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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