Riad & Riad Law Firm
25 Abdel Moneem Riad St.,
Dokki, Giza, Egypt
Tel: +2 02 33658064
Fax: +2 02 33658065
Email: [email protected]
Web: www.riad-riad.com
Suez Canal Special Economic Zone
Legal Framework
August 2016
1.
Introduction ........................................................................................................................3
2.
SCZone Borders...................................................................................................................3
3.
SCZone Authority ................................................................................................................4
4.
Board of Directors of SCZone Authority .............................................................................5
5.
Licensing .............................................................................................................................6
6.
Customs and Taxation ........................................................................................................7
7.
Establishing a Project inside SCZone ..................................................................................7
8.
Investment Incentives and Guarantees..............................................................................8
WHO WE ARE
Riad & Riad (R&R) is a legal practice that serves
the full spectrum of the business legal needs.
R&R has developed specialized teams in a number
of areas such as corporate law, M&A, labor &
employment, international trade, banking, energy,
infrastructure, project finance, litigation and
dispute resolution.
Our project finance team has a wealth of
experience working in the power and construction
sector.
We
advise
developers,
procuring
authorities, investors, contractors and regulators.
If you have any questions regarding this paper, feel free to contact:
Dr. Fatma Salah
Partner
Heba Elkady
Associate
Tel: +2 02 33658064
Fax: +2 02 33658065
Mobile: +2 011 2000 5551
Email: [email protected]
Tel: +2 02 33658064
Fax: +2 02 33658065
Email: [email protected]
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1. Introduction
1.1 In 9 August 2015, after three days from the inauguration of the New Suez
Canal,1 President Abdel Fattah El-Sisi issued Decree No. 330/2015 declaring
the areas adjacent to the Suez Canal as a special economic zone (the
“SCZone Decree”).2 This zone shall be governed by Law no. 83 of 2002 on
Special Economic Zones3 ("Special Economic Zone Law" or "Law
83/2002") and its Executive Regulations issued by virtue of the Prime
Ministerial Decree no. 1625 of 2002.
2. SCZone Borders
2.1 The Suez Canal Special Economic Zone ("SCZone") shall cover an area of
460.6 km2 which includes 5 geographical locations and 6 maritime ports.4
2.2 The 5 geographic locations are as follows:5
East Port Said
Industrial Area
(1) East Port Said Industrial Area.
(2) West Qantara Industrial Area.
West Qantara Industrial
Area
(3) Technology Valley.
Technology Valley
(4) El Sokhna (A).
(5) El Sokhna (B).
El-Sokhna (A)
El-Sokhna (B)
2.3 The 6 maritime ports are as follows:6
(1) West Port Said Port.
(2) East Port Said Port.
(3) El-Adabiya Port.
(4) El-Ein- ElSokhna Port.
(5) El-Aresh Port.
(6) El-Tor Port.
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3. SCZone Authority
3.1 According to Law 83/2002, a special economic zone is administered by a
governmental authority to be established by the Prime Minister and
affiliated with the Cabinet. This regulatory authority shall bear the name of
the special economic zone, and shall have its headquarter inside the zone or
any of its affiliated areas.
3.2 In 19 August 2015, the Prime Minister issued Decree no. 2282 of 2015
establishing the General Authority for the Economic Zone of the Suez Canal
("SCZ Authority") as the regulatory authority responsible for administering
SCZone. SCZ Authority has replaced the earlier General Authority for NorthWest Suez Economic Zones which was established in 2003.
3.3 The North-West Suez Special Economic Zone was the first special economic
zone to be established in Egypt in implementation of Law 83/2002. It was
established by virtue of Presidential Decree no. 35 of 2003 spanning over an
area of 90 km2 (as an initial phase). Such area was subsequently expanded
by virtue of Presidential decree no. 41 of 2007 to reach 96,666 km2.
3.4 According to Prime Minister Decree no. 2282 of 2015 establishing SCZ
Authority, all lands and establishments owned by the Government inside the
boundaries of the SCZone shall be transferred to the SCZ Authority without
the need to take any legal action. All rights and obligations related to such
lands and establishments shall be assigned to SCZ Authority. The 6 maritime
ports defined in the SCZone Decree shall also be assigned to the SCZ
Authority.
3.5 The goal of the SCZ Authority shall be to attract investments, establish
competitive agricultural, industrial and services projects, and increase
Egypt’s share in the international trade. To achieve such goals, SCZ
Authority is required to perform its mandate according to the highest
international standards, unify administrative authorities, provide services
and utilities according to the highest technical specifications and standards,
apply the necessary incentives and exemptions, and provide trained
manpower.
3.6 SCZ Authority shall have the powers necessary to enable it to achieve its
goals, among these powers are the following:
- Having an independent budget without being subject to the laws
regulating public authorities.
- Hiring international and local experts without being subject to the legal
restrictions related to the financial treatment of consultants, employees
and directors.
- Establishing a one-stop-shop to provide the regulatory and administrative
services to the companies and projects established inside SCZone.
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- Participating with one or more of the principle developers to establish
and develop the areas of SCZone.
- Execute the internal infrastructure works of the SCZone or to assign such
works in addition to the marketing and investment promotion works to a
principle developer or more.
4. Board of Directors of SCZone Authority
4.1 The SCZ Authority shall have a chairman and a deputy or more, to be
appointed for a period of three years by virtue of a presidential decree. The
chairman shall be responsible for representing the SCZ Authority before
third parties and judiciary bodies, and implementing the decisions adopted
by its board of directors.
4.2 The board of directors shall be appointed by the Prime Minister, and shall
comprise the chairman and its deputy(ies) and 9 members. 4 of the
members shall represent relevant Ministries and Governorates, and 5 of the
members are of financial, technical and legal expertise.
4.3 The SCZ Authority is currently chaired by Mr. Ahmed Mahmoud Othman
Darwish by virtue of the Presidential Decree no. 442 of 2015. The same
Decree appointed Mr. Abdel Kader Mohamed Abdel Kader Darwish as his
deputy for a period of three years.
4.4 The Prime Minister Decree no. 3300 of 2015 was issued to appoint the board
members of SCZ Authority. This decree was later amended by virtue of the
Prime Ministerial Decree no. 193 of 2016 mandating the invitation of the
Minister of Transportation and the head of the Suez Canal Authority in all
board meetings of the SCZ Authority. The below graph shows the board
members of the SCZ Authority as well as the mandated invitees:
Chairman: Ahmed
Darwish
Deputy: Abdel Kader
Mohamed
Ministries &
Governorates
Financial, Technical &
Legal Expertise
Members invited by the
Prime Minister
Minister of
Investment
Khaled Serry Siam
Minister of Transport
Minister of Trade and
Industry
Ashraf Mohamed
Negm
Chairman of the Suez
Canal Authority
Port Said Governor
Nevine Hamdy El
Tahry
Representative of the
Ministry of Defence
Ashraf Kamel
Mousa Sabry
Ahmed Fekry Abdel
Wahhab
4.5 The board of the SCZ Authority is delegated with the authorities of all
relevant ministers, governors and pubic officers necessary to practice its
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mandate, except for the ministers of defense, interior, foreign affairs and
justice. The board shall be competent with the following:
a. Setting up the conditions and criteria and the rules for urban planning,
building, and zoning in a way satisfying international specifications and
enhancing competitiveness with similar economic zones.
b. Setting up the conditions and criteria which must be fulfilled for
licensing projects inside the SCZone.
c. Determining the conditions and criteria which must be fulfilled by a
project to obtain environmental license.
d. Deciding the systems relating to the management of the maritime ports
and airports in a way to ensure its effectiveness according to the
international standards.
e. Approving the regulations relating to labor and social insurance system
inside the SCZone.
f. Approving and implementing the manpower training system.
g. Setting up the system and procedures relating to importation and
exportation from and to the SCZone, without being restricted by the
regular import and export laws and regulations.
h. Setting up a system to ensure the effectiveness and swiftness of the
authentication and notary public procedures.
i. Issue the internal financial, administrative and technical rules including
the tenders and bids regulations.
5. Licensing
5.1 The board of the SCZone shall be the competent authority to issue all
licenses required for establishing and running all kind of business and
activities inside the SCZone. It will be specifically competent to issue the
following licenses:
-
Licenses for agricultural, industrial and service projects.
Land allocation, as well as building and demolishing decisions.
Licenses for the construction and management of infrastructure and
public utilities inside the zone.
Environmental and health and safety licenses.
Internal regulations and decisions related to the financial,
administrative and technical affairs of the SCZ Authority.
Establishing the companies and its registration at the commercial
register.
Licenses for establishment of schools and educational institutes as well
as hospitals, scientific, research, medical and cultural centers.
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6. Customs and Taxation
6.1 One of the main features of the special economic zones is that they will have
special taxation and customs systems which are characterized to be more
flexible and autonomous.
Special Customs System
6.2 SCZone shall have a special customs system to be set by the board after the
approval of the Minister of Finance. This system shall include the following:
a. Effective and swift checking procedures.
b. Clear and transparent valuation rules according to the international
trade agreements.
c. Streamlined customs clearance procedures.
d. Comprehensive and accurate laboratory checking at one location.
e. Accurate and effective procedures for issuing and checking certificate of
origins.
f. Clear rules for determining the imported component percentage for
products entering the local market.
6.3 A special customs administration shall be established inside the SCZone by
virtue of a decision from the Minister of Finance. This administration shall
be supervised by a supreme customs committee to be established by the
chairman of the SCZone. This committee shall be competent to implement
the policies and decisions of the SCZ Authority in this regard.
Special Taxation System
6.4 The SCZone shall have a special taxation system to be issued by the board of
director after the approval of the Minister of Finance. This system shall
include the following:
a.
The special rules related to the tax filing and the related documentary
and financial analysis.
b. The conditions and criteria that must be met by auditors who can
register at the auditors list at the SCZone.
c. Tax examination rules.
d. Deduction and withdrawals systems.
e. Rules and procedures for deciding and disputing the taxes.
6.5 A supreme taxes committee will be established by a decision of the chairman
of the SCZone after the approval of the Minister of Finance. This committee
shall be responsible for implanting the tax system at the SCZone.
7. Establishing a Project inside SCZone
7.1 Projects may not be established in the SCZone unless a prior written
approval from the board of the SCZ Authority is obtained. The application
for incorporation must include, inter alia, the following information:
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-
founders and their nationalities,
purpose of the project and its investment cost,
legal structure of the project and its capital,
source of financing the project,
projects’ requirements needed from inside or outside the country,
required area for the project,
numbers of employees, and their nationalities and types, and
project environment effect, and any other information required by the
board of directors.
7.2 The project shall take one the corporate structure provided for in the
Egyptian Companies Law no. 159 of 1981 which includes:
- joint stock companies,
- limited liability companies,
- partnerships,
- simple partnership, and
- limited partnerships by shares.
7.3 A project may also take the form of a sole proprietorship or branches of
foreign companies. The board of the SCZ Authority shall issue model articles
of associations of the companies and determine the documents necessary for
completing the incorporation process.
8. Investment Incentives and Guarantees
8.1 Law 83/2002 sets a number of incentives and guarantees for projects
established inside the special economic zones. The following table
summarizes such incentives and guarantees:
Taxes and
Duties
Companies established in the SCZone are exempted from sales
taxes, stamps duty tax and the state resources development tax.
Entities operating in SCZone are allowed to import machines,
devices, raw materials, spare parts and any other materials or
components necessary for performing their licensed activities
free of any customs, sales tax and any other taxes or duties.
However, customs tax, sales tax and all other taxes and duties
shall be imposed on the imported components of the products
produced by these entities only when they enter the Egyptian
local market.
Also, all kinds of cars and vehicles used in the production or
services activities of these projects are exempted from all taxes
and duties.
It has to be noted that Law 83/2002 (Special Economic Zones
Law), before its amendment in 2015, used to provide for
reduced corporate as well as income taxes for project inside the
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special economic zone. These reductions will continue to apply
only on projects previously established at the North-West Suez
Economic Zones (the one replaced by the SCZone as mentioned
above at point 3.3) until the expiry of its current license.
Projects to be established anew or to be renewed in the SCZone
will not benefit from such reductions and shall be subject to the
regular tax prices.
Labor and
Social
Insurance
The SCZone shall operate under a more flexible labor and
employment rules. Limited period employment contract shall
terminate automatically by the expiry of its duration. If the
parties continue to execute the contract after its expiration, it
will be renewed for another period similar to the period of the
expired contract. This is different from the general rule under
the Egyptian Labor Law no. 12 of 2003 ("Labor Law") which
provides that in such case, the contract will convert into an
unlimited one.
Each of the employer and the employee may terminate a
definite employment contract before the lapse of its period with
60 days prior notice.
In case of unlimited employment contract, each party shall have
the right to terminate it, at any time, with 90 days prior notice.
The employer here is not restricted by the limited causes of
termination stipulated in the Labor Law. Employees, however,
shall be entitled to compensation in case there is no mistake
attributed to them justifying such termination. The
compensation will not be less than that provided for in the
Labor Law.
The internal labor regulations of entities operating within the
SCZone shall be approved by the competent department
affiliated to the SCZ Authority.
The board of the SCZ Authority is competent to issue the work
permits for foreigners after obtaining the security approvals
and to determine the work permits’ requirements. Also, the SCZ
Authority has the right to exempt some projects, entities and
companies from the maximum percentage of foreigners
determined by the law.
The SCZ Authority is also permitted to establish a special
system for social insurance more beneficial for employees who
working in the SCZone.
Exports and
Imports
Entities operating within the SCZone can import or export all
its needs from raw materials, equipment, tools, and spare parts
for the construction, expansion or operation of its project,
without prior permit or being registered in the importers
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register. At the same time, they may export their products
without permit or prior approval, and without being registered
in the exporters register.
Products imported from the SCZone inside the country shall be
treated as if they are imported from abroad. Accordingly, they
shall be subject to customs duties, sales taxes and all other
taxes and fees. Products exported from inside the country to the
SCZone shall be treated as if they are exported abroad, and
shall fulfill all export and monetary requirements.
Settlement of
Disputes
The SCZone has an independent dispute settlement center
(“Center”), which shall be competent to settle the following
disputes:
-
tax disputes,
customs duties disputes.
individual or collective labor disputes,
social insurance disputes,
disputes concerning the execution of contracts, if all or one of
the parties operates a business in the zone,
- disputes resulting from tortious liabilities committed in the
zone, and
- any other dispute to which the Authority or the development
company is party.
The Center shall only have the jurisdiction to settle the above
disputes in case the parties agrees to this effect, or in case the
residence, work premises, head office or branch of one or all
parties to the dispute is located in the SCZone.
Other
Incentives and
Guarantees
Projects operating in SCZone may not be subject to
nationalization, sequestration, freezing of assets or confiscation
except by a judicial judgment.
-
Lands and buildings in the SCZone shall be allocated by the SCZ
Authority by a long term usufruct agreement which can reach a
period of 50 years renewable.
-
Entities operating in SCZone have the right to determine the
prices of their products and services.
There are also further non-tax incentives for labor-intensive
projects and investments in remote areas and in certain sectors
such as energy, agriculture, logistics, and transportation. Such
non-tax incentives include:
-
Subsidizing and facilitating the payment of the price of the
power needed to operate the project.
-
Refunding the expenses paid to extend infrastructure
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facilities to the project’s land.
-
Subsidizing the technical training programs of the
employees as well as the social insurance subscriptions.
-
Allocating the land owned by the government by usufruct
against trivial or postpone the payment of whole or part of
the price.
The application of such incentives is conditional upon the
starting of the production.
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References
1
For more information on the New Suez Canal, please visit the official website of the Canal at:
http://www.suezcanal.gov.eg/sc.aspx?show=69
2
The SCZone Decree was published in the Official Gazette dated 10 August 2015, Issue no. 32 Seq (c).
3
SEZ Law was substantially amended in 2015 by virtue of Law no. 27 of 2015 issued on 23 June 2016.
4
The maps attached to the SCZone Decree are published in a legible version. Nevertheless, the official website
of the SCZone provides interactive maps at: http://www.sczone.eg/English/Pages/default.aspx
5
Please refer to the map at the official website of the SCZone at:
http://www.sczone.eg/English/Map/Pages/default.aspx?SiteID=-1&PhaseID=-1&StatusID=1&SectorParentID=undefined&ActivitiesID=
6
Please refer to the map at the official website of the SCZone at:
http://www.sczone.eg/English/Map/Pages/default.aspx?SiteID=-1&PhaseID=-1&StatusID=1&SectorParentID=undefined&ActivitiesID=,10,12,18,11,17,14,16,#
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