New tax measures introduced by Finance Law (FL) 2022
New taxation regime of immovable properties rental income
FL 2022 amended the provisions of Article 104 II-2 of the Algerian Tax Code by providing for new taxation methods that will apply on rental income depending on the level of the earned income.
Based on the new taxation regime, rental gross income not exceeding 600,000 Algerian dinars (DZD) will be subject to a discharging withholding tax (WHT) of:
- 7% on income stemming from the rental of residential properties.
- 15% on income stemming from the rental of unfurnished commercial or professional properties (also applicable to contracts concluded with companies).
- 15% on income stemming from rental of bare lands. This rate will be reduced to 10% in case of agricultural lands.
Where the annual income exceeds the DZD 600,000 threshold, a provisional taxation of 7% will apply on the income irrespective of the nature of the property.
Increase in the deduction thresholds for certain expenses
In order to simplify and reduce the corporate income tax (CIT) burden, the new provisions of Article 43 of FL 2022 provide an increase in the deduction limits for the following expenses:
- The limit for the deduction of charges relating to promotional gifts increases from DZD 500 to DZD 1,000 per unit, within the limit of a total amount of DZD 500,000.
- The deduction limit for grants and donations, with the exception of those granted in cash or in kind for the benefit of humanitarian institutions and associations, increases from DZD 2 million to DZD 4 million.
- Low-value fixed assets whose deductibility threshold is raised to DZD 60,000 instead of DZD 30,000.
- The cap used as a basis for calculating the depreciation annuities of passenger vehicles is increased from DZD 1 million to DZD 3 million. However, it’s worth recalling that this deduction threshold does not apply where the vehicle is the main tool of the business activity.
Addressing rental costs, FL 2022 has put forward the possibility for taxpayers to deduct rental costs and maintenance and repair costs of passenger vehicles with a limit of:
- DZD 200,000 per year for rents. The provision does not specify whether this threshold is applied per vehicle or for all vehicles leased by the taxpayer. According to the proposed wording of Article 169 of the Algeria Tax Code, we understand that this deduction limit will apply to the amount of the annual charge (regardless of the number of vehicles rented).
- DZD 20,000 per vehicle, as maintenance and repair costs.
The exception to the above deductibility limit is for rented vehicles used as the main tool of the taxpayer's business activity, in which case these expenses will be deductible regardless of their amount.
Taxation of dividends distributed to resident natural and legal persons
Articles 30 and 45 of FL 2022 repealed Articles 87a and 147a, respectively. These measures seek to remove the exemption under personal income tax (PIT) and CIT of income stemming from the distribution of profits that have been subject to CIT or expressly exempted.
The proposed amendments are justified by the fact that their taxation is made through a discharging WHT to be applied by the distributing company.
To that end, this income is now subject to the following discharging WHTs:
- 15% for income distributed to resident natural persons (in accordance with the provisions of Articles 45 to 48 and Article 104-5 of the Algerian Tax Code).
- 5% in respect of income distributed to resident legal persons (according to the new wording of Article 150 of the Algerian Tax Code as amended by FL 2022).
Measure relating to the local partnership rule 51/49
As a reminder, FL 2020 and Complementary Finance Law (CFL) 2020 had previously put forward rearrangements of the local partnership rule by giving foreign investors the opportunity to make investments in Algeria without submitting to the local partnership rule. This provision applies to all activities of manufacturing of goods and services except those considered as strategic activities or those engaged in trading activities.
FL 2022 excludes activities relating to the exploitation of the national mining domain, as well as activities upstream of the energy sector and any other activities governed by the Hydrocarbon Law from the list of activities considered strategic within the meaning of the former wording of Article 50 of CFL 2020.
Despite the above, these activities remain subject to the local partnership rule under the conditions provided for by laws applicable to them specifically.