International Agreements for Green Hydrogen Production in Egypt:
Recently, green hydrogen production, transport and marketing projects have received a strong commitment from the Egyptian government. This was further supported by a meeting held in Cairo to steer the committees of the Egyptian-German Green Hydrogen Project Partnership, together with Egyptian officials. The meeting established a joint roadmap to support hydrogen production companies and promote hydrogen transport and marketing. During the meeting, it was decided that the parties, the Egyptian Minister of International Cooperation Rania Al-Mashat and the Minister of Public Enterprise Mahmoud Esmat, will establish a platform to promote the use of green hydrogen.
In addition, Egypt and Germany have signed two Memoranda of Understanding (MoU) to enhance cooperation in this field. In fact, the Egyptian government has recently signed 7 MoUs to establish green hydrogen production complexes in Ain Al-Sokhna and the Red Sea governorate. The Egyptian-German cooperation in the field of green hydrogen follows Egypt’s objectives to establish itself as a green hydrogen production hub. Egypt has also partnered with other European countries to enhance green hydrogen production, and during the COP27 held in Egypt, Egypt signed a number of MoUs with several international entities, in line with the country’s efforts to attract foreign investment in green hydrogen production, making Egypt a transit route for clean energy to Europe.
The land on which future Green Hydrogen projects will be built has been identified based on MoUs signed with global companies and alliances working in the field of green hydrogen. Egypt is expected to have the potential to generate 350 gigawatts of wind energy and around 650 gigawatts of solar energy. As part of its National Climate Strategy 2050, Egypt aims to reduce carbon emissions, promote the use of renewable energy sources and use alternative forms of energy, including green hydrogen.
Incentives:
Most importantly, the Egyptian Prime Minister said in a recent cabinet meeting that Egypt will offer the “largest” package of incentives and facilities to companies willing to invest in green hydrogen production projects in the country. According to a cabinet statement, he has called for a quick announcement of the incentive package to activate all agreed MoUs and attract more investment in the sector. He has ordered the formation of a working group comprising representatives of the authorities concerned to prepare the incentives.
The Prime Minister announced that the companies involved in the green energy project will benefit from the tax incentives stipulated in the Investment Law No. 72 for 2017, which includes among the projects benefiting from the incentives (companies involved in the “production, storage and export of green hydrogen”).
Special incentives:
Special incentives:
The tax incentives granted under the Investment Law take the form of a temporary tax reduction for projects established within 6 years from the date of entry into force of the regulations of the Law, i.e. until October 2023. They are called “special incentives” in the Investment Law. The reduction is applied to the net taxable profit at the following rates:
1. 50% of the investment costs for the establishment of a project in geographical locations with the greatest need for development (underdeveloped locations), as determined by the Central Agency for Public Mobilization and Statistics (CAPMS). The law designates these locations as Zone A. The executive regulations define “Zone A” as the area of application;
- The Suez Canal Special Economic Zone,
- The Golden Triangle Special Economic Zone,
- The New Administrative Capital Zone,
- South of Giza Governorate,
- The governorates connected to the Suez Canal, namely Port Said, Ismailia, Suez (east of the canal),
- Border governorates, including the Red Sea governorate from south of Safaga,
- Upper Egypt governorates, and
- other areas most in need of development, as determined by the Prime Minister.
2. 30% of the investment cost of a project established in the remaining geographical areas other than Zone A, which the law refers to as “Zone B”, and operating in certain sectors, including
- Renewable energy projects.
- Projects that export their products outside Egypt.
To qualify for the 30% incentive, the green project must meet one of the following criteria
- Be based on renewable energy;
- Be a small or medium enterprise (SME); or
- Export its production outside Egypt.
The 30% and 50% incentives are calculated on the investment cost of the project and the incentive amount is deducted from the net taxable profit of the project. The deduction can be accrued for a maximum period of 7 years from the date of commissioning of the project.
In any case, the incentives may not exceed 80% of the paid-up capital of the project until the start of its operation.
Investment costs are defined as the sum of the following
- Equity capital,
- long-term loans to finance the construction of the movable and immovable assets of the project, provided that they are reimbursed in cash, and
- working capital.
General Incentives:
In addition to the special incentives, the general incentives provided by the Investment Law also apply in such cases. For example, projects are exempt from stamp duty, documentation and advertising fees, contracts for the establishment of companies and establishments, contracts for credit facilities and mortgages for a period of five years from the date of their registration in the Commercial Register. In addition, investment projects of an industrial nature may temporarily import moulds and other production tools of any kind free of customs duties for the manufacture of their products and re-export them abroad.
Expansions of already existing investment projects may benefit from special incentives. In this case, expansions means an increase in the capital employed through the addition of new assets that lead to an increase in the production capacity of the project.
Additional Incentives:
The following additional incentives may also be granted to projects benefiting from special incentives by decision of the Council of Ministers:
- Permission to set up special customs offices for the export or import of the investment project, in agreement with the Minister of Finance.
- The State bears the value of the supply of utilities to the real estate intended for the investment project or a part thereof, after the project has been put into operation.
- The State bears part of the cost of technical training of workers.
- Reimbursement of half of the value of the land allocated for industrial projects, provided that production has commenced within two years from the date of handing over the land.
- Free allocation of land for some strategic activities in accordance with the law. It is also permissible to introduce other non-tax incentives through a decision of the Council of Ministers based on the proposal of the competent minister, to introduce other non-tax incentives whenever the need arises.
It is the responsibility of the CEO of the Authority, or his authorized representative, to issue the certificate required to benefit from the incentives. This certificate shall be deemed final and enforceable in itself without the need for the approval of any other party, and all parties shall work in accordance with and abide by it.
One-time Approval:
By decision of the Council of Ministers, companies that set up strategic or national projects that contribute to the achievement of development, or partnership projects between the private sector and the State, the public sector or the public business sector in the activities of public utilities, infrastructure, new and renewable energies, roads and transport or ports, may be granted a one-off authorization to set up, operate and manage the project and to allocate the real estate necessary for it. This also constitutes a construction permit and is effective on its own without the need for any further action. The authorization may also include the application of any of the above incentives to one or more projects.
This approval will be of great benefit to investors in terms of saving time and avoiding red tape.
According to the Prime Minister’s Decree issued in June 2022, the project wishing to benefit from the one-time approval must take the form of a limited liability or joint stock company with an issued capital of not less than 20% of the investment cost of the project and submit an initial feasibility study conducted by one of the well-established consulting firms, among other requirements.
In August 2022, the Egyptian Cabinet published the conditions and sectors for a project to be considered strategic or national. The decree placed “green hydrogen production, storage, and export” at the top of the list of projects eligible for one-time approval.
In December 2022, the Egyptian Cabinet granted one-off approval to several projects, including two projects in the fields of green hydrogen and ammonia production.
Additional benefits:
The initial shares and shares of financial companies subject to the Investment Law may be traded during the first two fiscal years of the company, with the approval of the competent minister, as an exception to the provisions of the Companies Law No. 159 of 1981.
The investor has the right to acquire the real estate necessary to carry out or expand his activity, regardless of the percentage of his participation or contribution to the capital of the project company, without prejudice to the exceptional regulations concerning real estate located in geographical areas regulated by special laws.
