Free Zones System in Egypt

Egypt/July 2015

Free Zones are one of the distinguished investment patterns where 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 transaction 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 General Authority for Investment and Free zones (GAFI). According to regulations, Free Zones’ areas are located in Egypt but considered as offshore areas.

The Egyptian government has held 9 free zones distributed all over the republic and supplied with facilities and essential infrastructural services such as electricity, water, sanitation, telecommunication, and natural gas needed to, receive, setup and run the investment projects. It was taken into account when choosing the sites of the public free zones for establishment … to be exist inside or near to large cities where workers and supporting factors are available in order to attract the investment enterprises to them, adding to being near to sea and air ports.

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:

1) No limitations in transferring profits and investing money.

2) The right to import and export without the need of recording in the Register of Importers.

3) All equipment, machinery, and transportation required for the activities thereof are exempt from customs duties and sales tax (with the exception of cars).

4) Sequestration shall not be imposed administratively on the companies and establishments nor shall their property and funds be distained, seized, retained in protective custody, frozen or confiscated.

5) No administrative body shall interfere in pricing the companies and establishments’ products, nor in determining their profits.

Moreover, Free zone projects are not subject to taxes. However, free zones companies are subject to the following Financial Liabilities:

1) Charges against services rendered by GAFI: Free zones companies’ pays charges against services at an annual rate of 0.5% of the project investment costs at a minimum amount of US $ 100 and maximum of US $ 1000 or its equivalent in foreign currency.

2) Financial guarantee to cover the project liabilities: Prior to 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 L/G issued by a bank registered in CBE, the value of L/G shall be determined as follows:

  • For industrial projects: 1% of the project investment costs at a minimum of US $ 5000 and maximum of US $ 50000.
  • For storage projects: 2% of the project investment costs at a minimum of US $ 10000 and maximum of US $ 100000.
  • For other projects: 1% of the project investment costs at a minimum of US $ 10000 and maximum of US $ 100000.

N.B. The financial guarantee shall 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 realized 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 follows:

Alexandria Port Said Nasr City Suez Ismailia Shibin Al Kom Qaft
26,893.40 32,146.88 25,917.69 246,746.65 26,150.22 2,204.20 443,953.52

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 in-land 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, Investor can select one which reflects the nature of his 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
Eurofast Global Egypt