Company, Subsidiary, Branch or Permanent Establishment – Which Legal Form for a Company in Algeria?

18 September 2022 - Dr. Christian Steiner & Sophie Greiner

Important tips and up-to-date information for foreign investors wishing to set up a company in Algeria. 

A. Which legal form do I choose for my company in Algeria? 

I. What legal forms are available for companies in Algeria? 

There are essentially seven legal forms for companies in Algeria, which are similar to the constellations we are familiar with from other legal systems. 

1. The Algerian retail merchant: Entreprise Individuelle (EI)  

The owner is registered as a merchant in the commercial register and receives a trade licence. He is liable for the company’s assets and thus also for its debts. The advantage is that no status is required, a partner is not necessary and entry in the commercial register is quick.  

2. The Algerian one-man limited liability company: Entreprise Unipersonnelle à Responsabilité Limitée (EURL)  

This legal form allows a single person (natural or legal) to operate in the form of a corporation. The minimum capital for its establishment is DZD 100,000. The share capital of the company and the one of the founder are separate, and the founder is only liable for the debts of the company up to the amount of the capital. 

3. The Algerian limited liability company: Société à Responsabilité Limitée (SARL)  

This is a capital company that may be held by several shareholders and managed by several directors (natural persons). To establish a SARL, a minimum of two and a maximum of twenty shareholders are required. The capital is at least DZD 100,000 and is divided into equal shares (of at least DZD 1,000). The partners are liable for debts up to the amount of their contribution and the owners have the status of managing partners unless a manager is appointed. 

4. The Algerian general partnership: Société en Nom Collectif (SNC) 

The Algerian SNC is also a partnership. The capital is divided into shares, but no minimum capital is required. This company must have at least two partners who are personally, jointly and unlimitedly liable for the company’s debts.  

5. The Algerian limited partnership: Société en Commandite Simple (SCS) 

This is a hybrid company: corporation for the limited partners and partnership for the general partners. This company can be managed by one or more persons. The limited partners are liable for debts up to the amount of their contribution, while the general partners are personally, jointly and unlimitedly liable. 

6. The Algerian joint stock company: Société Par Actions (SPA) 

At least seven shareholders are required for an Algerian SPA. The capital divided into shares is DZD 5 million in the case of a publicly traded SPA or DZD 1 million if the shares are not publicly traded. It is governed either by a board of directors consisting of three to twelve members and chaired by a CEO, or by a management board, which in turn is controlled by a supervisory board. The liability of each shareholder for debts is limited to the amount of its contributions. 

7. The Algerian Economic Interest Grouping: Groupement d’Intérêt Économique (GIE) 

Under this legal form, several legal entities join together for a fixed period of time. The purpose of the grouping is to provide its members with all the means to optimise organisationally the pursuit of common objectives. The GIE can be executed without capital and is administered by one or more persons, obliging each member to be liable for the debts with his or her personal assets. The GIE thus constitutes a kind of “partnership of legal persons”. 

II. What forms of enterprise do foreign companies investing in Algeria most often choose? 

The corporate forms most frequently chosen by foreign companies in Algeria are the EURL and the SARL. On the other hand, the SPA is regularly chosen for larger projects that require a large amount of capital and complex administrative structures. 

III. What formalities are required to set up a company in Algeria? 

When setting up a company in Algeria, a number of formalities must be observed. Upon presentation of all the necessary documents, such as copies of passports, birth certificates and other translated, certified and, if necessary, legalised documents, the usual procedure for setting up a company is as follows: 

1. Establishment of the name of the company 

The company must obtain a certificate from the National Centre of Commercial Registries (CNRC) on the availability of the company name. The application must indicate four possible names for the company. 

2. Notarisation of the articles of association and establishment of the registered office 

The drafting of the company’s articles of association and the contract for the lease or acquisition of the registered office must be notarised. 

3. Registration with the National Centre of Commercial Registries (CNRC) 

The company must be registered with the CNRC

4. Apply for a tax card and register for VAT 

Once registered with the CNRC, the company will be assigned an identification number that it can use in all administrative procedures, in particular with the Algerian tax authorities.  

In order to fulfil its tax obligations, the company must also register for VAT.  

5. Application for the statistical identification number (NIS) 

The company must apply for a statistical identification number as the last administrative step. 

6. Opening a bank account 

With the opening of a bank account, the last step is completed and the company can start its business. 

B. Establishing a subsidiary, branch or permanent establishment in Algeria 

A subsidiary exists if more than 50% of the share capital of a company is held by another company, the so-called parent company. It is a legally independent company. The subsidiary operates independently and prepares its own accounts. Depending on the legal form, the subsidiary has a managing director or a board of directors. 

The branch is a secondary branch of a company. Since it does not have legal personality, it is not as autonomous as a subsidiary in terms of organisation and management. It is autonomous in the sense that it has its own management with some freedom of disposition. It also has the option of its own bookkeeping, accounting and business assets. 

A permanent establishment, on the other hand, is another branch or subsidiary of a company that is set up as a place of business but is dependent on the head office. 

I. What are the similarities between a branch, subsidiary and permanent establishment in Algeria? 

The subsidiary, the branch and the permanent establishment make it possible to develop business activities abroad and, at the same time, to control and finance them easily.  

From a tax point of view, the branch, the subsidiary and the permanent establishment are all subject to VAT (TVA), corporate income tax (IBS), or total income tax (IRG). 

II. What are the differences between a branch, a subsidiary and a permanent establishment in Algeria? 

1. Independence  

The establishment of a branch and a permanent establishment is decided by the management of the company on which it depends. The establishment of a subsidiary, on the other hand, is decided by the partners or shareholders of the parent company or companies. 

The main difference between a subsidiary on the one hand, and a branch and permanent establishment on the other, is their autonomy. In contrast to the branch and permanent establishment, the subsidiary has its own legal personality, which has numerous legal and tax implications. It is a genuine legal entity. The only link it has with the parent company is the ownership of its capital (as it is more than 50% owned by the parent company). The branch and permanent establishment, in turn, are merely an extension of the company on which they depend. 

Thus, the subsidiary has its own assets. This corresponds to the assets (goods it owns, trade receivables, inventories, etc.) and liabilities (share capital, reserves, debts, etc.). The assets of the branch, on the other hand, are integrated into the assets of its company. Thus, unlike the subsidiary, the branch has no share capital, no assets, no shareholders and no business activity of its own. 

2. The choice of the activity carried on  

The subsidiary may carry on the activity which it has specified in its articles of association. This is not the case with the branch and permanent establishment, as they are limited to carrying on the same activity as the company of which they are an offshoot. 

3. Legal representation  

Since the branch and permanent establishment have no separate legal personality, they act on behalf of the company. In contrast, the subsidiary is a separate legal entity, and can therefore act in its own name. 

This gives rise to the question of liability: vis-à-vis third parties, the subsidiary is fully liable for its actions, whereas in the case of the branch and permanent establishment, the company to which they are assigned is directly liable. 

III. Which legal form is more advantageous for a company in Algeria?  

The choice between a subsidiary, a branch and a permanent establishment depends on the relevant objectives. 

Do you want to carry out a new activity? Do you want to expand your business? Is it important for you to maintain a certain degree of control or do you want to give the new entity more room for manoeuvre?  

A branch or permanent establishment is a good idea if you want to develop your activity and at the same time evaluate the profitability at the new location. For example, this can be an intermediate step on the way to a permanent establishment with a subsidiary. 

Conversely, a subsidiary is preferable if you wish to transfer an activity that is not part of the parent company’s business purpose. In this case, by ensuring complete autonomy, you can focus on the parent company’s activities. 

IV. Is it necessary to have an Algerian partner to invest in Algeria? 

Until now, the so-called “51/49 rule” significantly conditioned foreign investment in Algeria. This rule had been introduced in 2009 to limit foreign influence and has since been strongly criticised abroad as a brake on investment and progress. The “51/49 rule” stipulated that it was generally not possible for a foreign company to hold more than 49% of the shares in an Algerian corporation. 

For the first time with the 2020 Finance Laws, the government made far-reaching relaxations.  Article 139 of Law Loi n°20-16 of the 31st of December 2020 inversed the rule and the exception, so that the “51/49 rule” now no longer applies across the board to all resale activities, but only to those consisting in the import of raw materials, products and goods for domestic resale. As far as service and production activities are concerned, the “51/49 rule” now only applies to those of a strategic nature.  

As a rule of thumb, therefore, the following applies: for imports for the purpose of domestic sales as well as for service and production in strategic areas, an Algerian majority shareholding is generally required.  

Whether a company is still affected by the “51/49 rule” is determined by the Algerian authorities on the basis of the economic activity mentioned in its commercial register extract – identified by the corresponding activity code (Nomenclature of Economic Activities, NAE).  

Thus, with regard to the “51/49 rule”, according to the current version of Article 49 of Law Loi n°20-07 of the 4th of June 2020, a distinction must be made between three categories of activities. 

1. Service and production activities of a strategic nature 

For these activities, the “51/49 rule” remains in force. However, it does not apply retroactively. This means that companies carrying out these activities that were registered in the commercial register before 4th of June 2020 are not subject to this obligation. All new companies founded after this date, on the other hand, must apply the “51/49 rule”. However, since the “51/49 rule” was almost absolute before 4th of June 2020, the result is no change for companies registered in the commercial register before that date, since they were already compliant with the “51/49 rule” anyway. 

The executive decree Décret Exécutif n°21-145 of 17th of April 2021, modified by Article 33 of the regulation Ordonnance n°21-07 of 8th f June 2021, defines “strategic sectors” as follows:  

  • Essential sectors of raw materials extraction 
  • Essential sectors of the energy sector, with the exception of hydrocarbons 
  • Defence industry 
  • Railways, ports and airports 
  • Pharmaceutical industry, with the exception of investments related to the production of innovative, high-value, essential products that require complex and proprietary technology and are intended for the local market and export 

If it is now clear that a company continues to be subject to the “51/49 rule”, it must obtain prior authorisation from the Ministry of Industry (Ministère de l’Industrie) in the event of a transfer of shares for the benefit of foreign investors. 

2. Import of raw materials, products and goods intended for resale in the unaltered state 

The obligation that 51% of the shares must be held by a domestic party also remains for these activities. 

The transitional period originally set by law until 30th of June 2021, by which companies operating in this field of activity had to be compliant with the “51/49 rule”, was repealed again by the regulation Ordonnance n°21-07 of 8th of June 2021. Thus, no retroactive effect applies in this field of activity either. As with service and production activities of a strategic nature, however, the result will not change for most companies. 

3. Service and production activities of a non-strategic nature 

These activities are open to foreign investment without the legal requirement of a link with a local partner. This means that any newly established company or any company already in existence at the time of the publication of these provisions will no longer be subject to the “51/49 rule” obligation.  

Thus, under Algerian law, in the case of such a company, 100% of the capital may also be held by one or more foreign shareholders. Legally, therefore, nothing stands in the way of a branch in this sector. However, the fact that the commercial register has not been updated since Law Loi n°20-07 of 4th of June 2020 means that this is unfortunately not yet possible in practice.

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