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 amendments on investment and further elaborations on personal and corporate taxation. They also focus 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, instead they set 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:
New tax measures introduced by CFL 2020
- The controlled declaration regime has been repealed by Article 2 of CFL 2020; consequently, liberal professions will fall again under the flat rate tax regime (IFU regime).
- Taxation of profits subject to corporate income tax (CIT) in the personal income tax (PIT) base: Article 7 of CFL 2020 repealed the provisions of Article 16 of FL 2020, which included all profits that had been taxed at CIT at the corporate level in the PITable base, excluding any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- Taxation of received dividends in 'parent-subsidiary' regime: Article 7 of CFL 2020 repealed the provisions of Articles 19 and 20 of FL 2020, which amended Articles 147bis and 150-1 of the Direct Tax Code (CIDTA) to submit dividends received by the parent company to CIT at a 15% withholding tax (WHT). Thus, distributed profits from a subsidiary to its parent 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 WHT rate from 24% to 30%. Hence, subject to double taxation treaties (DTTs) provisions, remunerations received by foreign service providers, including royalties, should be subject to WHT at 30%.
- Article 12 of CFL 2020 has reintroduced the taxation on business activity (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 the Turnover Tax Code (CTCA); consequently, the 0% value-added tax (VAT) rate is no longer applicable.
- Exemption from VAT and CIT for start-ups: Article 69 of CFL 2020 provides specific measures for start-ups, such as full exemption from 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 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 FL 2021
- Capital gain taxation on stock disposals and stock earnings, equity shares, or similar securities: Article 14 of FL 2021 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 30-day time frame, starting from the transfer date. In addition, Article 15 of FL 2021 aimed to set up the tax rates levied on earnings and on stock transfers, equity shares, and similar securities as follows:
- 15% WHT 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 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 requires relevant taxpayers to file an annual summary statement within a deadline of 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: FL 2021 has implemented new e-filing obligations in Articles 9, 18, and 24 amending and supplementing, respectively, Articles 75, 176, and 224 of the CIDTA. More precisely, taxpayers are now required 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 (customs declaration), including information provided for in Article 224 of the CIDTA for TAP purposes.
- Refund of CIT: Article 29 of FL 2021 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 FL 2021 amends the provisions of Article 66 of FL 2014 to add new CIT reliefs 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-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 IFU regime from the scope of VAT: Article 37 of FL 2021 eliminated taxpayers under the IFU tax regime from the VAT scope of application.
- Instalment regime: Annual filing of turnover: Article 45 of FL 2021 amends the provisions of Article 103-3 of the 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 TAP 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 FL 2021 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 FL 2021 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 FL 2021 excludes individuals’ revenues that yield foreign currency from the PITable 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 FL 2021 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 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 and 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 unbuilt property as well as real estate rights relating to the transferred property. The introduced modifications also add real property rights on built and unbuilt properties, such as usage right and bare ownership, to this levying.
- Transfer of stocks and equity shares upon re-investment: Article 77 bis of the CIDTA was incorporated by FL 2021 to regulate the levying of capital gains on the transfer of stocks, equity shares, or similar securities, as follows:
- 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: FL 2021 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 FL 2021 brings certain modifications regarding the duration of the exemption acknowledged to companies titled under a 'start-up'. The exemption covers taxes under TAP and CIT for a period ranging from three to four 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 of up to 5% on equipment acquired by legally titled start-ups directly involved in the execution of their investment projects. In addition, FL 2021 introduced Article 87, which sets out provisions relating to companies titled as 'incubators', specifying that they will be exempt from TAP and PIT or CIT for a period of two years, starting from the legally titling date of an incubator.
- Offsetting overpayment under PIT over instalments: Similar to the CIT overpayment, FL 2021 also gives taxpayers the possibility to offset PIT overpayment against future instalments until fully absorbed or otherwise request for their refund (Article 28 of FL 2021).
- VAT and bank domiciliation tax on e-services for online document resource subscriptions: FL 2021 lays forward exemptions under VAT 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 FL 2021).
New tax measures introduced by FL 2022
New tax regime for non-commercial profits
The FL 2022 introduced a new tax regime applicable to non-commercial profits (NCPs) made by individuals taking into account the particular nature of this category of income. Since the introduction of the Finance Law for 2015, NCPs have been subject to the same tax regime as that of industrial and commercial profits. These two categories of income have been grouped under the heading of professional incomes.
FL 2022 provides for (i) the split of the BIC and BNC tax regimes by considering these two incomes as separate categorical incomes for PIT purposes and (ii) introduces the simplified regime for non-commercial professions. The aim is to consider the different particularities of these activities and to simplify the tax reporting and payment obligations incumbent on these taxpayers.
New taxation regime of immovable properties rental income
The FL2022 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 DZD 600,000 will be subject to a discharging withholding tax 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 tax burden on CIT, the new provisions of Article 43 of the FL2022 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 2m to DZD 4m;
- 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 1m to DZD 3m. 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, the FL2022 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 the FL2022 repealed Articles 87a and 147a respectively. These measures seek to remove the exemption under 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 withholding tax to be applied by the distributing company.
To that end, this income is now subject to the following discharging withholding taxes:
- 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, the FL2020 and the CFL2020 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.
The FL2022 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 the 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.