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Tax Exemptions for Marine Units Lea

Tax Exemptions for Marine Units Leasing Companies in Free Zones
The Prime Minister's Decree No. 3359 of 2015[1] was issued to regulate the conditions related to the temporary exit of free zone marine units that are used for re-gasification of liquefied natural gas, in order to provide inland services (the "Decree"). This Decree was limited for free zone entities operating in the leasing of marine units used for regasification. The Decree complies with the amendments of Article (32) of the Investment Guarantees and Incentives Law No. 8 of 1997.[2]
Developments of Article 32 of the Investment Guarantees and Incentives Law
Article 32 of the Investment Law imposed customs upon goods and services from free zone entities’ to areas outside of the free zones, as if such goods or services have been imported from abroad. Therefore, free zone projects which require the performance of some activity inland or within the domestic market was ambiguous. Law No. 13 of 2004[3] amending some provisions of the Investment Law including Article (32) attempted to clear such ambiguity. The amendment exempted free zone projects – which require the performance of temporary services inland before returning to the free zone – from all customs, sales taxes as well as other taxes and fees on material, equipment and machines. However, this exemption is enforceable in accordance to a Prime Ministerial Decree detailing the cases, guarantees, conditions and procedures governing such exemption.
Application of amended Article 32
The first application of the amended Article (32) was presented in the Prime Ministerial Decree No. 1689 of 2005.[4] This decree was general without the specification of a certain activity. It governed the exit and return of material, machinery and equipment from and to free zones. The latest Prime Minister’s Decree No. 3359 of 2015 is more specific in regulating the exit of marine units operating in regasification of liquefied gas, and only in cases where such units are performing contracts with the Egyptian General Petroleum Corporation or Egyptian Natural Gas Holding Company (EGAS). The conditions and producers stipulated in the Prime Ministerial Decree No. 3359 of 2015 – enforceable upon current and future contracts – include the following:
  1. The license to undertake activity is in return for a pledge from the General Authority for Investment. This guarantees that all customs and sales taxes due will be paid in case the inland activity period exceeds that of the contract execution.
  1. Attaining a certificate from General Authority for Investment highlighting the nature of the relevant activity and the reasons why such units need to temporarily exit the free zone in order to execute contracts.
  1. A pledge from the project’s owner not to undertake any inland activity using these units other than the contractual or the licensed activity as performed in free zone.
  1. General Sales Tax on services shall be due upon the operation of such units in third parties’ accounts. The services would be considered as third party operation services stipulated in Table 2 annexed to the General Sales Tax Law No. 11 of 1991.[5]
Conclusion
The Decree is a specific and specialized decree dealing specifically with marine units lease for regasification of liquefied natural gas activities. The main differences between the latest decree and the former Prime Ministerial general decree is the duration of exemption, since under the new decree the exemption extends for the contract’s duration compared to a maximum of six months under the former decree. In addition, the Decree was clear in limiting such exemption to execution of contracts’ concluded with the Egyptian General Petroleum Authority and EGAS.   [1] Prime Minister's Decree No. 3599/2015 on the cases, guarantees and conditions regulating the temporary exit of free zone marine units operating in regasification of liquefied natural gas to provide inland services, Official Gazette, Issue No. 292 (cont.), 26 December 2015. [2] Law No. 8/1997 issuing the Investment Guarantees and Incentives Law, Official Gazette, Issue No. 19 (bis), 11 May 1997. [3] Law No. 13 2004 amending the Investment Guarantees and Incentives Law No. 8/1997 and the Capital Market Law No. 95/1992, Official Gazette, Issue No. 17 (cont.) (d), 22 April 2004. [4] Prime Minister's Decree No. 1689/2005 on the cases, guarantees, conditions and procedures regulating material, machinery and equipment temporary exit to inland and return to free zones, Official Gazette, Issue No. 239 (cont.), 19 October 2005. [5] Law No. 11/1991 issuing the General Sales Tax Law, Official Gazette, Issue No. 18 (cont.) (a), 2 May 1991.
The Prime Minister's Decree No. 3359 of 2015[1] was issued to regulate the conditions related to the temporary exit of free zone marine units that are used for re-gasification of liquefied natural gas, in order to provide inland services (the "Decree"). This Decree was limited for free zone entities operating in the leasing of marine units used for regasification. The Decree complies with the amendments of Article (32) of the Investment Guarantees and Incentives Law No. 8 of 1997.[2]
Developments of Article 32 of the Investment Guarantees and Incentives Law
Article 32 of the Investment Law imposed customs upon goods and services from free zone entities’ to areas outside of the free zones, as if such goods or services have been imported from abroad. Therefore, free zone projects which require the performance of some activity inland or within the domestic market was ambiguous. Law No. 13 of 2004[3] amending some provisions of the Investment Law including Article (32) attempted to clear such ambiguity. The amendment exempted free zone projects – which require the performance of temporary services inland before returning to the free zone – from all customs, sales taxes as well as other taxes and fees on material, equipment and machines. However, this exemption is enforceable in accordance to a Prime Ministerial Decree detailing the cases, guarantees, conditions and procedures governing such exemption.
Application of amended Article 32
The first application of the amended Article (32) was presented in the Prime Ministerial Decree No. 1689 of 2005.[4] This decree was general without the specification of a certain activity. It governed the exit and return of material, machinery and equipment from and to free zones. The latest Prime Minister’s Decree No. 3359 of 2015 is more specific in regulating the exit of marine units operating in regasification of liquefied gas, and only in cases where such units are performing contracts with the Egyptian General Petroleum Corporation or Egyptian Natural Gas Holding Company (EGAS). The conditions and producers stipulated in the Prime Ministerial Decree No. 3359 of 2015 – enforceable upon current and future contracts – include the following:
  1. The license to undertake activity is in return for a pledge from the General Authority for Investment. This guarantees that all customs and sales taxes due will be paid in case the inland activity period exceeds that of the contract execution.
  1. Attaining a certificate from General Authority for Investment highlighting the nature of the relevant activity and the reasons why such units need to temporarily exit the free zone in order to execute contracts.
  1. A pledge from the project’s owner not to undertake any inland activity using these units other than the contractual or the licensed activity as performed in free zone.
  1. General Sales Tax on services shall be due upon the operation of such units in third parties’ accounts. The services would be considered as third party operation services stipulated in Table 2 annexed to the General Sales Tax Law No. 11 of 1991.[5]
Conclusion
The Decree is a specific and specialized decree dealing specifically with marine units lease for regasification of liquefied natural gas activities. The main differences between the latest decree and the former Prime Ministerial general decree is the duration of exemption, since under the new decree the exemption extends for the contract’s duration compared to a maximum of six months under the former decree. In addition, the Decree was clear in limiting such exemption to execution of contracts’ concluded with the Egyptian General Petroleum Authority and EGAS.   [1] Prime Minister's Decree No. 3599/2015 on the cases, guarantees and conditions regulating the temporary exit of free zone marine units operating in regasification of liquefied natural gas to provide inland services, Official Gazette, Issue No. 292 (cont.), 26 December 2015. [2] Law No. 8/1997 issuing the Investment Guarantees and Incentives Law, Official Gazette, Issue No. 19 (bis), 11 May 1997. [3] Law No. 13 2004 amending the Investment Guarantees and Incentives Law No. 8/1997 and the Capital Market Law No. 95/1992, Official Gazette, Issue No. 17 (cont.) (d), 22 April 2004. [4] Prime Minister's Decree No. 1689/2005 on the cases, guarantees, conditions and procedures regulating material, machinery and equipment temporary exit to inland and return to free zones, Official Gazette, Issue No. 239 (cont.), 19 October 2005. [5] Law No. 11/1991 issuing the General Sales Tax Law, Official Gazette, Issue No. 18 (cont.) (a), 2 May 1991.