Industrial Incentives Egypt Law 77/2023

Within the framework of the State’s efforts to promote industrial investment and to provide a legal and legislative environment conducive to investors, the Minister of Trade and Industry issued Resolution No. 77 of 2023 concerning cash investment incentives for industrial projects. This Resolution is issued pursuant to the provisions of the Investment Law and the Industry Law and their respective executive regulations, in order to establish a clear legal framework defining the conditions and forms of cash support granted to industrial projects, and to ensure a balance between safeguarding investors’ rights and stimulating economic growth. The Resolution constitutes a significant legislative step aimed at enhancing the competitiveness of Egyptian industries, encouraging the establishment of new projects, and the expansion of existing projects, thereby achieving sustainable development objectives, increasing employment rates, and boosting national productivity.

Objective of Resolution No. 77 of 2023:

The Resolution aims to achieve several strategic objectives, most notably:

1. Stimulating domestic industrial investment by providing financial incentives that encourage the establishment of new projects or the expansion of existing ones.
2. Raising productivity and efficiency levels across various industrial sectors.
3. Promoting exports and improving the trade balance by supporting projects capable of producing high-quality goods that meet the requirements of both the domestic and foreign markets.
4. Creating new employment opportunities for young people and increasing employment rates within the industrial sector.

Cash Incentives for Industrial Projects:

These are direct financial supports provided by the State to investors in the industrial sector with the aim of encouraging the establishment of new projects or the expansion of existing ones. Such incentives constitute a legislative instrument to compensate part of the investment costs and to stimulate industrial growth in a manner that serves the national economy.

Conditions for Eligibility for Cash Incentives for Industrial Projects:

Eligibility for the incentive is subject to the following conditions:

1. The project shall commence its activity within six years from the date of entry into force of the provisions of Article 11 (bis) of Investment Law No. 72 of 2017.
2. The project shall be established within one of the areas of Sector (A), which include the geographically most in-need areas in accordance with the investment map, remote areas as determined by a decision of the Council of Ministers, new urban communities, industrial zones, investment zones, or technological zones.
3. The project shall rely, in its financing up to the date of commencement of activity, on foreign currency transferred from abroad at a minimum rate of 50% of the funds invested in the investment project.

Provided that the foreign currency transfers from abroad shall include the following:

• Freely convertible foreign currency transferred through one of the banks registered with the Central Bank, and used in the establishment or setting up of the project.
• Freely convertible foreign currency transferred through one of the banks registered with the Central Bank, and used for subscription to the project’s capital in Egypt, in accordance with the rules determined by the Board of Directors of the General Authority for Investment.
• Machinery, equipment, raw materials, commodity inputs, and means of transport imported from abroad for the establishment or setting up of the project, with the invested capital being valued in accordance with Egyptian accounting standards.
• Profits transferable abroad which are utilised in the establishment or setting up of the project.

Categories of Cash Investment Incentives for Industrial Projects:

Resolution No. 77 of 2023 provides that the cash investment incentive shall be calculated as a percentage of the income tax paid by the project, and that such percentage varies according to the proportion of foreign financing of the project.

The incentives shall be granted under one of the following categories:

1. Where the project financing relies on foreign currency transferred from abroad at a rate of 50% or more, but less than 75% of the project’s funds:

The investment incentive shall be 35% of the value of the tax paid together with the income tax return on the income derived from the project’s activity.

2. Where the project financing relies on foreign currency transferred from abroad at a rate of 75% or more, but less than 90% of the project’s funds:

The investment incentive shall be 45% of the value of the tax paid together with the income tax return on the income derived from the project’s activity.

3. Where the project financing relies on foreign currency transferred from abroad at a rate of 90% or more of the project’s funds:

The investment incentive shall be 55% of the value of the tax paid together with the income tax return on the income derived from the project’s activity.

Duration of Entitlement to the Investment Incentive for Industrial Projects:

Entitlement to the incentive may extend for a period of up to seven consecutive years, and not merely for one year, provided that the project continues to carry on the industrial activity, complies with tax and financial legislation, maintains the required levels of foreign financing, and that the industrial activity continues to exceed 50% of turnover.

Cases of Revocation of Entitlement to Cash Investment Incentives for Industrial Projects:

The incentive shall be revoked if it is established that any of the founders or shareholders has contributed to the incorporation or establishment of the project using any tangible assets of a company or establishment existing at the time of the entry into force of Resolution No. 77 of 2023. In such case, the company or establishment shall be obliged to repay the amounts unduly received from the incentive, together with a charge calculated on the basis of the credit and discount rate announced by the Central Bank from the date of disbursement until full repayment.

Requirements for Entitlement to the Cash Investment Incentive for Industrial Projects:

An investor wishing to benefit from the cash investment incentive shall submit an application to the Entitlement Assessment Committee in accordance with the prescribed form, setting out the following particulars:

1. A description of the project and its location.
2. The financing structure of the project, indicating the proportion and form of foreign financing.
3. The date of commencement of production or activity.
4. Details of the industrial product or products in which the project operates.
5. The category of incentive sought.

- The application shall be accompanied by the documents evidencing fulfilment of the conditions for entitlement to the investment incentive. The Committee shall have the right to request any data or clarifications necessary for the examination of the application. The investor shall sign a declaration confirming the accuracy of the submitted data and undertaking to repay any amounts of the incentive unduly received together with compensation.

5. The application shall be examined by the Entitlement Assessment Committee, and the decision on the outcome of the examination shall be submitted to the Chief Executive Officer of the Authority for approval within 45 days from the date of submission of the application. The investor shall be notified within 7 working days from the date of approval. Any decision rejecting entitlement shall be reasoned.
5. In the event of approval of the application, the Chief Executive Officer of the Authority shall issue a certificate of entitlement of the project to the incentive, specifying all essential project details, its bank account number, the category of incentive, and the commencement and expiry dates of the entitlement period.
5. The incentive shall be due as from the tax year preceding the submission of the application for entitlement if such application is submitted within 30 days from the end of the tax year. Applications submitted after the expiry of the said period shall be entitled to the incentive starting from the same tax year in which the application is submitted.
5. Entitlement to the incentive shall be for seven consecutive years. The certificate shall be final and enforceable without the need for approval by any other authority, and all State authorities shall act in accordance therewith and comply with the data contained therein.
5. The Authority shall notify the Ministry of Finance of the certificates it issues within seven days from the date of issuance.

5. Mechanisms for Disbursement of the Annual Cash Incentive for Industrial Projects:

Upon payment of the tax and submission of the tax return, the project shall submit an application for the annual disbursement of the incentive to the competent technical committee. The committee shall review the application to verify the continued fulfilment of the conditions for entitlement.

The executive committee shall approve the application for disbursement of the incentive and notify the Egyptian Tax Authority thereof within 30 days from the date of submission of the application, subject to verification of the following:

1. That the revenues from the industrial activity eligible for the incentive exceed 50% of the total turnover of the project as a whole during the relevant tax year.
2. That separate accounts and income statements have been maintained for the project.
3. That the taxpayer has complied with all tax obligations in accordance with the Unified Tax Procedures Law.

Failure to qualify for the incentive in a given year shall not preclude entitlement thereto in other years where the required conditions are met.

In the event of approval, the Ministry of Finance shall disburse the amount of the incentive within 45 days from the expiry of the deadline for submission of the tax return.

In the event of delay by the Ministry, the investor shall be entitled to a delay charge calculated on the basis of the credit and discount rate announced by the Central Bank on the first of January preceding the date of disbursement of the incentive, reflecting a clear governmental commitment to serious industrial investment.

Is the Investor Permitted to Obtain Preliminary Approval for Entitlement to the Cash Incentive Prior to Implementation of the Project?

Pursuant to Resolution No. 77 of 2023, the law permits the investor to submit to the executive committee, prior to the implementation of the project, an application for preliminary approval confirming that the project satisfies the conditions for entitlement to the incentive. Such approval shall be endorsed by the Chief Executive Officer of the Authority and shall be valid and binding for a period of three years from the date of its approval.

Industries Eligible for the Cash Investment Incentive:

1. Metallurgical Industries:

• Manufacture of flat-rolled iron or non-alloy steel products, cold-rolled, coated, plated or clad.
• Manufacture of uncoated and unprinted electrical tinplate for the production of food packaging containers.

2. Chemical Industries:

• Manufacture of soda ash (sodium carbonate).
• Manufacture of phosphatic fertilisers or fertilisers containing phosphorus.
• Manufacture of dyes and colours for textile industries.
• Manufacture of sheets and films of propylene polymers.
• Manufacture of rubber tyres for passenger vehicles.
• Manufacture of rubber tyres for buses and trucks.

3. Engineering Industries:

• Manufacture of compressors for domestic refrigeration and air-conditioning equipment.
• Manufacture of air or gas compressors and vacuum pumps for applications.
• Manufacture of plastic and rubber moulds and dies.
• Manufacture of industrial valves.
• Manufacture of electric motors.
• Manufacture of solar cells and photosensitive semiconductors.
• Manufacture of fibre optic cables.

4. Medical and Pharmaceutical Industries:

• Manufacture of pharmaceutical raw materials and manufacture of medicines for human use.
• Manufacture of human and veterinary vaccines and sera.
• Manufacture of prepared diagnostic reagents or laboratory reagents.
• Manufacture of medical devices and equipment, manufacture of hearing aids, and manufacture of ultrasound scanning devices.
• Manufacture of magnetic resonance imaging devices and manufacture of Gamma scan imaging devices.
• Manufacture of cardiac pacemakers.
• Manufacture of electrical medical instruments and devices, and manufacture of artificial joints and prosthetic body parts.

5. Textile Industries:

• Manufacture of cotton spun yarns.
• Manufacture of denim fabrics (jeans) and manufacture of polyester spun yarns.
• Manufacture of woven fabrics from synthetic yarns and synthetic fibres.
• Manufacture of non-woven fabrics and manufacture of knitted or crocheted fabrics.
• Production of China clay (kaolin).
• Derivatives following the separation of black sand concentrates (garnet, ilmenite and monazite).

In conclusion, Resolution No. 77 of 2023 constitutes an advanced legislative step towards establishing an integrated framework for cash investment incentives, reflecting the State’s orientation towards supporting the industrial sector as one of the principal pillars of sustainable economic growth. The Resolution has succeeded in establishing a disciplined legal framework that achieves a balance between incentivizing investors and ensuring compliance with regulatory and tax controls, thereby enhancing the transparency of the investment environment and increasing its attractiveness.

In this context, the vital role undertaken by Sadany & Partners Law Firm for investors is underscored, particularly with regard to understanding and applying the provisions of the Resolution and optimizing the benefit from the prescribed incentives. The firm contributes to supporting investors by providing integrated legal solutions, commencing from the project planning stage, through the procedures for obtaining the necessary approvals, and extending to the follow up of entitlement to, and disbursement of, incentives in accordance with the governing legal framework.

Accordingly, the effective implementation of the provisions of this Resolution, supported by specialized legal consultancy, is conducive to enhancing the capacity of industrial projects to grow and expand, thereby achieving economic development objectives and consolidating Egypt’s position as an attractive destination for industrial investment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.