Regulations for Existing Projects t

On 18 February 2020, the Council of Ministers Decision No. 6 of 2020[1] was published in the Official Gazette regarding the rules and conditions for according existing projects the tax incentives stipulated in the Investment Law No. 72 of 2017.[2] At the time of its issuance, the Investment Law had accorded a number of tax and monetary incentives but only to new projects established within three years from the Law’s issuance provided they were in one of the investment fields specified in the Law. The Law did not extend those incentives to already existing projects or to expansions in these existing projects. However, there have been repeated requests made by investors for expansions in existing projects to benefit from the same tax and monetary incentives that are accorded to new projects, particularly since they entail new capital injection in purchasing machinery, equipment, and buildings, or acquiring new technology, or otherwise, and accordingly they deserve the same incentives accorded to new projects. These requests were further strengthened by the argument that denying investments in expansions from these incentives would force investors to establish new companies for each expansion in order to benefit from the incentives, thus unnecessarily raising the administrative and financial costs on projects. In response to those demands, the Investment Law was amended last year by adding a new provision to Article (12) which stated the following: “Expansions in already existing investment projects may benefit from the incentives listed in Articles (11) and (13) of this Law. The term “expansions” as applied in this article shall mean any capital increase used in adding new assets which increase the productive capacity of the project, all according to the rules and conditions that will be determined by the Council of Ministers”. In application of this amendment, the Council of Ministers issued last week a decision which includes the following conditions:

1. The expansion must have occurred later than the date of application of the Investment Law.
2. The expansion must add new assets which increase the productive capacity and the production of the project as determined by assessment committees from the General Authority for Investment and Free Zones (“GAFI”), provided that the exemption certificate is issued by GAFI’s chairperson.
3. The expansion must serve one of the activities listed in the fields of investment determined by the Law.
4. Independent accounts and income statements must be made for the expansion.
5. The tax and monetary incentives are only granted to the quantities produced as a result of the expansion.

It is worth noting that the monetary incentives which expansions are now eligible to, as stated in Articles (11) and (13) of the Investment Law, fall under two categories: The first is a reduction in the tax on net profits ranging between 30 and 50% depending on the field of investment and its geographic location and provided it does not exceed 80% of the paid capital. The second is allowing the establishment of special customs points, or the state’s undertaking of some of the costs of connecting utilities, training the workforce, or granting land for free. These incentives were covered in detail in previous issues of the Egypt Legal Update which may be referred to.

Conclusion

From a legal standpoint, the latest decision completes the necessary step in maintaining tax and monetary equality between new projects and expansions in already existing ones and is accordingly a sound decision. However, the bigger problem remains which is that the Investment Law, since the start of a series of amendments in 2015, does not resolve investors’ real problems which are mainly the difficulty of obtaining licenses, the difficulty of obtaining land, the increase in production costs and fees, and the competition by the state with the private sector. Moreover, the tax incentives mentioned in the Law are difficult to calculate and difficult to apply, which opens the doors to GAFI’s discretionary authority which had been curtailed since 2004. For all of these reasons and despite its attempts at legal equality, the new decision shall have little impact on encouraging investment and improving the investment environment without a broader review of investment policies.   [1] Council of Ministers Decision No. 6/2020 on the rules and conditions for according existing investment projects the incentives listed in Articles (11) and (13) of the Investment Law, Official Gazette, No. 7 (bis) (e), 18 February 2020. [2] Law No. 72/2017 on Investment, Official Gazette, Issue No. 21 (bis) (c), 31 May 2017.