Algeria's number of tax treaties continues to rise, with the recent ratification of the tax treaty signed with Denmark (hereinafter referred to as the "Treaty"1).
The Treaty follows the OECD model treaty, which serves a basis for most of the treaties signed by Algeria in recent years. It includes the standard provisions on profit allocation (Article 7), transfer pricing (Article 9) and non-discrimination (Article 23).
Provision of services and permanent establishment
The concept of permanent establishment (Article 5) is understood in the broadest sense and applies to dependent agents who play a role in the conclusion of contracts signed by a given company.
As regards the provision of services, the Treaty is based on the UN model. Thus, permanent establishment will be deemed in the case of the provision of services, including consultancy services, by a company via employees or other personnel engaged by the company for that purpose if activities of that nature are continued (for the same or a connected project) in a Contracting State for a period or periods exceeding a total of 183 days, in any twelve-(12)-month period commencing or ending in the tax year under consideration.
Passive income
As regards dividends, the source State has the right to tax such dividends at a rate of withholding tax not exceeding 5% if the beneficial owner of the dividends directly holds at least 10% of the capital of the company paying the dividends, for a period of 365 days including the day on which the dividends are paid. The rate of withholding tax is increased to a maximum of 15% in other cases (Article 10).
Interest is taxed in the State of residence. However, taxation is not exclusive, since the Treaty provides for the application of a withholding tax not exceeding 8% of the gross amount (Article 11).
As regards royalties, the Treaty provides for a maximum rate of 10% (Article 12).
The definition of royalties follows the OECD model and does not include services or technical assistance.
The Treaty will enter into force as soon as the ratification instruments have been exchanged (article 29) and shall apply:
- Regarding taxes withheld at source, on amounts paid or credited on or after the first day of the month of January following the date of entry into force of this Treaty; and
- Regarding other taxes, for the taxation year beginning on or after the first day of January following the calendar year in which this Treaty enters into force.
Flash news Algeria | International taxation: ratification of the Algeria-Denmark tax treaty | July 11 2023
[1] Presidential decree of 24 April 2023 published in Official Journal no. 30 of 3 May 2023
