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Finance law for 2021

main legal measures that may impact foreign investments in Algeria

20/01/2021

The finance law for 2021 (the “FL 2021”) published in the Official Journal No. 83 dated December 31st, 2020 has introduced a series of legislative and tax measures aimed at rationalizing budgetary resources, broadening the tax base, diversifying the economy as well as improving the investment climate and encouraging exports.
 
This flash-info is not intended to be an exhaustive analysis of the LF 2021 but tends to present, in a succinct manner, the main legal measures that may impact foreign investments in Algeria.

1. Maintaining of the abolition of the shareholding legal rule  

Article 139 of the FL 2021 confirms the abolition of the rule limiting foreign ownership (namely, the “49-51 Rule”) for the production of goods and services, while expanding exclusion cases to activities of import of raw materials, products and merchandise intended for resale as such as well as activities of strategic nature, which remain subject to a national resident shareholding participation up to 51%.
 
Article 49 of the Complementary Finance Law for 2020 (the “CFL 2020”), which provided that only import for resale as such activities and those relating to a strategic sector were subject to partnership obligation has thus been reformulated to integrate the activities of import of raw materials, products and goods intended for resale as such among the activities that are subject to the 49-51 Rule.
 
It is to be noted that this partnership obligation should not apply to activities that are subject to specific regulations, such as import of new vehicles activities.

2. Obligation to comply with the 49-51 Rule  

One of the main measures introduced by the LF 2021 concerns the obligation to comply with the 49-51 Rule applicable to Algerian legal entities, composed mainly of foreign shareholders and carrying out activities of import of raw materials, products and goods intended for resale as such.
 
Indeed, article 139 of the FL 2021 provides that "companies having one or more foreign shareholders carrying out activities of import of raw materials, products and goods intended for resale as such, must comply with the provisions of this article before June 30th, 2021, after this period, extracts from the trade register that do not abide by the provisions of this law become without effect ”.
 
Thus, such compliance obligation with the 49-51 Rule applies within a maximum period of six months as from the entry into force of the FL 2021. Otherwise, trade registers of companies subject to such an obligation would become invalid.
 
In principle, companies involved in the activities of import of raw materials intended for their own use or to be integrated into a production process should not be subject to such a compliance obligation.
 
Indeed, as a reminder, within the meaning of the Algerian trade register, activities of import of raw materials intended for the production are not identified as activities requiring registration within the Algerian trade registry and are not, therefore, subject to codification. Such import of raw materials activities are considered to be underlying production activities, which are subject to codification and registration within the trade registry.
 
However, it cannot be excluded that the Algerian authorities may adopt a restrictive reading of the provisions of the FL 2021 considering that any import of raw materials activities, including those related to production activities, should be subject to the 49-51 Rule. Therefore, such measure raises the issue of its implementation in practice.

3. Confirmation of the definition of the strategic sectors  

Sectors qualified as strategic and, therefore, that are subject to the 49-51 Rule, are defined by the article 50 of the CFL 2020.
 
Despite the constraints and differences of interpretation encountered to date, the list of strategic sectors as previously defined by said article 50 of the CFL 2020 is maintained, in its initial wording, with however a clarification provided by article 151 of the FL 2021, concerning only the mining sector which now includes:
 
• "the exploitation of the national mining domain, as well as any underground or surface resource relating to an extractive activity on the surface or underground, excluding quarries and sand pits1”.

4. Confirmation of the abolition of the Algerian state’s pre-emption right replaced by prior authorization from the competent services

Article 138 of the FL 2021 maintains the abolition of the State's pre-emption right in accordance with article 52 of the CFL 2020, in the event of transfer of shares, held in the share capital of an Algerian company, operating in one of the strategic sectors, carried out for the benefit of foreign individuals or legal entities. Henceforth, such transfers should be subject to the prior authorization of the authorized services (and not of the Government as it was initially stipulated by article 52 of the CFL 2020).
 
As it stands, such a provision seems difficult to be implemented in practice. It would therefore be advisable to wait for its application terms that should be defined by regulation to be adopted, as announced by said article 138 of the FL 2021.
 
Finally, article 138 of the FL 2021 has deleted the second paragraph of article 52 of CFL 2020 associating transfer of assets from a non-resident foreign party to a resident national party to an import of goods or services transaction, that is subject to foreign exchange control regulations

 

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