Private FreeZones in Egypt

2019

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Contents

What is a Free Zone? 3

Authorized Activities in Free Zones 3

Advantages, Guarantees, and Exemptions Granted to Projects ... 3

Procedures for Setting Up a Project within Free Zones 6

1- Request for Setting Up a Project within Free Zones* 6

2- Final Approval 7

3- Issuance of a License to Exercise the Activities of a Public Free Zone Project 9

4- Request to Amend the Data of a Free Zone Project 10

5- Application to Exercise a Profession or Craft within a Public Free Zone 11

Financial Dealings of Public Free Zone Projects 12

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Welcome to Free Zones in Egypt

Free zones in Egypt are considered a special investment system governed by the provisions of Investment Law No. 72 of 2017 and its Executive Regulations, which enforcement is overseen by the General Authority for Investment and Free Zones (GAFI).

What is a Free Zone?

A free zone is part of the State’s territory, located within its borders, which falls under the rule of the state administration. Free zones are governed by special provisions on taxation, customs and finance.

Authorized Activities in Free Zones

All types of investment activities are allowed to be exercised inside free zones in accordance with the policy set by GAFI, mainly export-oriented industries, with the exception of the following:

Weapons, ammunition, explosives and any industry relating to national security. ֺ

Wine and alcoholic beverages. ֺ

Fertilizers. ֺ

Manufacturing of iron and steel. ֺ

Petroleum refining. ֺ

Liquefaction, manufacture and transport of natural gas. ֺ

Energy-intensive industries. ֺ

Advantages, Guarantees, and Exemptions Granted to Projects ...

AdvantagesFree transfer of invested capital and profits abroad. ֺ

Freedom to select the field of investment and the legal form of projects. ֺ

Free pricing of products and profit margin. ֺ

There are no minimum or maximum limits for invested capital (for public free zone projects ֺonly).

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No restrictions with regards to the nationality of the capital’s owner, where a foreign investor ֺcan be the sole owner of the capital or can have any share in the investment (excluding pro-jects set up in Sinai).

The ability to operate for others in order to maximize exploitation of the project’s potential (in ֺaccordance with the rules adopted by GAFI in this regard).

Providing foreign investors with residency facilities. ֺ

Granting foreign workers residence permits as requested by the project. ֺ

GuaranteesLegal action may not be initiated against projects operating in free zones until GAFI is first ֺconsulted.

Projects and establishments may not be nationalized or confiscated. ֺ

No sequestration may take place over projects according to administrative decisions, nor may ֺtheir funds be seized, frozen or confiscated by any other means except through judicial pro-ceedings.

ExemptionsAll capital assets and production requirements for carrying out the project activities (excluding ֺpassenger cars) are exempt from custom duties, sales taxes and any other taxes throughout the project period, even if the nature of the activity necessitates its temporary presence out-side the free zone.

The project’s exports and imports are exempt from custom duties and taxes, whether sales ֺtaxes or other taxes or fees applicable within the country.

The project and its profits are not subject to any taxation or customs laws or legislations appli- ֺcable in the country throughout the project period.

Project imports and exports are not be subject to customs procedures or regular importation ֺrules applicable in the country.

Project supplies from the local market are exempt from VAT. ֺ

Goods in transit, with a fixed destination, are exempt from the payment of any fees imposed ֺon goods in transit according to the following conditions:

The project falls under the custom office’s jurisdiction. −

The final destination of the goods is determined in the bill of lading and the invoice. −

Local components of goods produced by free zone projects are exempt from custom duties ֺin case of sale in the local market (inside the country).

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Private Free ZonesA unique establishment/system that represents only one independent project or more than one project exercising similar activities, as required (based on nature of the activities). It is imperative to be located outside the public free zone vicinity, due to the economics of the project, and the nature of its activities, which renders it essential to be located in specific places to benefit from the advantages offered by this site, in terms of proximity to raw material sources, production requirements, export markets or required labor, for integration with nearby projects, or due to proximity to a particular port or road.

The private free zone site may be owned or rented by the investor.

Criteria and Controls for Setting Up a Private Free Zone Projects (according to Investment Law No. 72 of 2017)

There is no suitable site for the project activity within public free zone vicinities, and the ֺlocation of the private free zone is the factor affecting the project economics. New licenses shall not be issued for the establishment of private free zone projects within residential zones or in places licensed as any other customs system, such as free markets and customs warehouses.

The project shall take the form of a joint stock company or a limited liability company. ֺ

The issued capital of the project shall not be less than USD 10 million and the investment ֺcosts shall not be less than USD 20 million or its equivalent in free currencies.

The permanent staff of industrial projects shall not be less than 500 employees. In some ֺstrategic projects of special significance, the nature of which does not require large labor force, they may be exempt from the number of staff requirement.

The project area shall not be less than 20,000 square meters. ֺ

The local component shall not account for less than 30%. ֺ

The export rate shall not be less than 80%, except for in some cases of strategic projects of ֺspecial significance.

Private free zone projects shall comply with the terms of industrial security, civil defense and ֺfirefighting according to the Egyptian code followed in this regard or in accordance with the decrees issued by the Minister overseeing industrial affairs of industrial establishments. Such projects shall undertake to secure their establishments and borders using guard towers, surveillance cameras and security guards from GAFI or the Ports Security Unit, at their own expense.

The project’s final approval shall be withdrawn if the investor does not take serious execution ֺmeasures within six months from the date of notification of the project approval decision,

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including starting the incorporation procedures, submitting the drawings, obtaining the necessary approvals for setting up the project from the competent authorities, submitting the timetable to start exercising the activity. This period may be extended for one or more periods in light of the reasons provided by the stakeholders and evaluated by the Free Zone’s Board of Directors.

Special Conditions on Buildings:Complete spatial and financial separation between the project site and any other activities ֺcarried out by the project.

The fences surrounding the site shall not be less than 3 meters high and shall not be attached ֺto the factory buildings.

The project shall have one gate for the exit and entry of the goods, including a gate for ֺindividuals and another gate to be opened only in emergency cases.

Suitable offices shall be equipped for the representatives of GAFI and the Customs ֺDepartment next to the main site gate.

The loading and unloading of equipment and goods shall take place within the free zone ֺvicinity.

The project shall comply with GAFI’s applicable conditions of industrial security, civil defense ֺand firefighting.

The project shall have a medical clinic. ֺ

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Required Documents

Powers of attorney issued by the founders to their principal and his/ her ID.1-

A statement on the proposed site, along with the approval of the competent body having 2- geographic jurisdiction over the site.

Time schedule to start exercising the activity.3-

Security clearance for foreign partners (if any).4-

Certificate approving the company name (for joint stock companies).5-

Procedures for Setting Up a Private Free Zone

1- Submit an Application to Set Up a Private Free Zone

* Please head to the ISC to establish a company in case a company has not been established yet.

Steps

Applications for the establishment of projects operating according to the private free zones 1- system shall be submitted to GAFI’s competent department (Central Administration of Private Free Zones) in accordance with the forms set for this purpose.

A committee shall be formed to inspect the proposed site to ascertain whether the requirements 2- of the private free zones are met or not.

The initial approval for the establishment of the project shall be issued and shall be submitted to 3- the Council of Ministers to approve the establishment of the private free zone for one or more projects. The project shall be obliged to pay the relevant fees.

The final approval decision to establish the project shall be issued by the board of directors of 4- the concerned public free zone.

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Fees

Application to set up a private free zone

The committee inspects the site and submit its findings to the

technical committee to issue its

recommendations

Submit the application to the attention of GAFI’s CEO and the minister overseeing investment

affairs

Submit the application to the Cabinet to approve the

establishment of a private free zone for one or more projects

Cabinet’s Approval

Submit application to the concerned public free

zone’s board of directors to issue the final approval to set up the private free

zone

1

2

3 4

5

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Service Fees

Application to obtain the initial approval EGP 500

A copy of the concerned free zone’s decision authorizing the establishment of the private free zone.

EGP 200

This fee is collected for the trade union even if for one time only

Service Delivery turnaround

45working

days

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Required Documents

A 1- copy of the approval on the project site issued by the competent body having geographical jurisdiction over the site.

Technical committee’s recommendation, approving the establishment of the project.2-

A copy of the Cabinet’s decree, approving the establishment of a private free zone for one 3- or more projects.

A copy of the decision of the concerned public free zone’s board of directors approving 4- the establishment of a private free zone for one or more projects.

Memorandum on presenting the matter to the concerned public free zone’s board of 5- directors.

A copy of the updated certificate approving the company name (if any).6-

A copy of security clearance for foreign partners (if applicable).7-

Copies of the powers of attorney issued in favor of the founders’ principal and his/her 8- ID.

A sub-file is prepared for the project and submitted to the Incorporation Division at ISC to carry out the incorporation procedures and for issuance by GAFI’s CEO of a decree authorizing the incorporation of the company, and notifying the Central Administration of Private Free Zones of the said decision upon issuance.

2- Establishment of a Private Free Zone Project

Steps

Service Delivery turnaround

as specified

by ISC

Incorporation Unit at ISC

Prepare a file containing project

documents

Issuance of the decision authorizing

incorporation1

2

3Service Fees

Industrial or Service Project

Incorporation fees shall be paid at ISC even if for one time.

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Required Documents

A copy of the commercial register of the company1-

Irrevocable financial guarantee in the name of GAFI according to the nature of the 2- activity.

A letter indicating the name of the company’s legal representative and his/her substitute 3- in case of absence.

The investor shall submit proof that the incorporation decree has been inscribed on the 1- commercial register and a letter of guarantee not exceeding 2% of the investment costs, according to the nature of the activity. The investor shall specify the name of the project’s legal representative and his/her deputy in case of absence.

The proposed site shall be re-examined prior to the issuance of the license to ensure that it 2- satisfies the private free zone requirements (especially the requirements for buildings, fences and gates in case of industrial projects).

Issuance of the decision authorizing the company activities according to the private free zone 3- system.

«In the case of industrial projects, the chairman of the public free zone or his/her authorized representative may issue a license to engage in a temporary activity in accordance with the time schedule provided by the project until the requirements of the private free zone system are met, in accordance with rules and regulations issued by GAFI. This period may be extended in light of the justifications provided by the stakeholders, provided that the submitted timetable shall be followed up. In the event that all requirements of the private free zone system are met, then the license to engage in a permanent activity shall be issued and may be renewed for similar periods unless otherwise decided by GAFI.

3- Application for Issuance of a License for the Private Free Zone to Exercise its Activities

Steps

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Service Delivery turnaround

20working

days

1

2

3Application to exercise the activity in a

private free zone

The decision of the Chairman of the concerned

public free zone approving the

activity

The committee formed to inspect the site

Fees

Service Fees

Industrial or Service Project

Payment of EGP 50 / per sheet (maximum 300 LE per document) in case you wish to obtain an exact copy of the license decision, received on the same day.

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Required Documents

A request from the company’s legal representative or his deputy to amend a clause(s) in 1- the license authorizing exercise of the activity, accompanied by the reasons for requesting amendment, or a request from an accredited auditing firm or a certified legal consultations firm to amend a clause(s) of the license, including reason(s) for amendment.

A copy of the applicant's national ID.2-

Power of Attorney issued to auditing or legal consultations firm.3-

The project or its authorized representative shall apply for approval to amend the license.1-

A memorandum shall be presented to the Permanent Technical Committee for Free Zones 2- Affairs at GAFI to decide on the application and to issue its recommendations.

Renewal and amendment requests shall be presented to the public free zone’s chairman for 3- ratification.

The public free zone’s chairman shall issue the decision approving amendment of the license, 4- upon review by the Central Legal Administration of Free Zones, which shall be notified to the free zone’s board of directors.

A request to amend the activity

license

The request is submitted to the Permanent Technical Committee of

Free Zones Affairs

The request is presented to the chairman of the concerned free

zone

Decision to amend the license/ Notify the

concerned zone

4- Request to Approve Amendment of License to Exercise an Activity in a Private Free Zone

Steps

1

2

3

4

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Service Fees

Industrial or Service Project

Payment of EGP 50 / per sheet (maximum 300 LE per document) in case you wish to obtain an exact copy of the decision to amend the license, to be received on the same day.

Service Delivery turnaround

15working

days

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Financial Dealings of Private Free Zones Projects

Financial GuaranteeThe project shall provide financial guarantee to GAFI– the competent free zone- to cover any ֺliabilities that may be due on the project, not exceeding 2% of the investment costs before issuance of the decision authorizing the activity and according to the following:

Industrial and Assembly Activities1% of the investment costs of the project with a maximum amount of USD 75,000.00 or its equivalent in free currencies.

Storage/ Service Activities

Fees in Consideration of ServicesThe project shall pay to GAFI the following fees in consideration of its services: ֺ

0.005% of the issued capital for industrial and assembly projects. −

0.001% of the issued capital for storage or service projects. −

0.001% of the issued capital for projects licensed for exercising more than one −activity.

up to a maximum of EGP 100,000.00 to be paid in a free convertible currency, calculated based on the calendar year, with the exception of the first year, which shall be calculated according to the percentage of the remaining period from the license date authorizing the activity until the end of the calendar year.

Fees for Guaranteeing the Transport of Goods

In case an investor requests that GAFI guarantees them before the Customs Authority - for the value of taxes and custom duties due on the goods as determined by the Customs Authority, during their transport from the customs circuits to the free zone or vice versa, or in between free zones, GAFI shall issue such guarantee in consideration of 0.001% of their value after the project submits an insurance policy for the full value of the guarantee.Financial Guarantee.

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GAFI’s Fees

Private free zones’ projects shall pay the following fees:

1% of the total revenues for manufacturing and assembly projects when exporting goods ֺbased on the customs clearance.

2% of the total revenues of the project upon entry of goods to the country based on the sales ֺinvoice.

1% of the operating value of the industrial or supplementary operations carried out on the ֺgoods and materials operated in the free zones for third parties.

2% of revenues for storage projects when exporting goods as per the sale invoice. ֺ

2% of revenues in cases of direct procurement ֺ

2% of revenues without deducting any corresponding burdens to gain such revenues for ֺprojects whose main activity do not require the entry or exit of goods. This fee shall be collected on a semi-annual basis based on the revenue statement submitted by the project for the relevant period.

The final settlement of the due fees, according to the nature of the project activity, shall be effected, based on the financial statements and the supplementary clarifications approved by a legal accountant after excluding the previous amounts.

Delay Interests

In the event the project fails to pay the fees and other dues within 90 days from the due date thereof, or the usufruct fees within 15 days from the due date thereof, a delay interest shall be charged based on the USD discount rate set by the Federal Reserve Bank, as determined by the Central Bank of Egypt, in addition to 2% on the due amounts as of the lapse of such period.

Inspection Agent Costs

Projects operating in a public free zones shall pay a fee for GAFI’s representative at the rate of EGP 300 for each inspection in case of providing him with transportation and EGP 450 in case no transportation is provided, while noting that the maximum cost of monthly inspections for each company shall be as follows:

EGP 9000 in case the company provides transportation. ֺ

EGP 13,500 in case the company does not provide transportation. ֺ

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For more details on free zones, please visit the Investment Map’s official website:

www.investinegypt.gov.eg

Contact the General Authority for Investment & Free Zones on:HQ: Exhibitions Area – 3 Salah Salem St. – Nasr City – Cairo - Egypt

P.O. Box: 11562Tel.: +202 24055464Fax: +202 24055429

Free Zones SectorNasr City, behind El-Sefarat Destrict, Cairo, A.R.E

P.O. Box: 8044Tel.: +202 22748468Fax: +202 22748465

Website: www.gafi.gov.egE-mail: gafi-fz@gafinet.org

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