Foreign Investment in Algeria

The regime applicable to investments made in economic activities for the production of goods and services is primarily governed by the provisions of Law No. 22-18 relating to investment dated July 24, 2022, and its implementing texts. The provisions of this new Law aim to encourage investment with the goal of developing priority sectors with high added value, ensuring sustainable and balanced territorial development, and valorizing natural resources and local raw materials.

The objective also includes promoting technology transfer, fostering innovation and the knowledge economy, widespread adoption of new technologies, stimulating job creation, enhancing the skills of human resources, and strengthening and improving the competitiveness of the national economy and its export capacity.

It is also noteworthy that the Law stipulates the maintenance of rights and benefits legally acquired by the investor, which remain governed by the laws under which they were registered and/or declared until the expiration of the duration of said benefits.

Freedom Of Investment

Article 02 of Law 22-18 enshrines the following principles:

  • Freedom to invest: any natural or legal person, national or foreign, resident or non-resident, wishing to invest, is free to decide on their investment, respecting the legislation and regulations in force;
  • Transparency and equality in the treatment of investments.
Establishment Of A Partnership With Foreigners

Introduced by the supplementary finance law for 2009 and then reiterated by the Finance Law 2016, the rule known as 49-51% and since the promulgation of the Finance Law 2020 has been modified and now only applies to so-called strategic activities as well as operations involving the importation of raw materials, goods, and products intended for resale in their original state.

Thus, the strategic sectors subject to the 49-51% rule according to the Supplementary Finance Law for 2020 are as follows:

Exploitation of the national mining domain, as well as any underground or surface resource falling under extractive activities on the surface or underground, excluding non-mineral product quarries.

  • Upstream energy sector and any other activity governed by the hydrocarbons law, as well as the operation of the distribution and transportation network of electrical energy by cables and of gaseous or liquid hydrocarbons by overhead or underground pipelines;
  • Industries initiated or related to military industries under the Ministry of National Defense;
  • Railways; ports, and airports;
  • Pharmaceutical industries, except for investments related to the manufacture of innovative essential products with high added value, requiring complex and protected technology, intended for the local and export markets.

In this context, Executive Decree No. 21-145 of April 17, 2021, establishing the list of activities of strategic importance was published in Official Journal No. 30 of April 22, 2021. Activities of strategic importance within the energy and mining, pharmaceutical, and transportation sectors subject to a 51% national resident shareholding are as follows:

  • Any transfer of shares by foreign parties to other foreign parties, of the share capital of an Algerian legal entity operating in one of the strategic activities, is subject to authorization from the Government.
  • Any transfer of assets from a non-resident foreign party to a resident national party is assimilated to an import of goods or services and therefore complies with the provisions governing exchange control regarding the transfer of proceeds from the transfer operations.
Accepted Types Of Contributions In Algeria

Algerian regulations provide for three types of contributions as follows:

  • Cash contributions: funds from cash subscriptions are deposited either with a notary or with a financial institution. For non-resident shareholders or partners, funds are deposited in a foreign currency holding account in an Algerian bank in the name of the company under incorporation.
  • In-kind contributions: one or more contributions commissioners are appointed by court decision at the request of the founders or one of them. They assess, under their responsibility, the value of the in-kind contributions. Their report is annexed to the statutes.
  • Industry contribution: This form of contribution is applicable only to sole proprietorships and limited liability companies. Its value assessment and the determination of the shares it generates in profits are specified in the company’s articles of association. This contribution does not form part of the company’s capital.
Guarantees - Protections - Conventions Concluded By Algeria

Guarantees and protections: Law 22-18 on investment:

Maintenance of rights and benefits acquired under previous investment laws, in addition to protection against administrative requisition.

Guarantee of:

  • Transfer or assignment of investment;
  • Transfer of investor’s capital and resulting income.

Right to:

  • Resort to the “High National Commission for Investment Disputes” under the Presidency of the Republic;
  • Resort to international conciliation, mediation, and arbitration.
  • Protection of intellectual property rights;
  •  Exemption from foreign trade formalities and bank domiciliation for:
  1. External contributions in kind within the framework of offshoring operations from abroad;
  2. New assets constituting an external contribution in kind.

Conventions concluded by Algeria:

The Investment Law establishes the principle of equal treatment of investments as well as protections and guarantees in accordance with international law provisions. Algeria has concluded 46 bilateral investment protection treaties, in addition to multilateral conventions on the same subject.

Algeria is a member of the 1958 New York Convention, the International Centre for Settlement of Investment Disputes (ICSID), and the United Nations Commission on International Trade Law (UNCITRAL).

It has also ratified the convention on the Arab Organization for Investment Guarantee and approved the convention establishing the Multilateral Investment Guarantee Agency (MIGA), which aims to promote foreign direct investment by providing guarantees (political risk insurance and credit enhancement) to investors and creditors. These undoubtedly provide additional evidence in favor of the recognition of international arbitration.

Eligibility For Dividend Transfer

Only Algerian companies engaged in the production of goods or services are allowed to transfer dividends based on the percentage of shares held by foreign shareholders in the share capital. For mixed activities, prior approval from the Bank of Algeria is required.

Funds transfers to non-resident individuals or entities in Algeria must be declared to the tax authorities in advance.

Distributed dividends are subject to a withholding tax of 15% at the time of payment by the company. It’s worth noting that profits transferred to a non-resident foreign company through its branch established in Algeria or any other professional installation for tax purposes are considered distributed income and are therefore subject to a 15% withholding tax, which is final.

Formalities Related to Dividend Transfer:

The documents required for processing dividend transfer requests are:

  • Transfer request.
  • Copy of the trade register.
  • Copy of the company’s articles of association and their updates.
  • Transfer order.
  • Attestation from a bank justifying the contribution of foreign shareholders or partners, supported by documents justifying repatriation and transfer to the Bank of Algeria.
  • Copy of the minutes of the Ordinary General Meeting of Shareholders or partners who have decided on the allocation of profits, showing the amount of profits and dividends distributed as well as the modalities of payment in the form of an authentic deed.
  • Attendance sheet of directors and/or shareholders who participated in the Ordinary General Meeting, and the minutes must be subject to legal deposit and meet legal publicity requirements (Official Gazette).
  • Copy of the statement authenticated by the statutory auditors showing the distribution of income allocated to beneficiaries, net of taxes and duties
  • Copy of the balance sheet and income statement for the fiscal year for which the transfer is requested, along with the auditor’s report certifying the accuracy and regularity of the accounts.
  • Additionally, the auditor’s report must be unqualified; if there are any reservations, a statement from the auditor certifying that the reservations raised are not blocking for the dividend transfer is required.
  • Official Gazette publication (final publication containing the number and date of publication).
  • Funds transfer certificate, tax clearance, tax assessment extract.
  • 3 original copies of statistical tables B & C as defined by instruction No. 09-05 of the Bank of Algeria.
  • Court decision granting an extension of deadlines for dividends distributed in previous fiscal years and not transferred within 9 months from the end of the relevant fiscal year, as provided for in Article 724 of the Commercial Code.
  • The transfer must occur within the regulatory deadline of September 3rd of each fiscal year.

Minimum Financing Threshold for Transfer Guarantee

The minimum threshold, as provided for in Article 08 of Law No. 22-18 dated Dhou El Hidja 1443 corresponding to July 24, 2022, for the benefit of transfer guarantee, calculated based on the portion of foreign-origin financing attributable to investors in the total investment cost, is set at 25% of the investment amount.

Failure to meet the above minimum threshold does not preclude the benefits. However, it deprives the investment of the transfer guarantee provided for in Article 8 of Law No. 22-18 dated Dhou El Hidja 1443 corresponding to July 24, 2022.

Guarantee of Exemption from Foreign Trade Formalities and Bank Domiciliation

Law No. 22-18, in Article 7, exempts foreign investors from foreign trade formalities and bank domiciliation when they make foreign contributions in kind exclusively as part of the relocation of activities from abroad. Moreover, this exemption also applies to new assets constituting a foreign contribution in kind. This new guarantee reflects the desire to streamline existing procedures in foreign trade.