Investing in Algeria

The investment code was revised by ordinance n°01-03 of 20 August 2001 on investment promotion. It governs domestic and foreign investment in the economy to produce goods and services and provides a framework for concessions and licensing regulations. The ordinance recognises the principle of freedom to invest in any and all activities, including those covered by specific regulations (hydrocarbons, financial institutions or insurance companies) and there are no restrictions on the percentage of capital that can be held by a foreign investor (except in hydrocarbons, where foreign companies can own no more than 71 percent of capital).

In addition, all State-owned companies are now open to privatisation. Legislation provides an appropriate legislative framework that harmonises rules and reaffirms requirements for transparency and regularity in privatisation transactions under the supervision of the Council of State Holdings (CPE).

It also provides incentives for investors and introduces new measures to promote investment, such as creation of the National Investment Council (CNI) chaired by the Head of State, created to strengthen the legal and regulatory framework for investment. The CNI is in charge of defining investment strategy and priorities, approving special investment incentives by sector, and giving final authorisation for special investment schemes. The National Investment Development Agency (ANDI) is in charge of assisting investors, facilitating administrative procedures, and granting tax exemptions or rebates and other incentives. It provides for a one-stop shop in each region (wilaya) to simplify procedures and formalities for setting up new companies and implementing projects. A central structure in charge of foreign investment was created within the Agency’s Directorate General. An Investment Support Fund is also managed by this agency.

Any initial founding, extension, rehabilitation or reorganisation carried out by a legally constituted economic entity engaged in the production of goods and services other than trade is eligible for the incentives available under the Investment Code whether it is a resident or non-resident company.

A comprehensive tariff reform has been in effect since 2001, reducing the average tariff rate from 26 percent to 19 percent. 2001–05 temporary additional duty on certain imports is being phased out as planned. Important steps have also been taken to liberalise the hydrocarbons and telecommunications sectors.

Under the investment code, the generic incentive regime includes exemption from VAT for goods and services directly related to the investment as well as exemption from transfer taxes on real estate related to the investment. A second category of incentives offered on a case-by-case basis includes: exemption from corporate income taxes, exemption from VAT for goods and services directly related to the investment, and exemption from transfer taxes for real estate related to the investment. In addition to the above-mentioned incentives, special incentives are also available for investment in special development zones and investments that use environmental or energy saving technologies. Additional incentives are available to companies whose production and investments are export-oriented.

There are five free trade zones in Algeria where investments are exempt from all customs, taxes and other fees. The law also grants essential guarantees for investments, such as:

 Respecting international standards relating to foreign investments: national treatment and most favoured nation clauses
 Transfer policy: according to the 2001 investment code and the 2003 law on currency and credit, foreign investors are authorised to repatriate profits, even if revenues exceed the original amount invested, provided that the initial investment was made in convertible currency. Foreign investors are also free to repatriate dividends, profits, and real net income resulting from transfer of assets or liquidation.
 Nationalisation and expropriation: The Constitution of 8 December 1996 provides legally-binding guarantees against expropriation and confers the right to equitable compensation. The Constitution also guarantees private property and freedom of trade and industry.
 Dispute settlement: Algeria has signed the convention of the International Centre for the Settlement of Investment Disputes (ICSID), ratified its accession to the New York Convention on arbitration, and is a member of the Multilateral Investment Guarantee Agency. The Code of Civil Procedures allows both private and public sector companies full recourse to international arbitration at ICSID or ad hoc arbitration at the U.N. Commission on International Trade Law (UNCITRAL) model for dispute settlement between the Algerian State and private companies. Algeria has also signed several bilateral investment agreements for the protection and promotion of investments with 27 countries as well as 12 bilateral treaties to prevent double taxation.

Investors wishing to enter the Algerian market can either open a branch office or set up a company by creating a legal entity under Algerian trade law, a joint venture with an Algerian resident (private individual or corporate entity) by creating a mixed investment Company (SEM), or securing shares in the capital of an already existing company. A recent law (passed in 2005) requires that all companies working in foreign trade increase capital stock equity to a minimum of DZ20 million (about $275,000) by 26 December 2005.

Possible legal forms for a new company are: joint stock company (SPA), limited liability company (SARL), individual limited company (EURL), joint venture (SNC), sleeping partnership (SCS), holding company (SP), partnership limited by shares (SCA).

Customs tariff dismantling came into effect on 1 January 2002, based on eight-digit international HS nomenclature and comprising four customs duty rates: 0 percent, 5 percent, 15 percent and 30 percent, according to the degree of transformation of imported materials. The 5 percent rate is applied on raw materials and capital goods, the average rate of 15 percent to semi-finished and intermediate products and the highest rate of 30 percent to consumer products. Tax exemptions are also available in some sectors and for the equipment needed for new investments. Customs fees have been removed, but provisional additional duty (DAP) of 12 percent is applied to protect goods produced locally, to be abolished by January1, 2006.

The tax regime is being reformed to increase flexibility, transparency, and simplification. Foreign investors benefit from tax incentives, including five years of tax exemption for companies investing in new projects. As for tax on income, trade companies have to pay: corporate tax (IBS), value-added tax (VAT), the professional tax (TAP), property tax and water purification tax (taxe d’assainissement). For tax purposes, Algeria defines ‘foreign company’ as a permanently established business. The normal corporate tax rate is 30 percent, unless funds are reinvested, in which case a more attractive rate of 15 percent is applied. Income from loans, deposits, and guarantees is taxable at a 10 percent rate, a 20 percent rate is applied on income from management contracts, and a 30 percent rate for anonymous cash vouchers. A new hydrocarbons law was passed in 2005 governing taxation for oil companies.

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