Free Zones in Egypt as a Strategic Option for Establishing Your Company

A Legal and Investment Study and Perspective

Free zones in Egypt are among the most important investment regimes made available by the legislature to companies whose activities depend primarily on manufacturing for export, international trade, or cross-border services. The attractiveness of this regime does not arise from exemptions alone, but from the combination of special tax and customs treatment, facilitation of the movement of goods, and the availability of infrastructure and customs services within public free zones.

Dr. Mostafa El Rouby addressed this issue in his article published on the Akhbar El Yom electronic portal on 22 June 2025 under the title “Establishing Your Company in a Free Zone as a Strategic Option”, explaining that the choice between domestic investment and a free zone should not be treated as a formal decision made when incorporating a company, but rather as a decision linked to the nature of the project, its markets, the sources of its raw materials, and the method by which its products will be distributed.

This is the essence of the issue. Free zones are not necessarily the best regime for every company, but they may be the best regime for a project originally designed for export and dealings with foreign markets.

What Is a Free Zone from a Legal Perspective?

Free zones in Egypt are governed by Investment Law No. 72 of 2017, as amended, particularly by Law No. 160 of 2023, together with the Executive Regulations and the regulatory decisions issued by the General Authority for Investment and Free Zones.

A free zone forms part of the territory of the Egyptian State and remains subject to its sovereignty, but enjoys a special legal regime concerning the treatment of goods, taxes, customs, imports, and exports, consistent with its nature as an area primarily directed toward serving international trade and investment.

The General Authority for Investment and Free Zones (GAFI) is responsible for administering and regulating this regime and supervising projects operating under it.

Two Different Types: Public Free Zones and Private Free Zones

The Law divides the free zone regime into two principal types:

Public Free Zones

These are zones established by the State and equipped with utilities and infrastructure, within which a number of different projects operate under the free zone regime.

The General Authority for Investment currently identifies nine public free zones in Egypt, namely:

• Alexandria Public Free Zone – Amreya.
• Nasr City Public Free Zone.
• Port Said Public Free Zone.
• Suez Public Free Zone.
• Ismailia Public Free Zone.
• Damietta Public Free Zone.
• Shebin El-Kom Public Free Zone.
• Qift Public Free Zone – Qena.
• Media Public Free Zone in 6th of October City.

These zones are distinguished by the availability of utility networks, roads, and services, in addition to customs, security, and administrative units that assist projects in carrying out their activities.

Private Free Zones

A private free zone, by contrast, is not a general complex hosting a large number of investors, but is allocated to one project or more than one similar project where the nature of the project requires a specific location outside public free zones, such as proximity to a port, a source of raw materials, or a particular logistics location.

Establishing a project under the private free zone regime is subject to more specific conditions and procedures and requires the approval of the competent authorities in accordance with the Investment Law and its Executive Regulations.

Accordingly, choosing a “private free zone” is not merely a decision that an investor can make independently after purchasing land, but an investment regime that requires satisfaction of its conditions and obtaining the necessary approvals.

Free Zones Are Not Economic Zones

One of the most common mistakes is confusing free zones with special economic zones.

The Suez Canal Economic Zone, for example, is not a public free zone under the General Authority for Investment. Rather, it is governed by an independent legal regime based on Special Economic Zones Law No. 83 of 2002 and is administered by the General Authority for the Suez Canal Economic Zone.

Egypt’s investment landscape may also include industrial, investment, economic, or technological zones, each governed by its own rules, incentives, and administrative authority.

Accordingly, an investor must first determine which legal regime best serves the project’s business model rather than using the term “free zone” for every investment area offering incentives.

Why Would a Company Choose to Operate under the Free Zone Regime?

The regime is particularly attractive for projects that import raw materials or components from abroad and then manufacture, assemble, or process products in Egypt before re-exporting them.

It is also suitable for certain storage, services, trade, and re-export projects depending on the activity and the approval granted to the project.

The principal advantage lies in the fact that the project operates within a system designed primarily to reduce the burdens associated with bringing materials into Egypt and subsequently exporting the finished product to foreign markets.

Tax Exemption… What Does It Mean Exactly?

Article 41 of the Investment Law provides that projects within free zones and the profits distributed by them are not subject to the provisions of the tax and duty laws in force in Egypt. However, this does not mean that the project operates without making any financial payment to the State.

The Law replaces the ordinary tax regime with a set of specific charges applicable to free zone activities.

For projects in public free zones, the Law provides, depending on the nature of the activity, among other matters, for:

• A charge of 2% of the value of goods upon entry, calculated on a CIF basis, for storage projects.
• A charge of 1% of the value of goods upon exit, calculated on an FOB basis, for manufacturing and assembly projects.
• A charge of 1% of total revenues for projects whose principal activity does not require the entry or exit of goods.

Private free zones are subject to a fee regime that differs in certain details. Accordingly, the type of zone and nature of the activity must be determined before preparing the project’s financial model.

The more accurate description, therefore, is not that the project “pays nothing,” but rather that it moves from the ordinary tax regime to the special financial regime applicable to free zones.

Customs Exemptions and Value Added Tax

Goods, equipment, tools, and machinery necessary for carrying out activities within a free zone benefit from special customs and tax treatment. The General Authority for Investment explains that goods entering or leaving free zones within the scope of the project’s activity are not, subject to the applicable legal conditions, subject to customs duties, value added tax, or the ordinary rules governing imports and exports.

Assets and production inputs necessary for carrying out the activity also benefit from this treatment, subject to the exceptions prescribed by law and regulations.

This represents a significant advantage for export-oriented projects, as they do not have to bear the full customs cost on materials brought into Egypt solely for manufacturing and subsequent re-export.

But What Happens If the Company Sells Its Products in Egypt?

In that case, the treatment changes.

Goods leaving the free zone for the Egyptian domestic market are treated for customs purposes as goods entering the country from abroad and are subject to the applicable taxes and duties in accordance with the rules prescribed by law.

For products containing both local and foreign components, the Investment Law regulates the method for calculating customs duties on the foreign components in accordance with the prescribed conditions.

This point is critical when selecting the regime. If the project intends to sell most of its production in the Egyptian market, a free zone may not be the most economically efficient option.

The Golden Rule: Export Ratio Matters More Than the Size of the Exemption

Before establishing the company, the investor should ask:

Where will I sell the product?

If the majority of production is intended for export, the free zone regime may generate clear savings and operational advantages.

If, however, most sales will enter the Egyptian market, the duties and procedures applicable when goods enter the domestic market may reduce the economic benefit of the regime.

Accordingly, the feasibility study should compare:

• Domestic investment.
• A public free zone.
• A private free zone.
• An economic or investment zone where the activity permits.

What Activities May Be Established in Free Zones?

The regime permits a broad range of activities in accordance with investment policy and the approval issued for the project, while certain activities remain prohibited because of their nature.

Law No. 160 of 2023 introduced an important amendment to Article 34 of the Investment Law, permitting—after obtaining the legally required approval—the establishment of free zone projects in the following fields:

• Petroleum refining.
• Fertilizer industries.
• Iron and steel.
• Processing, liquefaction, and transportation of natural gas.
• Energy-intensive industries.

These are activities that had previously been subject to greater restrictions under the former regime.

At the same time, the Law continues to prohibit the establishment of free zone projects involving the manufacture of liquor and alcoholic substances, weapons, ammunition, explosives, and other activities connected with national security.

Foreign Investor Ownership

As a general rule, the Investment Law does not require the presence of an Egyptian partner merely because a project is being established in a free zone, and foreign ownership may reach 100% in many activities and legal forms.

However, this does not mean that foreign ownership is unrestricted in every activity. Certain sectors may be subject to special laws, regulatory approvals, or restrictions relating to national security or the nature of the activity.

Accordingly, the law governing the specific activity must always be examined alongside the Investment Law.

Investor Guarantees Are Not Exclusive to Free Zones

The Investment Law provides a number of important guarantees to domestic and foreign investors, including:

• Investment projects may not be nationalized.
• Property may not be expropriated except for public benefit and against fair compensation in accordance with the law.
• Administrative sequestration may not be imposed.
• Attachment, seizure, or freezing may not be imposed except in accordance with the applicable rules and judicial orders or judgments, subject to statutory exceptions.
• Freedom to finance the project from abroad, earn profits, and transfer them in accordance with the legal framework.

However, there is no general rule stating that “claims cannot be brought against a free zone company unless the Authority is first consulted.” The project remains subject to the courts and the applicable legal obligations, although certain investment, tax, and customs offences are subject to special procedures regulated by the Investment Law.

Establishing a Free Zone Project Begins with Approval, Not with the Company’s Incorporation Documents

It is a mistake for an investor to establish a company first and then assume that it can automatically be transferred into the free zone regime.

For projects intended to operate in public free zones, prior approval to establish the project under the free zone regime must be issued by the competent authority after examining the activity, feasibility, location, and compatibility of the project with the policy of the zone.

Following preliminary approval, the procedures for incorporating the legal entity, obtaining the license to carry out the activity, taking possession of the site, and completing other steps are finalized.

Step One: Define the Business Model

Before preparing any incorporation documents, the following should be determined:

• The product or service.
• The target markets.
• The expected export ratio.
• Sources of raw materials.
• Annual import volumes.
• The required area.
• Electricity, energy, and water requirements.
• The number of employees.
• The environmental impact.

These factors determine whether the free zone regime is suitable for the project in the first place.

Step Two: Choose the Zone

There are currently nine public free zones, and there is no rule stating that each zone is exclusively dedicated to one particular activity. Public free zones—apart from the special nature of the media free zone—may host various industrial, storage, and service activities subject to the required approvals.

Selection of the appropriate zone depends on:

• Proximity to a port or airport.
• Proximity to suppliers and labor.
• Availability of space.
• The type of utilities and energy required.
• Domestic transportation costs.
• The nature of the target markets.

The Alexandria Public Free Zone, for example, may offer advantages for a project relying on Alexandria Port or Dekheila Port, but this does not automatically make it suitable for every export-oriented project.

Step Three: Choose the Legal Form

The project may adopt the legal form most appropriate to its nature within the forms permitted by law, among the most commonly used being joint-stock companies, limited liability companies, and single-member companies, depending on the circumstances.

The legal form should be selected based on practical considerations such as:

• The number of investors.
• The capital structure.
• The management structure.
• The possibility of admitting a new investor.
• Financing plans.
• The possibility of selling or acquiring the project in the future.

Establishing a limited liability company simply because it is “faster” may not be the correct choice where the project plans future investment rounds or the admission of institutional shareholders.

Step Four: Prepare the Project File

The contents of the file vary depending on the activity, zone, and legal form, but it generally includes project information, details of shareholders or partners, the capital structure, feasibility study, sources of financing, land and utility requirements, and projections relating to production and exports.

Foreign companies participating in the project may be required to submit their incorporation documents, resolutions, and powers of attorney duly authenticated in accordance with the applicable legal procedures.

Preparing the file correctly from the outset saves considerable time compared with submitting an incomplete application and subsequently entering into a series of requests for additional documentation.

Step Five: Technical and Environmental Approvals

Approval to operate under the free zone regime does not eliminate the sector-specific licenses required for the activity.

An industrial, food, pharmaceutical, or chemical project may require approvals from specialized technical authorities, while activities having an environmental impact are subject to environmental assessment and approval requirements.

This means that the “one-stop shop” helps facilitate procedures, but does not eliminate safety, health, environmental, and national security requirements imposed by law.

Cost of Land and Usufruct Rights

It is preferable not to base the feasibility study on a fixed figure such as “USD 8 to USD 12 per square meter” as though it were a general rule applicable to all free zones.

The Authority determines usufruct rates according to the zone and type of activity, and its Board of Directors may reconsider these rates as circumstances require.

The cost of industrial land also differs from storage or service land, and the cost of a ready-built facility differs from that of vacant land.

Accordingly, the rate actually in force at the time the project is submitted should be obtained and incorporated into the feasibility study instead of relying on historical figures.

Operating Within a Free Zone Does Not Exempt a Project from Compliance

Tax and customs exemptions do not mean the absence of regulation.

The project must comply with the free zone regime, its issued license, records, warehouses, customs movements, environmental and safety conditions, labor and social insurance rules, and other legislation applicable according to the nature of the project.

The movement of goods into and out of the zone is also subject to controls designed to ensure that the free zone is not used as a route for introducing goods into the domestic market without satisfying the applicable duties and regulatory requirements.

Foreign Labor

The Investment Law permits projects to employ foreign workers subject to the ratios and conditions prescribed by the Law, its Executive Regulations, and the competent authorities. The existence of a project in a free zone does not eliminate work permit and residence requirements.

Accordingly, the staffing structure should be planned at an early stage where the project depends substantially on foreign experts or technicians.

Transfer of Profits and Capital

The Investment Law grants investors the right to finance projects from abroad in foreign currency, earn profits, and transfer them abroad in accordance with the Law and the banking system.

This guarantee is important for foreign investors, but it does not eliminate company obligations relating to anti-money laundering, disclosure, banking documentation, or rules governing transfers.

Free Zones and Economic Zones: How Should You Choose?

Accordingly, there is no general answer that one regime is “better” than the other. The better regime is the one that aligns with the project’s supply chain, market, location, and operational requirements.

When Is a Free Zone Not a Good Option?

The regime may not be suitable where:

• Most sales are directed to the Egyptian market.
• The project does not substantially depend on imported components or exports.
• The cost of locating within the zone exceeds the expected operational savings.
• The activity requires a location unavailable within a public free zone and does not satisfy the conditions for a private free zone.
• Incentives available under another investment regime are more suitable.

In such cases, domestic investment, an economic zone, or another regime may be more efficient.

Free Zones and New Environmental Requirements in Foreign Markets

The export-oriented nature of free zones also means that companies operating within them are rapidly affected by foreign legislation governing the entry of goods into international markets.

During 2024, the General Authority for Investment discussed with free zone investors preparations for new European environmental standards in light of the phased implementation of the European Carbon Border Adjustment Mechanism (CBAM).

This is an important point. A customs exemption in Egypt is of little benefit to an exporter that loses access to its target market because it fails to comply with carbon, sustainability, or traceability requirements.

Accordingly, assessment of an export-oriented project must now consider both Egyptian law and the law of the foreign target market.

Mistakes to Avoid When Establishing a Free Zone Project

1. Choosing a free zone merely because exemptions are available without analyzing the export ratio.
2. Incorporating the company before obtaining the necessary project approval.
3. Relying on outdated usufruct rates in the feasibility study.
4. Assuming that all activities are permitted without sector-specific approvals.
5. Confusing a free zone with an economic zone.
6. Failing to assess the impact of selling the product in the domestic market.
7. Selecting a company form that makes it difficult to admit investors later.
8. Failing to review customs rules and inventory movement requirements from the beginning of operations.

The Perspective of the Office of Dr. Mostafa El Rouby – Attorneys and Legal Consultants

The Office of Dr. Mostafa El Rouby – Attorneys and Legal Consultants believes that establishing a project under the free zone regime should begin with a legal and financial comparison of the available investment alternatives, rather than merely preparing the company’s incorporation documents.

The most important decision an investor may make is not the company’s name or amount of capital, but the choice of the regime through which the company will operate for years.

Legal support for investors in this field includes:

• Assessing the suitability of the free zone regime for the project.
• Comparing a free zone with domestic investment and an economic zone.
• Selecting the legal form and structuring ownership.
• Preparing the project application and memorandum and assessing legal requirements.
• Reviewing company incorporation documents and documents of foreign shareholders.
• Following up on approvals and licensing to carry out the activity.
• Reviewing land and usufruct agreements.
• Providing customs and tax advice related to the regime.
• Drafting export, supply, and logistics agreements.
• Following up on amendments to the activity, capital increases, and admission of new investors.
• Providing legal support in expansion, mergers, acquisitions, or liquidation.

Conclusion

Free zones in Egypt constitute a highly important investment regime, particularly for industrial, commercial, and service projects targeting foreign markets and relying on the continuous movement of materials and products across borders.

The Investment Law grants these projects a special tax and customs regime and provides them with a broad range of guarantees. The amendments introduced by Law No. 160 of 2023 subsequently expanded the scope of certain activities that may be licensed to operate under the free zone regime.

However, describing free zones as the “best” option for every investor would be an oversimplification. Their real advantage appears when the regime aligns with the company’s business model.

An export-oriented company may achieve substantial savings, while a project selling most of its production within Egypt may face customs treatment when its products enter the domestic market that reduces the economic benefit of the regime.

The project also does not operate outside Egyptian law. It remains subject to regulatory oversight, licensing, environmental, labor, and security requirements, in addition to the special free zone regime.

Accordingly, establishing your company in a free zone can indeed be a strategic option, provided that it is preceded by careful analysis of exports, customs, taxation, location, legal form, and future expansion.

Choosing the correct investment regime at the outset may save the company years of restructuring and unexpected costs in the future.

Dr. Mostafa El Rouby Writes in Akhbar El Yom Newspaper – Establishing Your Company in a Free Zone as a Strategic Option

Official Sources

• General Authority for Investment and Free Zones – Free Zone Incentives
• Investment Law No. 72 of 2017
• Executive Regulations of the Investment Law
• General Authority for Investment – Types and Locations of Public and Private Free Zones