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 right” is 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