Algeria | Investment promotion: reform in perspective | Flash info Africa

Algeria
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Reform of the legal environment for investments in Algeria said to be imminent after the Council of Ministers adopts a new draft law.

This bulletin introduces the main changes that would be made to the existing legal framework - Ordinance No. 01-03 of 20 August 2001 on investment, as amended and supplemented (referred to as “Ordinance 01-03”) by the new text on investment promotion (referred to as the “Preliminary Draft”).

Our comments are based on the Preliminary Draft’s explanatory statement and on the communiqué issued by the Council of Ministers1, which outlines the reform’s major themes.

The information given is of course not definitive. It will have to be revised or supplemented, particularly in light of the final text when it is published.

I- Redefining the concept of investment

The Preliminary Draft redefines the notion of investment, which is said to exclude the following from the scope of the new measure: 

  • investments in connection with the award of a concession and/or a license";
  • acquisition of assets as part of … restructuring,” as well as “business takeovers pursuant to a partial or total privatisation”.

II – Adjusting the framework applicable to investments

Primary measures

The legal framework applicable to investments would be changed primarily as follows: 

  • repeal of the requirement to rely on local financing for the foreign investor’s contribution;
  • repeal of the requirement to generate a foreign currency surplus throughout the lifetime of the project; 
  • repeal of the requirement to report on movements of securities and shareholders in Algerian companies with foreign participation;
  • repeal of the requirement of prior compliance with the rule on the breakdown of share capital (rule of 49/51) when any change is made in the registration in the Registry of Companies for foreign investments made prior to 2009, as this rule was held to be contrary to the general principle of non-retroactivity established in civil law, as well as the guarantee of protection granted to companies under Article 15 of Ordinance 01-03;
  • cancellation of the pre-emptive right of the State and public entities. However, Article 30 of the Preliminary Draft simultaneously blocks disposals by or benefiting foreigners; this article subjects such transactions to the authorisation of the minister for investment;
  • adjustment of rule on the guarantee of the right to transfer: a minimum equity contribution2, which would be set by regulation, would be required to benefit from the guarantee of the right to transfer the income and products of liquidation and disposal (Article 24 of the Preliminary Draft);
  • acceptance of renovated property constituting external in-kind contributions when they fall under the realisation of the investment or of offshoring activities from abroad (Article 6 of the Preliminary Draft).
     According to the explanatory statement, the goal of this measure is to resolve the contradictions between the exclusion of renovated materials and equipment and certain regulatory provisions associated with the process of realizing the investment.
     Article 6 also considers property covered by a purchase option in connection with international leasing3 to be an investment eligible for the advantages provided they are introduced in the country in new condition.
     The purpose of this new provision would be to eliminate the artificial advantage in favour of foreign companies that, unlike national companies, may use used materials under the temporary admission scheme;
  • cancellation of the non-cumulative rule: Paragraph 1 of Article 15 of the Preliminary Draft states that the granting of the advantages defined in its Articles 12 and 13 does not exclude the specific tax and financial incentives instituted for tourist, industrial and agricultural activities.
     Similarly, Paragraph 2 of Article 15 states that the investor will benefit from the most advantageous incentive in the event that several advantages of the same nature co-exist. These advantages may follow from the Preliminary Draft or from the law in force;
  • implementation of an automatic system by which to access the advantages and prior registration: Article 8 of the Preliminary Draft states that investments registered in accordance with the new procedure that do not appear on the negative lists would benefit, by law and automatically, from the advantages of realisation that it sets out.
     The automatic nature of the issuance of the advantages is based on the cancellation of the decision to grant advantages and of the file accompanying it, as well as of the preconditions. Indeed, the Preliminary Draft substitutes a simple preregistration for the current declaration to the National Development and Investment Agency (ANDI). This preregistration is given effect through the immediate issuance of certification authorizing the investor to take advantage of the advantages for which it is eligible from the administrations and entities concerned;
  • elimination of certain preconditions that, according to the explanatory statement, would no longer be justified because they would conflict fundamentally with the principle of automatic access to the advantages and the transformation of the investment entities into assistance and advisory structures, rather than prior approval and supervisory bodies.
    In this regard, we cite the example of the cancellation of Article 9 bis of Ordinance 01-03, which provides notably for the commitment of an investor wishing to benefit from the advantages of the general scheme, to give preference to products and services of Algerian origin, or that of Article 554 of the 2014 Finance Act.

Other measures

Although of less importance, the following measures should also be mentioned:

  • repositioning of the rules governing partnerships with public companies by opening up of capital, set forth in Article 4 quater (c) of Ordinance 01-03;
  • prior consultation of the Algerian government (State Council for Participation) for disposals abroad of shares of foreign companies holding shares or company stocks in Algerian companies having benefited from advantages or facilities (i.e., government right to repurchase) limited to the acquisition of control, up to 10% or more;
  • replacement of the principle of national treatment of foreigners by the principle of fair and equitable treatment of foreigners, subject however, to the international agreements signed by Algeria (Article 20 of the Preliminary Draft);
  • implementation of the legal rule on the breakdown of share capital (49/51 rule) to all economic sectors and, specifically, to the sector dealing with import for resale in the same condition, which is currently exempted;
  • restructuring and adjustment of tax advantages based on the country’s economic policy (Article 7 of the Preliminary Draft):
    o advantages common to eligible investments located outside the High Plateaux and the South;
    o additional advantages for certain favoured and/or job-creating activities; and,
    o advantages under agreements for projects of interest to the national economy.
  • raising the threshold of jurisdiction of the National Investment Council (CNI) to grant advantages to investments from an amount equal to or greater than DZD 2 billion to DZD 5 billion (Article 14 of the Preliminary Draft);
  • defining the conditions of effective use of realisation advantages (Article 9 of the Preliminary Draft);
  • possibility to transfer the advantages under the scheme of the agreement to the co-contracting party of the beneficiary responsible for realizing the investment (4th point of Article 18 of the Preliminary Draft);
  • adjusting the role of the ANDI and its key missions (Article 25 of the Preliminary Draft);
  • creating four centres attached to the ANDI whose mission would be to provide the services needed to manage the advantages, carry out the formalities, create businesses and promote the country (Article 26 of the Preliminary Draft).
     

1 Source: www.elmoudjahid.com of 7 October 2015.

2 This contribution may be made in cash, using freely convertible currencies, or in-kind of external origin, subject to prior assessment.

3 Governed by Ordinance No. 96-09 of 10 January 1996 on leasing.

4 Article 55 of the 2014 Finance Law: “Any foreign investment in partnership that contributes to the transfer of knowledge to Algeria and/or produces goods in connection with an activity carried out in Algeria, with an integration rate greater than 40%, shall benefit from fiscal and parafiscal advantages determined by the national investment council in accordance with the 51/49 rule of the breakdown of share capital.”