By Dr.Azab Alaziz Alhashemi (Investment and International Arbitration Expert and a member of the World Economic Forum, Switzerland.)

The objective view of the Egyptian government, which is undoubtedly very positive and full of optimism and confidence about foreign investment and the importance of attracting it to Egypt to close the gap between national savings and investments necessary to achieve economic growth, and to bridge the gap resulting from the withdrawal of the state from direct economic activity and shorten its role on censorship and regulation and create the necessary climate to increase both local and foreign private investment. On the other hand, reports from international evaluation institutions and investment companies such as Moody’s, Standard & Poor’s, Fitch, and the International Finance Institute, as well as the World Bank, United Nations, and other periodic issuers of reports on many countries of the world and investment climate, should not be overstated and demonstrate the extent to which each country enjoys short-term and long-term creditworthiness, political and economic stability, and openness to the outside world.

In light of this, the Government looks forward to attracting more FDI, and international companies look forward to engaging in their activity in Egypt not only as a broad market but as an important regional and strategic center. Previous years have seen many goals achieved in expanding areas where foreign capital can operate and this reduction has led to negative expectations for growth indicators, employment, foreign trade, and the movement of international funds. This makes it necessary to re-examine the topic of foreign direct investment by identifying its trends in recent years, both in general and in terms of Egypt’s position therein. And then highlighting the role of the global crisis in the need to revisit past expectations. Adding the qualitative dimension of foreign investments that may enter Egypt in these circumstances and how they are subject to the criteria of transparency, governance, and social responsibility as an important local and international objective requirement.

Tax relief, whether it be partial or total, for an indefinite period for the duration of the investment, or a limited period of a few years, encourages the flow of foreign capital. If it is necessary to tax the profits of the invested money, encouragement requires that they are not discriminatory taxes or amounts in their amount. With the need to avoid double taxation, the tax exemption is an advantage the State gives according to the law to the natural or moral person, The State seeks to achieve several political, economic, and social objectives. Lowering taxes or granting partial relief are factors that encourage attracting FDI. The government’s efforts to help economic projects reduce tax burdens are insufficient to attract foreign investment. Attractive stimuli should be provided, including (economic, political, social, and natural stimuli).

The existence of the investment climate necessary to attract investments is a pressing need in this area and working in two directions requires restoring confidence in the country’s investment climate by issuing the necessary legislation and providing evidence of the stability of those legislations because the investor wants to reassure the firm legislative framework and the second to create the appropriate environment and infrastructure to attract FDI. This is what Egypt is witnessing today: economic openness to the world through the activation of FDI the provision of protection and the utmost importance in the flow of investments. One of the most important conclusions to be stressed is that expanding tax breaks without government control would be economically costly and would cost the State enormous tax resources by granting tax breaks. This should ensure that the Egyptian Investment Authority grants tax relief to attract foreign investment in projects that have a significant positive impact on the economy as a whole. This requires determining the types of tax breaks that are:

• Permanent exemptions.
• Temporary exemptions.
• Partial exemptions.
• Total exemptions.
• Exemptions for international competition.
• Industry exemptions.

In addition, the conditions and criteria to be met for obtaining tax exemption that may include investment in certain areas, preservation of jobs or even adherence to environmental safety standards must be determined. Although the primary objective of tax relief is to stimulate economic growth and improve the labor market, it can also contain social goals such as improving social well-being and improving financial status.

The objectives of tax exemptions revolve around attracting foreign direct investment and promoting the local economy. While the specific objectives may vary from country to country, the general goals of tax exemptions are largely consistent. These objectives include:

1. Attracting foreign direct investment: This is the primary and fundamental objective of tax exemptions. Reducing taxes encourages foreign investors to make investment decisions. 
2. Promoting the local economy: Tax exemptions can enhance local economic growth by increasing productivity and creating new employment opportunities. 
3. Improving the overall state budget: Tax exemptions can lead to increased financial revenue by attracting both foreign and local direct investments. 
4. Attracting more international companies: Tax exemptions can enhance a country’s reputation and attract more international companies to invest and expand on the local market. 
5. Developing infrastructure: Tax exemptions can incentivize the government to improve infrastructure and promote sustainable development. 

The impact of tax exemptions on foreign investment:

Research has shown that tax exemptions have a positive impact on attracting foreign direct investment. They increase profitability and reduce the overall cost of projects. Tax exemptions also enhance the competitiveness of local companies and make prices more attractive for foreign investment. As a result, there are increased opportunities for foreign companies to invest in countries that offer tax exemptions.

By enhancing the potential to attract foreign investment, tax exemptions help improve the economic environment and create new employment opportunities in the host country. Therefore, it is advisable to encourage the attraction of foreign investment by providing tax exemptions that facilitate marketing the country for foreign investment and attracting investors. One of the important measures to achieve this is improving the investment environment through implementing regulations and laws that ensure the sustainability of economic development in the future. It also requires reviewing tax procedures and reductions provided by host countries to increase the attractiveness of the state in offering tax incentives for foreign investment.

Advantages of Egyptian Law on Taxes:

The Egyptian State submitted a draft law amending some provisions of the Income Tax Law on 16 November 2022. The Government’s bill distributed the tax burden according to income levels and introduced a package of tax exemptions and incentives, which included but were not limited to;

• Granting tax exemptions for the profits of investment funds to stimulate their growth and encourage individuals to invest institutionally through these funds.
• Deferring the tax on capital gains realized by individuals or legal entities in case of selling some or all of their shares in initial public offerings on the Egyptian Stock Exchange to increase the company’s capital. These profits will be subject to taxation when the shareholder disposes of the subscribed shares.
• Waiving any unpaid capital gains tax on transactions involving shares listed on the Egyptian Stock Exchange during the period from January until the effective date of this law.
• Establishing a Higher Tax Council chaired by the Prime Minister to safeguard the rights of taxpayers of various types and assist them in fulfilling their legal obligations imposed by tax laws. 

Suggestions for Foreign Investment Projects:

• Sanitation and drinking water desalination projects.
• Projects for the disposal of medical and solid waste.
• Projects for the treatment of industrial gas emissions.
• Projects in the petrochemical industry.
• Projects in the field of tourism development through infrastructure and strategic facilities.
  
  In the absence of differentiation between local and foreign investors, these projects are open to all investors, including foreign investors. While some of these projects indeed aim to meet local needs, including addressing various types of pollution, their selection does not reflect a comprehensive view of producing goods and services that meet market demands, replace imports, or contribute to achieving any level of economic structural integration, especially in the industrial sector.
  
  Recommended Suggestions:

• Adjust tax rates and brackets, and reduce the maximum tax rates.
• Review tax exemptions to ensure their real role in attracting investments and employment.
• Develop tax legislation and institutions, while closing tax evasion loopholes and facilitating interactions between taxpayers and tax authorities.
• Provide facilitation measures for exporters who achieve export targets and comply with customs regulations, such as expedited release of their shipments and simplified temporary procedures.
• Activate the government and private bond market and enhance the role of institutional investors, establishing specialized companies to manage securities portfolios and investment funds.
• Maintain an appropriate level of monetary stability by determining the monetary expansion rate that achieves a balance between growth objectives and inflation containment.
• Increase reliance on indirect monetary instruments, such as issuing government debt.
• Maintain balance in the foreign exchange market by improving the position of the balance of payments.
• Promote investment, both local and foreign, by providing feasibility studies for potential investment opportunities and projects.
  
  
   
• Enhance the performance of agencies responsible for managing foreign direct investment activities, provide flexibility in incentives, and establish advanced systems for services and information, simplifying establishment procedures.
• Review legislation affecting investment and continuously reconsider the investment guarantees and incentives law, while unifying the authorities dealing with investors under one entity.
• Strengthen the integration of the Egyptian economy into the global economy by deepening its engagement with regional and international economic blocs, and effectively utilizing cooperation agreements with countries and economic blocs.