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Algeria Corporate - Significant developments

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The Finance Law for 2019 (FL 2019) was introduced in a tense economic context, marked by rigorous actions towards the determination of taxable revenues, as well as the reinforcement of the renewable energy sector. The legislator aims to provide consistent anti-abuse measures to prevent any acts of fraud and tax evasion, which, as a result, support the government’s budget to collect more payable taxes on earnings by limiting the deductibility of specific expenses. The main new tax provisions are as follows:

  • Limitation of the technical assistance expenses deductibility related to assistance services rendered by companies based overseas: Article 2 of FL 2019 provides a deductibility threshold limit accounted for 20% on the overhead costs of the debtor company and 5% of the turnover. However, for research and consulting offices, it is set at a rate of 7% of the turnover. This introduction came to limit the improper claim for the delivery of technical assistance services for tax evasion purposes.
  • In the same Article, the FL 2019 provides a new provision that limits the deduction of financial interest paid to shareholders within the frame of their business relationships with the Algerian company. In this context, the new provision provides the deductibility of these charges to the average effective interest rates communicated by the Bank of Algeria, with a double condition that the capital has to be fully paid-up and the sums available to the company should not exceed 50% of the capital. This measure is inspired by the so-called 'thin capitalisation measures' under Base Erosion and Profit Shifting (BEPS) Action 4.
  • New tax treatment introduced for depreciable and non-depreciable fixed assets: Under Article 4 of the FL 2019, the tax legislator provides an express exemption under the corporate income tax (CIT) from the revaluation variation of non-depreciable assets, whereas it remains silent concerning the tax treatment of capital gains or losses inflicting from the disposal of depreciable assets.
  • Setting forth a specific taxation framework of business transactions via digital platforms as indicated by Article 10 of the FL 2019 that subjugates the sale of goods and services performed online to a withholding tax (WHT) rate of 5% under the flat-rate tax (IFU). This tax is implemented on natural persons operating in the context of a distribution network of goods or services through digital platforms or the use of direct sales on the Internet.
  • Confirmation of the tax audit period: The legislator amended Article 20 of the Algerian Tax Procedure Code by confirming the capacity to perform a tax audit up to the last fourth closed accounting year. This measure aims to remove any ambiguity supported by misinterpretation of the tax authority ability to verify the last fiscal year ended prior to the filing of the tax annual return.
  • Provision of additional information to justify the transfer pricing policy practice by the group, which requires the company to provide auditors with access to as much information as possible on transfer pricing policy. Article 16 of the FL 2019 adds to the frame of Article 169a of the Algerian Tax Procedure Code the obligation to provide the auditors with additional documents in order to enable them to assess the transparency of controlled transactions.
  • Exemption for capital gain on disposal and proceeds from shares listed on the stock exchange, as well as bonds or debt securities with a maturity greater than or equal to five years, from CIT and personal income tax (PIT) as stipulated by the new amendments in Article 44 of the FL 2019.

Last Reviewed - 22 November 2019

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