Unlike in prior years, the annual finance act for 2013 has not been amended by a mid-year complementary act impacting the tax laws. The Algerian tax system maintains its stability, while the finance act has mainly introduced a few adjusting provisions, together with a significant upgrade to procedures related to the documentation of transfer pricing.
Both direct taxes (mainly corporate income tax) and indirect taxes (mainly value-added tax, VAT) remain unchanged aside from harmonised procedures contained in a dedicated code. The Algerian tax system still has standard tax rules applicable to both Algerian companies and foreign companies that have either a registered branch or a permanent establishment.
GENERAL REGIME: The general regime governs the taxation of individual residents of Algeria and resident corporate entities, regardless of whether these entities are owned by Algerian nationals or by foreign direct investors. Resident corporate entities are companies incorporated in Algeria, with or without foreign shareholders. Local companies incorporated in Algeria are those formed by Algerians or with foreign partners, provided that the national majority stake rule is met.
The general regime also applies to registered branches that were established before 2009, when legislation was introduced that stopped these entities from being created and imposed a minimum Algerian stake of 51% for manufacturing and services firms or a minimum 30% stake for companies conducting trading activities.
The general regime is also applicable to foreign companies incorporated outside of Algeria, whether they are acting as a stand-alone permanent establishment or as members of consortia in Algeria. A permanent establishment derives from the performance of construction contracts or from the provisions of tax treaties that Algeria has signed with other countries to avoid double taxation. A permanent establishment can enjoy a business presence in Algeria as long as the foreign company has a valid contract. The rights derived from a permanent establishment are mainly linked to the performance of the contracts, such as the opening of bank accounts and the capacity to recruit employees and enter into contracts with suppliers.
REPRESENTATIVE OFFICES: A representative office is only a taxpayer in its capacity as an employer and thus is only liable for payroll taxes. Under the Algerian regulation, a representative office has no right to perform any kind of business or commercial transaction. Therefore it cannot have any kind of revenue, apart from the funding provided by the parent company. Its role is only to represent the parent company that has applied for such an installation, in order to promote its products and services. The foreign company willing to set up a representative office has to apply for an agreement delivered by the Ministry of Commerce valid for two years, which can be renewed upon term.
TURNOVER TAX: The turnover tax (Taxe sur l’Activité Professionnelle, TAP) is an expense for the taxpayer. Unlike the VAT, the TAP is a direct tax and is paid by the individual or the company performing the business and shall not be collected from the clients as an indirect tax. Therefore the TAP shall be included in the pricing of any good or service. The taxable basis is the amount of the invoiced monthly sales for trading activities, while the taxable basis for the activities in services and construction is made of collections.
TAP shall be paid at the district where the work or service is performed. However the finance act for 2013 has reduced the burden for the taxpayers of the Division for Large Enterprises (Direction des Grandes Entreprises, DGE), allowing them to pay this tax together with all other taxes at the single desk of the DGE.
Algerian companies, with or without foreign capital, that are enjoying tax incentives as granted by the investment law may benefit from a tax holiday on TAP. As with corporate income tax, this relief requires a commitment to reinvest the equivalent of the saved taxes.
CORPORATE INCOME TAX: The filing of corporate income tax takes place at the headquarters’ location in Algeria or at the location of the main establishment.
For Algerian companies, instalments are based in reference to the prior year’s profits. Three instalments of 30% each shall be paid, due by March 20th, June 20th and November 20th. The annual tax return is due by April 30th of the following year, including payment of the remaining balance of the previous year after the instalments have been paid.
By exception, foreign companies subject to the general regime and accordingly having a permanent establishment in Algeria pay the instalments at 0.5% on every payment received, including advance payments, in reference to the total value of the contract.
The corporate income tax rate is 19% for manufacturing and construction activities; however, it rises to 25% for trading activities and services, or for combined activities when the total trading or services component exceeds 50% of overall turnover.
For the purpose of calculating the taxable profit, expenses incurred for the direct interest of the business are allowed to be deducted, provided that they should be effective and properly documented.
The Algerian tax regulation disallows, for the purpose of corporate income tax calculation, the deduction of fines and penalties charged for non-compliance with laws and regulations; rent charges that are not related to premises used for business operations; and both apprenticeship and training tax. However, losses can be carried forward for four years.
Algerian companies, with or without foreign capital, that are enjoying tax incentives as granted by the investment law may also benefit from a tax holiday for corporate income tax. Taking advantage of this tax relief requires companies to commit to reinvesting the equivalent of the saved taxes within four years.
BRANCH TAX: Since 2009, the Algerian tax law includes a further taxation of the net profits reported by foreign companies present in Algeria through branches or permanent establishments. For this purpose, branches and permanent establishments of foreign companies are considered as distinctive fiscal professional installations from their parent companies and are consequently taxed on their net profits at the rate of 15%. However companies from some countries with existing tax treaties are exempt from this tax.
TAXATION OF DIVIDENDS: Dividends paid to Algerian corporate bodies are exempt from taxation, provided that the company that pays the dividend has paid its own corporate income tax. Otherwise, the taxation of dividends takes place by way of withholding when the dividend is paid to an individual shareholder, after a withholding of 10% or, upon the transfer of dividends to a foreign partner, after withholding 15%, unless stated differently in a tax treaty.
TRANSFER PRICING: An implementing order was published January 20, 2013 – although dated April 12, 2012 – about the documentation required from taxpayers to report transfer pricing. The original provision was issued in the complementary finance act for 2010, and this referred to the implementing order, which is the document that was published in January 2013.
The documentation required from taxpayers is related to the transfer pricing policy applied among any kind of transactions performed between related entities. In order to determine the perimeter of these transactions, related parties are those defined under the Algerian accounting law and furthermore under article 141 bis of the direct tax code, which defines what shall be considered as related parties. Under the wording of these regulations, companies are considered as related parties in the following situations:
• When one company based in Algeria, or outside of Algeria, is directly or indirectly involved in the management, in the control or in the share capital of an entity operated in Algeria or outside of Algeria;
• If in a company operated in Algeria or outside of Algeria, the same persons participate directly or indirectly in the management, in the control or in the share capital of a company operated in Algeria or outside of Algeria. Within this context, the annual tax return shall include the following information: Global documentation including: Global information about the activity of the company, its organisational structure and the kind of transactions between the related entities, together with a description of the group transfer pricing policy.
Specific documentation related to the fiscal year including:
• A description of the company, its activities and the kind of transactions performed, including changes incurred during the fiscal year;
• A description of the operations performed between the related entities including the kind of flows and the amounts, including any payments of royalties.
These elements can be reported by global flow and by kind of transactions;
• Copies of annual audit reports together with the audited financial statements related to the reported fiscal year;
• The list of key owned intangible assets such as licenses, trademarks, trade names, knowhow, etc.);
• Copies of the contracts between related companies;
• Financial information about overhead and administration costs, and research and development costs;
• A presentation of the transfer pricing method applied during the fiscal year, justifying this method in comparison with the principle of full competition to enable a comparability analysis (analysis of the market, functional analyses and economic situation contractual provisions). The required documentation is expected with the annual tax return for every fiscal year from foreign companies and from any corporate entity exceeding an annual turnover of AD100m (€920,000). Failing to produce this documentation within 30 days following a notification from the tax department may lead to a fine of AD500,000 (€4600) with the reinstatement of the transferred benefits, increased by 25%. THE WITHHOLDING TAX REGIME – AN “ALL IN ONE TAX”: Foreign companies with no permanent professional installation in Algeria have their income taxed by way of withholding, mainly when performing a service contract and not falling under the status of a permanent establishment. However, foreign services providers may decide to exercise the option to fall under the common law regime (the general regime). In this case, foreign services providers become responsible for their own taxes and have to meet the same level of compliance required under the general regime.
When the withholding tax system applies, the tax regulation does not require the company to set up a formal entity. The client paying the fee is responsible for withholding the tax and for forwarding it to the tax collector. In practice the withholding tax applies only to revenues made by foreign companies for services or management contracts. Under service contracts, the withholding tax is 24%, while management contracts are subject to a 20% withholding. The tax withheld is inclusive of all taxes and clears corporate income tax, the TAP and the VAT with a full discharge of any further taxation. The foreign company has to provide a return every year-end summarising the revenues and the related withholdings, together with a summary of any payments to third parties.
VAT: Under Algerian tax law, VAT is assessed at a standard rate of 17% or at a reduced rate of 7%, according to the goods or services in question. The reduced rate of 7% applies to a few items and transactions relating to construction activity and some goods that the government aims to deliver to the market at affordable prices. The taxable amount varies depending on the type of transaction liable to VAT. In broad terms, the sale price of the good sold or service rendered should be the tax base of the VAT due. Legal entities with no place of business in Algeria but engaged in taxable transactions in Algerian territory are subject to the same VAT rules as resident companies. Algerian tax law applies a reverse charge mechanism that puts the liability of the foreign entity providing services outside of Algeria on the receiver of those services.
Reimbursement of input VAT is only admitted in some given cases (for example where the excess derives from the difference in VAT rates applicable to the acquisition of raw materials or in case of closing an activity). A list disclosing the name, address and registration number of each supplier must also be filed with the Algerian tax authorities, together with the VAT returns. Should this list fail to be provided, VAT deductions or refund requests may not be allowed.
Companies delivering goods or services to a client whose operations are exempt from VAT have to get from their client a certificate of exemption for every invoice issued and paid. The vendor on his side has to apply for an annual budget of VAT exemption to enjoy the exemption of the purchase of goods and services that will be directly related to the scope of the contract.
PERSONAL INCOME TAX ON SALARIES: Any employer in Algeria, no matter whether the employees are expatriates or Algerian nationals, has to comply with the filing and the payment of income tax for employees. According to the Algerian tax regulation, individuals who have their fiscal domicile in Algeria are subject to personal income tax for all their revenue. Those whose fiscal domicile is outside Algeria are taxed in Algeria for their revenue earned from an Algerian source. Individuals are considered to be tax resident in Algeria when:
• They have there a usual home, based on an ownership of a house or based on a rental for a minimum of one year;
• Individuals for whom Algeria is the main place of residency or the main place of their interests (activity);
• Individuals performing a professional activity (by employment or as freelance). For employees, revenue is defined as all wages, salaries and pensions. The following items are not taxed:
• Allowances for business expenses;
• Hardship allowances;
• All social contributions (employee’s share to the social security); The following rates apply for personal income tax:
• 0% for income up to AD10,000 (€92);
• 20% from AD10,001 (€92) to AD30,000 (€276);
• 30% from AD30,001 (€276) to AD120,000 (€1104);
• 35% for income greater than AD120,000 (€1104). The employment of expatriates in Algeria requires work permits and residency. Labour authorities are involved with the work permits and the province administration is involved with the residency.
SOCIAL SECURITY CONTRIBUTIONS: Salaries are subject to 35 % social security contributions. All employers are required to pay social security by remitting the employees’ contribution withheld at the source at the rate of 9% together with the employers’ contribution at the rate of 26%. Except in cases where social security contributions are being made in a country that has a social security treaty with Algeria, payment of contributions abroad do not exempt individuals or employers from paying social security in Algeria. The social security contribution covers risk injuries, medical expenses, family allowances as well as pension for employees.
OBG would like to thank Mazars for their contribution to THE REPORT Algeria 2013
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