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Algeria: Certain Business Changes Contained in the 2009 Supplementary Finance Act
The 2009 Supplementary Finance Act was adopted by the Algerian government at the end of July and was published in the
Journal Officiel de la République Algérienne of 26 July 2009 (as Order no. 09-01 of 22 July 2009).
The Supplementary Finance Act does not address all questions raised by the multiplicity of recent tax laws and regulations, but it provides clarification in certain areas. The following discussion examines measures that may affect investments by business taxpayers and companies.
General Provisions Relating to Investments
The 2009 Supplementary Finance Act reiterates and confirms measures that were announced in December 2008 by the Algerian Prime Minister Ahmed Ouyahia regarding private investment in Algeria.
The 2009 Supplementary Finance Act includes a few changes to the Algerian Investment Code that reflect certain new requirements relating to shareholding by Algerians in the capital of their companies.
The new measures clarify that foreign investments can be made only in connection with a partnership in which the Algerian resident shareholding represents at least 51% of the share capital (there can be several partners).
Likewise, external commercial activities—i.e., the importation of raw materials, products and goods intended for resale in the country—can be conducted by foreign individuals or legal entities only in the framework of a partnership in which the Algerian resident shareholding represents at least 30% of the share capital.
Any direct investment project or investment in a partnership with foreign capital must be submitted for prior review by the National Investment Council (Conseil national de l’investissement
or CNI)—a governmental agency responsible for overseeing the promotion of investment development, placed under the responsibility of the Head of Government, who holds the Chairmanship.
Furthermore, financing necessary to make these investments (with the exception of the constitution of the capital) generally must be obtained via the Algerian stock market. While there are certain exceptions to this rule, for the most part, it is no longer possible to finance investments made in Algeria with financing obtained outside Algeria.
Under the new measures, foreign investments—whether direct or through a partnership—must show a surplus currency balance in favor of Algeria during the life of the project. The terms of this rule and conditions for its application have yet to be detailed, but appears to limit the ability to transfer income out of Algeria.
The new measures also apply to (1) foreign investments made in a partnership entered into with public economic enterprises, and (2) the opening of capital investment of public economic enterprises to foreign shareholding. Thus, the Algerian government and Algerian public economic enterprises are afforded a preemptive right over all assignments of shareholdings by foreign shareholders or in favor of foreign shareholders.
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Tax Provisions
Extension of the requirement for reinvestment of tax credits. A requirement relating to the reinvestment of tax credits was introduced by the 2008 Supplementary Finance Act. This requirement mandates that the amount of profit corresponding to exemptions or reductions obtained solely in respect of the Tax on Company Profits (Impôt sur les Bénéfices des Sociétés—IBS) must be reinvested.
The reinvestment requirement must be satisfied within four years after the closing date of the fiscal year for which the incentive regime applies, effective for fiscal year 2008 and later, and for fiscal years, the net income of which is subject to the tax credit allocation process as of the date of enactment of the 2008 Supplementary Finance Act (i.e., 27 July 2008).
Failure to comply with this requirement requires the repayment of the tax benefits obtained as well as a penalty at a rate of 30%.
The 2009 Supplementary Finance Act has expanded the scope of the reinvestment rules to apply all tax reductions and exemptions from which a company may benefit. In other words, reductions of any taxes, customs duties, imposts, special taxes, and other levies from which taxpayers may have benefited in connection with the investment support regime must be reinvested in Algeria.
In accordance with the new measure, companies having benefited from tax benefits granted in the framework of the general or exceptional regime of the Algerian Investment Code must reinvest, in addition to the amount of the
IBS, the following:
- The tax on professional activities (2% of the sales turnover)
- Customs duties
- The transfer tax on real estate acquisitions
- The land tax imposed on real estate
- The registration fee (if any) relating to a company’s articles of association or capital increase
According to Article 57 of the 2009 Supplementary Finance Act (which introduced this provision), the reinvestment requirement applies to net income for fiscal years 2010 and later, as well as the net income in the process of allocation as of the date of enactment of the 2009 Supplementary Finance Act (i.e., 26 July 2009).
KPMG Observation
According to tax professionals with Fidal in Paris, the income to which the reinvestment obligation derived from the 2009 Supplementary Finance Act will first be applied would be income relating to fiscal year 2009—and not that of 2010 as stated in Article 57. It has been noted that the language of Article 57 apparently contains an error (subject to a contrary interpretation by the Algerian authorities) because it is not clear why the income of fiscal year 2009 would not be subject to this requirement whereas income in the process of allocation as of July 26, 2009, would be subject to this rule.
The CNI, however, could grant investors an exemption from this reinvestment requirement. An enacting decree, if issued, could specify the terms and conditions of application of this reinvestment exemption.
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Introduction of a bank domiciliation tax on the importations of services. The 2005 Supplementary Finance Act introduced a bank domiciliation tax, in the amount of 10,000 dinars, for any request to open a bank domiciliation file for an import operation.
Article 63 of the 2009 Supplementary Finance Act specifies that the importation of equipment and raw materials not intended to be resold “as is” is exempt from the bank domiciliation tax, subject to registration of an undertaking prior to each importation. Moreover, Article 63 provides that the importation of services will be subject to the bank domiciliation tax at a rate of 3% of the amount of the domiciliation.
The text of the 2009 Supplementary Finance Act does not specify who is legally liable for this tax—whether it is the paying agent of the banking transaction or the beneficiary. Likewise, the statutory language does not specify whether this tax must be paid based on the total amount of the services contract at the time of the domiciliation or paid on the amount of each invoice. Finally, it is not clear as to what is the effect of the recent provisions on invoices domiciled prior to enactment of the 2009 Supplementary Finance Act but that were not paid before the date of enactment.
Prohibition against Algerian customers assuming taxes and duties due from foreign co-contracting parties.
The number of contractual provisions relating to the assumption of Algerian
taxes and duties has been increasingly required by foreign co-contracting parties, notably
concerning withholding tax on company profits. Article 13 of the 2009 Supplementary Finance Act introduces a legal prohibition against the assumption by Algerian partners (or entities) of taxes and duties that are the responsibility of foreign companies pursuant to a contract or the law.
This provision applies to contracts signed as of the 26 July 2009 date of enactment, and it also applies to amendments that are considered to be new contracts.
For more information, contact a tax professional with Fidal Direction Internationale* in Paris:
Maya Kellou, +33.1.55.68.17.62,
mkellou@fidalinternational.com
Mohamed Mahjoubi, +33.1.55.68.16.53,
mmahjoubi@fidalinternational.com
*Fidal is a French law firm that is independent from KPMG and its member firms.
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