NEW RULES OF IMPORTATION FOR TELEPHONY PRODUCTS AND CERTAIN HOUSEHOLD APPLIANCES

NEW RULES OF IMPORTATION FOR TELEPHONY PRODUCTS AND CERTAIN HOUSEHOLD APPLIANCES

NEW RULES OF IMPORTATION FOR TELEPHONY PRODUCTS AND CERTAIN HOUSEHOLD APPLIANCES

The note of the Ministry of Finance No. 189/CC/MF/2019 of the 29/09/2019 provides explicitly for the substitution of the cash payment for the importation which concerns household appliances and telephony products in CKD/SKD, with a payment delayed of 9 months, for a maximum of 1 year.

Furthermore, it imposes the application of the FOB (Free on Board) Incoterms to the transaction, where it is mandatory for the seller to use an Algerian maritime transportation service, where available. Such provision will impact on the international transportation companies heavily.

A new framework potentially targeting other sectors in the near future

 

The new legal framework, especially concerning the adoption of FOB terms, is deemed to be extended to other sectors in the near future (potentially within the end of 2019), as mentioned in the Note of the Ministry of Finance No. 189/CC/MF/2019.

First, it is worth to note that it is unusual in the international practice (but common in the local usages) to release a Note, which is the lowest source in the hierarchy of Law, to adopt policies that have a large impact on the market and provides for important amendments.

Thus, it is likely that the provision inserted thereof will be implemented and, probably, enhanced in the Budget Law 2020, to be released in January.

Entering into its content, if the delayed payments of minimum 9 months should not affect the certainty of the payments, because a Letter of Credit will be opened in advance, with the combination of the FOB terms, it will influence negatively the cash flow of the Seller.

 In fact, not only the Seller will receive the payments after a minimum of 9 months and a maximum of 1 year after the exportation, but also it is bound to pay the transportation fees up to the Port of delivery, perform the exportation procedures, including custom clearance and the payment of Custom duties and taxes.

Furthermore, it is important to note that all of the aforesaid should be paid in local currency (DA).
For what concerns the transfer of the risks, it will take place upon the boarding of the goods into the freight, prior chosen by the Buyer.

It is worth to mention that the amendment of such rules is in any case in compliance with the International practice, being the FOB terms the Incoterms 2010 most adopted terms and leading statistically to less number of issues and disputes in the transaction.

New rules of importation

Finally, it is worth to mention that in absence of a date when the provisions set forth by the Note will entry in force, we have to assume that it is immediately enforceable. Concerning the application of the provisions, we believe that they should not affect the transactions whose bank domiciliation is already opened at the day of issuance, but it will depend by the interpretation given by each Banking Institution.

PRACTICAL LEGAL GUIDE

" Doing business in Algeria 2019"

Provide you with an overview of the applicable legal framework in Algeria for international business transactions

ALGERIA INVESTMENT ENACTED A NEW INVESTMENT LAW

ALGERIA INVESTMENT ENACTED A NEW INVESTMENT LAW

Last August, the new investment law N0 16-09 entered into force which is not, as usual, a single piece of legislation gathering investment law, finance laws, tax codes, and regulations exchange control. However, the law should be interpreted as being the preliminary step of a mid-term process for amending the “doing business” framework in Algeria which is a positive signal for foreign investors. In fact, the law repealed many burdensome provisions from the former draft and it aims to prepare the ground for further friendly measures. Indeed, the law shall be fully applicable once the 29 regulations provided thereof shall be issued. Basically, the Law provides a broader notion of investment while reinforcing and facilitating the advantages granted to investors. Equally, the Law shows a clear willing to amend the investment financing system although major steps are still to be achieved on that aspect.

A new definition of investment

Investments are now defined by the New Investment Law (articles 2) as (1) an acquisition (of assets related to the creation of new activities or the extension of production and/or the rehabilitation) or (2) a holding in the share capital of a company.

Unlike the previous law, the shareholding related to the privatization of a public company is not considered anymore as an investment and it is now only governed by Article 62 of the 2016 Budget Law. Equally, the award of a concession or a license still not falls into the scope of investment.

 

A broader notion of contribution in shareholding

Contributions in a company share capital are not limited to the typology of contributions in cash and kind. Unlike the previous law, the investor may enjoy the opportunity to contribute in industry, at least in within the frame of a Limited Liability Company.

Equally, under Articles 6 of the Law, a contribution in kind can be achieved through the importation of used assets provided that they will fall into the scope of a delocalization operation. Such provision was already in force through article 59 of the Budget law 2016 whereby used goods aged less than 2 years where allowed to importation, even if it was not applied in the practice.

The application of this provision is still broad, in particular the concept of delocalization is unclear, as it must be clarified and specified by regulations.

However, it seems under the Custom Code that the goods thereof are those still covered by manufacturer warranty and that have been used previously by the investor abroad. Equally, contribution in kind can be done through the importation of new goods acquired through the scope of an international leasing transaction.

Importation procedures thereof shall be simplified and not subject to authorization in both cases.

 

The 51/49 rule is still applicable but removed from the law corpus

Although under the current applicable framework, a foreigner is still not able to own more than 49% of a company share capital, such provision is now removed from the Investment Law and is provided only by the Budget Law 2016.

In other words, the 51/49 rule should not be considered any longer as a mandatory principle and it is very likely that foreigners shall be soon entitled to control companies operating in certain sectors.

For instance, it seems that the next Budget Law shall provide some exception to such rule, probably in the banking sector. In brief, the investment law should be interpreted as the first step of the establishment of a more flexible and friendly system for foreign shareholders.

 

The obligation of local funding is removed

The Law removes as well the obligation for investors to call only for local funding for project finance. It is worth to remind that article 55 of the Budget Law 2016 provides the right to call for foreign funding related to strategic investment projects. Even if a further regulation shall clarify the funding framework, it seems, under the combination of the present Law and the Budget Law 2016 that strategic investment projects can be financed by funds raised abroad.

The granting of advantages is facilitated

The law sets forth an automatic system of facilitations aiming to reduce the impact of bureaucracy. In other words, investors are only required to perform a single registration through the submission of a single document and form. In brief, the granting of facilitations is not subject to decision from Investment Authorities but it is automatic if the investment is eligible. Under the law, any investment is eligible except those pertinent to some listed activities and to the acquisition of certain goods. For major investment projects, a decision from the National Council of Investment is still required because the advantages granted thereof are extraordinary and freely negotiated by the parties.

The Advantages granted to investors are enlarged

The new system of facilitations is now built around 3 different levels in order to give more incentives to the strategic projects.

The first level is a sum of common provisions which introduce more advantages such as estate tax exemptions and allowances. More significantly, all investors are now granted with a 3-year duration exemption of the income tax and professional tax while those hiring at least 100 employees are granted with a 5-year exemption.

The second level is the additional advantages granted to investment project based in some priority zones and/ or pertinent to specific sectors (tourism, agriculture, and industry) or which create new job opportunities. Here, the advantages are significantly enlarged while their duration is extended up to 10 years.

The last level is the extraordinary advantages for those investments falling into the scope of the national interest. Here, the granting of advantages is not automatic but subject to party’s negotiation. Among the several advantages and privileges, it is worth to mention that the law provides for funding facilitations.

Here, further regulations must clarify the applicable regime such as, for instance, the possibility for those projects to call up for foreign funding as allowed by the article 55 of the last Budget Law.

 

The transfer of funds abroad is enhanced

Although the transfer of funds remains quite burdensome because of the still applicable banking regulations, the Law aims to enhance the transfer abroad of the funds falling in the scope of the investment.

Indeed, under its article 31, investments reaching a certain threshold are granted with a guarantee of transfer abroad as well as their generated profits. Beside contribution in cash are now deemed to be an invested capital subject to transfer also any contribution made in kind.

In other words, any invested assets in kind shall imply the right to transfer abroad the corresponding amount. Equally, unlike the former practice, the law now considers reinvestment of the profits and dividends as an investment in the form of an external contribution. Indeed, the obligation to reinvest 30% profits set forth by the last budget law shall considered as an investment.

Moreover, the burdensome obligation provided by the previous law whereby the investor was obliged to maintain a positive balance of currency in favor of Algeria is banned.

In brief, the policy behind the law is to ease progressively the transfer of funds generated by investment abroad in order to attract more IDE.

 

The State Preemption right is still in force

Unlike announced by the initial draft of the law, under article 30 and 31 of the Law, the State “preemption rightis still in force.

Such right grants the Algerian government with the priority in purchasing any share when a transfer is intended to be performed from and/or to a foreign person.

In addition, such right applies also to indirect share transfer whereby a foreign based company holding shares in an Algerian based company which is granted with investment privileges is willing to transfer shares. In those cases and provided that the subject shares transfer shall overcome 10% of the share capital, the Algerian State shall be able, under some conditions, to purchase the target shares.

The policy behind the rule is to provide the hosting state with a right of control towards companies granted with privileges as per the international investment practice and standards.

It is worth to underline that the obligation to provide annual information regarding the shareholding of foreign legal entities owning shares in Algerian companies is removed.

PRACTICAL LEGAL GUIDE

" Doing business in Algeria 2019"

Provide you with an overview of the applicable legal framework in Algeria for international business transactions

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