Algeria / foreign investments: Supplementary Finance Law for 2020

The Algerian Council of Ministers approved, on 10 May 2020,  the Draft Supplementary Finance Law for 2020 (“SFL 2020”), which should lead to the reopening of Algeria to Foreign Direct Investments (FDIs). The SFL 2020 amends two major restrictions on foreign investment (1) the so-called 49/51 rule; and (2) the State’s preemption right in respect of share transfers by or to foreign investors. 

(1) 49/51 rule to apply only to strategic industries. The 2020 Finance Law passed in December 2019 provided that the so-called 49/51 rule (i.e. the 49% limitation on foreign ownership in Algerian companies) shall apply to industries “which are strategic for the national economy”. No further specification was provided. Pursuant to the SFL 2020 draft, it is expected that the “strategic” industries shall include: mining (whether underground or surface) (except quarries and aggregates (i.e. non-mineral products); energy sector; defense (Industries initiated by or related to the military industries under the Ministry of National Defense); railroad infrastructure, airports, ports; and pharmaceutical industries. This list will be confirmed only once the final SFL 2020 and executive regulations has been released. All other activities for the production of goods and services are open to foreign investment without any obligation to enter into a partnership with a local (Algerian) party.

(2) Removal of the Algerian State's right of preemption and right of repurchase. Currently, the direct or indirect transfer of shares in an Algerian company by and/or to a foreign person or entity is subject to the prior waiver of a preemption right exercisable by the Algerian State. The SFL 2020 draft contemplates to replace the preemption right with a prior governmental approval. The implementation details will be released with the still to come executive regulations.

Additional measures. The draft SFL 2020 also introduces the increase of withholding taxes from 24% to 30% on nonresident companies performing contracts in Algeria (in order to encourage the establishment of legal entities in Algeria), and several provisions dedicated to strengthening the population’s purchasing power.