Free zones also represent a major incentive for investment. Free zones are located within the national territory but are considered to be outside Egypt’s customs boundaries, granting firms doing business within them more freedom on transactions and exchanges as a means of attracting foreign investment. They are subject to Investment Law 8 of 1997 and are open to investment in any sector. Companies producing largely for export (normally 80 percent or more of total production) may be established in free zones and operate in foreign currency. Foreign investors have equal rights to operate in free zones without any limitation on the nationality. Free zones are established by a GAFI decree. Companies operating in free zones are exempted from customs duties, sales taxes or taxes and fees on capital assets and intermediate goods. However, warehouse companies are subject to an annual fee of one percent on the imported product's value, and production and assembly profits are subject to an annual fee of one percent on the exported product's value.
There are seven operating public free zones enjoying basic infrastructure and utilities located in: Alexandria, Nasr City, Suez, Ismailia, Damietta, Port Said, and Media Production City. In January 2002, the Government of Egypt announced that Port Said’s duty free status would be phased out over a five-year period. In May 2004, the Government approved Badr City as a public free zone. Private free zones are established following a decree from GAFI and are usually limited to a single project. The priority is given to export oriented industrial projects. The investor has the freedom to select his activity and there is no restriction on foreign ownership of capital.
Concession agreements in such areas as petroleum, natural gas, and mineral exploration and exploitation, although not explicitly covered by Investment Law 8, receive many of the privileges of free-zone ventures. Concession agreements must be negotiated separately with the Government and are subject to legislative approval.
In May 2002, Parliament approved the Special Economic Zones (SEZ) Law (Law 83 for 2002), which provided for the establishment of special zones for industrial, agricultural, or service activities designed specifically with the export market in mind. The law allows firms operating in these zones to import capital equipment, raw materials, and intermediate goods duty free. Companies established in the new zones also will be subject to lower corporate taxes and exempt from sales and indirect taxes. They will also operate under more flexible labor regulations and enjoy other incentives. The law’s executive regulations were issued in September 2002 and procedures to establish the first SEZ in North Gulf of Suez are currently underway.
