New measures have been introduced by the Complementary Finance Law for 2020 (CFL 2020) issued on 4 June 2020 and the Finance Law for 2021 (FL 2021) issued on 31 December 2020.
Both the CFL 2020 and FL 2021 have occurred in a more complex context since the pandemic of COVID-19 has affected the global economy starting from the beginning of 2020. Indeed, they took place in a more challenging economic, social, political and health context.
As of the macroeconomic framework kicked-off a few years ago, CFL 2020 and FL 2021 seek to reinforce measures on public finance management and increasing tax revenues. More specifically, the legislator aims to provide rules amendment on investment and further elaborations on personal and corporate taxation. They also focuse on encouraging start-ups creation by granting tax incentives and administrative facilitation. Unlike previous Finance Laws, CFL 2020 and FL 2021 did not enact new taxes and duties, it rather sets forth new measures that work towards distinguishing the tax regime of certain operations on one hand and widening the tax base of levied taxes on the other.
The main new tax provisions are as follows:
The new measures introduced by the CFL 2020 published in 04 June 2020:
- The controlled declaration regime has been repealed by Article 2 of CLF 2020, hence, liberal professions will fall again under the flat rate tax regime.
- Taxation of profits subject to corporate income tax (CIT) at the Personal Income Tax (IRG): article 7 of CFL 2020 repealed the provisions Article 16 of FL 2020 which soaked to include all profits that have been taxed at CIT at the corporate level in the IRG taxable base, excluding any specifically exempt profits. Thus, distributed profits already subject to CIT will not be taxed again for PIT purposes.
- Taxation of received dividends "Parent-subsidiary" regime: article 7 of CFL 2020 repealed the provisions of articles 19 and 20 of FL 2020 which soaked to amend Articles 147bis and 150-1 of the CIDTA and submit dividends received by the parent company to CIT @15% WHT. Thus, distributed profits from a subsidiary to its mother company already subject to CIT will not be taxed again for CIT purposes.
- Article 10 of CFL 2020 has amended article 150 of CIDTA and provides for the increase of the CIT withholding tax rate from 24% to 30%. Hence, subject to double taxation treaties provisions, remunerations received by foreign service providers including royalties should be subject to WHT@30%.
- Article 12 of CFL 2020 has reintroduced this TAP allowance set at 25% granted to the construction, public, and hydraulic works sector.
- Article 22 of CFL 2020 has abrogated article 23 bis of CTCA , hence, the 0% VAT rate rate is no more applicable.
- Exemption from VAT and CIT for start-ups: Article 69 of the CFL provided specific measures for start-ups, such as full exemption from turnover tax (TAP), PIT and CIT for a certain period of time.
- 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. In this respect, article Article 50 of the CFL for 2020 defined strategic sectors as follows:
- The exploitation of the national mineral domain, as well as any underground or surface resource resulting from surface or underground extractive activities, excluding quarries of non-mineral products ;
- Industries initiated by or related to the military industries under the responsibility of the Ministry of National Defense ;
- Railways, ports and airports ;
- The upstream of the energy sector and any other activity governed by the Hydrocarbon Law, as well as the distribution operations and transport network of electrical energy by cables, and of gaseous or liquid hydrocarbons by overhead or underground pipelines ;
- Pharmaceutical industries, with the exception of investments related to the manufacture of essential innovative, high value-added products, requiring complex and protected technology, destined for the local market and for export.
New tax measures introduced by Finance Law for 2021:
- Capital gain taxation on stock disposals and stock earnings equity shares or similar securities: Article 14 of FL2021 provides that non-resident companies generating capital gains in Algeria as a result of transferring stocks, equity shares or similar securities are required to calculate and pay the relevant tax owed on their own within a thirty (30) day time frame, starting from the transfer date. In addition, Article 15 of the LF 2021 aimed to set up the tax rates levied on earnings and on stock transfers, equity shares and similar securities as follows:
- 15% withholding tax in full discharge of tax on stock earnings or equity shares as well as related incomes referred to in Articles 45 and 48 of the Direct tax code (CIDTA), which are generated for the benefit of non-residents in Algeria;
- 20% on capital gains generated from transfer of stocks, equity shares or similar securities generated by taxpayers referred to in Article 149 bis of the CIDTA ( non-resident companies in Algeria).
- E-filing of the annual summary statement (ERA): Article 16 of the FL 2021 brought new e-filing items incumbent upon natural persons monitored under the common tax regime and legal entities subject to CIT referred to in article 136. This arrangement obliges relevant taxpayers to file an annual summary statement within a deadline no later than 20 May by means of electronic filing. The summary comprises information extracted from the annual tax return and the annexed statements. It is also provided in section 2 of the same article for the application of sanctions instructed in article 192 bis of the CIDTA, in case of failure to abide by the e-filing compliance items pertaining to the annual summary statement, filing deadlines and/or statements including mismatched information with that in the annual tax return.
- Other new electronic filing requirements: FL2021 has implemented new e-fling obligations, in articles 9, 18 and 24 amending and supplementing respectively articles 75, 176 and 224 of the CIDTA. More precisely, taxpayers are now obliged to submit the following statements (declarations) by means of electronic filing:
- Wages statement under Gn°29 (Ex 301bis);
- Statement of subcontracting payments, studies, equipment rentals, staff loaning / deployment, rentals of any kind and other remuneration of any kind whatsoever provided for in Article 176 of the CIDTA;
- Statement of transactions performed under the wholesale conditions (Costumers declaration) including information provided for in article 224 of the CIDTA for TPA purposes.
- Refund of Corporate Income Tax: Article 29 of FL2021 is intended to recognise the right of taxpayers to a refund of overpayment of income tax. This measure offers a definite advantage to legal entities subject to CIT, especially those encountering cash flow constraints within the course of ongoing deficits or declines in business activity volumes as a result of the current economic and health situation.
- CIT relief in favour of listed companies: Article 133 of the LF2021 amends the provisions of Article 66 of FL2014 to add new CIT relieves for listed companies on the stock exchange of ordinary shares. This relief equals the share capital opening rate on the stock exchange for a three (3) year period starting from 1 January 2021. This stock market-related relief works toward encouraging local companies to (i) open their capital for public savings and to (ii) boost the stock market activities in Algeria concurrently.
- Exclusion of turnover generated by taxpayers subject to the flat tax regime (IFU regime) from the scope of VAT: Article 37 of the FL2021 eliminated taxpayers under the IFU tax regime from the VAT scope of application.
- Instalment regime: annual filing of turnover: Article 45 of the FL2021 amends the provisions of article 103-3 of the Turnover tax code (CTCA) to move up the filing deadline of the annual filing and the payment of the liquidation balance which ranges from 20 April to 20 February. This new payment deadline for the VAT liquidation balance equates the payment deadline for TPA liquidation balance, i.e. 20 February at the latest of each following year. These two taxes generally adhere to the same rules of filing.
- Property income taxation on undeveloped property rental: Article 12 of the FL2021 establishes a 15% tax rate in full discharge of tax to levy on undeveloped property rentals in the same manner levied on rental income for trading or professional purposes. As for undeveloped property rental for agricultural use, a rate of 10% applies in full discharge of tax.
- Training and consulting contract: article 12 of the FL2021 also repeals the preceding reduction of 20% for PIT purposes. This advantage used to apply on remunerations paid under a consulting or a training contract.
- Permanent PIT exemption for export operations carried out by natural persons: Article 4 of the FL2021 excludes individuals’ revenues that yield foreign currency from the PIT taxable base. Such revenues must be of export transactions of goods and services to be eligible for the exemption. Like legal entities, foreign currency yielding export revenues are CIT-exempt as provided for by the tax legislation in force.
- Exemption of allowances related to special conditions of residence and isolation: Article 8 of the FL2021 introduced a new provision to the PIT exemption regime provided for in section 68 of the CIDTA. The new article comes with an exemption for PIT purposes concerning allowances of special residence and isolation conditions. However, the exemption will be granted to taxpayers within the limit of 70% of the basic salary.
- Rearrangement of levying mechanism of capital gains on real estate disposals: Article 10 of the FL 2021 introduced a rearrangement of Title VII of the CIDTA, as well as a modification of the provisions of articles 77, 78, 79 and 80 of the same code, by instituting articles 77 bis, 79 bis. The purpose of the amendment to Article 77 of the CIDTA is to rearrange the levying mechanism of capital gains from the transfer of built and inbuilt property as well as real estate rights relating to the transferred property. The introduced modifications also add real property rights on built and inbuilt properties such as usage right, bare ownership to this levying.
- Transfer of stocks and equity shares upon re-investment: Article 77 bis of the CIDTA was incorporated by FL2021 to regulate the levying of capital gains on the transfer of stocks, equity shares or similar securities.
- 15% when performed by a resident legal entity in Algeria (Article 104.V of the CIDTA);
- 20% when performed by non-resident legal entities in Algeria (150-3/ of the CIDTA).
- Rearrangement of capital gain calculation methods and reassessment possibility by the tax authorities: FL2021 has added a new article to its provisions, Article 79 bis to illustrate calculation methods of capital gains on transfer of stocks, equity shares and similar instruments. This capital gain is made up of the positive difference between the (filed) sale price of these stocks, equity shares or similar securities, and their acquisition or subscription price. When the sale price of the stock, equity shares or similar securities is lower than their fair market value, it will be taken into consideration for the calculation of the taxable capital gain.
- Measures relating to Start-ups: Article 86 of the FL2021 brings certain modifications regarding the duration of the exemption acknowledged to companies titled under a "Start-up". The exemption covers taxes under turnover tax (TAP) and CIT for a period ranging from (03) to four (04) years (i.e. starting from the legally titling date of a start-up) with an additional year of exemption in case of renewal. VAT exemption is also included along with a reduced customs duty rate up to 5% on equipment acquired by legally titled start-ups directly involved in the execution of their investment projects. In addition, the FL2021 introduced article 87 which sets out provisions relating to companies titled "incubator", specifying that they will be exempt from TAP and PIT or CIT for a period of two (02) years, starting from the legally titling date of an incubator.
- Offsetting overpayment under PIT over instalments: Similar to the CIT overpayment, this FL2021 also gives taxpayers the possibility to offset PIT overpayment against future instalments until fully absorbed or otherwise request for their refund. (Article 28 of the FL2021).
- VAT and Bank Domiciliation Tax on e-services for online document resource subscriptions: The FL2021 lays forward exemptions under VAT purposes and bank domiciliation tax on electronic services that offer subscriptions for online document resources to customers along with web-search operations and IP address management. The two exemptions also put in scope subscription services on the allocation of identifiers for serial publications and contribution efforts to enrich the catalogue of scientific and technical information that benefit institutions under the authority of the Ministry of Higher Education and Scientific Research. (Article 90 of the FL2021).