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6.5. Deduction of Cross-Border Payments and Non-Deductible Expenses

Effective 1 January 2022, the deductibility of expenses for tax purposes is subject to the following conditions:

  • Expenses must be incurred in relation to the core business activity of the company;
  • Expenses must be effective and supported by duly established supporting documents;
  • Expenses must result in a decrease in net assets (equity); and
  • Expenses must be recognized in the accounts and included in the results for the year in which it is undertaken.

The following key expense types are not deductible or have limited deductibility for Algerian tax purposes:

  • Expenses, costs, and rents of any type not incurred for the purpose of producing taxable income is not deductible;
  • Personal expenses are not deductible;
  • Fines, settlements, confiscations, interest, penalties, and increases in duties as a result of defaults, incorrect or late tax returns, or underpayment of tax are not deductible;
  • Vocational training tax and the apprenticeship tax are not deductible;
  • Expenses paid in cash in amounts exceeding DZD 300,000 are not deductible;
  • Entertainment expenses not directly linked to the business, including dining and accommodation are not deductible;
  • Expenses in relation to gift items, except for promotional gifts not exceeding DZD 1000 per beneficiary, within the limit of a total amount of DZD 500,000 are not deductible (effective 1 January 2022);
  • Effective 1 January 2022, the low-value items up to DZD 60,000 are deductible in the year of its acquisition;
  • Subsidies or donations are not deductible except those made to recognized humanitarian organizations or associations, or those made to non-profit research organizations, subject to an annual cap of DZD 4 million (effective 1 January 2022);
  • Research and development expenses exceeding 10% of the taxable profits are not deductible, subject to certain conditions;
  • Effective 1 January 2020, the deductibility of medical promotion expenses for pharmaceutical and para-pharmaceuticals products is limited to 1% of annual turnover for pharmaceutical sector companies. The medical promotion expenses also include expenses related to advertising as well as the costs of launching the products;
  • Interest incurred on loans granted by shareholders or related parties, if the interest rate exceeds the average rate set by the Central Bank are not deductible, subject to certain conditions (see Sec. 13.2.1.); and
  • Effective 1 January 2019, the deductibility of amounts payable to non-residents for technical, financial, and accounting assistance is limited to:
    • 20% of overhead and 5% of the turnover of the paying company; and
    • 7% of turnover for engineering advisory firms.

Note that with respect to technical assistance expenses, the limitation to 20% of overhead and 5% of turnover does not apply to expenses incurred for technical assistance and studies in relation to heavy installations in the context of industrial activity, including the assembly of factories.

Further, it is clarified that ‘Technical assistance’ means assistance for the transfer of know-how or technology, including the provision of support by specialized technical experts, as well as technology support contracts; ‘Financial assistance’ means assistance in the form of foreign trade-related financial services paid by commissions, borrowing, and other financial transactions; and ‘Accounting assistance’ means assistance in the management of the accounting of a company by making available competent human resources for the processing of accounting and financial information.

Finally, the 20% overhead /5% turnover limitation with respect to technical, financial, and accounting assistance is determined by reference to the overhead/turnover of the year during which the expenses were accounted for. If the limit is exceeded during a given year with respect to both criteria (overhead and turnover), the taxpayer must add back to taxable income the excess relative to overhead or turnover, whichever is greater.