Establishment of a General Free Zon

Two decrees were issued this week, one by the Cabinet of Ministers establishing a general free zone in Minya,[1] and the second by the Prime Minister establishing an investment zone in Damietta.[2] Whereas the concept of free zones is generally known in past Egyptian investment laws, this is the first time that an investment zone is licensed following the issuance of Investment Law No. 72 of 2017 (the “Law”) with new definitions.

Background

The Investment Law contains provisions that govern public and private free zones, investment zones, and technological zones. In addition, the Law also contains some provisions pertaining to special economic zones, albeit these zones are separately regulated under Law No. 83 of 2002 for Special Economic Zones. A free zone is an area inside Egypt that could be a complete city established by virtue of a law; a fenced area for several investments established as a general free zone by a decision from the Cabinet of Ministers; or a private free zone that is a stand-alone project established under specific conditions. Free zone projects are subject to special tax and custom rules, and they are mainly geared toward export. Each free zone has a board of directors that administers operations within it. A company wishing to operate in a free zone must submit a financial guarantee of 2% of their investment costs. A project enjoys the special incentives provided in the law – but not the general incentives - only to the extent of the purposes listed in the project license that is granted by the free zone board. In addition, projects are exempted from tax on profits, export/import regulations and custom duties on production input - except in the case of entry of their products to the local markets. Warehousing projects in public free zones are subject to a fee equal to 2% of goods at their entry; while manufacturing and assembly projects are subject to a fee equal to 1% of goods at their exit. Projects that do not export or import commodities are subject to a fee equal to 1% of annual turnover. Certain industries are not allowed to operate in free zones. These include petroleum, fertilizers, iron and steel, natural gas, transport, high energy consuming industries, as well as the production of alcohol, arms, and ammunition. On the other hand, the new Investment Law provided for the creation of specialized investment zones that are focused on a specific industry. Investment zones are established by way of a decree from the Prime Minister. They do not benefit from special tax and customs provisions but enjoy the general and special incentives – including tax breaks – provided in the Law. The importance of investment zones lies in the fact that the government considers them as promising venues for attracting small and medium industries. This is because of what the professional developer in an investment zone is able to offer these projects in terms of infrastructure, readily available buildings, and permit facilitation, all of which are crucial for the thriving of small and medium industries.

The Two Decrees

• The Free Zone in Minya

By virtue of the aforementioned decree, the Cabinet of Ministers has approved the establishment of a general free zone in Minya Governorate, on the plot of land located south of the industrial zone in Motahra, East of the Nile. The surface area of the free zone is 306.7 Feddans, designated to the General Authority for Free Zones and Investment, in accordance to the coordinates and map attached to the decree.

• The Investment Zone in Damietta

The decree issued by the Prime Minister licenses The Damietta City Furniture Company for developing and establishing a specialized investment zone over a surface area of 331 Feddans, in Shata, located four kilometres off of Damietta city, as demarcated in a map attached to the decree. The investment zone is a full city that is to specialize in the manufacturing of furniture, including crafts, small, medium, and complimentary industries. The license also includes the establishment of hotels, conference centres, exhibition and sale venues, a vocational training centre, and a hospital. The decree mandates that the developer – The Damietta City Furniture Company – implements a plan for establishing and operating the zone within the timeline attached in the decree, or the license is deemed void.   [1] Cabinet of Ministers Decree No. 9/2018 establishing a General Free Zone in Motahra, East Nile, Minya Governorate, Official Gazette, Issue No. 13 (cont.), 29 March 2018. [2] Prime Minister Decree No. 568/2018 licensing the Establishment of an Investment Zone in Damietta Governorate, Official Gazette, Issue No. 13 (bis), 1 April 2018.