Algeria

Corporate - Significant developments

Last reviewed - 01 June 2020

The Finance Law for 2020 (FL 2020) was introduced in a complex economic and political context, marked by rigorous actions from a microeconomic perspective towards the improvement of public financial management on one hand and the maximisation of tax revenues on the other. The legislature aims to provide new facilitatory measures for foreign investment and local business development alike, to reinforce the government economic policy by spurring economic activity, be it local or foreign, that will play a role in wealth creation onwards. The main new tax provisions are as follows:

  • Reintroduction of the controlled declaration regime: Article 2 of FL 2020 re-establishes a specific tax regime identified as the controlled declaration regime. This regime targets liberal professions and self-employment activities currently subject to the same tax regime as those applicable to commercial activity, in particular, the unique flat-rate tax regime (IFU) and the common tax regime. This introductions provides for a 26% tax rate on the taxable income of taxpayers after subtraction of expenses.
  • Revision of the legislative framework governing the IFU: Under the same regime, the FL 2020 instructs a new measure that lessens the turnover threshold for taxpayers subject to the IFU to 15 million Algerian dinars (DZD) in place of DZD 30 million as previously established. This adjustment in the FL 2020 also aims to broaden the subjugation of taxpayers under the real regime by shifting the tax regime applicable for legal persons falling under a turnover between DZD 15 million and DZD 30 million.
  • Taxation of profits subject to corporate income tax (CIT) at the Personal Income Tax (IRG): Article 16 of FL 2020 amends the provisions of Article 87bis of the Direct Tax Code (CIDTA), which seeks to include all profits that have been taxed at CIT at the corporate level in the IRG taxable base, excluding any specifically exempt profits. This measure intends to levy revenue generated by physical persons for IRG at a 15% rate following the distribution of profits previously taxed for CIT purposes.
  • Removal of the 'parent-subsidiary' regime for the taxation of received dividends: Articles 19 and 20 of FL 2020 seeks to amend Articles 147bis and 150-1 of the CIDTA. From then onward, dividends received by the parent company resulting from profits distribution by a subsidiary company subject to CIT will also be levied under CIT at the 15% tax rate. This new provision thus removes the 'parent-subsidiary' regime, which is provided for the neutralisation of the CIT for dividends distributed by subsidiary companies to their holding company.
  • Increase in the IRG tax rate on income from consulting activities: Article 17 of FL 2020 reviews the provisions of Article 104-1 of the CIDTA by increasing the tax rate for non-recurring activities of an intellectual nature, known as 'consulting activities', from 10% to 15%. As such, teaching activities remain taxable at a 10% rate, whereas other consulting and intellectual activities are to be taxed at a higher rate of 15% with the elimination of the DZD 2 million threshold.
  • Review of the allowance applied to contracts for the use of computer software: Articles 18 and 21 of FL 2020 provide for an increase in the effective withholding tax (WHT) rate on royalties for the use of computer software from 4.8% to 16.8%. This increase concerns the reduction in the allowance rate from 80% to 30% of the 24% WHT rate on the taxable base.
  • Limitation of the deduction of costs related to the medical promotion of pharmaceutical and para-pharmaceutical products: Article 22 of FL 2020 introduces a new provision in Article 169-1 of the CIDTA, aimed to limit the tax deductibility of expenses related to the medical promotion of pharmaceutical and para-pharmaceutical products to 1% of annual turnover. This measure came into effect to restrict abusive deductibility of expenses in the pharmaceutical industry that are deemed irrelevant to the production or marketing of pharmaceutical or para-pharmaceutical products, particularly expenses incurred for specialist doctors during scientific research events.
  • Obligation to report fund transfers to non-resident persons: Article 23 of FL 2020 amends the provisions of Article 182b of the CIDTA by proposing changes to the rules governing the transfer of funds abroad. The main purpose of this measure is to clarify that the certificate issued by the tax authorities is merely a document that does not signify a tax discharge. The taxpayers concerned may be subject to subsequent tax audit and regularisation as part of the control measures conferred by law on the tax authorities.
  • Removal of the tax on business activity (TAP) allowance granted to the construction sector and public and hydraulic works: Article 24 of FL 2020 amends Article 222 of the CIDTA by removing the 25% allowance on the 2% TAP rate granted to the construction, public, and hydraulic works sector. Indeed, the legislature considers that the 25% reduction is not justified once the tax administration has undertaken structural and functional reforms, consisting, in particular, in the implementation of an information system allowing it to obtain information automatically from certain public administrations as well as institutions that have information concerning construction, public, and hydraulic works.
  • Introduction of value-added tax (VAT) on digital sales transactions: Article 39 of FL 2020 supplements the provisions of Article 2 of the Turnover Tax Code CTCA, which states that transactions carried out electronically will be subject to VAT. The rate applied is 9% as specified in Article 41 of this FL, which amends Article 23 of the CTCA. This measure aims, on one hand, to adapt the Algerian tax regime to new distribution methods and shifts to digitised business activities and transactions and, on the other hand, to increase the state’s revenues. However, the applicability of such measure may be a challenge in light of the nature of digital businesses, which are characterised by their intractability.
  • Introduction of a zero VAT rate: Article 42 of FL 2020 introduces a new article into the CTCA. It is Article 23bis, introducing a new VAT rate at 0%. This mechanism is set forth to facilitate an exemption regime regarding the acquisition of products, goods, and services enacted starting from 1 April 2020. The legislature seeks to reduce the volume and number of VAT exemption certificates, which consume substantial time and effort with regard to their audit and control. It also allows taxpayers under this regime to recover input VAT through a credit refund request. However, the application of this measure has been suspended by the tax administration until further notice.
  • Exemption from VAT and CIT for start-ups: Article 69 of FL 2020 provides for a total exemption from VAT and CIT for start-ups. This measure is a major step forward for younger entrepreneurs who wish to create their own 'start-up'. The conditions of eligibility of start-ups and the procedures for applying this new provision will be laid down by regulation.
  • Fixing the deadline for submitting refund claims for partial VAT payers: Article 46 of FL 2020, supplemented by Article 50bis of the CTCA relating to the conditions for granting VAT refunds, sets the deadline for submitting applications for the refund of VAT credits for partial taxpayers. From now on, partial taxpayers carrying out transactions taxable for VAT and transactions not subject to VAT and/or transactions exempt from that tax without the right to deduct are required to submit their refund applications by 30 April of the year following the year in which the credit was generated.
  • Introduction of tax procedures following the reorganisation of the IFU regime: Following the reorganisation of the IFU regime, Article 50 of FL 2020 amends the provisions of Article 1 of the Code of Tax Procedures (CPF) in terms of the reporting date for taxpayers subject to the IFU. According to this introduction, taxpayers covered by the IFU regime are required to submit special declarations and are subject to new assessment procedures.
  • Increasing energy efficiency tax (EEO): The provisions of Articles 70, 71, 72, and 73 of the Finance Act for 2017 are amended and supplemented by Article 64 of FL 2020, to reorganise the prices of the EEO. This tax is applied to imported or locally manufactured products powered by electricity, gas, and petroleum products whose energy consumption exceeds the energy efficiency standards provided for by the regulations in force.
  • Annual tax on vehicles and rolling machines: Article 84 of FL 2020 establishes an annual tax on cars and rolling machines due on the occasion of the subscription of the insurance contract by the owner of the vehicle or rolling machine. In its explanatory statement, the legislature wishes to demonstrate the willingness of the authorities to introduce and/or increase taxes in relation to environmental pollution.
  • Annual tax on polluting activities: Article 88 of FL 2020 amends Article 61 of the Finance Act for 2018 by substantially increasing the tax on polluting activities. Indeed, the increase in this tax varies from 50% to 100% compared to the rates introduced in 2018.
  • Extension of electronic declaration and payment to taxpayers subject to local taxes: Article 65 of FL 2020 amends Article 67 of FL 2017 by extending the electronic filing of tax returns by taxpayers in Tax Proximity Centres (TPCs). This possibility will be implemented in a first phase in an optional and progressive manner with a view to its subsequent generalisation when all the conditions are met, in particular e-payment for small taxpayers relevant to local tax inspections and tax centres.
  • Increase in the solidarity contribution applicable to the import operations of goods released for consumption in Algeria: Article 105 of FL 2020 amends Article 109 of the Finance Act for 2019 by increasing the solidarity contribution applicable to the import of goods from 1% to 2%. The proceeds of this contribution are paid to the National Pension Fund (CNR) and those to reduce the CNR's deficit.
  • Bank domiciliation tax on the import of goods or services: The main purpose of Article 67 of FL 2020 is to amend the current rate of the bank domiciliation tax applicable to import transactions of all kinds, whether they involve goods and/or services. A rate of 0.5% is established on import domiciliation requests for goods intended for resale, 1% for import operations within the scope of CKD/SKD, and, lastly, a 4% rate on domiciliation for service importations.
  • Customs clearance for the release for consumption of imported vehicles: Article 110 of FL 2020 provides for the authorisation of customs clearance for release for consumption. This measure is part of the policy of diversifying the supply of vehicles to users and the road safety strategy for vehicles under three years old.
  • Expansion of electronic payment instruments: Article 111 of FL 2020 amends Article 111 of FL 2018, which was intended to make the use of electronic payment terminals (TPE terminals) mandatory. This measure aims to authorise all electronic methods of payment that are accepted by Algerian banks and diminish the informal economy.
  • Authorisation to provide funding for strategic and structuring projects to development financial institutions: Article 108 of FL 2020 introduces the possibility for the Algerian state to use external financing from development financial institutions for the implementation of strategic and structuring projects for the national economy.
  • Re-organisation of the local partnership rule: Article 109 of FL 2020 amends Article 66 of FL 2016 by limiting the partnership obligation, whose national resident shareholding represents at least 51% of the share capital, to only investments that are of particular or strategic interest for the Algerian economy. This article refers to an executive decree, which has to be published defining the strategic activities.