New Investment Law | What role could the Egyptian Investment Law no.72 of 2017 play to improve the investment environment in Egypt?

Presented By: Mohamed Mahmoud Safwat 

-Introduction:

In 1997 the Egyptian investment law was issued under the title of  Egypt’s Investment Law-No.8 of 1997 which stated in its first article that “the provisions of the attached law shall govern investment guarantees and incentives” until the law was amended in March 2015 in the law decree no. 17 of 2015 This amendment added a new chapter [1]to the investment law under the title “Investment Disputes Settlement” creating an alternative settlement mechanism in investment disputes out-side of courts which was one of the foreign investors biggest concerns.

Finally, in 2017, the new investment law no.72 was issued to develop the whole investment sector in Egypt and due to the current economic challenges that Egypt face[2], this law actually is considered by many as a brave step in order to guarantee a better economic future for Egypt and to improve the conditions of foreign investment in Egypt as it introduces new guarantees and incentives to insure better and more suitable investment conditions.

So, the main purpose of this law is to create an encouraging and attractive environment for the investors[3] as it contains a lot of legislative and organizational amendments and corrections like those which are connected to the companies and capital market laws also some amendments connected to the capital lease and factoring laws, according to that the most important key now is the mechanisms of application of this law to see it’s positive reflections on the Egyptian economy.

This research paper is going to focus on the guarantees and incentives of the new law no.72 and how it is going to positively impact the whole investment environment as well as discussing, the new features of the law.

[1]Amendments to Egypt’ s law no.8 of 1997, March 13,2015, https://bit.ly/2B3UZSS

[2] Ahmed Atef, قانون الاستثمار الجديد تسهيلات, ضمانات ,حوافل صلاح والتطوير, page 1

[3] Egypt’s cabinet passes regulations for new investment law, August 17,2017, https://reut.rs/2OrmK9W

–Section one: The key guarantees and incentives of the new investment law

-Sub-section one: The guarantees

As aforementioned, the new investment law offers a number of guarantees that will improve the business environment for foreign investors, such as:

• Granting a residence to foreign investors throughout the term of their investment projects[1] in Egypt which is not entirely new since GAFI had set in place guidelines on awarding resident permits to some categories of investors however these rules were never made public and were subject to change of direction[2] (3^rd article).

So, it is an improvement to see the official enactment of this guarantee in the law as the residency permits for foreign investors were usually delayed due to security clearances.

• Both the national and the foreigner investors will enjoy an equal treatment More-over the Prime Minister have the right to provide a preferential treatment to the investor which may seem a bit controversial but it is a great step and try to gain the foreign investor’s trust taking into consideration the Egyptian financial conditions which was clear in the articles of the new law (3^rd Article).

• Investors have the right to appoint foreign employees with a percentage of 10% of the total employees of the project This percentage can be increased to 20% in case of the inability to hire highly qualified national labor (8^th Article).

• The foreign investor is entitled to own, manage, use, gain the profits and transfer it abroad, liquidate the venture and transfer the result of such liquidation abroad (6^th Article)

–Sub-section two: The incentives of the Investment Law

There are three kinds of incentives according to the law and can be categorized to general incentives, special incentives and additional incentives.

1-General incentives

Exemption from stamp duty and the notarization fee imposed on articles of incorporation, facilities and loan agreements

[1] Mohamed Hashish, what you should know about the new investment law of 2017 in Egypt? 2018, https://bit.ly/2B43BJn

[2]  Sara Abdelghafar, What’s new in Egypt’s New Investment Law,  June 6, 2017, https://bit.ly/2MdrHWr

Also, there is another incentive in the form of the application of a custom duty which has a flat rate of only 2%[1] of the value of any equipment machinery and devices that are necessary for establishment of investment projects or continuing any infrastructure projects (Article 10).

Investment projects of industrial nature have the right to import molds and matrices for the temporary usage in manufacturing their projects without being charged with any custom duties.

2-Special incentives

The new investment projects are provided with some kind of incentives[2] as a deduction from the taxable net profits (Article 11), which are

• 50% of the investment costs for sector (A) projects that will be established in the regions of the highest need of development identified by the investment map in addition to the data and statistics issued by the state’s Central Agency for Public Mobilization and Statistics (CAPMAS),

• 30% deduction of the investment costs for sector (B) for the rest of the states.

This is available for:(Article 11)

1. Projects of high employment rate according to the conditions stipulated in the executive regulations of this law.
2. Moderate and small-sized enterprises.
3. Ventures depending on or producing new or renewable energy.
4. National and strategic projects as specified by the decree of the supreme council[3].
5. Touristic projects as specified by the decree of the supreme council.
6. Projects of production and transmission of electricity specified by the prime minister’s decree.
7. Projects exporting their products abroad.
8. Car manufacture and it’s supplementary processes.
9. Industries of wood, furniture, printing, packaging and chemical industries.
10. Industry of antibiotics, oncology drugs and cosmetics.
11. Food, agricultural yields and recycling agricultural residues projects.
12. Engineering, metallic, textile and leather industries.

All the tax incentives mentioned above shall not exceed 80% of the paid capital of the company, also noting that their application is only limited to 7 years

[1] Ey, Egypt enacts new investment law to promote foreign investments, page no.2, 27 July 2017, https://go.ey.com/2B4p4l9

[2] Note on the new Egyptian investment law, 30 Jun 2017, https://bit.ly/2ntGkXn

[3] EGYPT’S NEW INVESTMENT LAW 2017, 2018, https://bit.ly/2OsQJhK

3-Additional incentives could be found in Article 13, namely:

• Allowing the investors to establish private custom ports for their own imports and exports.
• After the commencement of the projects, the state refunds the investor with all or part of the paid expenses.
• The state may partially finance the costs of the employee’s technical training.
• Refunding half-the value[1] of the land designated to the industrial projects, in case of commencement of the production within 2 years from the date of handing over such land.
• Allocating free lands for strategic industries.

– Section Two: The new features of the investment law:  [2]

– Unified approval

The establishment operational expenses for projects that serve the national interest, either as public or private partnerships or related to public utilities, infrastructure. New or renewable energy will be covered by the state

–Investor services

    It’s the first time that the investment law recognizes the process of “the one window” in the Egyptian business and investment community which enables the Investors to issue all the necessary licenses from GAFI without having to deal with other government bodies.

–Investment zones[3]

    According to the law.   the prime minister may choose certain geographic areas for specific developments including logistics, agriculture and industry.

  Areas chosen for communications and information technology, equipment for these enterprises and entities will not be subject to taxes or custom duties.

[1] Alex bank, Egypt’s new investment law, page no.3, July 2017, https://bit.ly/2w1m0k4

[2] American chamber of commerce Egypt, Egypt’s New Investment Law: Opening Egypt for Business, 2018, https://bit.ly/2vX6xBA

[3]LEENA ELDEEB, EGYPT’S NEW INVESTMENT LAW: WHAT TO EXPECT, 05/04/2018, https://bit.ly/2KRXIyA

–Investment map

– The law directs GAFI to prepare a map to identify special investment zones, needed investment projects and government owned land available to investors.

– The settlement of disputes

      –  The law also establishes that independent arbitration and mediation center will have the authority to pursue the settlement of investment disputes that arise between investors and the state authorities.

– A committee of ministers[1] will be established to review complaints and disputes among investors and the state.

– Committees within GAFI will examine complaints against resolutions issued in accordance with this law.

-Section three: the ISC as an aiding tool to the new investment law

-The Investors Service Center in GAFI

This center will be established in order to offer [2]services to investors to expedite the bureaucratic procedures The ISC was authorized to operate as a one-stop-shop from so that investors can obtain all licenses and approvals required to set up and operate a project.

As bureaucracy is one of the biggest challenges facing businesses in Egypt, according to the world bank’s annual ease-of-doing businesses index, which ranked Egypt 112th[3] among 150 countries. Investors apply for permits from some 78 governmental agencies to start a company her in Egypt, this process may take up to five years so the idea of a one-stop-shop was urgently needed.

Adopting GAFI as a one-stop shop for new businesses might potentially reduce corruption, as an investor you are dealing with a fewer agencies, hence the opportunities to give bribes are fewer and more easily traced as since the revolution there have been more than 40 court cases involving corruption in deals between the government and investors.

[1] EY, Egypt enacts new investment law to promote foreign investments, 2018, https://go.ey.com/2nz2APU

[2] Egypt today staff, Investors Service Center launched, 15, 2017, https://bit.ly/2P0HwOC

[3] Tamer Hafez, American chamber of commerce Egypt, Egypt Mulls Pros and Cons of Investment Law, 2018, https://bit.ly/2EoJsPI

But converting GAFI into a regulatory body has raised fears[1] that having more than one regulator might create conflict with the other agencies, according to the new law GAFI still has to consult a lot of ministers with bureaucracies.

Here are some of the services that are presented by the ISC[2]

• Establishing companies ratifying minutes of its board and shareholder’s meetings, capital increase or reduction, liquidation and all other company-related matter.
• The center is empowered to issue all kinds of licenses required to set up and operate a project

• Company liquidation

All kinds of companies like stock companies, sole proprietorship companies as well as partnership companies and the foreign companies can be officially liquidated within a period of two days after notifying the relevant department at the ISC.

• Amendments to legal status

All Companies which are established as a sole partnership, a partnership or a joint stock company and in accordance to the Companies Law. the Investment Law or the Free Zone Law have the right to upgrade to a new company type, upgrading to a new incorporation law and changing from a free zone to an inland company.

• Amendments to legal agreements

Partnership and joint stock companies can make changes to their shareholder agreements, and sole proprietorship companies can make amendments to their data existent on the commercial registry by applying at the ISC

• Company establishments

A company can be established under Egypt’s companies law or investment law on the same day of applying at the investor service center it also can be established through the process of online company establishment.

• Import and export services

And this service will effectively help the investors not to worry about the services which are connected to the import and export as the custom fee which will be applied in the rate of 2% on the imported equipment more over the process of certifying import and export invoices and the issuance of the import and export certificates plus the certificate of port entry all of this will be done by ISC.

[1] Tamer Hafez, American chamber of commerce Egypt, Egypt Mulls Pros and Cons of Investment Law, 2018, https://bit.ly/2EoJsPI

[2] Ministry of investment and international cooperation, Investors service center, August 2017, https://bit.ly/2MjcfIe

• Mergers and demergers

As when the mergers and demergers are approved firstly by the Egyptian Financial Supervisory Authority (EFSA), the investors in this case may apply for required amended documents of merger and demerger at the ISC the law also states that these documents are delivered only within five working days.

• Issuance of work permits

Work permits are issued by the ISC for foreign employees and managers who work in foreign branches or representative offices of foreign companies and to employees who work for Egyptian companies established under the Companies Law or the Investment Law These permits are issued or renewed after 3 days of submitting the required documents.

CONCLUSION:

Taking into consideration the significance of Egypt’s role[1] both economically and politically, the investment law was issued in a critical time to draw the basic lines of a new economic policies. However, the investment officials and entities in Egypt have to be aware that the law on its own will not be that effective without the proper implementation of its guarantees and incentives [2].

So, the new investment law with all its facilities, guarantees and incentives was a courageous step by the Egyptian government towards the development of the Egyptian investment system and to attract both the foreign and the national investor by creating a healthier investment environment but it remains to be seen how the investment officials and entities will positively enact the law.

The Egyptian government should focus on promoting the law using all means to showcase that the Egyptian market is welcoming of foreign investment and to ensure that the new, healthier investment environment is inclusive to all kinds of businesses in accordance with Egyptian public figures and entrepreneurs.

[1] Chatham house, Egypt’s Regional Role, page no.2, September 2009, https://bit.ly/2KM3FNt

[2] Amer Adel, فلسفة قانون الاستثمار الجديد في مصر, August 21,2017, https://bit.ly/2KPaUEe