Free and special economic zones represent one of the most vital legal mechanisms countries rely on to stimulate economic growth and attract foreign direct investment (FDI). The statutory framework of these zones is distinguished by presenting a parallel, highly flexible legislative system that grants investors packages of exemptions and facilities that insulate them from traditional bureaucracy.
In this legal article, we highlight the legal nature of free zones and the prominent tax and customs incentives prescribed for investment projects.
The Legal Nature of Free and Investment Zones#
A free zone is legally defined as a part of the state’s territory within its geographical borders but considered outside the customs line (regarding taxes and customs). These zones are divided into two types:
Public Free Zones: Geographically designated areas established by the state to host multiple industrial or service projects geared towards exportation.
Private Free Zones: A legal license granted to a single, specific project due to its strategic importance or geographical requirements, without being bound to locate inside a public zone.
Tax Incentives, Customs Exemptions, and Profit Repatriation Guarantees#
The Investment Law grants projects established within free zones unique financial and legislative advantages to protect capital:
Financial and Customs Exemptions#
Tax and Customs Immunity: Projects operating in free zones are not subject to corporate income taxes. Furthermore, all tools, equipment, and machinery imported for the project's activities are completely exempt from customs duties and Value Added Tax (VAT).
Alternative Fees: Projects are only obligated to pay a nominal annual fee (a small percentage) calculated based on the value of goods entering or leaving, or a percentage of the project's gross revenues depending on the activity type (service or industrial).
Legislative Guarantees and Currency Freedom#
Legislation guarantees foreign investors the absolute right to repatriate their profits abroad freely in any foreign currency, without being subject to local exchange control restrictions, in addition to asset immunity against nationalization or administrative confiscation.