With the launching of the new Suez Canal project, Egypt’s government is planning to convert the surrounding area into an economic zone, hoping to attract investments to boost economy.
Towards achieving that objective, the Suez Canal project will be considered an Economic Zone of a Special Nature (SEZONE) and an organising law is expected to be issued in line with the new Suez Canal opening, according to Investment Minister Ashraf Salman.
The government has agreed on proposing a draft law of amendments on the law for Economic Zones of a Special Nature 83/2003. The law will be a legislative framework for investing in the Suez Canal, converting the area into an economic authority, and holding capabilities equivalent to ministries, governorates, and authorities.
The Suez Canal area will be converted into an economic authority and will work as a single-window in completing all the investors’ procedures, separate from all ruling legislations of economic activity in Egypt.
The most important amendment is allowing the economic authority of the Suez Canal area to launch a major development company for the area, and own it completely or through cooperation with the private sector, or to leave it completely to the private sector to implement infrastructure projects, according to legal advisor Hani Sarie El-Din.
The project, which targets public and private investments, aims to lure foreign investment, develop industries and export to gain foreign currency “as well as to commit itself to the development of new and high technology industries”, according to the General Authority for Free Zones and Investment (GAFI).
“It is an experimental Zone for opening up and carrying out reform, as well as establishing and improving the structure of the market economy in Egypt,” GAFI said on its official website.
The ultimate goal of the SEZONE is offering an attractive environment for medium and light industries and logistics services, revitalising economic activity in the region and creating job opportunities.
The SEZONE is located in the Suez Governorate in the Ain Sokhna area, and adjacent to the Sokhna Port near the southern entrance to the Suez Canal on approximately 20.4 sqkm as a first phase.
Among the listed aims are to develop the north-west Gulf of Suez Economic Zone according to the highest International standards, increase Egypt’s share in the international trade and increase and diversity exports.
Advantages of investing in the Suez Canal Axis
GAFI is offering incentives and guarantees in comparison to other economic zones such as 10% unified income tax in the SEZONE, compared to 20% outside of SEZONE, “applicable on the profit of the capital companies, income of natural persons, on revenues derived from land and non-residential buildings”, GAFI stated.
In the zone, investors will be subject to 5% income tax, versus 10% – 20% outside the SEZONE. The authority, to be established under the law, will have a supreme committee that supervises the taxation system in SEZONE.
Offering the “lowest” cost production centre in the Middle East-North Africa in many sectors, the authority has a special customs service under the supervision of a supreme customs committee.
Investors can access skilled Egyptian labour in a number of manufacturing sectors at “competitive” costs. Enterprises can also access the domestic market, and tariffs on sales to domestic market will be assessed on the value of imported inputs only.
“Except for those submissions laying within the jurisdiction of the summary courts and requests to revoke administrative decisions accompanied by submissions to suspend their enforcement, the dispute shall only be referred to court after having been submitted to the Dispute Settlement Center and the panel has rendered its decision, or after 60 days from the date a motion was filed to appeal the decision and the panel did not decide on the appeal,” GAFI stated.
According to the investment authority, sections targeted to enter the SEZONE are automotive assembly and components, chemicals and petrochemicals, construction and building materials, textile and readymade garments, agribusiness and food processing, home appliances and electronics, logistics and warehousing, and pharmaceuticals.
Law governing economic zones of a special nature (83/2002)
Under the law, the president may set up, by virtue of a presidential decree, one or more zones outside the suburban boundaries of the existing cities and villages for purposes of establishing agricultural, industrial and service projects.
Through the decree, the president shall establish an authority for the zone, which will have a public juristic personality and is subject to the authority of the Prime Minister.
Ownership of state lands and buildings within the zone shall be transferred to the authority, as well as the rights and liabilities resulting from the contracts and dispositions relating to such lands and buildings.
The authority’s capital shall consist of the funds and assets transferred from the state, and the resources of the authority shall be derived from usufruct and lease payments of lands in the zone, dividends from companies in which the authority is a shareholder, income from the activities of the authority, and licence and service fees.
Resources also include endowments, grants, loans and credit facilities given to the authority upon the permission of the Prime Minister, returns on the authority’s capital investments, fines and compensations awarded to the authority and any other resources determined by a resolution of the board of directors of the authority.
As set by the law, the authority shall have an independent budget and one or more accounts maintained with banks registered with the Central Bank of Egypt (CBE). The net excess revenue from current operations shall be carried over from one fiscal year to another after the payment of taxes and a percentage of such net excess revenue, after payment of due taxes to the state treasury, according to an agreement with the Minister of Finance.
The funds of the authority shall be deemed as property of the state, and no other entity shall be allowed to dispose of or expand from such property to achieve its purpose, except that which may be allocated to public use.
The authority shall have a chairman whose appointment and remuneration shall be determined by a presidential decree, for a period of three years and any additional period(s). The chairman shall manage its affairs, implement resolutions of its board of directors and represent the authority before the courts and third parties.
The board of directors shall consist of chairman of the authority as head of the board of directors and 16 members, where 10 of them shall represent the Ministries of Foreign Trade, Agriculture, Finance, Industry, Housing, Transportation, Civil Aviation, Electricity, Environment and the governorate in which the head office of the authority is located. The board shall also represent two financial experts, a legal expert and three members representing the development companies and investors.
Role of the authority’s board of directors
- Set requirements, standards and rules concerning urban planning, construction and insurance
- Set conditions and standards required to issue licences for establishing agricultural, industrial and service projects
- Set conditions and standards required to grant environmental authorisations
- Set seaport and airport management systems
- Approve rules regulating labour and social insurance systems
- Approve systems and plans required for training in different fields
- Set procedures related to import and export from and to the zone
- Issue licences, establish projects, companies and activities in the zone
- Issue decrees for dividing lands and licenses for demolition and construction
- Issue environmental and professional health and safety licences
- Issue licences for the construction and management of public utilities and infrastructure, including roads, water utilities, domestic and industrial sewage, electric power networks and telecommunication networks
- Establish companies and issue approval for establishing companies
- Issue licences for establishing schools, institutes, nurseries, hospitals, clubs, scientific research entities, medical and cultural centres
- Issue international regulations and resolutions concerning the financial, administrative and technical affairs of the authority
- Solely or jointly establish the “main development company”
Special system of the zone
The authority shall determine the disclosure system which the companies, establishments and branches shall comply with:
- Allocate an area within the zone for the departments which provide services to companies, establishments and projects existing in the zone
- Efficient inspection procedure (itemisation, quantification and specification)
- Clear declaration of pricing bases according to international trade conventions applicable in Egypt
- Simplification of customs release procedures
- Issue rules for determining the percentage of imported components in products directed to the local market
Privileges, exemptions and guarantees
The income tax rates applicable in the zone shall be as follows:
- 10% tax on excess revenues of current operations of the authority
- 10% tax on profits of capital companies
- 10% unified tax on the income of natural persons
- 10% tax on revenues from land and non-residential buildings
- A unified tax rate of 5% shall apply to wages, salaries, bonuses, incentives and lifetime incomes
- Profits resulting from the merger, division or change in the legal form of companies shall be exempt from taxes and duties
- The zone shall not be subject to laws related to sales tax, fiscal stamps and fees to increase state resources
- As long as they are required to perform a licenced activity, equipment and tools imported by the authority shall be exempted from customs, sales tax and any other duties
- Companies, establishments and branches working in the zone shall not be nationalised and their funds shall not be seized, confiscated, frozen or put into custody
- Companies in the zone shall exclusively set the prices for their products and services
Dealing with investment disputes in the zone
There will be a centre in the zone to settle disputes if the parties agree to refer the matter thereto, or if the residence, work premises or all parties to the dispute located in the zone. The centre is responsible to settle the following disputes:
- Tax disputes
- Customs disputes
- Individual and collective disputes
- Social insurance disputes
- Disputes relating to the execution of contracts
- Disputes resulting from tortuous action in the zone
- Any dispute to which the authority is a party
The centre shall be headed by an acting or former counsel at the rank of chief judge of a Court of Appeals. He shall take all necessary measures and arrangements to facilitate reconciliation in fulfilling its duties. Once reconciliation is reached, such settlement is acceptable and enforceable.