The draft law relating to the promotion of investment ("Investment Code") was adopted by the Algerian Council of the Nation on July 17, 2016. The Investment Code is part of the economic reforms plan carried out by the Algerian Government. A number of press articles highlight the main changes introduced by this new Investment Code which is yet to be published in the Algerian Official Journal.
1. New Incentives for Investors
The list of incentives granted to investors has been revised and processes have, arguably, been simplified. The granting of incentives is now automatic for projects which do not exceed five (5) billion dinars (approximately USD 45.2 million). The National Council of Investment (“CNI”) may, however, review projects which exceed this threshold.
There are three levels of benefits for investors: (i) common benefits for all eligible investments, (ii) additional benefits for investments within the sectors of industry, agriculture and tourism, and (iii) exceptional benefits for projects of particular interest to the national economy.
Common benefits fall into two phases: a realization phase and an exploitation phase, which relate to tax exemptions, discounts or fees reductions. The additional and exceptional benefits concern the extension of the duration of the common benefits to five (5) years for additional benefits and ten (10) years for exceptional benefits.
As for specific benefits, they relate to investments made in the South of the country, the highlands and regions requiring State intervention.
2. Transfer of Shares or Assets
The new Investment Code confirms and strengthens the preemption right of the Algerian State and state-owned companies on shares sold in Algeria by or to foreigners.
Under the former Investment Code (Article 4 quinquies), the Algerian State benefited from a preemption right in the event of a direct transfer of shares by or to foreigners in an Algerian company which benefited from investment incentives. Under Article 30 of the new Investment Code, this rule is maintained and a new rule is added to cover share transfers abroad which trigger an indirect transfer of shares in Algerian companies which benefited from incentives or received benefits at the time of their establishment. Whereas the State had no priority right and was treated as any other buyer in case of an indirect transfer, it now has a right of first refusal to acquire the indirectly transferred shares.
Specifically, Article 31 of the new Investment Code provides that indirect transfers of shares of Algerian companies require the prior approval of a governmental body, the Council of State Participations (abbreviated “CPE” in French). By indirect is meant the transfer of ten (10) percent or more of the shares of capital of non-resident entities that own shares in an Algerian legal entity. The failure to comply with this formality or the CPE’s duly justified refusal within one (1) month of the receipt of the information concerning the transfer triggers, in principle, a preemption right for the benefit of the Algerian State on the number of shares transferred indirectly in the Algerian entity.
Pursuant to the Code of Tax Procedure (Article 38 quinquies), the Algerian State has one (1) full year as from the completion of the transaction to dispute the transfer of the shares in case it considers that the sale price is below the actual price. The State may in principle exercise its preemption right to take all shares back against the payment of the declared price, plus 10%.
Due, in part, to the loose wording and the charged political context, many questions abound at this time regarding the precise intent of this proposed new statutory provision. Our understanding is that implementing legislation will not be enacted until the end of the calendar year.
3. 51/49 Rule
Other relevant changes include the removal of the 51/49 requirement from the Investment Code. It is now set forth in Article 66 of the 2016 Finance Law.
The 51/49 rule provides that at least 51% of the shares of Algerian companies must be owned by Algerian nationals who are residents of Algeria or by companies which are wholly-owned by Algerian resident shareholders.
There has been speculation that such change anticipated the suppression of the national resident shareholding requirement; however, the Algerian Government has insisted that the rule will not be changed despite the fact that members of the National Assembly have requested that it be relaxed.
The Minister of Industry, nonetheless, hinted that the rule may need to be amended in the future given the fact that Algeria is no longer an isolated economy but takes part in the global economy. If an amendment is necessary, it will be easier to modify the Finance Law rather than the Investment Code which is meant to last 15 to 20 years.
It may take a few days or even weeks before the final text is published in the Algerian Official Journal in order to confirm the foregoing information. It is also unclear when the new Code becomes effective and whether some of these provisions would become effective only until they are implemented. This new legislation must be closely monitored.