The latest from the tax authorities on the foreign transfer certificate

The Algerian tax authorities have posted various digests and circulars on their website¹ regarding the most recent budget acts – a welcome aid to understanding and correctly implementing their provisions.

This appears to be part of a concerted push on the part of the authorities to make guidelines more widely available to taxpayers (who are, of course, on the front line when it comes to tax compliance).

In this newsflash, we take a closer look at the instruction on the requirement to declare foreign money transfers to the tax authorities in advance (the “Instruction”)².

► Background:

Section 182 ter of the Algerian tax code (Code des impôts directs et taxes assimilées, CIDTA), created by the 2009 budget act, introduced a requirement for transfers of funds abroad to be authorised by the tax authorities in advance, by way of a “transfer certificate”.

Previously, transfer certificates had only been required for withholding taxes deducted from sums paid to foreign businesses without a permanent establishment in Algeria (Sections 111 and 160 CIDTA). They were not required for transfers of passive income such as dividends, proceeds from sales of property or securities, or royalties.

Foreign money transfers were of course already  – and remain – subject to strict foreign exchange regulations. But in making transfer certificates a mandatory part of the process, the tax authorities effectively built in a basic audit step³.

In practice, however, it was not entirely clear how the new rules should be interpreted, leading to certain delays pending clarification from the authorities.

► What the instruction tells us:

The Instruction takes an explanatory approach, in an attempt to resolve the issues encountered in respect of the process for obtaining a transfer certificate.

Clarifications as to when a transfer certificate is required

In line with the provisions of Section 23 of the Act and the Order of 3 April 2021, the instruction stipulates that transfers made to pay for imported goods or merchandise do not require a transfer certificate.

Conversely, the certificate is required for any transfers that are either taxable or that benefit from an exemption or reduction under a tax treaty or Algerian law.

Note that the Algerian tax authorities will only apply treaty benefits when they have been provided with a statement of tax residence from the foreign state’s authorities, as well as a completed C30 form (available for download at www.mfdgi.gov.dz).

The instruction specifies that if these two documents are not supplied, the contract in question will not be eligible for treaty benefits and will instead be subject to Algerian tax law – and moreover that this cannot be considered an error in tax treatment.

This of course represents a rather restrictive position on treaty benefits.

Clarifications as to the impact of an ongoing tax audit or dispute

When the tax authorities receive an application for a transfer certificate, they check that everything is in order – including the applicant’s overall tax situation.

In certain cases, they have had to consider whether a transfer certificate can be issued to a taxpayer involved in an ongoing tax audit or dispute.

The instruction stipulates that:

• An ongoing tax audit should not prevent the issuance of a transfer certificate, provided the taxpayer in question has sufficient assets to cover payment of any resulting tax liabilities;

• A taxpayer that has been granted a payment deferral in the context of a tax dispute should still be able to apply for a transfer certificate, unless the tax collector contests the deferral on the grounds of Section 406 CIDTA (i.e. when the contract in question is coming to an end). In such cases, any transfer would be conditional upon full payment of all tax liabilities or the presentation of adequate guarantees to cover future payment.

[1] www.mfdgi.gov.dz
[2] Instruction 564/MF/DGI of 14/09/2022
[3] Note that the issuance of a transfer certificate does not affect the tax authorities’ right to subsequently conduct a full audit of any transfers made
[4] Algerian official gazette No. 53 of 8 July 2021