Corporate tax in Algeria

At a glance:

Corporate Income Tax Rate (%) 19 / 23 / 26 (a)
Capital Gains Tax Rate (%) 15 / 20 (b)
Branch Tax Rate (%) 19 / 23 / 26 (a)
Withholding Tax (%)
Dividends 10 / 15 (b)
Interest 10
Royalties from Patents, Know-How, etc. 24
Foreign Services 24
Fees for Technical Assistance and Other Remuneration for Services 24
Branch Remittance Tax 15
Net Operating Losses (Years)
Carryback 0
Carryforward 4

a) These new rates, which were contained in the 2015 Complementary Financial Law, apply to the 2015 corporate income tax return, which must be filed by 30 April 2016. For details regarding these rates, see Section B.

b) The higher rate applies to payments to nonresident individuals or companies.

Taxes on corporate income and gains

Corporate income tax. The following companies are subject to corporate income tax (Impôt sur le Bénéfice des Sociétés, or IBS):

  • Resident companies (those incorporated in Algeria)
  • Nonresident companies that have a permanent establishment in Algeria

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

  • Income derived from trading activities carried out by companies
  • 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 2015 Complementary Financial Law introduced three new IBS rates. These rates apply to the 2015 corporate in­come tax return, which must be filed by 30 April 2016. The fol­lowing are the rates:

  • 19% for companies carrying out production activities
  • 23% for companies engaged in the construction sector and tour­ism
  • 26% for companies carrying out other activities, such as impor­tation and resale in the same condition

Tax incentives. Ordinance No. 01-03, dated 20 August 2001, relat­ing to the development of investment, as amended, provides for investment regimes 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 ordinance, investments include the fol­lowing:

  • Acquisition of assets included in the creation of new activities, capacity of production extension, rehabilitation and restructur­ing
  • Participation in the share capital of an Algerian company
  • Takeover of an activity within the framework of a partial or total privatization

Before the investments are made, they must be declared to the National Agency for Investment Development (Agence Nationale pour le Développement des Investissements, or ANDI), together with the submission of the application for the granting of the advantages.

The advantages granted by the ANDI to the investors depend on the applicable regime.

General Regime. The General Regime applies 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.

During the setting-up of their investments, companies benefit from the following advantages:

  • Exemption from value-added tax (VAT) on non-excluded goods and services directly involved in the investment implementation
  • Exemption from customs duties on non-excluded imported equipment directly involved in the investment implementation
  • Exemption from property transfer tax on all property acquisi­tions made within the framework of the investment concerned
  • Exemption from registration duties, land publication fees and state fee on concession, for granted built and unbuilt property assigned to the investment

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

  • IBS exemption
  • Tax on professional activity (TAP) exemption

These advantages can be granted for three to five years for in­vestments that create more than 100 jobs at the beginning of the activity.

Derogatory Regime. Under the Derogatory Regime, investments realized in areas in which development requires a contribution of the state, as well as investments relating to a particular interest for the national economy, may benefit from particular advantages.

During the setting-up phase for investments realized in develop­ment areas, companies may benefit from the following advantages:

  • Exemption from VAT on non-excluded goods and services imported or locally purchased
  • Exemption from customs duties on non-excluded imported goods and services
  • Registration fees at a reduced rate of 0.2%
  • Total or partial payment by the government of costs with respect to infrastructure works necessary for the setting up of the invest­ment
  • Exemption from property transfer tax for all property acquisi­tions
  • Exemption from registration duties, land publication fees and state fee on concession, for granted built and unbuilt property assigned to the investment

When operating, companies may be granted the following advan­tages:

  • Exemption from IBS and TAP for a period of 10 years
  • Exemption from property tax on property in the framework of the investment for a period of 10 years

During the setting-up phase, for investments involving a particular economic interest for Algeria, companies may benefit from the following advantages for a period not exceeding five years:

  • Exemption from duties, taxes and other levies on all goods and services imported or locally purchased
  • Exemption from registration fees on the incorporation deed and share capital increases
  • Exemption from registration duties and land publication fees on the transfer of property assigned to production
  • Exemption from property tax on real estate property assigned to production

When operating, these companies may be granted the following advantages for a period not exceeding 10 years:

  • Exemption from IBS
  • TAP exemption

Under the Algerian Direct Tax Code, the portion of companies’ profits that results from the exemptions from IBS and other taxes under the incentives provided by the investment regulations (in both the General Regime and the Derogatory Regime) must be reinvested in the project within the four tax years following their realization. The obligation to reinvest is limited to benefits grant­ed during the exploitation phase of the investment (particularly, the exemptions from IBS and TAP). Benefits granted during the implementation phase that are related to VAT, registration fees and customs duties are not subject to this requirement.

For a failure to comply with this reinvestment obligation, the amount of the tax advantage (the IBS exemption) and a penalty equaling 30% of this amount must be paid to the tax authorities.

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 dif­ferently, 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 par­tial 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 obligations 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 pay­ments 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
  • IBS down payments
  • Value-added tax

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 received by residents are subject to a 10% withholding tax.

Subject to double tax treaties, a 15% withholding tax is imposed on dividends paid to nonresident companies.

Royalties. Unless otherwise provided by double tax treaties, a 24% 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 allow­ance at a rate of 80% is applicable on the amount of the royalties. Consequently, the effective rate of the withholding tax is 4.8%.

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 9.6%.

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

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 provisions 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 busi­ness 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 accom­modation 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 DZD500 per beneficiary)
  • Subsidies or donations except those made to humanitarian orga­nizations or associations or those made to nonprofit research organizations up to DZD1 million
  • Restaurant, hotel and entertainment expenses not directly linked to the business

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 iden­tified 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 progres­sive 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 vehi­cles to a purchase value of DZD1 million. This cap of DZD1 mil­lion 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, relat­ed companies subject to IBS may elect to form a tax-consolidated group. The parent company must make the election for this re­gime 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 com­pany and Algerian subsidiaries in which the parent company owns directly at least 90% of the capital if both of the following condi­tions 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.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; standard rate 17
Tax on professional activity
General rates 1 / 2
Transport by pipeline of hydrocarbons 3
Apprenticeship tax 1
Training tax 1
Social security contributions; paid by
Employer 26
Employees 9
Registration duties
On sales of shares in stock companies and private limited companies 2.5
On sales of goodwill 5

Miscellaneous matters

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

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

Payments or transfers made with respect to regular transactions within the meaning of Algerian regulations (including foreign-trade transactions and goods and services) are free, provided that certain conditions are fulfilled (particularly the bank domicilia-tion [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 liq­uidation of investments can also be freely transferred outside Algeria, subject to compliance with certain requirements (partic­ularly, 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 financ­ing 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 trans actions with related parties must provide sup­porting documentation relating to their transfer-pricing policies. Failure to answer or providing an insufficient answer triggers a 25% penalty per fiscal year calculated on the basis of the trans­fer-pricing reassessments resulting from the tax audit.

In addition, Algerian-based taxpayers that have tax issues are under the responsibility of the Department for Big-sized Enterprises (mainly companies belonging to foreign international groups, legal entities or businesses operating in the hydrocarbon industry) must file transfer-pricing documentation with their annual tax returns to the tax authorities. The lack of documentation or insuf­ficient documentation at the time of the tax return filing triggers a DZD500,000 tax penalty, and in the case of a tax audit, an ad­ditional penalty of 25% of deemed transferred profits applies.

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 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
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
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
Yemen 10 10 10
Non-treaty countries 10/15 10 24
    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.