Algerian foreign investment law

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https://www.benlawyers.com/publications/algerian-foreign-investment-law/ The legal system for the promotion of the investment is essentially defined in the Ordinance n°01-03 of August 20.2001 relating to the development of the inves

The legal system for the promotion of the investment is essentially defined in the Ordinance n°01-03 of August 20.2001 relating to the development of the investment” (thereinafter: “Ordinance n°01-03” or “Algerian investment code”), amended an completed by the Ordinance 06-08 of July 15. 2006. (thereinafter: “Ordinance 06-08).

1. The investment field

Only companies incorporated under Algerian law, i.e. the Algerian sister company of foreign companies, can benefit from advantages provided for in the Ordinances 01-03 and 06-08.

1.1 Definition of the investment,

Article 2 of the Decree 01-03 amount to a broad definition of the investment which can benefit from the advantages envisaged by decree 01-03 and Ordinance n°06-08.

Pursuant to this provision the investment eligible to the legal advantages can take three forms

– The purchase of assets which fall within the framework of the creation of new activities or the extension of production capacities, or their renovation or re-structuration.

– Participation in the capital of a company, in the form of a cash contribution or a contribution in kind.

– Resumption of activities as part of a partial or total privatisation.

The Ordinances 01-03 and 06-08 define the regime applicable to domestic and foreign investments realized in the form of a capital supply or a contribution in kind.

1.2 The principles of freedom to invest and the equality of treatment

1.2.1 The freedom to invest in Algeria
Pursuant to Article 4 of the Ordinance 01-03, the investments are made freely, subject to the legislation and regulations pertaining to the regulated activities and with respect for the environment”.

Regulated activities are all activities governed by specials laws and subject to an administrative authorization.

1.2.2 The equality of treatment

Pursuant to Article 14 paragraph 1. of the Ordinance 01-03, foreign physical and legal persons shall receive a treatment identical to that awarded to Algerian physical of legal persons with regards to the rights and obligations in relation with the investment.
The preliminary approach to the investment
In order to benefit from the investment must firstly be declared to the “National Agency for the Development of Investment” (“Agence pour le Development de l’Investissement”, “ANDI”).

The investor’s declaration must indicate supportive elements required for the request for advantages, i.e.: the domain of activity, the localization, jobs created, technology used and investment and finance diagrams, and also the financial evaluation of the project. The declaration must also indicate the duration of the investment realization and the engagements linked to it.

The ANDI disposes a maximum delay of 10 days to notify the foreign investor, after evaluation, the decision to grant or to refuse the advantages, this delay is however extended to one month in the framework of the “regime of the convention”..

2. The tax advantages likely to be granted to investors

There are several types of regimes in connexion with the granting the advantages provided for in the Ordinances 01-03 and 06-08. The “general regime” (“régime général”), the “special regime” (“regime dérogatoire”) and the so called “convention regime” “régime de la convention”, which is more or less the equivalent of the “special regime”, but reserved mainly for large scale investments.

2.1 The “general regime”

Since the Ordinance 06-08 the advantages are granted automatically to all industrial investment, which do not fall within the scope of a list of non eligible investments.

2.1.1 During the investment period

The foreign investor benefits from the following advantages, during the investment execution period:

  • VAT franchise for goods and services entering directly in the realization of the investment, be imported or acquired through the local market.Exemption from custom duties imported goods and services imported or acquired through the local market and entering directly in the realization of the investment.
  • Exemption from property transfer tax in return for all real estate purchase made as part of the investment.

2.1.2 During the exploitation period

After confirmation of the beginning of the exploitation of the investment, the following advantages are granted:

*Tax exemption for a minimum period of 3 years* Corporate income tax  (impôt sur le bénéfice des sociétés, IBS, (normal rate: 25¨%)* Taxe on professionnel activity (taxe sur l’activité professionnelle,
TAP (normal rate: 2%)

2.2 The special regime

This regime is specially meant for investment implemented in geographical zones in which the development of investment should be promoted.

Most of the foreign companies locate their investment around major cities or a major ports, so that it is unlikely that they could benefit from this regime.

The following advantages are granted in connection with the implementation of an investment in these zones:

2.2.1 During the investment period

The foreign investor benefits from the following advantages, during the investment execution period:

  • VAT franchise for goods and services entering directly in the realization of the investment, be imported or acquired through the local market.
  • Exemption from custom duties imported goods and services imported or acquired through the local market and entering directly in the realization of the investment.
  • Exemption from property transfer tax in return for all real estate purchase made as part of the investment.
  • Application of fixed duty at a reduced rate of 0,2% for the registration Articles of association of the company and for capital increases
  • Support by the State (totally or partly) of the infrastructure expenses necessary to implement the investment

2.2.2. During the exploitation period

After confirmation of the beginning of the exploitation of the investment, the following advantages are granted:

  • Tax exemption for a maximum period of 10 years for

* Corporate income tax  (impôt sur le bénéfice des sociétés, IBS,
normal rate : 25¨%).

* Taxe on professional activity (taxe sur l’activité professionnelle,
TAP, normal rate: 2%).

  • Exemption, for a period of ten years, beginning on the date of the acquisition, of the property tax on real estate properties acquired in the framework of the investment.
  • Additional advantages likely to improve and/or facilitate the investment, such as loss-carry-overs and depreciation extensions.

2.3. The regime of the convention

In the case of investments bearing special importance for the Algerian economy, the investor can seek an agreement with the ANDI, acting on behalf of the Algerian state, in order to benefit from advantages similar to those provided for within the framework of the special regime.

2.3.1 During the investment phase

With regard to the investment phase, the Ordinance 06-08 provides for a list of advantages, including exemptions of VAT and custom duties, registration fees. This for a maximum period of 5 years.

2.3.2 During the exploitation phase

As for the exploitation phase, the ordinance 06-08 provide for a list of advantages, including exemptions of the Corporate income tax and of the Tax on professional activity. This for a maximum period of 10 years.

The conclusion of convention is preceded by negotiations between the investor and the ANDI during which the investor must show the importance of the projected investment for the Algerian economy, in particular by the use of new technology, its impact on the employment, and its effects for the sustainable development.

3. The guaranties

3.1 The Guarantee of the transfer of the capital and the revenue generated (dividends)

According to Article 31 of the Investment Code (and Articles 2, of the Regulation of the Bank of Algeria n°05-03 of June 6. 2005), investments made from capital contributions in freely convertible currencies, quoted regularly by the Bank of Algeria, whose foreign origin and importation are duly recorded, benefit from the guarantee of the transfer of the revenue generated by the capital (dividends) and of real product of the cession or the liquidation of the investment, even if that amount exceeds the investment amount.

This guarantee is reinforced by the Regulation of the Bank of Algeria n°05-03 of June 6. 2005 (article 2). This text clearly defines the terms and conditions for the transfer of dividends and real net proceeds from the sale or liquidation of foreign investments made within the framework of the Ordinance n°01-3.
The Regulation n°05-03 entails also a provision stating that that this guarantee of transfer also applies to “mixed investment” made by local and foreign investors, up to an amount corresponding to the recorded participation of the foreign investor.

3.2 Other guarantees

Under the Ordinances 01-03, and 06-08, above mentioned, the foreign company will also benefit from the followings guaranties:

  • Revisions or repeals likely to intervene in the future do not apply to investments realized in the context of the Investment Code, at least that the foreign investor does not expressly ask for it
  • Requisitions will give rise to a fair and equitable compensation
  • International commercial arbitration is permitted, since Algeria has ratified the New York convention of June 1958 relating to the recognition and the execution of foreign arbitral sentences and is now equipped with a very liberal legislation concerning international commercial arbitration