In a move to boost foreign investments, the Algerian government has approved the draft Supplemental Finance Law for 2020 (“SFL 2020”), which paves the path towards alleviating 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. Our Algiers team has prepared the below summary on how the new draft law could potentially alleviate strains on your business interests in Algeria.
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 only to industries “which are strategic for the national economy”, but did not specify further. According to the draft SFL 2020, it is expected that those “strategic” industries will include:
- mining (except quarries and aggregates);
- railroad infrastructure, airports, ports; and
This list cannot be confirmed until the release of the final SFL 2020 and executive regulations.
Removal of the state preemption right. 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 State. The draft SFL 2020 contemplates to replace the preemption right with a prior governmental approval. Details of its implementation will be released with the upcoming executive regulations.
Other measures. Additionally, the draft SFL 2020 introduces the right to use international financing (currently, only domestic financing is permitted), 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.
We remain ready to assist and advise you.
Matouk Bassiouny in association with SH-Avocats