Would it be still possible to open a Rep Office in Algeria?

Would it be still possible to open a Rep Office in Algeria?

During the last few years, we assisted to a process where Algeria is progressively limiting the scope of the representative office.

This is a road followed by several Countries in and outside the North Africa Area, mainly because this device is considered to be used by several foreign operators for concealed commercial purposes, even if this possibility is explicitly set aside by the law. 

Now, with the foreigners being granted to own up to 100% of a local company, due to the Budget Law 2020 and Complementary Budget Law 2020, it is likely that the scrutinization on the request of opening or renewing of the representative offices will be even more strict and lead potentially to rejection, unless in very special cases.

Here it is worth to note that the Ministry of Trade has the right to assess discretionary whether to approve or not the request of renewal or establishment of a representative office, based also on the requirements of the Country and the presence on the market of other companies active in the same filed.

Therefore, we highly suggest to promptly proceed with the request of renewal for the company that are interested in having a representative office, before the new policy will be enforced.

What are the conditions for renewing a representative office?

These offices are temporary representative structures, allowed to perform scouting, marketing, collecting information and promoting products for the benefit of foreign commercial companies. 

More so, it is mentioned that the representative offices do not have legal personality and cannot carry out any business or economic activities. However, how is the renewal of such Office done?

The renewal of representative office follows the same procedures as the opening which is subject to the issuance of the Authorization by the Ministry of Trade whose duration is 2 years, renewable. But, what are the fees to be paid?

A deposit bond equal to 30,000.00 USD is opened and 5,000.00 USD is deposited on a “CEDAC” bank account. Registration taxes amount to 1, 5 Million DZD. So, are there other conditions?

The legal representative of the foreign commercial company must undertake in written to respect the laws and regulations in force in Algeria, in particular not to carry out direct or indirect economic activities. Thus, the foreign company must respect the deadlines and conditions of the renewal of its representative office otherwise it will be held liable.

startup algerie

Would it be still possible to open a Rep Office in Algeria?

Which entities are prevented from registering a representative office?

The Order of October 2015 regarding representative offices excludes some activities while some corporate forms are set aside. On one hand, which activities are not permitted?

Article 9 of the Order stipulates that the exercise of commercial activities by the representative office for and on behalf of the foreign commercial company is strictly forbidden. On the other hand, which corporate forms are excluded?

The order specifies the categories that cannot claim the opening of a representative office. These are natural persons, agencies, branches, commercial representations or any other establishment belonging to a company established abroad.

 Also, companies engaged in consulting activities, customs declarants, as well as legal entities engaged in activities not subject to registration in the commercial register are expressly excluded.

Navigating the impact of Covid-19 on your Business

The decisions you make today could be scrutinized for years to come BOOK YOUR FREE CONFCALL NOW to understand your overall risk position

Which company is considered as a Start-up in Algeria?

Which company is considered as a Start-up in Algeria?

Both the finance law 2020 and its complementary law have provided for new incentives for start-ups in the form of tax reliefs and new sources of financing.

However, the regulatory framework remains unclear as no legal definition of start-ups has been fixed in Algeria.

Nevertheless, the decree N° 20-254 of September 15th, 2020 clarified the criteria and conditions for a company to enjoy the status of start-up. Indeed, the new decree sets the conditions of the eligibility criteria and resolves to establish a committee whose purpose is to assess each project.

Which are the conditions to enjoy the status a Start-up ?

The aforementioned decree provides for several concurring eligibility criteria in order to obtain the status of start-up.

First of all, the operator must justify that its business model is innovative. In other words, the aim is to promote young companies with strong technological and digital potential. In addition, according to article 11 of the same decree, the company must have been registered in the commercial register for less than 8 years and employ less than 250 employees. 

Therefore, any already existing company with an innovative business model and whose eligibility criteria are met, is entitled to benefit from the incentives provided by the law.

startup algerie

Which company is considered as a Start-up in Algeria?

What is the procedure in order to be considered as a start-up ? 

The eligibility criteria are assessed by a national committee.

This committee is chaired by the minister in charge of start-ups or its representative, but also by the representatives of each sectorial ministry.

In addition, the committee has the role of assessing the innovative extent of the projects.  The procedure consists of the submission of documents and other evidences via a web platform to be created later.

In addition, the committee has 30 days to grant the start-up status for a period of four (4) years, renewable once.

In conclusion, the new system provides for eligibility criteria that will be assessed on a case-by-case basis by a national committee with broad discretionary powers and for the moment it is possible to set up the file that will be submitted once the ad hoc web platform will be launched.

Navigating the impact of Covid-19 on your Business

The decisions you make today could be scrutinized for years to come BOOK YOUR FREE CONFCALL NOW to understand your overall risk position

The issuance of the new Automotive Guideline in Algeria

The issuance of the new Automotive Guideline in Algeria

Indeed, the decree is designed mainly to regulate the Automotive industry and to prevent the backdoor importation through two main levels.

On the one hand, the increase of the integration rate to 30% instead of the 15% rate that was initially set by decree No. 17-344, now repealed.

On the other hand, the lifting of customs advantages relating to assembly kits. As a result, assemblers can continue their activity but without being able to benefit from custom advantages. 

Thus, the new specifications are more restrictive but do not prevent 100% foreign investment in the sector even if the automotive assembly and distribution activity is subject to compliance with certain criteria and conditions and subject to the control of the Ministry of the industry.

What are the eligibility criteria for exercising the automobile assembly and distribution activity?

The exercise of the automobile assembly activity is subject to financial and technical criteria laid down by the new decree. Regarding financial criteria, a minimum financial contribution of 30% is required for local investors as well as foreigners.

As for the technical criteria, the local investors have to prove an experience of 5 years in the field of the production, while foreign investors must prepare the detailed technical status of the project and provide the project with their know-how. 

On the other hand, they are no longer required to associate with local partners and they may benefit from tax advantages and reliefs for a period up to 10 years.

 In addition, they are exempted from both customs duties for imported goods entering directly into the implementation of the project and from the VAT for goods and services imported or acquired locally, entering directly into the realization of the investment.

 Thus, these specifications provided in the guideline open a door to foreign investors.

The issuance of the new Automotive Guideline in Algeria

The issuance of the new Automotive Guideline in Algeria

What are the conditions and clauses required for the conclusion of the concession contract?

In order to conclude the Concession Contract, the dealer is subject to certain conditions. 

First of all, it can only claim a single license allowing it to exercise the activity and represent up to two (02) vehicle brands in the national territory.

 In addition, the dealer will not be able to import the vehicle without first having an order from a customer. 

As for the terms of conclusion of the Contract binding the dealer to the grantor, it must be concluded for a fixed period of 05 years minimum and must not be exclusive. 

In fact, Algerian law prohibits any exclusivity and considers it as a practice aimed at limiting the competition, unlike European Competition Law, which adopts a much more nuanced position by authorizing exclusivity. 

Thus, in Algeria, the freedom of the contracting parties is framed by texts governing the activity of automobile assembly and distribution and the conformity of the Contract is checked by experts. 

However, unlike the repealed decree, the dealer is no longer required to invest in an industrial or semi-industrial activity in order to maintain its license.

Which are the procedures to follow in order to carry out the automobile assembly and distribution business?

Regarding the procedures for carrying out the automobile assembly and distribution activity, no significant change has been made compared to the repealed decree.

 Indeed, the investor willing to operate such an activity is subject to the obtaining of a provisional authorization of 36 months, renewable one year, issued by the Ministry of Industry and certain documents will be required. 

It is worth to note that the authorization makes it possible to take the necessary steps to carry out the project without authorizing the exercise of the activity. 

In fact, article 09 of Decree 20-226 requires the award of a final approval for the effective exercise of the activity of assembly and distribution of automobiles. Thus, this approval is considered as the key to launch the project.

Finally, the main objective of the Automotive Guideline is the establishment and boost of a mechanical industry based on an industrial approach in line with international standards in Algeria.

Navigating the impact of Covid-19 on your Business

The decisions you make today could be scrutinized for years to come BOOK YOUR FREE CONFCALL NOW to understand your overall risk position

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.

Navigating the impact of Covid-19 on your Business

The decisions you make today could be scrutinized for years to come BOOK YOUR FREE CONFCALL NOW to understand your overall risk position

INDEMNIFICATION FOR SUSPENSION OR FORCE MAJEURE IN PUBLIC CONTRACTS IN ALGERIA

INDEMNIFICATION FOR SUSPENSION OR FORCE MAJEURE IN PUBLIC CONTRACTS IN ALGERIA

INDEMNIFICATION FOR SUSPENSION OR FORCE MAJEURE IN PUBLIC CONTRACTS IN ALGERIA

Unlike several other Countries, which went for an explicit declaration of Force Majeure, Algeria opted for setting aside fines and penalties for delays in the Public Contract, through an Instructions to the Wali sent by the Prime Minister on 15th of April.

Such Instruction legitimated an option already undertook by several Public Contracting bodies: the suspension of the contracts through an ODS d’arret

Which challenges are the foreign companies facing now in Algeria?

Indeed, the commercial operators active in the framework of Public Contracts in Algeria are suffering heavy losses due to the actual circumstances and in complying with the necessary measures taken by the Government in order to fight the spreading of Covid-19. 

That is represented mainly in major unexpected costs, direct and indirect damages and the ongoing expenses even in case of suspension of the activities, usually represented mainly by wages and banking fees. 

The effects of suspension in a Public Contract

Here, we have to refer mainly to art. 34 of the CCAG (Cahier clauses administratives générales) providing that in case of suspension of the works imposed by the contracting Party, the contractor has the right to receive a compensation on the prejudice duly proven.

It is worth to note that only strictly direct damages are usually kept in account. Again, if the suspension will last in total (even in case of the addition of multiple periods of suspensions) more than one year, the contractor will have the additional right to terminate the contract. 

It is essential not to wait until the end of the crisis. Indeed, it is the duty of the contractor to notify promptly the contracting party about the prejudices suffered, under a short deadline and in the prescribed forms.

And what if a Company already invoked Force Majeure?

Although in the practice, the results of the two options can be assimilated (no liability for the delay and compensation, persistence of the duty to pay the dues originated before the occurrence), it is worth to note that there could be a conflict between the remedies for suspension provided by the CCAG and the contractual provisions. Indeed, the Force Majeure clause of a contract could provide the contractor with broader categories for indemnification.

Again, there could be some remedies provided by some Bilateral Investment Treaties (BITs), where Algeria undertook to grant full protection and security to the investors in case of Force Majeure events, leading potentially to an extension of the categories of the prejudices subject to indemnification.

In addition, the BIT prohibits treatment less favorable than that offered to national or third-party foreign investors.

Furthermore, it is worth to underline that with the issuance of an ODS d’Arret, all the works in the scope of a contract will be suspended, while under Force Majeure, only the obligations set forth in the contract which result impossible to perform will be targeted.

In that case, we highly suggest proceeding with an assessment in order to understand how the different provisions will relate and coordinate each other, with the aim to obtain the most satisfactory result.

Which solutions in case the contractual conditions became too burdensome?

Besides the recognition of actual and direct damages thanks to the provisions of CCAG, it is worth to underline that if the balance of the contract is altered and became, if not impossible, extremely burdensome, it could be possible to ask the contracting Party for it rebalance.

This could claim under the general theory of public contracting, but also based on the international principle of hardship, briefly enounced under art.

107 of the Civil Code. In that case, normally the unit prices could be increased until the neutralization of the disequilibrium. 

In order to have higher chances to invoke successfully such right, the respect of formalities, especially during the crisis, must be absolute and a company should prepare a pertinent detailed file in compliance with the local usages.

Indeed, one of the requirements is to prove that an excessive burden has been met and not only a higher, but tolerable burden, since in this latter case it will be considered implicit to the entrepreneurial risk and it will not entitle to any compensation.

So how a Company should proceed now?

We highly suggest now to be proactive and promptly perform several actions. In particular, you should draft a detailed report of the prejudices suffered, proceed with the draft and notification of formal letters and communication, within the deadlines, with a particular attention to the wording and in compliance with the local usages.

In addition, it is worth to understand if your specific case falls into the scope of a Bilateral Investment Treaty. Again, it is suggested to assess which are the remedies provided for Force Majeure in the executed contracts.

Finally, in case the contract became too burdensome and the conditions changed dramatically, it would be useful to claim for a rebalance.

In lack of the respect of all the provided deadlines, formalities and local usages, it is likely that a request for indemnification will be set aside.

Navigating the impact of Covid-19 on your Business

The decisions you make today could be scrutinized for years to come BOOK YOUR FREE CONFCALL NOW to understand your overall risk position

Algeria enacted new framework

Algeria enacted new framework

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

Ouvrir chat
1
Need help ?
Hello 👋
How can we help you?