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Environmental Tax Incentives: Egypt’s Path to a Greener Economy

Egypt is taking significant steps towards nurturing a green economy and championing environmental sustainability. This commitment is evident through a comprehensive suite of tax incentives aimed at encouraging investments in green hydrogen projects. These incentives through law No (2) for 2024 as a testament to Egypt’s dedication to green energy and sustainable development.

The Green Hydrogen Revolution

Green hydrogen, often touted as the energy source of the future, is produced using electrolysis, a process that harnesses renewable energy sources like wind or solar power to split water into hydrogen and oxygen. This clean and versatile energy carrier has the potential to revolutionize various industries while substantially reducing carbon emissions. Egypt recognizes the transformative potential of green hydrogen and is taking bold strides to become a global leader in this burgeoning sector.

Leading the Way with Tax Incentives

At the core of Egypt’s green hydrogen transformation are generous tax incentives aimed at attracting both domestic and international investors. These incentives, unveiled during the Istanbul conference, reflect Egypt’s steadfast commitment to sustainable development and green energy.

Tax Exemptions

The Egyptian government has introduced substantial tax exemptions, ranging from 33 percent to 55 percent, applicable to income generated from green hydrogen projects initiated within the next five years. These exemptions aim to create a favorable financial environment for investors, fueling rapid growth in the green hydrogen sector.

Value-Added Tax (VAT) Exemption

 A standout feature of Egypt’s incentive program is the exemption from value-added taxes for both production and the essential materials required for green hydrogen projects. This strategic move aligns perfectly with the government’s vision of reducing financial barriers and enhancing the economic viability of green endeavors. By eliminating tax burdens, Egypt seeks to position itself as a magnet for green hydrogen investments.

Commitment to Sustainability: Egypt has pledged to direct approximately 50 percent of its public investments towards sustainable and renewable projects. This commitment underscores the nation’s dedication to environmental stewardship and its resolve to align financial mechanisms with sustainable practices.

Global Green Initiatives

Egypt’s green aspirations extend beyond its borders, with active involvement in global green initiatives. Notably, the “Nove” program focuses on financing for food security, clean energy transition, and water sector development, reflecting Egypt’s dedication to sustainable development.

Furthermore, Egypt has ventured into international financial markets, issuing “panda” bonds in the Chinese market and “samurai” bonds in the Japanese market. These efforts have collectively raised substantial funds designated for eco-friendly investments. The nation has also secured approximately $1.5 billion in financing from international institutions, bolstering its commitment to climate change objectives in the face of global economic challenges.

The Urgent Need for Climate Financing

Despite global uncertainties, there has been a significant decline in Foreign Direct Investment (FDI) in Africa, amounting to a 66% decrease in 2022. This decline is attributed to uncertainties in the global economic landscape. Africa requires annual investments exceeding $277 billion to achieve its 2030 climate objectives, while current investments stand at only $30 billion. This underscores the urgent need for increased climate financing and highlights the economic implications of the green transformation.

Conclusion

In conclusion, Egypt’s comprehensive set of tax incentives tailored for green hydrogen projects represents a significant stride towards a sustainable and environmentally conscious future. These incentives not only underscore Egypt’s commitment to green energy but also demonstrate its proactive approach in aligning financial instruments with sustainable practices.

By alleviating tax burdens and actively seeking international collaborations and financing, Egypt is positioning itself as a prominent leader in the global shift toward green energy. The nation serves as a model for other countries committed to environmental sustainability, illuminating a path towards a cleaner and more sustainable energy future. Egypt’s journey, from its ancient wonders to its modern-day green revolution, is a testament to the power of vision, commitment, and innovation in shaping a greener and more sustainable tomorrow.

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Written By

Sohila Mahmoud - Transfer Pricing Lead

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