Law No. 2 of 2024 Summary

7 February 2024 – On 27 January 2024, Law No. 2 of 2024 was announced in the Official Gazette of Egypt and went into effect the following day, on 28 January 2024. This law outlines the incentives provided to green hydrogen production projects and their derivatives. 

One primary incentive is the Green Hydrogen Incentive. The government provides a cash investment incentive, ranging between 33% to 55% of the paid tax value from income realized from the activities in the project or its expansions. This incentive should not be considered a taxable income, through a proper adjustment for local tax purposes.  

From an OECD “Pillar Two” perspective, and while awaiting further clarifications from the relevant authorities, it should be carefully analyzed how this could impact the calculation of the “Effective Tax Rate” (ETR) (i.e., ETR = Adjusted Covered Taxes/Adjusted GloBE Income, to be at least 15%) since, as per the OECD Model Rules and Administrative Guidance, the reference should be to the Financial Statements only, disregarding any tax adjustment.  

The law also includes Value Added Tax (VAT) Exemption. Excluding passenger vehicles, necessary machines, tools, devices, raw materials, and transport methods required to carry out the licensed activity for green hydrogen production projects and their derivatives are exempted from VAT. Moreover, exports from these projects should be subject to VAT at a rate of 0%. 

Furthermore, the government provides several other tax exemptions including exemption from property tax on properties used within these projects, stamp tax, and documentation fees. Included also are exemptions from taxes tied to contracts establishing companies and facilities, contracts for credit facilities and associated mortgages, and contracts for land registration necessary for setting up these projects. They are also exempted from customs duty on all imports needed for establishing the projects, apart from passenger cars.

Other incentives: 

• Regulatory Approval: The project company receives a one-time approval in accordance with the guidelines specified in the Investment Law.
• Import and Export Rights: The project company should be able to directly import the necessary raw materials, production inputs, machinery, spare parts, and suitable means of transportation for its activities. It could also export its products without the need to register in the importers' and exporters' registry.
• Employment of Foreign Workers: The company should be allowed to employ foreign workers up to a limit of 30% of its total workforce for the first ten years from the date of signing the project agreements.
• Special Customs Zones: Permission may be granted to establish exclusive customs zones for the project's exports or imports, as agreed with the Minister of Finance. 
• Port Use Fee Reduction: A 30% reduction on the fees for using seaports, marine transport, and various marine services may be provided to the project company.
• Land Use Fees Reduction: A reduction of 25% of the value for the usufructuary rights of the industrial lands allocated for the establishment of a green hydrogen production plant and its derivatives and a reduction of 20% from the fees of the usufructuary rights of the lands used for storage in the ports.
• Grace Period for Fees: A grace period may be provided for payment of land use fees for industrial and storage lands specific to the project and its expansions. The payment should start from the beginning of the activity. 
• Licenses Tenure: The license term required for the implementation of green hydrogen production projects and their derivatives should be the same as the land use term specified in the project.

Requirements for Incentives: 

• Project Operation: The project should commence commercial operation within five years from the date of signing the project agreements. 
• Project Finance: The foreign cash financing the project, or its expansions should be from abroad and constitutes not less than 70% of the project's investment cost. 
• Use of Domestic Components: The project should use domestically manufactured components for its execution whenever available, making up a minimum of 20% of the project components. 
• Technology Transfer and Labor Skills Enhancement: The project needs to contribute to transferring and localizing modern and advanced technology to Egypt, while creating and implementing training programs for the Egyptian workforce. 
• Community Responsibility: The project company should commit to a plan that enhances local areas through community responsibility rules following Article (15) of the Investment Law. 

The competent minister or his authorized representative shall issue the certificate necessary to be granted the incentives stipulated in this Law. This certificate shall be considered final and self-executing without the need for the approval of other authorities and All entities are required to work in accordance with it and abide by the data it contains.