New investment law given Egyptian preliminary approval

Egypt’s parliament has given preliminary approval to a new investment law. A final vote on the law is due to be held on May 7th.

The new draft, comprising just 92 articles, is a more streamlined version of an earlier draft (114 articles), which was proposed by the cabinet in March. Crucially, instead of creating a one stop shop for investors, the law empowers the Ministry of Investment to establish Investor Services Centre-mimicking successes in Dubai and other emerging markets.

This is arguably the most important element of the law, as it should expedite the process of obtaining a business permit; the centre will be empowered to provide, among other things, all the necessary services for establishing companies and branches, liquidation and land allocation.

With respect to the latter, each ministry will appoint a representative at the centre to authorise land allocation to investors—an amendment that could significantly expedite the process of allocating land to projects.

In an attempt to assuage investors’ worries about private property rights in Egypt, the investment law have been renamed the Investment Guarantees and Incentives Act.

With this in mind, it calls for the establishment of the Egyptian Centre for Arbitration and Mediation, which will have an independent legal personality, and which will settle commercial cases within a specified timeframe.

Meanwhile, the most contentious elements of the law are the re-introduction of special free zones and the expansion of tax incentives.

These include adding a third category, dubbed “Zone C”, dedicated to labour-intensive projects and small- and medium-sized enterprises.

This area will be entitled to tax breaks, and the rate for offsetting tax against investment costs has been increased to 70 percent and 50 percent for Zones A and B respectively, compared with 40 percent and 30 percent in an earlier draft.

The amendments also provide for the establishment of new special economic zones, which would be entitled to additional exemptions, including from value-added tax and customs.

However, this is likely to deprive the government of much-needed tax revenue in order to rein in the wide financial deficit.

Our forecast is already based on the assumption that a new, streamlined investment act would be passed within the first half of 2017 21.

However, we continue to foresee challenges in the implementation of the law, which will face some opposition from interest groups, inside the various ministries, who have typically benefited from bureaucratic measures and corrupt business practices in the past.

Source: The economist