Algeria's Ministry of Finance has introduced new amendments to its tax system for foreign companies operating within the country, aiming to align with modern international standards. These full changes are part of a broader effort to modernize the nation's financial framework. Issued on June 1, 2026, under Directive No. 44, these changes implement provisions of the Finance Law for 2026. The new rules apply to taxable profits for the year 2026 and subsequent years. The amendments clarify tax regulations to enhance transparency and ensure that profits earned in Algeria are properly taxed. The updated system seeks to strengthen control over cross-border transactions and combat practices designed to reduce the tax base or shift profits abroad. These measures are a direct response to the evolving landscape of international taxation, ensuring that Algeria's tax system remains strong and equitable.
New Taxable Profit Rules
New tax rules aim to clarify how to determine taxable profit for non-resident entities operating in Algeria through permanent establishments or branches. These changes specifically affect companies involved in major projects within the energy, industry, and infrastructure sectors. The objective is to ensure that all economic activity attributable to Algeria is appropriately taxed within its jurisdiction. Under the updated regulations, revenues generated from equipment delivery within Engineering, Procurement, and Construction (EPC) contracts are now considered taxable in Algeria. This represents a significant shift, as previously, certain components of these contracts might have been treated differently.
Foreign companies executing EPC contracts are required to include all profits made in Algeria in their taxable income. This encompasses revenue derived from equipment delivery, regardless of whether equipment invoices are separated from other services or if customs clearance is performed in the Algerian contractor's name. The Ministry of Finance emphasizes that the accounting separation of contract components no longer influences the determination of taxable profit, thereby closing potential loopholes. These new provisions apply even to contracts signed before 2026 that remain in progress, ensuring a consistent application of the new tax regime across ongoing projects. The modifications were implemented through alterations to Articles 140 and 169 of the Direct Taxes and Similar Duties Law, showing the legal basis for these changes.
Disallowing Internal Expenses
A key aspect of the revised tax regulations is the treatment of internal expenses. Internal expenses between a foreign company's headquarters and its permanent establishments are no longer deductible in Algeria under these new rules. These non-deductible expenses encompass payments for equipment, software, intellectual property rights, administrative or technical services, and internal financing. The Algerian Ministry of Finance considers these internal transactions as part of the same legal entity, not real expenses that can reduce the tax base. This stance reflects a principle that intra-company transfers should not be used to artificially lower taxable income within the country.
To illustrate the implications of these new rules, the case of a German company, Corp GmbH, was provided. Corp GmbH's Algerian branch incurred 10 million Algerian Dinars for equipment rental, an additional 2 million Algerian Dinars for software royalties, and 4 million Algerian Dinars for financing interest from its headquarters. The total of these internal expenses for Corp GmbH amounted to 16 million Algerian Dinars. The Algerian tax administration deemed these 16 million Algerian Dinars as non-deductible theoretical expenses, reinforcing the principle that such intra-company transfers cannot be used to lower taxable income within Algeria. This example notes the rigorous application of the new regulations designed to prevent profit shifting.
Treaty Exceptions and Goals
The new tax measures are intended to enhance Algeria's business climate and bolster the credibility of its tax system. By clarifying tax obligations and ensuring fair taxation, the Ministry of Finance aims to create a more predictable and trustworthy environment for foreign investors. Despite the broad application of these new rules, tax treaties established between Algeria and the home countries of foreign companies may offer specific exceptions. These treaties often contain provisions that can modify the application of domestic tax laws. For instance, the Algerian-German tax treaty, signed on November 12, 2007, outlines particular restrictions. This treaty specifically prohibits the deduction of payments made by a permanent establishment to its headquarters for usage rights, royalties, fees, or interest. An exception is made only for the reimbursement of actual expenses paid to independent third parties, meaning internal charges remain non-deductible under the treaty. This demonstrates how bilateral agreements can reinforce the domestic policy against internal expense deductions, aligning international obligations with national tax objectives.