Executive summary

The Finance Law 2026, signed into law on 14 December 2025, introduces significant changes to the Algerian tax framework, with notably implications on permanent establishments. The law introduces a new tax dedicated to research and development (R&D) and innovation, and yet-to-be issued regulations will provide details for affected sectors. The new law also provides tax auditors with more access to taxpayers' information technology (IT) accounts systems.

Key provisions

Permanent establishments and branches of foreign entities

Clarification of branch tax applicable rules: Article 06 of the Finance Law 2026 provides that the branch tax is applicable on deemed distributed profit after the deduction of the corporate income tax (CIT) and is paid via the annual tax return.

Allocation of global engineering, procurement and construction (EPC) contract scope to a permanent establishment (PE): Article 12 attributes the procurement and engineering parts of an EPC contract to the local PE, regardless of the tax structure (e.g., head office) sending the invoice, collecting the cash and proceeding with the customs clearance.

Limitation on tax regimes applicable to PEs: Article 13 indicates that PEs registered in Algeria will be subject to the common tax regime; the Withholding tax regime option was removed.

Limitation on tax regimes applicable to foreign companies with no PE in Algeria: Article 14 provides that foreign companies that have no presence in Algeria are automatically subject to the Withholding tax regime; the option to choose the common tax regime was removed.

Limitation on deductibility of costs the head office allocates to its PE: Article 16 specifies that amounts a PE pays to its head office or other offices of the same company (royalties, fees, commissions, interest) are not deductible if they do not correspond to reimbursement of actual expenses. (A PE is not allowed to pay foreign suppliers via its nonresident foreign company (INR) account.)

Algerian legal entities

Reduction of dividend taxation for resident physical shareholders: Article 11 of the Finance Law 2026 reduces from 15% to 10% the withholding tax rate on dividends and similar income received by Algerian-resident individuals.

Modification of reporting dates for Professional training tax and apprenticeship tax: Articles 18, 19, 20 and 21 introduce a bi-annual declarations of these taxes and expand eligible expenses to the consideration of these taxes.

Limitation of refundable part of CIT excess of payment: Article 26 specifies that the CIT excess payment refund requests must be submitted within a four-year period from its reporting on the tax return.

Tax procedures and miscellaneous provisions

Strengthening controls over digital and group accounting systems: Article 74 of the Finance Law 2026 aims to strengthen controls of accounts held through IT systems. Taxpayers are now required to present a statement from their IT systems supplier attesting to compliance with the conditions for the inalterability, security, preservation and archiving of data, for the purpose of tax administration audits.

Introducing R&D efforts from large companies: Article 119 provides that Algerian companies with annual turnover of at least two billion Algerian Dinar (DZD2b) are required to allocate at least 1% of taxable profit to R&D or innovation activities.

R&D activities conducted within the establishment itself or through open innovation programs in collaboration with start-ups or certified incubators must be carried out either during the fiscal year to which the profit is attributable, or in the following fiscal year. In the latter case, the establishment is required to submit a formal commitment, which must be attached to the annual tax return.

The sectors subject to this tax and the modalities of its application will be detailed via a regulation.

Implications

Permanent establishments registered in Algeria under EPC contracts will need to address several challenges with regard to their taxable basis, considering a risk of double taxation of the offshore portion and a risk that part of the intercompany costs' deduction at the level of the PE and the head office may be rejected.

Taxpayers must manage their CIT excess payments, considering the timeframe of the submission of refund requests. Further, under the newly introduced rules, taxpayers must obtain a certificate for their accounting IT systems service providers.

Taxpayers generating annual turnover of at least DZD2b should watch for the tax authorities to publish regulations indicating which sectors involved in R&D and innovation face new obligations to allocate at least 1% of taxable profit to their R&D or innovation activities.