Viewpoint: Samir Hadj Ali
Foreign business partners frequently ask whether representative offices will continue to be allowed in Algeria. Typically, this is asked when they plan to set up such an entity or when the time comes to renew its licence, which is valid for only two years.
Representative offices, generally addressed as liaison offices, have an historical purpose that no longer applies in the current context of the economy. From the late 1960s until the early 1990s, this kind of entity was required during the time of state monopoly on foreign trade, when the import of goods and services was exclusively performed by state-owned companies.
Based on the principle that intermediaries would not be allowed for the supply of goods and services, foreign partners were asked to have representative offices as unique interlocutors in this context. This explains why, until now, the Ministry of Commerce has been in charge of delivering agreements, allowing these offices to operate, except for financial institutions, for which the Bank of Algeria exercises authority.
For more than five decades, representative offices have been allowed to exist, subject to the prevailing economic environment, leading to speculation from time to time that these entities will be closed. From the standpoint of foreign direct investment, these entities tend to not be the best tool, as they do not directly result in productive capital expenditure. Additionally, they are not tax payers either, apart from personal income tax withheld from employees’ salaries. However, in some cases representative offices have been the first step for observing and learning local business practices and adapting to the local environment, before the launch of effective business in the country.
Under Algerian regulations, a representative office does not have any right to perform any kind of business or commercial transaction, and has no share capital, as it is not a corporate entity. Therefore, it cannot have any kind of revenue, apart from the funding provided by its mother company. No trading documents, such as invoices and delivery vouchers should be made under the name of the representative office. The representative office can only represent the mother company that has applied for such an installation, in order to promote products and services and liaise with the customers who directly deal with the offshore trading point.
The order from the Ministry of Commerce issued on August 9, 2015 defines representative offices and their role without ambiguity. Under the order, representative offices are temporary entities of representation in charge of exploring the market for the organisation of contacts, collecting information, promoting products and conducting administrative formalities to benefit foreign commercial companies.
The order has brought stricter requirements such as paying a registration duty of AD1.5m (€10,900), a bond deposit of $30,000, a minimum starting deposit of $5000 and a two-year lease agreement aligned with the duration of the agreement. Lastly, the legal representative of the foreign commercial company has to provide a commitment of compliance with laws and regulations in force, including not to exercise direct or indirect economic activities in Algerian territory.
These provisions do not discourage foreign commercial companies that continue to file their application for approval. This kind of entity continues to be attractive, even if in some cases the processing time is longer than usual. Some foreign commercial companies have instead started to establish a presence through corporate entities formed under the current conditions, where a majority stake is held by Algerian nationals and residents of Algeria.
The corporate entity plays a similar role to the representative office, with information and marketing services as the company’s key purpose. This model leads to the development of services based on billing rates, commissions or re-billing on a cost-plus basis, which
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