globaltaxnews.ey.comSign up for tax alert emailsPrintDownload

15 June 2020

Algeria enacts 2020 Complementary Finance Act including foreign direct investment incentives

On 4 June 2020, the Algerian Government enacted the Complementary Finance Act for 2020.

This Alert summarizes the key fiscal and investment measures.

Foreign Direct Investment (FDI) incentives

The key FDI measures include:
  • Establishment of an initial list for strategic sectors1 with retention of the 51/49 local majority shareholding rule. This majority obligation no longer applies to non-designated activities.
  • Removal of the State’s pre-emption right as provided for under Law 16-09 dedicated to the promotion of investment.

Nevertheless, it is specified that any transfer between foreign parties, of the share capital of an entity governed by Algerian Law and related to a strategic sector (as described below), remains subject to prior Government authorization.

  • Elimination of the mechanism restricting use of external financing for investments made by Algerian companies.2 In line with the Government’s objective to attract foreign investors, specifically by modifying the requirement for a majority national shareholding obligation (51/49 rule), the possibility of foreign financing for investments made by Algerian companies has been reinstated.
  • Activities carried out by individuals or companies in the Southern regions of the country3 benefit from a 50% reduction on the paid amounts of Personal Income Tax (PIT) and Corporate Income Tax (CIT), for a period of five years.

    • For eligibility matters, individuals or companies must be fiscally registered and permanently established in the below-mentioned regions.

    This incentive does not apply to the hydrocarbons sector, with the exception of the distribution and sale of oil and gas products.

    Repeal of provisions Introduced by the 2020 Finance Act

    • Elimination of the taxation, at a withholding rate of 15%, of Companies’ profits (earnings after tax) that were neither distributed nor subscribed to the share capital of the firm within a period of three years.
    • Elimination of the taxation, at a withholding the rate of 15%, of dividends paid to corporates (between resident legal entities).

     

    Increase in taxes

    • The Act increases the rate of the withholding tax applicable on revenue generated by foreign companies involved in service contracts, from 24% to 30%.

    Endnotes

    1. Strategic sectors: resale activities, mining, energy, hydrocarbons, pharmaceuticals, railways, ports, airports, military related industries and electricity transport.

    2. Repeal of the provision introduced by the Finance Act for 2016 providing that: (i) the financing necessary for the realization of foreign investments, whether direct or in partnership, except for the constitution of capital, shall be set up through local financing; and (ii) external financing allocated to the realization of strategic investments by companies under Algerian law was authorized, on a case-by-case basis, by the Government.

    3. List of regions: Illizi, Tindouf, Adrar, Tamenghasset, Timimoun, Bordj Badji Mokhtar, In salah, In Guezzam, Djanet.

    _____________________________________________________________________________________________________________

    For additional information with respect to this Alert, please contact the following:

    Ernst & Young Algérie, Head of Africa Desk – Maghreb and Francophone Africa and Head of Algeria Tax Practice, Alger
    Ernst & Young Algérie, Business Tax Advisory, Alger

    ATTACHMENT

    Document ID: 2020-5869

     
     

    The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

     

    Copyright © 2024, Ernst & Young LLP.

     

    All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

     

    Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

     

    "EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

     

    Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.

     


    Cookie Settings

    This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or ey.com. Please refer to the privacy notice/policy on these sites for more information.


    Yes, I accept         Find out more