This content is from: Egypt

Egypt: ‘Free zones’ system in Egypt

Mohamed Ezz
'Free zones' are one of the distinguished investment patterns where an investor can establish, set up and start his own project under the umbrella of this system. This system provides to the investor several benefits related to goods movement, either in or out, without dealing with different procedures in relation to customs, import, monetary system and other aspects of the procedures applied in similar transactions where the project is established under the aegis of the free zone system.

In Egypt, the free zone system is regulated by Incentives and Securities of Investment Law No 8 of 1997, its executive regulation and modifications. This system is applied by the General Authority for Investment and Free Zones (GAFI). According to the regulations, while the free zone areas are located in Egypt, they are considered to be offshore areas.

The Egyptian government has established nine free zones distributed all over the republic and supplied with facilities and essential infrastructure services such as electricity, water, sanitation, telecommunication, and natural gas necessary for the establishment and running of investment projects. The free zone locations were chosen taking into account the proximity of sea and air ports, as well as the proximity of large cities (where workers and supporting factors are available, in order to attract the investment enterprises to them).

According to the Egyptian regulations, free zone companies are committed to export more than 50% of their total production. Incentives provided under the Egyptian free zone system can be outlined as follows:

  • No limitations in transferring profits and investing money.
  • The right to import and export without the need to maintain records in the Register of Importers.
  • All equipment, machinery, and transportation required for the activities thereof are exempt from customs duties and sales tax (with the exception of cars).
  • Sequestration will not be imposed administratively on the companies and establishments nor will their property and funds be distained, seized, retained in protective custody, frozen or confiscated.
  • No administrative body will interfere in pricing the companies' and establishments' products, nor in determining their profits.

Moreover, free zone projects are not subject to taxes. However, free zone companies are subject to the following financial liabilities:

1) Charges against services rendered by GAFI: Free zone companies pay charges against services at an annual rate of 0.5% of the project investment costs at a minimum amount of $100 and maximum of $1,000, or its equivalent in foreign currency.

2) Financial guarantee to cover the project liabilities: Before licensing the practice of the activity, the companies should provide GAFI with a financial guarantee to cover its liabilities before GAFI either in cash or by letter of guarantee (L/G) issued by a bank registered in the Central Bank of Egypt (CBE). The value of L/G shall be determined as follows:

  • For industrial projects: 1% of the project investment costs at a minimum of $5,000 and maximum of $50,000.
  • For storage projects: 2% of the project investment costs at a minimum of $10,000 and maximum of $100,000.
  • For other projects: 1% of the project investment costs at a minimum of $10,000 and maximum of $100,000.

It should be noted that the financial guarantee will be abated by 15% in case of cash payment, provided that it does not fall below the prescribed minimum amount.

3) Annual charges:

  • For industrial projects: 1% of the cost value of manufacturing portion introduced there into or the assembly process made to them.
  • For storage projects: 1% of the commodity value upon the entry of the commodity (CIF) on their entry.
  • For service projects: 1% of total realised annual revenues to GAFI as per the accounts approved by a public accountant.

According to GAFI's announcements, investors interested in establishing their operations under the umbrella of the Egyptian Free Zone System may find available spaces for public investment in the free zones as shown in Table 1.

Table 1: Area occupied by each free zone (in m2)
Alexandria26,893.40
Port Said32,146.88
Nasr City25,917.69
Suez246,746.65
Ismailia26,150.22
Shibin Al Kom2,204.20
Qaft443,953.52

In addition to general free zones, GAFI may set up private free zones which, if necessary, may be limited to one project. It may also grant approval for the transformation of an inland project to a private free zone (specific conditions are set out in the Executive Regulations to the Investment Law, including the requirements that the project is already active, and that it exports at least half of its production output).

With a wide range of options available for free zone company incorporation, investors can select one whichever one best reflects the nature of the business. However, it is important to receive legal advice which meets the needs of your business in order to find the best solutions based on your legal and business preferences.

Mohamed Ezz (mohamed.ezz@eurofast.eu)
Eurofast Egypt

Website: www.eurofast.eu

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