New Regulations to Encourage Foreign Investment - International Law Office

Introduction

In recent years Algeria has enjoyed rapid economic growth after a long period of stagnation. In order to support this trend the government has introduced a wide-ranging programme to encourage foreign investment by offering benefits and guarantees to potential investors. The terms of the programme are set out in Ordinance 2001/03, which was revised and completed by Ordinance 2006/08, issued on July 15 2006.

The definition of 'investment' in the new ordinance includes:

• assets made available for new activities;

• the expansion of production capacity;

• corporate rescues and restructurings;

• the acquisition of shareholdings through payments in cash or in kind; and

• acquisitions within the scope of a partial or total privatization.

The National Investment Council determines the conditions which an investor must meet in order to benefit from government incentives. The National Development Investment Agency is in charge of granting or rejecting applications from investors. Therefore, all investments must be declared to the agency, which will consider the object of the investment; it has 72 hours to make a decision on the implementation phase and 10 days to rule on matters relating to the operation of the project or enterprise.

The agency's decision lists the benefits for and obligations of the investor. If the investor is not satisfied with the decision, it will have recourse to a commission whose composition, organization and powers will be set out in a future regulation. The commission will be required to deliver its verdict within one month of the registration date of the request. If the agency fails to issue a decision in the time allowed, the investor may appeal. If an investor fails to observe the terms of the ordinance, the agency may cancel or withdraw benefits.

The benefits available under the ordinance are divided into two categories: the general regime and the additional benefits regime.

Tax Benefits

General regime
This regime sets out tax and customs incentives relating to the implementation and operation of a project or enterprise. Its benefits are:

• reductions in duties and value added tax (VAT) on goods and services, whether imported or domestic;

• exemption from transfer tax on real estate acquisitions; and

• reductions in taxes on the profit and professional activity of the project or enterprise for the first three years.

Additional benefits regime
The additional benefits system (régime dérogatoire) offers additional advantages in respect of investment in sectors which qualify for special state aid or are of national economic interest. Investments will qualify for additional aid if the relevant projects involve:

• the use of clean technologies;

• the conservation of natural or environmental resources; or

• energy-saving measures for sustainable development.

The agency will determine which investments and sectors qualify for aid.

Investments in sectors eligible for special state aid will qualify for benefits in the implementation and operation phases. The benefits available in the implementation phase are:

• exemption from transfer tax on real estate acquisitions;

• a reduced registration tax rate of 0.2% on all capital increases and formal acts relating to the organization's corporate status;

• a partial or total contribution to the cost of related infrastructure projects;

• exemption from VAT on imported or local goods; and

• reduced duty on imported goods.

The ordinance does not refer to benefits in respect of services.

The benefits offered in the operation phase are (i) reductions in taxes on profits and professional activity for the first 10 years, and (ii) exemption from real estate taxes for the same period.

Investments of national economic interest will qualify (wholly or partially) for certain tax benefits for the first five years, namely:

• reduced taxes on local or imported goods and services;

• reduced taxes on transfer registration for the acquisition of real estate to be used in connection with production or legal advertising;

• reduced taxes on the registration of capital increases and formal acts relating to the organization's corporate status; and

• exemption from tax on real estate used in production.

Such investments will also be eligible for reduced taxes on profits and professional activity for 10 years.

Guarantees

Foreign individuals and legal entities have the same rights and duties as their Algerian counterparts. However, foreign investors are granted certain additional guarantees to protect the security of their investments. The ordinance provides that:

• future revisions or abrogations of the provisions of the ordinance will not apply to investments made under the present regime, unless the investor so requests;

• although investments may be requisitioned by government order (within the limits of the law), equitable financial compensation must be paid; and

• disputes between a foreign investor and the government resulting from a measure adopted by the government in relation to the investor will be submitted to the competent jurisdiction, unless bilateral or multilateral conventions to which the government is a signatory provide for alternative dispute resolution.

Future Measures

In addition to the advantages and guarantees detailed in the present ordinance and set out in the government's investment strategy, the agency has the power to adopt further measures in response to future needs.

For further information on this topic please contact Imene Azeli at Ghellal & Mekerba by telephone (+213 21 60 08 13) or by fax (+213 21 60 08 12) or by email (contact@ghellal.com).