Special investment incentives for green projects in Egypt

The 27th session of the Conference of the Parties (COP 27) to the UN Framework Convention on Climate Change (UNFCCC) will take place in Sharm El-Sheikh, Egypt, between 7 and 18 November 2022. In our new “road to COP27” series of articles, we will explore legal questions relevant for Egypt in relation to climate change, SDGs, new and alternative energy, energy efficiency, and sustainability, and will shed light on developments as well as areas for improvement.

In this first article of the series, we explore the updated investment incentives regime applicable to green projects.

A new Prime Ministerial Decree no. 104/2022, issued on 04 January 2022, has just revisited the investment incentives provided under articles 11 of Egypt’s Investment Law no. 72/2017 and 10 of its Executive Regulations issued by Prime Ministerial Decree no. 2310/2017.

According to article 11 of the Investment Law, investment project established after the entry into force of the law will benefit from a “special investment incentive” by way of deduction from their net taxable income, as follows:

  • 50% deduction from the investment costs for Sector A projects; and
  • 30% deduction from the investment costs for Sector B projects.

In both cases, the investment incentive may not exceed 80% of the paid-up capital until the date of commencement of activities established in accordance with the Income Tax Law no. 91/2005. Also, the deduction period may not exceed 7 years from the date of commencement of activities.

In November 2020, an amendment to the Executive Regulations expanded the geographic scope of Sector A to encompass the Suez Canal Economic Zone (SCZone), the Golden Triangle Economic Zone, and the New Administrative Capital, as well as areas most in need of development determined by Prime Ministerial Decree. Then, earlier this January 2022, the new Prime Ministerial Decree no. 104/2022 set out the sub-sectors for investment activities in Investment Sectors A and B.

Sector A now includes:

  1. Industrial projects, including:
    • Feeding industries for new and renewable energy projects, such as solar panels and their components, and solar power plants’ components (including inverters and fibre optic cells); green hydrogen projects’ inputs and green fuel derivatives; green hydrogen electrolysers; and wind farms equipment.
    • Automotive and its feeding industries, particularly in connection with natural gas and electric vehicles. But it also includes the following:
    • Wood, furniture, printing, packaging, and chemical industries.
    • Antibiotics’ manufacturing and tumour treatments, as well as cosmetic products.
    • Agri-products and food crops.
    • Engineering, mineral, and extractive industries, including wastewater treatment, seawater desalination using environmentally friendly techniques and new technologies in general, and well as water desalination equipment.
  2. Tourism projects, especially eco-tourism, and green tourism.
  3. Information technology, including data centres.
  4. Petroleum and natural resources, including:
    • Oil services, such as petrochemicals production.
    • Natural gas and liquefied natural gas (LNG).
    • Non-green gases’ production, including the production of non-green hydrogen and its derivatives; the production of biofuel, biomass, and related industries; as well as energy efficiency projects in the oil field.
    • Emissions’ reduction projects, including methane and carbon reduction and capture projects, and carbon use and storage projects.
    • Petrochemicals, including the manufacturing of fertilisers (such as specialised fertilisers, compound fertilisers, industrial urea, and slow-release fertilisers), as well as related industries.
    • Extractive industries, including mining activities, seismic, and mining complexes.
  5. Agricultural, livestock, poultry farming, and fisheries.
  6. Transport activities, including shipping; ports, dry ports, and logistic hubs; railways; metro and electric trains; river transport; freeways, highways, motorways, and tunnels; road transport for goods; chilled transport; and mass transit systems in new urban communities.

Sector B covers all geographic areas outside of those included in Sector A. It includes similar sub-sector investment activities to those found under Sector A, but also additional activities, such as for instance hydrogen cells, and thermal and lithium batteries manufacturing; as well as an expanded scope for wood, furniture, printing, packaging, and chemical industries, and for engineering, and mineral industries, in addition to textile and leather manufacturing. Most activities in Sector B must either be labour intensive; small or medium sized; use new and renewable energies; or export their production outside Egypt.

In order to benefit from these incentives, new projects must be incorporated by 28 October 2023; maintain regular accounts; and not have recycled any existing projects’ assets in their establishment. Expansions of existing projects may also benefit from these incentives, provided that such expansions are implemented by way of increase in capital by addition of assets leading to an increase in the operating capacity of the projects.

The same projects are also eligible for the general investment incentives set out in article 10 of the Investment Law, which are as follows:

  1. Exemption from stamp duties and authentication fees of all articles of association, and credit facilities and associated pledge and mortgage agreements for 5 years from the date of the companies’ commercial registration.
  2. Exemption from stamp duties and authentication fees of land deeds necessary for establishing the relevant investment projects.
  3. Unified customs duties at the rate of 2% for all machinery and equipment imported for the implementation of the investment projects.

Additional investment incentives may, according to article 13 of the Investment Law, also be granted to projects benefiting from the special investment incentives described above, including:

  1. The creation of new special customs ports dedicated to the project’s imports and exports, in coordination with the Ministry of Finance.
  2. The State fully or partially bearing the cost of utilities’ connections (subject to the actual operation of the projects).
  3. The State bearing the cost of technical training of the projects’ employees.
  4. Refund of 50% of the cost of land allocation for industrial projects in case of commencement of operations within 2 years from the land takeover.
  5. Free land allocation for certain strategic activities.
  6. Other non-fiscal incentives to be determined by Prime Ministerial Decree at the recommendation of the minister in charge.

The investment incentives are granted by virtue of a decree of the executive chairperson of the General Authority for Investment and Free Zones (GAFI).

While these incentives are seemingly beneficial for green energy projects, those fiscal incentives among them in particular must be interpreted in context, in view of applicable accounting standards and relevant assets’ life and depreciation, in order to ensure that they would be of true value to investors willing to set up projects in the targeted areas of investment in Egypt.

To discuss the investment incentives in more detail, or opportunities in alternative energy and power-to-x in Egypt, do not hesitate to contact us.