On 30 December 2021, the Algerian Government enacted the Finance Act for 2022 (the Act).

This Tax Alert summarizes the key fiscal measures under the Act.

Provisions applicable to foreign nonresident companies

The Act provides that all foreign nonresident companies which that do not have a permanent professional installation in Algeria, now have an obligation to file, with the competent tax office, any contract concluded with an Algerian debtor. The contract must be filed within 10 days following its execution. A DZD500,000 fine shall apply for failure to comply with this obligation.

The filing requirement applies to all nonresident companies performing activities within the Algerian territory, regardless of the duration of their presence in Algerian territory. Previously, it only applied when the presence in Algeria exceeded 183 days within a 12-month period. The maximum period for the tax office to provide a final position on the applicable regime is set at 15 days.

Corporate Income Tax (CIT)

The CIT territoriality concept has been clarified and extended, by including: (i) the profits, products and income made in Algeria by foreign (nonresident) companies and generated by operations relating to assets owned in Algeria; and (ii) profits for which the taxation right is attributed to Algeria by virtue of a tax treaty.

Valuation of transactions denominated in foreign currencies when determining taxable income

It is now clearly provided that income and expenses realized in foreign currency will be valued at the exchange rate applicable on the date of their occurrence (realization). The term "date of realization" is not defined by local tax regulation. However, the "date of the transaction" is defined by the Algerian Accounting GAAP (SCF), which refers to the invoice/document date.

Under the Act, these transactions should now be evaluated at the end of each fiscal year based on the last applicable exchange rate of the same year. Unrealized foreign exchange gains or losses arising from this are not included in the determination of taxable corporate income for the financial year in which they are recognized and should be included in the taxable income of the financial year of their occurrence (realization).

Consortium profits

The Act now specifies that consortiums are not directly subject to corporate income tax. Moreover, it is expressly specified that the profits and losses resulting from the implementation of a consortium contract, are attached to the taxable income of each of the member companies.

Revision of the deductibility thresholds for certain expenses

The revision of deductibility thresholds includes:

• The deductibility threshold of low value expenses is raised from DZD30,000 to DZD60,000.
• The total amortization annuities for the depreciation of passenger vehicles is increased from DZD1,000,000 to DZD3,000,000.
• The threshold of deductibility of expenses relating to advertising gifts is raised to DZD1,000 instead of DZD500 per item, within the limit of a total amount of DZD50,000.
• The deduction threshold of subsidies and donations made to humanitarian associations is raised from DZD2,000 000 to DZD4,000,000.
• The annual deductibility limit for expenses relating to the renting of passenger vehicles is set at DZD200,000 and their maintenance cost's deductibility is limited to DZD20,000 per vehicle.
• Fines, confiscations, and contractual penalties paid to entities not taxable in Algeria are excluded from the right to deduction.

Introduction of a reduced rate of CIT

Manufacturing companies can benefit from a reduced CIT rate set at 10% when reinvestments are made during the same fiscal year. These reinvestments can take the form of: (i) the acquisition of production equipment; and (ii) the acquisition of shares or similar securities up to at least 90% in the capital of another production company (goods, works or services).

Companies carrying out activities subject to different CIT rates will have a separate CIT rate applied to each activity according to its share in the consolidated turnover, without the risk of systematic application of the 26% CIT rate for failure to keep separate accounts.

The CIT withholding tax rate for income distributed between resident legal entities is set at 5%.

Tax on Professional Activity (TAP)

Modification of the scope of application as well as the rate of the tax

The rate of TAP is decreased from 2% to 1.5%. In addition, companies operating in the production sector are henceforth excluded from the scope of application of the TAP.

A 50% rebate on TAP rate is granted to retail operations relating to medicine

This rebate is provided to retail operations relating to medicine that meet the following conditions: (i) are classified as strategic drugs in accordance with the legislation and the regulation in force; and (ii) the margin of retail sales ranges between 10% and 30%.

Apprenticeship and professional training taxes

Previously declared and paid on a semi-annual basis, the tax on professional training and the tax on apprenticeship, from fiscal year 22, should be declared and paid on an annual basis.

Personal Income Tax (PIT)

The Act re-introduces the PIT globality concept, by generalizing taxation at the fiscal residence and eliminating the exempting character for the taxation of some incomes categories with regard to their nature.

The re-adjustment of the PIT progressive scale is set forth below:

Other direct tax provisions

Tax audits on taxpayers benefiting from preferential regimes

When deficiencies in the declarations of such taxpayers are observed, a recall of duties and taxes under the conditions of common Law will be applied, without the benefit of treaty provisions or other exemptions provided by common Law.

Fine for failure to produce the customer statement

Introduction of a fiscal fine levied at 2% of the annual turnover in the case of failure to produce the customer statement (wholesales) provided for in Article 224-1 of the DTC, which should be filed with the annual tax return.

Value Added Tax (VAT)

Renewal of the application of the reduced VAT rate (9%) for services related to the tourist activities, hotels, spas, classified tourist catering, travel and renting of tourist transport vehicles, for three additional years (until 31 December 2024).

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Algérie, Algeria Tax, Legal and Transaction Practices Leader, Alger & EY Société d'Avocats, Africa Tax Desk Leader

• Bruno Messerschmitt | bruno.messerschmitt@ey-avocats.com

Ernst & Young Algérie, Business Tax Advisory, Alger

• Anis El hadj Ali | anis.el.hadj.ali@dz.ey.com