Algeria: Clarification of the Tax Regime Applicable to Foreign Companies - Key Changes in the 2026 Finance Law

The 2026 Finance Law introduces significant clarifications and simplifications to the tax regime for foreign companies operating in Algeria, aiming to harmonize treatment and combat base erosion.

Elimination of the Real Profit Regime Option

Article 14 of LF 2026 eliminates the option for foreign companies without a permanent professional establishment in Algeria to elect the real profit regime for service contracts. These entities will now exclusively fall under the withholding tax regime at the rate of 30%, ending the duality of regimes for companies with multiple contracts and simplifying fiscal management.

Taxation of Deemed Distributed Income to Non-Resident Foreign Companies

Articles 6 and 28 of LF 2026 specify the determination of taxable income deemed distributed to non-resident foreign parent companies, as well as the liquidation and payment of the related tax. The net profits realized in Algeria by a branch or other permanent establishment are deemed distributed to the non-resident parent and taxed accordingly. The tax on these deemed distributions is liquidated and paid directly by the branch or establishment on a voluntary declaration, following the same procedures as the IBS settlement, no later than the 20th of the month following the filing of the annual declaration.

Taxable Base for Turnkey Project Contracts (EPC)

Article 12 of LF 2026 ensures equal treatment between local and foreign companies by clarifying that all profits realized in Algeria under EPC (Engineering, Procurement, and Construction) projects, including those related to equipment supply, are now locally taxable, regardless of invoicing or customs clearance methods.

Non-Deductibility of Intra-Group Internal Operations Results

Article 16 of LF 2026 combats base erosion by disallowing the deduction of charges from intra-group transactions. This covers dealings between a permanent establishment and its head office, or between group permanent establishments (e.g., royalties for patents, interest on internal loans, rents, internal service fees). Exceptionally, charges actually incurred with independent third parties remain deductible.

Formalization of Tax Obligations for Permanent Establishments

Articles 13 and 15 of LF 2026 explicitly state that permanent establishments are subject to the same tax obligations as Algerian legal entities eligible for the real profit regime.