Law No. 5/1996 on the desert lands on which industrial zones are established in certain governorates, Official Gazette, Issue No. 23, 7 June 2001. [7] Presidential Decree No. 370/2004 on the disposition of desert lands owned by the state on which industrial zones are established in Beni Suef free of charge, Official Gazette, Issue No. 48, 25 November 2004. [8] The Investment Law was amended by Law No. 17/2015, Official Gazette, Issue No. 11 (cont.), 12 March 2015. [9] Prime Minister’s Decree No. 2122/2015 on the reallocation of 58 feddan of lands owned by the state to the governorate of Luxor to be used as an extension to the industrial zone, Official Gazette, Issue No. 35, 27 August 2015.