Complementary Finance Law 2020: New measures to boost start-ups

Complementary Finance Law 2020: New measures to boost start-ups

Complementary Finance Law 2020: New measures to boost start-ups

Due to the promulgation of the complementary finance law for 2020 (CFL2020), the promotion of start-ups became one of the government’s priorities.

 It was resolved to grant to the start-ups a dedicated investment fund to ensure their funding and to support them in the field.

In order to promote the creation of start-ups, any activity of producing goods and services, except those qualified as strategic, is open to foreign investment without the obligation of partnership with a local party.

In addition, a quasi-total tax exemption mechanism has been implemented. 

However, Algerian regulations do not define the start-up. This definition would nevertheless have made it possible to ground the eligibility of the measures of the complementary finance law

Nevertheless, the legal framework is still in fieri and we expect some further specifications in the near future.

The introduction of new funding methods

Financing start-ups in Algeria and around the world is particularly risky because of their particular business model.

In other words, traditional bank system is reluctant to finance start-ups because they cannot usually provide them with the required guarantees. 

Therefore, it is important to turn towards other financing tools more suitable for the needs of start-ups, such as:

  1. Private equity

Among the measures taken by the government to boost the investment, according to the article 46 of the CFL, a private equity company can now hold shares representing more than 49% of the capital of one company. Hence, start-ups can finally open their capitals to financial investors. 

Moreover, the equity mentioned allows the businesses to innovate, grow and develop. 

Also, it most likely helps the improvement of the transparency and governance of the start-ups and can prepare some of them to be listed on the stock exchange.

  1. The Crowdfunding

Crowdfunding calls out to the general public to contribute to the financing of projects, normally through the establishment of online platforms.

Crowdfunding allows direct interaction between young entrepreneurs and contributors. 

Thus, in accordance with article 45 of the complementary finance law, the position of participatory investment advisers is created, one of the main tasks of which is to place the funds collected in participatory investment projects, especially start-ups.

In this regard, commercial companies, intermediaries in stock exchange transactions as well as investment fund management companies may have the quality of participatory investment adviser.

  1. The Funding via ANGEM

The national micro-loan management agency (ANGEM) has two financing formulas (one of which is supported by partner public banks).

The first consists in the purchase of raw materials through micro-loans, not exceeding the 100,000 DA (250,000 DA for the wilayas of the south), made directly by ANGEM. 

The second formula concerns loans granted by the partner bank and ANGEM for the creation of an activity through the acquisition of small equipment and raw materials, helping the starting process and the payment of the costs necessary for the setup of the activity.

Tax reliefs/exemptions introduced ad hoc for start-ups

The government, under its general approach, also widened tax exemptions/reliefs in order to encourage start-ups creation in Algeria. Hence, the article 33 of the CFL2020 modifying the provisions of article 69 of the Finance Law for 2020 provides: “Start-ups are exempt from VAT, TAP, IRG and the IBS for a period of three years, from the date of the start of the activity. »

    1. The exemption from “VAT”

The finance law for 2020 reduced the rate of VAT for sales operations carried out electronically to 9%. Such measure can be seen as an attempt to adapt the Algerian tax system, in order to encourage “e-tax payers“. 

Furthermore, CFL2020 grants the start-ups with a total exemption from VAT for the acquisition of equipment for the realization of their investment projects.

    1. The exemption from “TAP” and “IFU”

Start-ups are exempted from the tax imposed on professional activity “TAP”, which is a tax in the amount of 2% on the turnover made in Algeria by companies that carry out an activity which falls under the IRG. 

On the other hand, start-ups subjected to the single flat-rate tax (IFU) are exempted from it as well. Thus, this tax exemption is intended to perpetuate these businesses and therefore encourage the creation of start-ups.

    1. IRG and IBS exemption

It is necessary to point out that Finance Law of 2020 provided only for the exemption from corporate income tax. As for CFL 2020, it extended the exemption to the global income tax, which is a direct tax that applies to the income and profits of natural and moral persons.

 It is calculated on the basis of a progressive scale.

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The e-Signature in Algeria

The e-Signature in Algeria

The e-Signature in Algeria

The business practice across the world witnessed a transformation that affected mainly the electronic transactions.

 Hence, electronic signature was adopted by many companies worldwide, since it is considered the best and safest tool to secure documents online: In fact it is widely used mainly for multinational business-to-business sales contracts, non-disclosure agreements, video conference electronic attendance sheet for general assembly et cetera. 

On that regard, Algerian legislation established procedures for the recognition of the e-Signature, where a third party called “the provider” is responsible for its identification and authenticity, but also established heavy sanctions (imprisonment up to 3 years and a fine up to 200.000 DA) for the provider in case of the absence of the required authorisation.

 More so, the subscribers are sanctions with the same sanctions in case of false statements to obtain the certificate. 

Therefore, economic operators should strictly follow procedures and refer to authorised parties to ensure the safety of their e-Signatures.

What is e-Signature according the Algerian Law ?

Handwritten signature can only be useful and safe to a certain extent nowadays. 

Article 323 ter of the Algerian civil code provides that the e-Signature is legally bidding in an equivalent way as handwritten one. 

In fact, the e-Signature is a collection of data in an electronic form joined or logically linked to other electronic data, for the purpose of authentication of documents online. 

It can take many forms, including digital signature, biometric signature, and electronic pen signature. 

The article mentioned above set specific conditions and requirements that must be met in e-Signature, for example its strict association with the platform, the fact that the owner of the signature has complete control over it, and this signature cannot be modified nor changed.

Under these conditions, the e-Signature is accepted as evidence in the same way as a traditional one.

How is the certification of the e-Signature done according to the law 15-04 ?

The law 15-04 concerning the electronic signature and certification established a set of procedures to ensure the authenticity of the e-Signature.

 The e-Signature of digital or paper documents requires a third party whose main function is to create a secure electronic transaction platform, and play the role of a trusted broker between the owners of the signatures, confirming the identity of the parties and determining their eligibility to sign.

In addition, it ensures the integrity of the data circulating, and this process is defined as electronic certification. 

The provider of such platform is required to obtain an authorisation to do so from the Economic Authority for Electronic Certification established under the Post and Telecommunications Regulatory Authority, any provider lacking such authorisation can be sanctioned pursuant to the aforementioned law.

This Authority has the duty to publish a list containing the authorised providers.

The provider is required to release to the subscriber a certificate attesting the digital signature.

Therefore, the economic operators should strictly deal with providers approved by the concerned authority and present in the mentioned list but; also, they should obtain and store the certificate proving the authenticity of the document.

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The impact of COVID-19 on the obligations of the tenants

The impact of COVID-19 on the obligations of the tenants

Both the spreading of COVID-19 and the measures taken by the government in order to prevent its spreading deeply impacted the economy and that lead the tenants struggling to pay their rents. 

Furthermore, the tenants may not be able to fully and freely enjoy the leased premises.

Since the government did not take any action so far in this concern, courts must assess the parties’ liabilities.

Thus, are the tenants entitled to suspend the payment of the rents or renegotiate the lease contract during these exceptional circumstances? 

Are the tenants entitled to claim for an event of force majeure?

An event of force majeure may excuse one party to a contract from performing its contractual obligations, suspending the performance.

Under the Algerian practice, even in the absence of a clear definition in the law, force majeure is defined, in compliance with the international standards, as an unforeseeable and unavoidable event, which makes the execution of the obligation impossible.

According to the article 467 of the Algerian Civil Code, the obligation of the tenant is to pay the rent. Indeed, money is a fungible good and can be replaced, so performing a payment is theoretically never impossible.

In other words, even if the tenant is severely affected by the impact of the crisis, legally its obligation to pay rent does not become impossible.

Therefore, in the event of non-payment, the tenant’s contractual liability can be raised.

Is there a possibility for the tenant to suspend the lease contract ?

The main obligation of the lessor consists in providing the full enjoyment of the leased premises to the tenant. Meanwhile, the obligation of the tenant is to pay the rent.

If the non-performance of the obligation of the lessor is not excused by an event of force majeure, then the obligation of the tenant to pay rent could be suspended.

On one hand, some measures such as the total closure of certain stores could be considered force majeure events.

On the other hand, some other measures such as the reduction in staff or the curfew hours do not impede the right of enjoyment of the property, but it only alters it.

In this case the right to enjoy the leased premises is not impossible but only partially altered.

Thus, it is unlikely that the lessor can invoke force majeure, which means that the lessor’s obligation is being partially executed.

Therefore, the tenant might be in theory entitled to suspend its own obligation, as provided by the principle of art.

123 of the Civil Code (inadimplenti non est adimplendum).

Consequently, the tenant could suspend the payment of its rent if the lessor does not notify force majeure or, alternatively, its right of enjoyment is impacted.

In absence of an agreement between the parties, the Court will be called to assess the circumstances and provide a solution.

Could the tenant have the right to renegotiate the lease contract?

Under the Algerian Civil Code, the tenant could be entitled, under special circumstances, to renegotiate the terms of the leased contract, including its price.

Indeed, article 107 of the Civil Code provides that the obligations must be executed in good faith.

Yet, with the impact of COVID-19 as exceptional circumstance, the parties are obliged to renegotiate in good faith, in particular, the terms and deadlines for payment.

Also, under the same article, when the performance of an obligation is not impossible yet it becomes extremely burdensome, it is possible to ask the judge to renegotiate the price of the contract.

In any case, to safeguard its rights, the tenant must notify the lessor of the times of the damage suffered.

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The protection of personal data of clients during COVID-19

The protection of personal data of clients during COVID-19

The protection of personal data of clients during COVID-19.

Due to the situation of COVID-19, many employees are teleworking, and using their personal computers, Home computers and personal/ public Wi-Fi.

In this case, companies cannot provide the proper security needed, this may lead to the exposure of personal confidential information of employees and clients to unauthorized people.

This can hold the liability of the company and the responsible can be faced with both imprisonment and a fine.Thus, companies have an obligation to respect the right of employee’s and client’s confidentiality and to protect all personal data.

What is the responsibility of companies regarding personal Data of clients?

Algerian public and private companies must do everything in their power to preserve confidentiality and ensure the security of their client’s data.

Law No. 18-07, relating to the protection of personal data of natural persons,provides that processing of personal data must be done in the context of respect for the person’s honour and their reputation.

Also, according to the article 38, the company should protect personal data against accidental destruction, alteration, breach of professional secrecy, dissemination of unauthorized access, especially when transmission takes place in unprotected network.

The above-mentioned law has set sanctions for the none-protection of personal data. According to article 60 of law 18-07, whoever gives access to unauthorized people to personal data is punished by imprisonment for two (2) years to five (5) years and a fine of 200,000 DA to 500,000 DA.

Therefore, the company should protect personal data of clients against any violations coming from its employees, or third parties, who have access to such information, especially with the situation of teleworking.

How can companies ensure the security of the personal data of its employees and customers?

A solid data protection strategy is a key, in this time, to keep client’s trust.

When accompanied by effective governance and supported by the effective implementation of technical controls, this will allow companies not only to minimize the risk of data leaks, but also to establish effective teleworking pattern, and by extension data protection.

Thus, Companies must set an urgent COVID-19 technical plan for keeping personal information.

Such as, limit the amount of data processed; Restrict access to sensitive data only to designated persons.

Provide protected network for the company’s employees, with the help of a professional IT engineer.

Provide the employees who are in direct contact with the personal data with well protected equipments (Computers, Phones, printers…).

Designate a person responsible for the protection of the personal data in the company.

The company should obtain the written approval of the person concerned before any processing of personal data; the said approval needs to be implemented by the proper legal procedures.

However, for these suggestions to achieve compliance, it is imperative to materialize them with the appropriate legal instruments as defined by Algerian regulations.

Otherwise, the company and its managers can be exposed.

Although, teleworking provides an appreciable advantage, the latter can jeopardize the leakage of employee’s and client’s personal information which is punished by heavy penalties.

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Investment Law: will foreigners be entitled to own 100% of an Algerian company?

Investment Law: will foreigners be entitled to own 100% of an Algerian company?

The Budget Law 2020, under art. 109, clearly opened the road to the lifting of the limit of 49% of the ownership of a local company by foreign entities, drawing the general legal framework.

Now, on 9 th of May, the Project of Complementary Budget Law 2020 has been released, providing with the necessary specifications to enforce the new Rule.

Foreign investors were waiting for such a decision since years and finally it seems that it will be soon adopted, together with the necessary ancillary rules, such as the abolition of pre-emption right reserved to the State.

Algeria is aiming in that way to attract more foreign investments, enhancing the entrepreneurial freedom, in order to boost the local production and innovate the business environment.

Can a foreign Company own more than 49% of the capital of a local Company?

If the provisions set forth in the Project of Complementary Budget Law 2020 will be confirmed, pursuant to its art. 50 and 51, the foreigners will be entitled to own up to 100% of the shareholding of a local Company active in the field of production of goods or services, except for the Company active in strategic fields and retails.

The list of strategic activities is detailed and exhaustive and it includes the fields usually provided for by the legal framework of most of the other Countries, such as mining, energy, oil & gas, factories related to military services and products, railway, ports and airports and pharmaceutical.

Is the State pre-emption right in case of transfer of shares involving a foreign person still in force?

Under art. 53 and 53bis of the Project of Law, the pre-emption right reserved to the State in case of transfer of shares of a local Company involving a foreign person is completely lift, unless in the strategic fields as provide by the aforementioned art. 51.

This represents a great enhancement in the foreign investment environment, setting aside legal and commercial uncertainties and dramatically reducing the necessary time to complete such kind of transactions.

What about the obligation to resort to local financing?

Pursuant to art. 55 of Budget Law 2016, Algeria imposed that the foreign investment would have been financed only through local financing.

Such provision prevented, de facto, the foreign investor to invest its funds directly, or through a foreign banking institution, in an investment Project in Algeria.

The only residual option was to finance the Project through a huge share capital injection, limiting the business opportunities and leading to a great immobilization of capital.

Now such provision has been lifted and the investment Project in Algeria could be financed directly from abroad by the foreign investor, which will be now free to resort to its usual means of financing.

Also, Algeria will benefit of fresh capital from abroad and potentially of a better quality of investors, endowed of proper self-funding.

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