Algeria introduces Finance Law 2023 | Key measures applicable to companies

Executive summary

The introduction of Algeria’s Finance Law (FL) 2023 follows the action plan initiated by the Government that is aimed at improving the country's economic status through the appropriate management of public finances, an improvement of the business climate as well as the facilitation of the investment act.

This Alert summarizes the main measures under FL 2023 that are considered relevant for Algerian economic operators.

Detailed discussion

Investment incentives

Definition of the process of reinvestment of the benefits perceived

Algeria’s Financial Law 2022 established an obligation to reinvest 30% of profits corresponding to tax exemptions or reductions granted during the operating phase for companies benefitting from the preferential regime (AAPI, ex ANDI), within four years from the closing date of the fiscal year with respect to results subject to the preferential regime.

Under the present law, the requisite reinvestment can be carried out by:

• The acquisition of assets (tangible or intangible) directly involved in the production of goods and services

• The acquisition of investment securities

• The acquisition of shares, equity shares or similar securities, allowing the shareholding in the capital of another company engaged in the production of goods, construction and public works or services, subject to the release of the total amount of the benefit to be reinvested

• The acquisition of a stake in the capital of a company with the "start up" or "incubator" label, subject to the release of the full amount of the benefit to be reinvested.

Also, in the event of an accumulation of the amounts of tax benefits to be reinvested relating to several financial years, the four-year period is computed separately for each financial year.

Finally, it is important to note that the law provides for the recall of duties corresponding to the amount of the tax exemption granted in case of non-compliance with the provisions enacted by the regulations in force (Art. 9 LF 2023, Art. 142 CIDTA).

Extension of the permanent corporate income tax (IBS for its acronym in French) exemption for fishing and aquaculture activities

Fishing and aquaculture activities are strategic in the development of the national economy. Therefore, the Government intends to boost and develop this sector through the reduction of fiscal charges (Art. 7 LF 2023, Art 138 of the CIDTA).

A temporary exemption from IBS

For a period of five years, starting 1 January 2023, there will be a temporary exemption from IBS on profits from deposits in investment accounts made within the framework of banking operations under Islamic finance.

Corporate Income Tax (CIT)

Depreciation

The establishment of the depreciation period allowed for deduction, by a decree of the Ministry of Finance to avoid differences in position and to provide more legal certainty to taxpayers.

Review of the threshold and conditions for deductibility of certain expenses

Invoices paid in cash

The threshold of deductibility of expenses fulfilling the conditions of deductibility and whose payment is carried out in cash is raised to DZD1,000,000 including all taxes per invoice instead of DZD300,000.

Bank payments recognized by tax authorities

The introduction of the payment through banks into the list of payment methods recognized by the tax authorities.

Expenses related to R&D

Expenses incurred in the framework of research and development (R&D) within the company are deductible up to 30% of the amount of the profit, up to a cap of DZD200,000,000.

Expenses incurred within the framework of the programs of open innovation, carried out with the companies having the label "start-up" or "incubator" are subject to the same conditions of deductibility.

It is important to note that if the expenses incurred concern both R&D and open innovation, the deductibility threshold cannot exceed DZD200,000,000 (Art. 10, 11 LF 2023, Art. 169 and 171 CIDTA).

Tax on Professional activity (TAP)

Definition of the taxable event for some categories of services

The taxable event of the tax on professional activity (TAP) is represented by the total or partial collection of the payment for services and real estate works.

However, for foreign companies and for tax still due at the completion of the work, after the tax has been paid at each collection, the taxable event is the final delivery of the completed work. Finally, the taxable event for sales transactions carried out in the context of real estate development is the legal or physical delivery of the property (Art. 12 LF 2023, Art. 217 and 221 CIDTA).

Value Added Tax (VAT)

Invoices paid in cash

The FL 2023 increases the VAT deduction threshold on invoices paid in cash. The right to deduct is increased to DZD1,000,000 including VAT per invoice instead of DZD100,000.

The right to deduct is granted when the invoice is paid through a banking payment (Art. 23 of the LF 2023, Art.30 CTCA).

VAT exemption

There is an extension of the VAT exemption related to suppliers and subcontractors of companies carrying out hydrocarbon-related activities. This concerns goods, services, and works relating to hydrocarbon activities and intended to be used exclusively for these activities (Art. 24 of the LF 2023, Art. 42 CTCA).

Obligations related to pharmaceutical industry

FL 2023 creates an obligation for pharmaceutical establishments under Algerian law, of all kinds (manufacturing, operating, importing and wholesale distribution of pharmaceutical products and medical devices intended for human medicine) to:

• Transmit via the digital platform set up by the Ministry of the Pharmaceutical Industry, the stock statements of pharmaceutical products and medical devices and any other regulatory information.

Failure to comply with this obligation is punishable by a fine of DZD1,000,000.

• Ensure the availability of pharmaceutical products and medical devices in accordance with the provisional programs of manufacture and importation validated by the competent services of the ministry in charge of the pharmaceutical industry.

The non-compliance with this obligation leads to the application of a penalty fixed at 10% of the forecasted turnover of the product concerned, calculated on the basis of the forecasted program(s) of import or manufacture without this amount being less than DZD1,000,000 (Art. 61 LF 2023).

Other tax provisions

Tax litigation and legal deferment of payment

The FL 2023 has reduced the share of the legal deferral of payment from 30% to 20% to be calculated on the duties and penalties disputed (Art. 45 LF 2023, Art.74 of the Tax Procedures Code).

Updating of the threshold, the tax fine in the case of infringement of legal or regulatory provisions relating to indirect taxes, the latter is ranging between DZD10,000 and 30,000 instead of DZD5,000 to 25,000.

The fine applicable in case of eluded rights is raised of to DZD30,000 instead of DZD25,000, and in the case of fraud, its amount is raised from DZD50,000 to 70,000 (Art.30 LF 2023, Art 523, 524 of the code of indirect taxes).

Update of the threshold for the tax fine applied in case of prevention of a tax audit or in case of communication refusal, as well as the increase of the minimum amount of the penalty in case of communication refusal

Accordingly, the thresholds are raised from DZD50,000 to 200,000 instead of DZD10,000 to 100,000 in the case of tax audit prevention and from DZD10,000 to 100,000 instead of DZD1,000 to 10,000 in the case of communication refusal. The penalty is raised to DZD500 per day of delay, instead of DZD50 (Art. 32 LF 2023, Art. 537 and 538 of the Indirect Tax Code).

Creation of a section regarding decisions and orders pronounced by the administrative courts. These can now be challenged before the administrative court of appeal by way of appeal.

The appeal produces a demolitive and suspensive effect of the execution of the judgment

Also, the final judgments rendered by the administrative courts of appeal can be appealed to the Council of State. However, the appeal in the Council of State is not suspensive (Art. 40 LF 2023, Art. 89 and 90 of the tax procedure code).

For additional information with respect to this Alert, please contact the following:

Ernst & Young Algérie, Algeria Tax, Legal and Transaction Practices Leader, Alger

EY Société d’Avocats, Africa Tax Desk Leader

• Bruno Messerschmitt

Ernst & Young Algérie, Business Tax Advisory, Alger

• Halim Zaidi

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.