Algeria Corporate Tax Guide

Algeria

Algiers

EY +213 21-24-93-92

Oriental Business Park Fax: +213 21-24-91-14 Quartier d’affaires d’Alger Bab Ezzouar, Algiers Algeria

Principal Tax Contacts

Bruno Messerschmitt

+33 (1) 55-61-17-21 (resident in Paris) Mobile: +33 6-84-02-72-51, +213 770-258-980 Email: bruno.messerschmitt@ey-avocats.com

Halim Zaidi +213 21-24-93-92 Mobile: +213 770-82-52-35 Email: halim.zaidi@dz.ey.com

Imene Henni +213 21-24-93-92 Mobile: +213 782-22-00-60 Email: imene.henni@dz.ey.com

Yasmine Nait Dahmane +213 21-24-93-92 Mobile: +213 770-82-42-30 Email: yasmine.nait-dahmane@dz.ey.com

Anis El Hadj Ali +213 21-24-93-92 Mobile: +213 770-47-44-69 Email: anis.el.hadj.ali@dz.ey.com

A. At a glance

Corporate Income Tax Rate

10/19/23/26 (a)

Capital Gains Tax Rate (%) 15/20 (b) Branch Income Tax Rate

B. Taxes on corporate income and gains

Corporate income

19/23/26 (a)

subject to

Sociétés,

In general, IBS is levied on income realized in Algeria, which includes the following:

• Income derived from trading activities carried out by compa nies

• Income of representative agents of companies

• Income of companies that do not have an establishment or a representative agent but realize a complete cycle of commercial activities

Tax rates. The following are the IBS rates:

• 10% (preferential rate) for companies carrying out a production activity if they reinvest during the fiscal year. Reinvestments can be made through acquiring production equipment and shares or equity interests or similar securities of up to at least 90% in the capital of another company.

• 19% for companies carrying out production activities.

• 23% for companies engaged in the construction sector and tour ism.

• 26% for companies carrying out other activities, such as impor tation and resale in the same condition.

Companies carrying out activities that are subject to different rates of IBS are charged an IBS rate for each activity according to its portion (pro rata) of the consolidated turnover.

A complementary tax of 10% on company profits is introduced for tobacco manufacturing companies. The tax base of this tax is the same as the tax base subject to the corporate income tax.

Tax incentives. Law No. 16-09 relating to the development of investments, which amended Law 01-03, provides for different levels of investment incentives applicable to national and foreign investments made in the production of goods and services, and investments made within the framework of the granting of a license and/or a concession.

For purposes of the above law, investments include the following:

• Acquisition of assets included in the creation of new activities, capacity of production extension, rehabilitation and restructur ing

• Participation in the share capital of an Algerian company

Before the investments are made, they must be registered with the National Agency for Investment Development (Agence Nationale pour le Développement des Investissements, or ANDI) to benefit from the incentives discussed below. Investments of DZD5 billion or more, as well as those that serve particular inter est of the national economy are subject to the prior decision of the National Investment Council.

The advantages granted by the ANDI to investors depend on the investment’s structure, as provided by Law 16-09.

Common advantages for all eligible investments. The advantages described below apply to national and foreign investments made in the activities of production of goods and services as well as investments made within the framework of the granting of a license and/or a concession.

For investment projects in northern areas, during the setting up of their investments, companies may benefit from the following advantages:

• Exemption from customs duties on imported equipment direct ly involved in the investment setup

• Exemption from value-added tax (VAT) on goods and services directly involved in the investment setup

• Exemption from property transfer tax and land publication fees on all property acquisitions made within the framework of the registered investment

• Exemption from registration duties, land publication fees and state-owned property remuneration, for granted built and unbuilt property assigned to the investment setup

• Ninety percent deduction on the annual rental fee amount set by the government property authority for the investment setup period

• Exemption from land tax on real estate within the framework of the investment for a period of 10 years from the acquisition date

• Exemption from registration duties on acts of incorporation and capital increases

When operating in northern areas, companies may be granted the following advantages for three years:

• IBS exemption

• Tax on professional activity (see Section D) exemption

• 50% deduction on the annual rental fee amount set by the state property department

For investment projects in southern areas (the highlands and areas whose development requires a particular contribution of the state), during the setting up of their investments, companies may benefit from the following advantages:

• Exemption from customs duties on imported goods directly involved in the investment setup.

• Exemption from VAT on goods and services directly involved in the investment setup, whether they are imported or purchased on the local market.

• Exemption from transfer tax payable on real estate acquisitions made within the framework of the investment.

• Exemption from registration fees, land advertisement tax and the state-owned property remuneration on built and unbuilt properties granted for the investment projects’ setup. This ben efit applies for the minimum duration of the granted conces sion.

• Partial or total support by the state, after the ANDI’s assessment of expenditures concerning infrastructure works needed for the setup of the investment.

• Exemption from land tax on real estate within the framework of the investment for a period of 10 years from the acquisition date.

• Exemption from registration duties on acts of incorporations and capital increases.

• Reduction of the annual rental fee amount set by the state prop erty department, on the land concession for the investment projects’ setup, in the following amounts:

A symbolic dinar per square meter is paid for a period of 10 years and 50% of the annual rental fee amount is paid

beyond this period for investments located in localities within the highlands and other areas whose development requires a special contribution of the state. A symbolic dinar per square meter is paid for a period of 15 years and 50% of the annual rental fee amount is paid beyond this period for investment projects implemented in the regions of the south.

During the investment exploitation period in southern areas, companies may be granted the following advantages for 10 years:

• IBS exemption

• Tax on professional activity (see Section D) exemption

• Fifty percent deduction on the annual rental fee amount set by the state property department

Additional advantages for privileged and jobs-creating activities. Particular tax and financial incentives are available under legisla tion for tourist, industrial and agricultural activities, which can not be cumulated with the advantages of Law No. 16-09 provisions. The investor benefits from the most advantageous incentive measure.

For investments that are set up in areas to be promoted and that are generating more than 100 permanent jobs, the duration of the tax exemption during the investment exploitation period is five years.

Exceptional advantages to investments serving a particular inter est of the national economy. The following advantages are avail able to investments serving a particular interest of the national economy during the investment setup period:

• All the common advantages for the setup period

• Granting, according to the legislation in force, of exemptions or reduction of customs duties, taxes and other impositions with fiscal character and subsidies, aids or financial supports, and benefiting from any facilitation measures likely to be introduced

• After the National Investment Council agreement is signed, the possibility of the setup period advantages being transferred from the investor to contracting parties in charge of the invest ment setup for the investor

The following advantages are available to investments serving a particular interest of the national economy during the investmentexploitation period:

• Extension for a period of up to 10 years, of the duration of the common advantages granted during the exploitation period

• Granting of a duty-free purchase scheme for goods and materials used in the production of goods benefiting from the VAT exemption

• Granting for a period not exceeding five years exemptions or reductions of duties and taxes, including VAT, applied on the prices of goods produced within the framework of emerging industrial activities

Capital gains. Capital gains are included in ordinary income and taxed at the applicable IBS rate.

Capital gains derived from the sale of fixed assets are taxed dif ferently, depending on whether they are short-term capital gains (on assets held for three years or less) or long-term capital gains (on assets held for more than three years).

The following percentages of capital gains derived from the par tial or total sale of assets within the framework of industrial, commercial, agriculture or professional activities are included in taxable profits:

• 35% of long-term capital gains

• 70% of short-term capital gains

Capital gains derived from the sale of shares realized by nationals are taxed at a rate of 15%.

Unless otherwise provided by a double tax treaty, nonresident individuals and companies that derive capital gains from the sale of shares of an Algerian entity are subject to a final withholding tax at a rate of 20%.

Administration. An annual tax return must be filed with the tax administration within four months after the end of the financial year. Foreign companies carrying out activities in Algeria through a permanent establishment are subject to the same filing obligations as companies incorporated in Algeria. These obliga tions include the filing of an annual corporate tax return (IBS return, named G4 form or G4 Bis form), by 30 April of each year.

The IBS is generally paid in three down payments from 20 February to 20 March, from 20 May to 20 June and from 20 October to 20 November of the year following the financial year, if profit has been realized and used for the base of tax calculation. The amount of each down payment is equal to 30% of the IBS due on profits realized during the last closed financial year.

Permanent establishments of foreign companies must make an IBS down payment equal to 0.5% of the amounts billed every month. When filing the annual IBS return, these IBS down pay ments are offset against the IBS due.

Certain listed documents must be attached to the IBS return, including the balance sheet and a summary of the profit-and-loss account.

Taxes withheld at source and those paid in cash must be declared on a monthly tax return (“G 50” form). These taxes include the following:

• Personal income tax (Impôt sur le Revenu Global, or IRG)

• Withholding tax due on passive income and remuneration paid to nonresident service suppliers

• TAP

• Professional training tax and apprenticeship tax

• IBS down payments

• VAT

This form must be filed within 20 days following the end of the month of payment of the relevant remuneration together with the payment of the related taxes.

Dividends. Dividends paid are subject to a 15% withholding tax, subject to double tax treaties.

Royalties. Unless otherwise provided by double tax treaties, a 30% withholding tax is imposed on royalties and remuneration for services paid to nonresident entities.

For contracts relating to the use of computer software, a tax allow ance at a rate of 30% is applicable on the amount of the royalties. Consequently, the effective rate of the withholding tax is 21%.

A tax allowance at a rate of 60% is applied to the amount of the rent amount paid under an international leasing contract. As a result, the effective rate of the withholding tax is 12%.

For royalties benefiting from allowances, VAT must be paid in addition to withholding tax.

Foreign tax relief. The Algerian Direct Tax Code does not provide for foreign tax relief.

C. Determination of taxable income

General. The computation of taxable income is based on financial statements prepared according to generally accepted accounting principles, provided they are not incompatible with the provi sions of the Algerian Direct Tax Code.

Taxable income is determined on the basis of profits and losses. Taxable income includes operating income and “extraordinary income,” such as capital gains, gains from the revaluation of busi ness assets and subventions, subject to certain exclusions and business incentives.

In the determination of taxable income, any expenditure that is wholly, exclusively and necessarily incurred for the purposes of the exploitation of the business and the generation of income is deductible from gross income.

Financial expenses related to overseas loans, royalties, technical assistance fees and other fees payable in foreign currencies may be deducted for tax purposes during only the financial year of their effective payment.

Certain expenses are not deductible for tax purposes, including the following:

• Expenses, costs and rents of any type that are not directly assigned to operations (for example, premises leased for accom modation of members of the company’s management)

• Fines, interest on late payments and penalties, interest and increases in duties as a result of defaults or insufficiencies in tax returns or payments

• Gifts (except those for advertisements, the value of which does not exceed DZD1,000 per beneficiary) in a global amount limit of DZD500,000

• Subsidies or donations except those made to humanitarian organizations or associations or those made to nonprofit research organizations up to DZD4 million

• Restaurant, hotel and entertainment expenses not directly linked to the business

• Expenses paid in cash in the case of an invoice exceeding DZD300,000

• The portion of rental of passenger vehicles exceeding DZD200,000 per year, and maintenance and reparation expens es of passenger vehicles that do not constitute the main tool of the activity that are higher than DZD20,000 per vehicle

Amounts allocated to sponsoring, patronage and godfathering of sports activities and the promotion of youth initiatives are allowed as a deduction for the determination of the taxable income, subject to being duly justified up to 10% of the turnover of the exercise and within the limit of a maximum of DZD30 million.

• Remuneration for services rendered by a company established abroad to the extent it exceeds 20% of general expenses of the debtor company and 5% of turnover or, for design and engi neering consulting firms, to the extent that it exceeds 7% of turnover

• Interest paid to partners on account of sums made available to the company, in addition to capital shares, whatever the form of the company, to the extent that it exceeds the effective average interest rate reported by the Bank of Algeria (a deduction for such interest is allowed only if the capital has been fully paid up and if the sums made available do not exceed 50% of the capital)

• Expenses incurred on behalf of third parties without a link to the activities performed by the company

• Professional training tax and apprenticeship tax

• Expenses related to the promotion of pharmaceutical and parapharmaceutical products to the extent that they exceed 1% of annual turnover

Inventories. Inventories are valued at cost in accordance with the new Algerian accounting and financial system.

Provisions. Provisions are generally deductible for income tax purposes if they satisfy the following conditions:

• They are established for losses or charges that are clearly iden tified and likely to occur.

• They are recorded both in the books and financial statements.

• They are listed on the statement of reserves attached to the annual tax return.

Reserves or the portion of them that are not used in accordance with their intended purposes or no longer have a purpose in the following financial year must be added back to the income in such financial year. Abusive establishment of provisions may result in the provisions being added back to taxable income and related penalties applied.

Depreciation. Under the Algerian Direct Tax Code, depreciation of fixed assets must be calculated in accordance with the following:

• Generally accepted limits

• Applicable practices for each type of industry, business or operations

• Rules provided in tax laws with respect to the depreciation system

The following are the three depreciation methods:

• Straight-line method

• Progressive method

• Declining-balance method

The straight-line method is the standard method, while progres sive or declining-balance methods may alternatively be used on election.

Under the Algerian Direct Tax Code, the basis of computation of deductible depreciation is limited for private passenger-type vehi cles to a purchase value of DZD3 million. This cap of DZD3 mil lion does not apply if such vehicles constitute the main object of the company’s activities.

Relief for losses. Tax losses may be carried forward four years. They cannot be carried back.

Groups of companies. Under the Algerian Direct Tax Code, relat ed companies subject to IBS may elect to form a tax-consolidated group. The parent company must make the election for this re gime for a four-year period and the election must be accepted by the affiliated companies.

The group tax consolidation regime is based on the consolidation of the balance sheets of the related companies with the parent company.

A tax consolidation group may consist of an Algerian parent com pany and Algerian subsidiaries in which the parent company owns directly at least 90% of the capital if both of the following condi tions are satisfied:

• The capital of the parent company is not owned partially or totally by the subsidiaries.

• 90% or more of the parent company is not owned by another company eligible to be a parent company.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

VAT; standard rate 19

Tax on professional activity General rates

Transport by pipeline of hydrocarbons

Apprenticeship tax 1

Training tax

Social security contributions (total rate of 35%); paid by Employer 26 Employees

Registration duties

On sales of shares in stock companies and private limited companies 2.5

On sales of goodwill 5

E. Miscellaneous matters

Foreign-exchange controls. The currency in Algeria is the Algerian dinar (DZD).

Foreign-exchange regulations in Algeria are based on the princi ple of non-convertibility of Algerian dinars outside Algeria.

Payments or transfers made with respect to regular transactions within the meaning of Algerian regulations (including foreigntrade transactions involving goods and services) are free, provided that certain conditions are fulfilled (particularly the bank domiciliation [the procedure under which a local party registers a contract with a local bank] and the delivery of a transfer certificate by the tax authorities). Algerian accredited intermediary banks must operate these transactions.

Dividends, profits and net proceeds from investments or the liq uidation of investments can also be freely transferred outside Algeria, subject to compliance with certain requirements (partic ularly, the delivery of a transfer certificate by the tax authorities. The realization of foreign investments, directly or in partnership, except for share capital, must be financed through Algerian financ ing institutions.

Foreign loans from foreign banks are prohibited in Algeria. However, an exception is provided for foreign financing through a current-account contribution by a foreign shareholder. Executive Decree No. 13-320 of 26 September 2013 determines the terms and conditions for a current-account contribution by a foreign shareholder.

Nonresidents may open bank accounts in Algerian dinars and/or in foreign currencies at Algerian accredited intermediary banks. These bank accounts are subject to specific conditions on opening and operation.

Transfer pricing. Under the Algerian tax rules, for Algerian taxpayers that are owned or controlled by an enterprise located in Algeria or outside Algeria or that own or control an enterprise located in Algeria or outside Algeria, the income indirectly transferred to the related enterprise, either through an increase or decrease of purchase or sale price or through any other means, may be added back to the Algerian taxpayer’s taxable income. In the absence of any relevant information for the reassessment of tax, the taxable income is determined by comparison with income of similar enterprises that are regularly operated.

Transfer-pricing documentation requirements. On request of the tax authorities, in the framework of a tax audit, enterprises or companies operating in Algeria and undertaking cross-border and domestic transactions with related parties are required to provide their transfer-pricing documentation within 30 days from the date of the notification. Failure to answer or providing an insufficient answer triggers a 25% penalty per fiscal year calcu lated on the basis of the transfer-pricing reassessments resulting from the tax audit.

In addition, certain Algerian-based taxpayers (mainly companies belonging to foreign international groups, legal entities or busi nesses operating in the hydrocarbon industry) must file transferpricing documentation with their annual tax returns to the tax authorities. The lack of documentation or insufficient documen tation at the time of the tax return filing triggers a DZD2 million

tax penalty, and in the case of a tax audit, an additional penalty of 25% of deemed transferred profits applies.

F. Treaty withholding tax rates

Dividends Interest Royalties % % %

Austria 5/15 (a) 0/10 10

Bahrain 0 0 0

Belgium 15 0/15 (e) 5/15

Bosnia and Herzegovina 10 10 12

Bulgaria 10 10 10

Canada 15 0/15 (e) 15

China Mainland 5/10 (b) 7 10

Egypt 10 5 10

France 5/15 (a) 12 (e) 5/12

Germany 5/15 (a) 10 10

Indonesia 15 15 15

Iran 5 0/5 5

Italy 15 15 5/15

Jordan 15 0/15 (e) 15

Korea (South) 5/15 (b) 10 2/10

Kuwait 0 0 15

Lebanon 15 0/10 10

Netherlands 5/15 8 5/15

Oman 5/10 (d) 0/5 10

Portugal 10/15 (b) 15 10

Romania 15 15 15

Russian Federation 5/15 (b) 0/15 (e) 15

Saudi Arabia 0 (f) 7

South Africa 10/15 (b) 10 10 Spain 5/15 (a) 5 7/14

Switzerland 5/15 (c) 0/10 10

Syria 15 10 18

Turkey 12 10 10

Ukraine 5/15 (b) 0/10 10

United Arab Emirates 0 0 10

United Kingdom 5/15 (b) 7 10

Yemen 10 10 10

Non-treaty jurisdictions 15 10 30

(a) The 5% rate applies if the beneficiary of the dividends is a company, other than a partnership, that holds directly at least 10% of the capital of the payer of the dividends. The higher rate applies to other dividends.

(b) The lower rate applies if the beneficiary of the dividends is a company, other than a partnership, that holds directly at least 25% of the capital of the payer of the dividends.

(c) The lower rate applies if the beneficiary of the dividends is a company, other than a partnership, that holds directly at least 20% of the capital of the payer of the dividends.

(d) The lower rate applies if the beneficiary of the dividends is a company, other than a partnership, that holds directly at least 15% of the capital of the payer of the dividends.

(e) The Algerian domestic rate of 10% applies if the rate under the treaty is higher.

(f) The treaty does not include an article regarding interest.