Free zones system in egypt

“Free Zone regime” is considered one of the special investment patterns; where you can establish set up and run your own business and project under the umbrella of this regime by the provisions of the New Investment Law No. 72 of 2017 and its executive regulation.

A free zone is a part of the state land that exists within its political boundaries and is subject to its administrative authority. The treatment aspects that are related to goods movement, either in and out, about customs, import, monetary system, and other aspects of dealing differs from the procedures applied inside the country in regards to similar transactions.

Due to the importance of setting up projects in the Free Zones, the government was in a need to change the management system of Free Zones; accordingly, Investment Minister/ Sahar Nasr has issued a ministerial decree No. 39/2019 regulating the management system in the Free Zones; to facilitate the investment climate for the investors. She did cancel the old regulation No. 2365 of 2004 as a further step towards fixing the investment climate and creating a more proper environment suitable for national and foreign investment.

Below, we shall discuss the various patterns of Free Zones and the License Renewal Procedures, as follows:

First: Patterns and structures of free zones:

1- Public Free Zone:

It is a piece of land surrounded by fences and is specified for establishing industrial, service, and storage investment projects into which the areas are allocated for projects for an annual usufructuary right/m2, according to the benefits and stipulations specified in law 72 of 2017.

The 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, set up, and run the investment projects. In addition to an integrated and independent customs unit in each zone for serving the projects there, a unit for ports security police plus a security unit at each free zone for security it 24 hours a day.

2- Private free zone:

It is a piece of land that is located out of the boundaries of the public free zone, which is specified for one investment project because of the lack of areas in the public free zone or because this location has a positive influence on the economies of running this project such as being near to raw materials, one of the export ports, or a certain highway for considerations of material transportation or product exportation.

The investor usually chooses the location of his project meant to be a private free zone either by transferring property or hiring for his favor, moreover, he undertakes to supply the utilities to this site and provide the representatives of customs, ports security, and the authority to clear the procedures of goods’ entrance and discharge.

It shall be noted that establishing a company by the private free zone regime is stopped by law no.17 of 2015.

Second: The Management System of Free Zones as per the New issued Regulation No. 39 of 2019

The new regulation consists of 60 articles in 5 chapters; including the general provisions, licensing procedures for setting up projects in Free Zones, the executive procedures for importing and exporting, the financial and administrative procedures, liquidation procedures for the projects; companies, and the administrative vacating.

The regulation stated that exercising the activities of the free zones’ regime shall be by the fields specified by the GAFI in the light of the latter needs, after studying the application of setting up the project and after having the decision of the permanent technical committee of the Free Zones’ Affairs with the approval of the competent free zone board of directors.

The regulation includes making up a technical committee by a decree to be issued by the executive chef of GAFI and his president. Such a committee shall be responsible for studying the applications of setting up the project, suggesting solutions for solving the problems facing the projects in free zones, and facilitating the processes before the projects to encourage and attract investments. Also, each administration shall announce the available locations and areas for investment to be published on its electronic site (website).
The regulation stated that there will be a board of directors for every free zone, consisting of three investment members at most. so that the number of investors shall not be less than a third of the board members. Accordingly, the autonomy principle shall be achieved under wise control from GAFI.

The Regulation permitted the principle of transferring the current projects working by the internal investment regime to a project working under the Free Zones regime as per the conditions and provisions submitted by the GAFI board of directors.

Third: The Regulations, conditions, and procedures of renewing the license for exercising projects under the Free Zone regime

The GAFI’s executive chief issued a decree in 3 articles No. 360/ 2019; the first article discusses the principles on which the renewal of a license shall be granted by evaluating some items and determining certain relative weights for each item.

Below, we shall discuss these items, the mechanism of executing the relative weights, and the renewal terms, as follows:

(1)- Evaluating the Items. They are eight (8) items discussed in detail and are related to the extent of exercising the activity regularly and strictly, the extent of abided by the exporting rates, the extent of abided by the financial & Regulatory matters (it includes submitting the financial statements, descriptions, analytical data, letter of guarantee, submitting the insurance documentations and the annual inventory documentation), size of the insured employment, fulfillment of the civil protection’ conditions, fulfillment of the environmental conditions, completion of constructions and proving of not committing any other violations. A full evaluation of the project as a whole shall be included in the report to be submitted before the permanent committee for GAFI’s affairs; to facilitate the evaluation process and know the strictness of the project;

(2)- Relative Weights’ Execution Mechanism for each Item.

a- The First Item: Exercising the activity in a regular and strict way

The decree has divided the exercising degrees into FOUR categories starting from GOOD with (100%), MEDIUM (50%), and WEAK (25%) to be ended with totally ceasing to exercise the activity (ZERO%).

b- The Second Item: The extent of being abided by the exporting rates

The actual exporting rates to and out of Egypt shall be calculated. Here, we have to differentiate between the two cases, as follows:

(I)- Abiding by the exportation rates stated in the License. In such a case, a full relative weight shall be given to the project (i.e. 50%).

(II)- Decreasing of the Exporting rate to the one stated in the License. The relative weight shall be calculated by adding the actual rates with the stated rate in the License to be multiplied by the determined relative weight.

c- The Third Item: The extent of being abided by the financial matters (Paying due monies)

The decree does not forget to determine the situation of the due monies, the subject matter of the dispute, which agreed on its way of settlement; as it is stated in the decree that the project will be granted the full rate of the relative weight of the item with the necessity to mention the situation of these due monies in the case report.

(3)- Renewal Terms

The decree has divided the renewal terms that shall be granted to the licenses of exercising the project by putting certain rates from the total number of items (as abovementioned) in case it is fulfilled, a license shall be renewed.

We can discuss the rates as follows:

(a)- 85% and more: renewal shall be for the same term as the original term stated in the license;

(b)- 70% – less than 85%: renewal shall be for five years for the industrial activity and three years for the storage and service activity;

(c)- 50%-less than 70%: renewal shall be made for three years at maximum for the industrial activity and two years for the storage and service activities;

(d)- Less than 50%: renewal shall be made for one year at maximum.

(e)-In case one of the below situations happens, the project shall be granted a license for ONE year or in case fulfilling the required conditions whatsoever is shorter:

* Ceasing of exercising the activities within the last year;

*Unfulfilling with the Civil protection conditions; and

*Incompletion of the Construction

Finally, in article(3), the decree stated an exception for not applying the abovementioned evaluation; as it gives the right for the GAFI’s board of directors and the chief executive to exclude some cases from the application of the abovementioned criteria after submitting reasonable reasons and get the approval f the permanent technical committee.

Top of Form