Logistics, green hydrogen, and manufacturing: Investment considerations in the Suez Canal Economic Zone

Established by Egypt in 2015, the General Authority for the Suez Canal Economic Zone (the Authority) oversees operations and investment incentives for the Suez Canal Economic Zone (SCZONE), which accounts for approximately 12 percent of global trade annually.

As an autonomous body, the Authority has executive and regulatory powers to approve decrees and propose investment incentives to Egypt’s government. It is also responsible for SCZONE’s budget, funding, public–private partnership development, and business facilitation services, among other operational aspects.

SCZONE spans over 455 square kilometers (approximately 175.7 square miles) around the Suez Canal and comprises four industrial sub-zones and six port facilities. Because SCZONE is governed by its own legislation, it offers SCZONE-specific investment incentives; the zone accounts for about ten percent of the global seaborne oil trade and eight percent of global liquefied natural gas (LNG) each year.

In this alert, we provide key considerations for investors seeking expansion in the Middle East and North Africa region, supply chain diversification, or opportunities in natural gas, hydrogen, data centers, manufacturing, and pharmaceuticals.

Investment incentives

The Authority offers the following incentives for investing in SCZONE.

• A zero-percent customs tax: All materials and tools required for the construction and operation of projects located in SCZONE are subject to a zero-percent customs tax, subject to final product export requirements.
  
  
• A zero-percent value-added tax (VAT): Projects located in SCZONE pay a zero-percent VAT on all procurement needs for manufacturing, production, and operation, including raw materials, components, and spare parts. The zero-percent VAT applies whether inputs are procured domestically or internationally. Final products sold by SCZONE projects in Egypt’s domestic market (outside SCZONE) are subject to a 14-percent VAT.
  
  
• A 50-percent corporate income tax reduction for seven years: The corporate tax rate is 22.5 percent. Projects in SCZONE benefit from a 50-percent reduction in the corporate tax rate for the first seven years of the project. Aggregate reduction in corporate income tax over the seven-year period is capped at 80 percent of the project’s paid capital.
  
  
• No restrictions on profit repatriation: 100 percent of profits of SCZONE projects can be repatriated abroad.
  
  
• No minimum capital requirements: There are no minimum capital requirements for investing in SCZONE.
  
  
• A 100-percent foreign ownership allowed: No foreign ownership restrictions apply to projects in SCZONE. Land in SCZONE is available for lease, granting usufruct rights up to 50 years, renewable for further periods.
  
  
• Foreign employment: Up to ten percent of employees of SCZONE projects may be foreign nationals. The Authority may grant exceptions to increase this limit.
  
  
• Streamlined environmental impact assessments: Environmental impact assessments for projects in SCZONE are reviewed and approved by the Authority itself, not the Egyptian government.
  
  
• A five-year residency permit: Foreign investors have the right to receive a five-year residency permit, renewable for multiple five-year periods.
  
  
• Incentives for labor-intensive projects using local components: These projects benefit from (1) preferential payment terms for energy inputs, (2) full or partial reimbursement of some utility costs, and (3) full or partial reimbursement of the employer’s share of statutory employment deductions.
  
  
• An export support program: The Authority provides export support to manufacturing projects in SCZONE.
  
  
• A one-stop shop: The Authority provides investor services through a one-stop shop aimed at minimizing administrative burdens. Investor services include tax and customs services, corporate registry, operation and construction licenses, and foreign labor permits.
  
  
• Green hydrogen incentives: SCZONE includes a green hydrogen cluster at Sokhna Port, which was launched with an announced $500 million Norwegian investment. With the low production cost of wind and solar energy in the Red Sea region, the Authority is working to build a green fuel industrial cluster in SCZONE. So far, the Authority has signed eight Memoranda of Understanding and 15 Framework Agreements to that end, totaling $133 billion in estimated investments. Law No. 2 of 2024 provides the following incentives to green hydrogen projects for a period of five years:

• A 33- to 55-percent income tax rebate
• A VAT exemption on equipment and raw materials
• A VAT exemption on exports
• An exemption from property and real estate tax, stamp tax, registration fees, and customs
• A 25-percent reduction on industrial land usufruct fees
• A 20-percent reduction on port land usufruct fees for storage
• A 30-percent reduction on marine services fees

To be eligible for the above incentives, green hydrogen projects must comply with the following requirements:

• The project’s commercial operations must commence within five years from signing project agreements
  
  
• At least 70 percent of capital funding the project must be raised from outside Egypt
  
  
• At least 20 percent of project inputs must be sourced from local components
  
  
• The project must include components related to the transfer of know-how and technology to Egypt and implementation of training programs
  
  
• The project must include components related to corporate social responsibility in supporting local communities

• East Port Said industrial clusters: The Authority has dedicated sub-zones within SCZONE. The Sovereign Fund of Egypt and a group of private-sector investors have established the National Egyptian Railways Industries Company (NERIC) for the production of electric rolling stock. NERIC is located at East Port Said Industrial Area, at the northern end of the Suez Canal where it meets the Mediterranean Sea. The Authority has dedicated this area to an industrial cluster to support NERIC and other rolling stock manufacturers. The Authority also plans to allocate 1.2 million square meters to create an automotive industrial cluster at East Port Said Industrial Area, leveraging the presence of a roll-on/roll-off terminal at East Port Said.

Export markets and free trade agreements

Goods producers in SCZONE may be awarded Egyptian country-of-origin certificates, allowing them to benefit from a number of free trade agreements and export markets, including the:

• Qualifying Industrial Zones (QIZs) for the United States and Israel
  
  
• European Free Trade Association (EFTA) for Iceland, Liechtenstein, Norway, and Switzerland
  
  
• European Union Trade Agreement (EUTA) for the European Union
  
  
• Southern Common Market (Mercado Común del Sur or MERCOSUR) for Argentina, Brazil, Paraguay, and Uruguay
  
  
• Agadir Agreement for Morocco, Tunisia, and Jordan
  
  
• African Continental Free Trade Area (AfCFTA) for the African Union
  
  
• Common Market for Eastern and Southern Africa (COMESA) for Eastern and Southern Africa
  
  
• Greater Arab Free Trade Area (GAFTA) for the Arab League

In particular, QIZs allow Egyptian exports from specific qualifying industrial zones, including SCZONE, to enter the US market duty-free if at least 35 percent of the product value is co-produced by Egypt and Israel.

Looking ahead

For investors seeking to explore opportunities in SCZONE, DLA Piper is equipped with integrated teams in the US, Canada, Europe, and the Middle East; ongoing relationships with the Authority; and deep sector-specific experience.

To discuss how investment incentives and legal structures in SCZONE can support your investment strategy and position your firm for regional and global growth, please contact the authors.