New finance act for Algeria in 2016
On 30 November 2015, the Algerian finance act for 2016 (the 2016 Finance Law) was passed by a majority vote at the people's national assembly and entered into force on 31 December 2015.
This Finance Act for 2016 aims at tackling the impact of the economic crisis affecting the country’s exchange reserves: the Government expects a strong decrease in the foreign exchange revenues following the fall in crude oil prices. Overall, the main provisions intend to increase tax revenues and to reduce expenditures. However, pending the on-going revision of the Ordinance No. 01-03 of 20 August 2001 on investment (the "Investment Ordinance"), it also sets out for provisions regarding the investment legal framework and aims at improving it to attract more direct foreign investments.
This note provides a high level summary of the changes impacting the existing investment legal framework. It does not intend to cover in a detailed manner tax, customs and land provisions of the 2016 Finance Law or the measures regarding the management of the budget and of the State.
Improvement of the investment legal framework
- Article 142 of the code of direct taxes and similar taxes providing for the obligation to reinvest 100% of investment benefits resulting from exemptions or reductions of taxes in a four-year period as from the relevant financial close has been amended and investors are now only subject to reinvest 30% of those investment benefits (article 2 of the 2016 Finance Law).
- The 2016 Finance Law also contains provisions aiming at increasing direct foreign investments:
- The possibility to use external financing for major projects which had been prohibited under article 4 Bis of the Investment Ordinance since 20 August 2001 is now allowed for “_strategic investments_” subject to the authorisation of the Government (article 55 of the 2016 Finance Law).
- The 2016 Finance Law opens up the share capital of state companies but only to local shareholders (i.e. national and resident in Algeria) subject for state companies retaining at least 34% of the share capital. After a five-year period and subject to the fulfilment of its obligations, the local shareholder may exercise a call option on the remaining shares held by the State (article 62 of the 2016 Finance Law).
Key provisions moved in the 2016 Finance Law
As part of the current revision of the Investment Ordinance and for the sake of consistency, some financial provisions provided for until now in the Investment Ordinance are introduced in the 2016 Finance Law. Some of those provisions are critical for the implementation of direct foreign investments in Algeria.
- The 49/51 rule - according to which foreign investments for the production of goods and services or import can only be made through a partnership with a resident national shareholder that holds at least 51% of the share capital - is the golden rule to make foreign investments in Algeria. The purpose of the transfer of this rule from the Investment Ordinance into the 2016 Finance Law is to put an end to the abuse by import companies of the guarantee of transfers of investment proceeds provided under the Investment Ordinance.
- Another key rule of foreign investment in Algeria, that is the requirement to use local financing for investments, is also provided for under the 2016 Finance Law (article 55 of the 2016 Finance Law). However, as mentioned above, external financing for strategic investments is now allowed subject to a prior Government’s authorisation.
