Amendments to the Investment Law

This week the Official Gazette published Law No. 141 of 2019[1] amending some of the provisions of Investment Law No. 72 of 2017 (the “Amendment”). The Amendment extends the special and additional incentives provided under the Investment Law to extensions of existing projects subject to a few conditions, and subsequent rules to be issued in a prime ministerial decree. It also introduces a notarization fee of 0.25% of paid capital on partner signatures on company contracts, and adds a provision allowing the General Authority for Investment and Free Zones (“GAFI”), to collect data on foreign direct and indirect investment from public and private entities while imposing a fine on those who fail to comply.

Background

In terms of structure, Investment No. 72 of 2017 was designed with the aim of attracting and reassuring investors as well as facilitating company incorporation and post incorporation services. In this respect, the Law sets out certain guarantees to all investors, then goes into defining broad investment fields that are eligible to benefit from incentives divided into General Incentives, Special Incentives, and Additional Incentives. According to the black letter of the Law at its enactment, investment projects established following the issuance of the Law’s executive regulations in October 2017 and for three years after could be eligible to benefit from one or more of the above incentives depending on a number of factors including geographical location, size, and other policy considerations. Of the more interesting provisions of the Investment Law are the incentives described in Articles (11), (12) and (13). According to these provisions, a Special Incentive is a deduction from net taxable income that is either 30% or 50% of investment cost[2] depending on the project’s geographical location. For a project to be eligible to receive the Special Incentive, it must satisfy certain conditions including:

• That the investment project is undertaken through a newly incorporated company established within three years from the date of the Executive Regulations.
• That none of the shareholders have provided physical assets of an entity that was already existing at the time of the issuance of the Law.
• That the tax credit constituting the Special Incentive does not exceed 80% of paid capital and that it is applied within seven years from commencement of operations.

Meanwhile, Article (13) describes Additional Incentives in the form of the government’s incurring of some of the project’s infrastructure or vocational training costs, allowing the project to establish special customs outlets, returning the price of land in full or in part, as well as other non-tax incentives. Additional Incentives are granted by way of a prime ministerial decree and are available for investment projects established after the enactment of the Law that have commenced operations, and subject to additional conditions that are listed therein.

Amendment by Law No. 141 of 2019

• Incentives

The Amendment adds a final clause to Article (12) that contains the conditions for the eligibility of a project for the Special Incentive. The added clause allows extensions of existing projects to benefit from Special and Additional Incentives. In this respect, extensions are defined as an increase of capital and the addition of new assets that result in an increase of production capacity, in accordance to the rules and criteria to be issued in a subsequent prime minister decree.

• Post Establishment Services: Notarization Fee

Under the facilitation of establishment and post establishment services provided to corporations through GAFI, the Amendment imposes a fee of 0.25% of paid capital (capped at EGP10,000) for the notarization of signatures on company contracts, whether notarization is undertaken inside Egypt or at Egyptian consulates abroad. This is applicable with every amendment to the company’s articles of association.

• GAFI’s Mandate

Articles (69) onwards of the Investment Law deal with GAFI, its role, mandate and tasks. GAFI plays a dual role of promotion and supervision of investment. On the promotion side, it is in charge of company establishment, setting out investment plans and strategies, promoting investment, running the investment services centres, simplifying licensing processes, proposing legislative change, organizing conferences and exhibitions, and cooperating with similar authorities around the world. On the supervision side, it monitors all investment companies, determines service fees, supervises free zone boards of directors, monitors the movement of goods in and out of said zones, monitors governance standards for companies, notifies companies of violations, suspends their benefit from various incentives, and cancels operating licenses. The Amendment adds to GAFI’s mandate the authority to request data and information from public and private entities that allows it to assess direct and indirect foreign investment for statistical purposes. According to the Amendment, a modification of the executive regulations of the Investment Law is expected to determine the timeframe during which said entities must provide the described data. Failure to comply with this new provision subjects those in charge of actual management to a fine of up to EGP 50,000.   [1] Law No. 141/2019 amending certain provisions of Investment Law No. 72/2017, Official Gazette, Issue No. 30 (bis) (d), 31 July 2019. [2] The Executive Regulations defines the term Investment Cost as “the costs necessary for the establishment of the investment project constituting property rights in addition to long-term obligations that are investment in constructing fixed material assets (that are tangible), or intangible assets, on the condition that the value of such is paid in cash; in addition to working capital”.