Algeria's tax authority issues guidelines for treatment of deducted VAT, compliance requirements for VAT-exempted turnover

Tax authorities in Algeria recently published a tax administration doctrine regarding the tax audit approach to input value-added tax (VAT) and VAT credits audits, as well as VAT compliance requirements in relation with a VAT exempted turnover.

Tax audit treatment of deducted VAT

Instruction No. 05/MF/DGI/24 from the General Directorate of Taxes provides guidelines for addressing incorrectly deducted VAT on purchases and VAT credits during a tax audit or in litigation claims.

This instruction, dated 9 April 2024, aims to clarify both the treatment to be applied to VAT credits within the framework of implementing general and specific accounting verification procedures, and the treatment of nondeductible VAT incurred on purchases of goods and services.

The instruction's goal is to provide guidance to tax auditors in the context of audits, with a focus on deducted VAT. In that regard, tax auditors are instructed to:

• Verify the regularity of deducted VAT.
• Ensure that the turnover is subject to VAT.
• Conduct a thorough examination, particularly focusing on: whether the list of goods acquired tax-free is consistent with the list of equipment annexed to the approval decision; how the nature of the goods compares to the type of investment made; and how the quantity of goods and merchandise relates to the magnitude of the investment.

Importantly, the instruction clarifies that VAT deducted during fiscal years beyond of the statute of limitations (more than four years) that affects the VAT credit of fiscal years under control may be examined and used to adjust the VAT at issue for the period under audit.

Note that the above should not apply to VAT credits related to fiscal years already audited by the tax authorities.

As a result, VAT credits from previous fiscal years affecting the years under audit can be audited and adjusted for the purpose of reassessing the years under audit.

With regard to VAT credit reporting, the instruction also provides clear guidelines regarding cases in which taxpayers have submitted VAT refund applications.

Compliance requirements for VAT-exempted turnover

Instruction No. 17/MF/DGI/LF24 from General Directorate of Taxes provides tax auditors with guidelines on provisions of article 40 of Finance Law for 2024, expressly providing that VAT-exempted turnover must be reported in monthly tax returns, under the same conditions as taxable turnover.

This Finance Law measure aims at ensuring that the tax law clearly requires a VAT-exempted turnover to be fully declared, which should allow tax auditors to thoroughly perform their audit diligences.

The instruction also provides that in the course of audits, auditors may not apply VAT if taxpayers have not reported a duly justified exempted turnover in monthly tax returns. In such case, the instruction explains, article 114 of the Algerian Code of Turnover taxes provides that only a lump-sum penalty ranging from 500 to 2,500 Algerian Dinar (DA 500 to DA 2,500) should apply.