The Cabinet of Ministers has approved in its meeting on 17 May 2023, the long-awaited incentives’ package for green hydrogen and derivatives’ projects established in Egypt, which will shortly be passed into law.
Scope. The law will apply to green hydrogen and derivatives’ projects implemented in Egypt, which will conclude project agreements within 5 years from the entry into force of the law. This includes green hydrogen and derivates’ production facilities, water desalination facilities which will dedicate a percentage of their output to green hydrogen and derivatives’ production, renewable energy generation facilities which dedicate 95% of their production at least to feed green hydrogen and derivatives’ facilities and associated water desalination facilities, as well as projects which exclusive activity is the transportation or storage or distribution of Egypt-produced green hydrogen and derivatives, in addition to the facilities exclusively manufacturing production inputs directly relevant for the green hydrogen and derivatives scope, which are determined by Cabinet decree upon consultation of the Ministries of Electricity and Renewable Energy and Finance. The law will also cover extensions of these projects, which add new assets to the facilities leading to an increase in their production capacity.
Implementation. Each project will be implemented through a project company to be incorporated by the sponsors according to the legal regime which applies to them. The law permits the set up of one or more operational branches for the project company to carry out one or more activities related to the project in accordance with applicable legislation in respect of each such scope. We expect this to resolve the fundamental issue of structuring the projects in a single v. multiple project companies in the current clusters of development of the newly-announced green hydrogen projects.
Duration. The duration of the project agreements governing each project for the production of green hydrogen or derivatives and associated activities must not exceed 50 years. Any future extensions to the projects must be implemented by virtue of additional project agreements, and will be subject to the approval of the Cabinet of Ministers, upon consultation of the Ministry of Electricity and Renewable Energy as well as the authority having jurisdiction over the project land (such as for instance the Suez Canal Economic Zone for the green hydrogen production facilities’ cluster, or the relevant governorates or New Urban Communities Authority in respect of water desalination plants feeding the production facilities).
Incentives. A number of incentives have been announced:
- A cash investment incentive equivalent to 33% up to 55% of the paid income tax, as declared based directly on the activities of the project or its extensions. The incentive itself is not taxable, and the Ministry of Finance will pay it within 45 days at most from the end of tax returns’ submission window, failing which delay interest will apply. The criteria and details of application of the incentives will be issued by Cabinet decree, upon presentation of the Minister in charge and consultation of the Ministry of Finance.
- A value-added tax exemption of all machinery, tools, equipment, raw materials, supplies, and vehicles used in hydrogen and derivatives’ projects (with the exception of passenger cars).
- Zero tax on all exports of the green hydrogen and derivatives’ projects.
- A waiver of the tax applicable on any construction forming part of the green hydrogen or derivatives’ projects, and duties and authentication charges associated with the registration of companies’ articles of association or branches’ registration documents, loan facilities, pledges and mortgages documents, and land registration documents, which will be borne by the Ministry of Finance instead, same as all import duties applicable to imported goods used in the establishment of the green hydrogen and derivatives’ projects.
- Golden license, as provided for under the Investment Law no. 72/2017.
- Authorisation to freely import directly or through agents all required raw materials, supplies, spare parts, and vehicles relevant to the project activities, without need for registration with the Importers’ Register, and the same facilities apply for export activities.
Incentives’ extension. The incentives will apply to projects in addition to their extensions throughout the term of the relevant project agreements, provided that such extensions’ project agreements are executed within a maximum of 7 years from the commercial operation date of the original project.
Conditions. The law will set a number of conditions for the application of these incentives to a green hydrogen or derivatives’ project, including:
- The project reaching commercial operation date within 5 years from the date of concluding the project agreements.
- At least 70% of the project investment costs being financed through foreign investments transferred from outside Egypt.
- At least 20% local content consisting in the use of locally manufactured components, as may be available in Egypt.
- The project contributing to the transfer of know-how and advanced technologies to Egypt, and committing to putting in place training programmes for local labour.
- Corporate social responsibility consisting in the project company implementing a development plan for the local areas it will be operating in.
If you wish to discuss any particular points or our view on the expected legislation, feel free to reach out to the team.