Economic Zones in Egypt: Opportunities and Tax Challenges
Economic Zones are among the prominent developmental measures taken by Egypt to enhance investment and stimulate the economy. Generally speaking, these zones combine regulatory and tax incentives with an investment-friendly environment that promotes the development of specific sectors. Let’s take a comprehensive look at the history, importance, and status of Economic Zones in Egypt.
Economic and Investment Necessity
The significance of Economic Zones lies in their ability to provide a stimulating investment environment. They offer substantial tax incentives and administrative facilitations that attract companies and investors. These zones encourage economic diversification and the development of new sectors by focusing on natural resources and promoting research and development.
Companies and investors within Economic Zones have the opportunity to engage in a diverse range of economic activities, including industry, manufacturing, tourism, financial services, and research and development.
History of Economic Zones in Egypt
Egypt began implementing the concept of Economic Zones in the early 21st century to stimulate growth and attract investment. The first of these zones was the Suez Canal Economic Zone, established in 1975. It was followed by other areas such as the Sharm El-Sheikh Economic Zone and the Ain Sokhna Economic Zone. These zones vary in their geographical locations and targeted sectors.
Regulatory Laws and Decisions
The Egyptian government has enacted regulatory measures and specific laws to establish and manage economic zones with special nature. These laws provide the legal framework that defines the procedures, incentives related to investment, taxes, and facilities offered to investors.
Taxation and Legal Changes
Egypt developed a favorable tax system within Economic Zones through Law No. 83 of 2002. However, in 2015, essential tax incentives were replaced with non-tax incentives according to Law No. 27 of 2015. The new law maintained some tax incentives concerning VAT and customs; however, it also replaced the corporate tax incentives introduced in Law No. 83 with non-tax incentives or indirect incentives. A summary of the tax rates and incentives is shown below.
(1) DIRECT INCENTIVES
0% CUSTOM TAX
- 0% Customs on all project’s components imported from abroad under the condition of exporting the final products.
- In the case of exporting to the local market: custom tax will be applied on the imported components only.
- 0% VAT applied whether importing from local or foreign markets to EZONE, on all procurements required for manufacturing, production, operation (raw materials, components, spare parts, etc.)
- 14% VAT is applied on exporting products from EZONE to the local market.
CORPORATE TAX (INCENTIVES FOR 7 YEARS)
- Discount on Corporate Tax (net profit) equivalent to 50% of project investment costs
- Discount shall be attributed maximum to 80% from the paid-up capital.
(2) INDIRECT INCENTIVES
0% COSTUM EXPORT& IMPORT REGULATION TAX
- Special rules governing the import and export from the E ZONE
- Reducing cost & time of regulatory examination of shipments
- Treating the end product of E ZONE industrial establishments as local products
0% NEW CUSTOMS GUIDE 2020
- Creating an integrated industrial community
- Establishing a logistic platform to serving international trade and SCZONE
- Reducing Time of Release of Shipments
0% NEW CUSTOMS GUIDE 2020
- Industrial manufacturers for export purposes at SCZONE will benefit from the program.
- Enhancing the competitiveness at foreign markets
- New website introducing e-services.
- Enhancing communication with investors through digital platforms
INCENTIVES TO LABOR-INTENSIVE PROJECTS USING LOCAL COMPONENT
- Reduced prices or facilitate the payment of the value of the energy.
- Full/Partial reimbursement of utilities cost done by investors on the project’s land.
- Partially/fully pay the insurance share of Egyptian employees & the employers for specified period.
YEAR RESIDENCY PERMIT TO FOREIGN INVESTORS
- Foreign investors have the right to obtain residency for a period of 5 continuous years, renewable for similar periods throughout the duration of the project.
Importance of Review and Tax Incentives
- Current economic conditions necessitate a review of the explicit tax incentives for Economic Zones in Egypt. These incentives are a key tool for attracting investors and stimulating economic growth, and they should be harmonized between legislation and implementation.
Economic Zones in Egypt represent a serious step towards enhancing investment and revitalizing the economy. However, there is an urgent need to reconsider the corporate tax incentives for these zones, making them more attractive to investors while balancing economic benefits and tax revenues, achieving these serious incentives requires alignment between laws and implementation to ensure the desired goals are met and sustainable growth is achieved in the country. Otherwise, investors might find more enticing investment opportunities in nearby locations. It’s not too late to consider taxes as an effective economic tool to attract investment rather than simply a means of collecting money without comprehensive economic thinking. I’m not advocating for absolute tax exemptions.
While they are at the forefront of an investor’s mind; Practically when an investor finds an inviting and nurturing investment environment then a balanced equation can be established, benefiting both parties without stark discrepancies between legislation and practice. Egypt must place itself on the investor’s priority list through well-thought-out tax incentives for these special economic zones. I trust with proper reconsideration of regulations and reasonable attractive corporate tax incentives; these economic zones can create a competitive investment environment that befits Egypt’s rightful place. In fact, these zones could become exemplary economic tools that strike a balance between investor incentives and competitive tax revenues to the government. So, who’s listening?”
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