New Regulations for Investment Zone

Owing to months of much deliberation and preparation, the Regulations for Investment Zones (the “IZ Regulations”)[1] were finally published in the Egyptian Gazette. Having come into effect on 10 May 2019, the IZ Regulations clarify and reiterate what has already been stipulated in the Investment Law (the “Law”), its Executive Regulations (the “ER”), and a guide that was published by the General Authority for Investment and Free Zones (“GAFI”) two months ago on investment zone projects, while simultaneously expanding on a small handful of features that were not previously dealt with. Overall, the IZ Regulations set in place a system for the establishment and management of investment zones, outlining the requirements and procedures for establishing investment zones, the structural makeup of the zones’ administration, the licenses and approvals required for establishing and operating investment zone projects, and the cases that might warrant the termination of these projects, all the while repealing any existing legislation in conflict with this new system.

Background

According to the Investment Law No. 72 of 2017, investment zones are geographically bounded areas established by virtue of a Prime Ministerial Decree, based on the suggestions of GAFI’s board, the Minister of Investment, and the relevant minister overseeing the particular activity to be undertaken in the investment zone in question. These zones are allocated for one or more specific investment activities and their complementary activities, with the aim of creating integrated clusters ready for ‘plug and play.’ They do not benefit from special tax or customs provisions, including general and special incentives, unless given in their licenses. Following the enactment of the Law and its ER, and specifically in March 2019, GAFI issued an investors’ guide for projects operating in investment zones or those wishing to set up shop there (the “Guide”).[2] The Guide complemented the Law and its ER and it contained various procedures related to the establishment of investment zones, their management, required documentation and fees, and detailed procedures on the issuance of project approval, activity license, and building, infrastructure, and utility permits.

The Investment Zones Regulations

The new IZ Regulations do not diverge from the framework for investment zones that has been set in place by the Law, its ER, and the Guide, effectively recapitulating their main provisions. However, the IZ Regulations do add a small number of new criteria and rules regarding the land on which investment zones could be set up, the categories of investment zones given priority for establishment, the constitution of each zone’s board and rules for its meetings, and the mechanisms for terminating projects within these zones.

• General Requirements and Conditions of Zone Establishment

The Law and its ER do not go into detail about the prerequisites for establishing investment zones, focusing instead on the requirements of application for establishment. The IZ Regulations thus fill this gap, specifying that investment zones can be set up on any land contracted under the Investment Law, so long as it is not with unproven/questionable ownership. It is possible to establish investment zones that are either specialized in any of the investment activities provided for in the Investment Law or that will house integrated development projects with more than one activity, be they industrial, commercial, logistical, residential, or otherwise. In this sense, the general plan of the investment zone to be established—and which must be submitted with the application for establishment—must comprise a set of projects with homogenous and/or integrated activities, with the possibility of allocating a part of the zone for diversified activities. The IZ Regulations also specify that in cases where applicants for zone establishment are companies, their issued capital must be fitting with the projected investment costs for developing the investment zone. Finally, the IZ Regulations also highlight that priority in granting approvals for zone establishment is given to those in underdeveloped governorates, remote areas, and Upper Egypt.

• Steps and Procedures for Zone Establishment

The IZ Regulations do not add much to what has already been stipulated in the Law and its ER regarding the establishment application process; they, however, present it in a more detailed step-by-step format. To begin with, an application for establishing an investment zone is to be submitted to the competent committee at GAFI. It is to include, as per the Law and its ER, information on the applicant, site (including area, location, coordinates, and the legal status of land possession), and activity or activities to be undertaken. It is also to be accompanied by a list of the existing and proposed utilities and infrastructure (including their estimated costs), a development and marketing strategy, the general plan, and the timeframe for implementation (which must be compatible with the general plan). The competent committee is then to review the application and issue its recommendations, giving the applicant a license to get the necessary survey maps required for the approval of the relevant authorities on the suggested locations that the committee approves. After that, the approval of GAFI’s board regarding establishment is required, and following this, the Minister of Investment and the relevant ministers present the matter to the Prime Minister for a decree on the establishment of the zone. Finally, the applicant is given a copy of the prime ministerial decree on the matter.

• Structural Organization of Investment Zones

In line with the Law and its ER, the IZ Regulations provide that each investment zone is to have a board of directors and an executive office. Yet while the IZ Regulations remain within the confines of what has been stipulated regarding the latter, they do elaborate on the constitution and responsibilities of the zone’s board.

1. Board of Directors

The IZ Regulations mainly reiterate the provisions regarding the formation of the zone’s board that were included in the Law and its ER. However, among other things, the IZ Regulations expand on its membership, mandating that it is to also include representatives of each of GAFI, the zone’s executive office, the Federation of Egyptian Chambers of Commerce, and companies licensed to undertake management or marketing as well as a legal GAFI personnel, all of whom were not specified in previous legislation on the matter. Another difference that the IZ Regulations introduce is the specification of who chairs each zone’s board. This is to be a GAFI high management personnel, or the developer of the zone if the latter is a governmental agency (and after obtaining GAFI’s chairman’s approval).[3] Finally, the IZ Regulations also elaborate on the rules for convening board meetings and the passing of its decisions. Similarly, in accordance with the Law and its ER, the IZ Regulations task the zone’s board with developing an action plan, specifying the conditions and rules for undertaking the activities and managing the zone, and working towards overcoming internal and external obstacles faced by developers and investors. However, the IZ Regulations stipulate a new power for the zone’s board, namely that of terminating inoperative projects, in addition to leaving room for it to specify rules and conditions it sees fit for the operation of the zone after obtaining GAFI’s board approval.

• Project Establishment and Licensing

The IZ Regulations mainly follow what has already been outlined in the Guide regarding the different procedures governing establishing and licensing projects within investment zones. This includes the required documents to be submitted when applying to the zone’s board for approval to establish projects; procedures for licensing the establishment and management of the zone’s utilities and infrastructure; procedures for applying for construction, building alterations or extensions, and demolition licenses; and the licenses for the undertaking of the activity. The IZ Regulations do not differ much in this regard from the Guide, simply reiterating with concision and even some elimination (such as the elimination of fees, timeframes, and other project-related procedures and documents) what has been included in the latter.

• Project Termination

In contrast to the Law, its ER, and the Guide, all of which do not deal with investment zone project termination, the IZ Regulations list the cases in which approval to establish a project within an investment zone could be revoked. These include the project’s violation of the contract with the developer; failure of the project to begin construction within a year from the date of the issuance of the construction license; the project’s non-compliance with the activities specified in its activity license; and the project’s non-compliance with the requirements of civil protection, occupational safety, and environmental standards.

Conclusion

In a statement on the new IZ Regulations, the Ministry of Investment and International Cooperation highlighted that two of the underlying objectives for issuing the regulations were unifying and streamlining the rules and procedures related to the system of investment zones in Egypt.[4] However, despite this, a comparison among the Law, its ER, GAFI’s Guide, and the IZ Regulations brings out the provisions that are present and absent from each, highlighting how the IZ Regulations remain lacking in many of the features that were contained elsewhere (particularly in terms of fees, timelines, reporting requirements, and zone termination). This essentially means that affected parties would have to resort, as is usually the case, to a set of legal and regulatory documents for the establishment, operation, compliance, and termination of investment zones and their projects as not a single one stands comprehensive and completely independent.   [1] GAFI Board of Directors Decision No. 119/2019 issuing the Regulations for Investment Zones, Egyptian Gazette, Issue No. 106 (cont.), 9 May 2019. [2] GAFI, “Investors’ Guide on Investment Zones,” available through this link (in Arabic). [3] The Law defines the developer as a legal person/corporation licensed to establish, manage, or develop an investment zone, including the setting up of the zone’s infrastructure. [4] The Minister of Investment and International Cooperation issues new regulations for the investment zones after 10 years of issuing the previous one, available through this link (in Arabic).