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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