Funding your Algerian company: the money that can leave, and the money that cannot

1. Why does the funding mix, and not the amount, decide what can leave?

A foreign investor funding an Algerian company usually treats the question as a treasury one: how much does the entity need, and by when. Three instruments appear equivalent on the plan — subscribed capital, an advance from the parent, a local bank facility. They put the same dinars in the same account.

They do not carry the same legal status. Article 8, first paragraph, of Law no. 22-18 of 24 July 2022 on investment reserves the guarantee of transfer of invested capital and the income deriving from it to investments made from capital contributions in cash imported through the banking channel, denominated in a freely convertible currency regularly quoted by the Bank of Algeria and sold to it, of an amount equal to or above minimum thresholds set by reference to the overall cost of the project.

This is narrower than the regime it replaced. Regulation no. 2000-03 of 2 April 2000, at its Article 2, treated as external contributions — alongside imported equity and contributions in kind of external origin — external financing not guaranteed by a bank governed by Algerian law. An intra-group loan from the parent therefore used to count. That text has been repealed, and the wording of Law 22-18 does not carry the category forward.

The practical consequence is blunt. A company can be fully funded by its foreign shareholder, be perfectly solvent, and still hold almost no transferable capital, because the money arrived as debt rather than as equity.

2. What actually counts as a foreign contribution?

Article 8 of Law 22-18 recognises three sources, and only three.

Everything else is outside the numerator. It is worth stating it as a list, because each item is a decision someone made for a good short-term reason.

3. Which ratio governs what, and why are there two of them?

This is where most published guidance stops at half the picture. Two distinct rules apply, from two different texts, with two different denominators and two different effects.

Article 4 of Regulation no. 05-03 of 6 June 2005 is worth quoting in its own terms. Profits and dividends produced by mixed investments are transferable for an amount corresponding to the foreign contribution, duly established, in the capital. And for an exit, the net real proceeds of disposal or liquidation are transferable for an amount corresponding to the share of the foreign investment, duly established, in the structure of the total investment realised.

Take a purely arithmetical illustration. A project with an overall cost of 100 is funded by 25 of imported equity from the foreign shareholder, 15 of capital subscribed by a local partner and 60 of local bank debt. Ratio 1 is satisfied: foreign-origin financing is 25% of the overall cost, so the guarantee exists. Ratio 2 then applies to distributions: the foreign share of capital is 25 out of 40, so 62.5% of a distributed dividend is transferable, not 100%. On an exit, the third denominator applies again, this time against the total investment realised.

One boundary matters here. Article 4 addresses mixed investments — national and foreign. On a literal reading, a company held entirely by foreign shareholders is not capped by that rule, since there is no national share to pro-rate against. That reading is the text's, and it is worth confirming with your intermediary bank before relying on it in a model.

4. Does a shareholder current account build anything?

It is the fastest instrument available. No notary, no capital increase, no publication — a wire from the parent, an entry in the books, and the subsidiary is funded by Friday. It is also, on the transfer question, the instrument that builds the least.

The reason is textual rather than technical. A current account is a debt of the company towards its shareholder. It is not a capital contribution, so it is outside the numerator of Ratio 1. And Article 4 of Regulation 05-03 pro-rates dividends against the foreign contribution in the capital — a current account is not in the capital either, so it is outside the numerator of Ratio 2 as well.

There is a historical text on the subject, and it deserves care. Executive Decree no. 13-320 of 26 September 2013 set out how foreign direct investments could resort to financing, and it expressly opened the door to shareholder current accounts, subject to conditions. That decree was taken for the application of Article 4 bis of Ordinance no. 01-03 on investment development — a provision that no longer exists, the ordinance having been superseded and Law 22-18 having replaced the framework entirely.

The usual answer is that the current account will be converted into capital later. That works on the balance sheet. Whether it reconstitutes the evidence required by Article 8 — currency imported through the banking channel and surrendered to the Bank of Algeria as a capital contribution — is a different question, and it is answered by what the bank recorded at the time the money arrived, not by what the general meeting decides three years later.

5. How can a compliant structure stop being compliant?

Ratio 1 is a fraction, so it moves when either term moves. The numerator is fixed by history — what was imported, when. The denominator is the overall cost of the project, and that grows every time the project does.

An extension financed by local debt adds to the denominator and nothing to the numerator. A structure at 26% on day one can fall below the threshold at the moment of its first significant expansion, without anyone having made a decision framed as a transfer decision.

Two provisions of Law 22-18 frame the timing.

One caution on the denominator itself. The decree fixes the threshold by reference to the overall cost of the project; it does not, in the text as read, define what that cost includes — working capital, land, capitalised charges. Rather than guess, model the ratio on the cost as registered with the Agency, and get the perimeter confirmed in writing before committing to a funding split that leaves little margin above 25%.

6. When is the evidence built, and who holds it?

The transfer file is assembled years after the facts it has to prove. The regulation anticipates this, and it places the burden at the beginning.

Instruction no. 01-09 of 15 February 2009, which defines the file supporting a transfer request, requires at its Article 2 a certified copy of the trade register and articles of association, and supporting documents evidencing the external contributions duly established. Both are supplied when the file is opened with the domiciliary bank and renewed whenever the situation changes — not produced at the moment of transfer. Under Article 5 of Regulation 05-03, the intermediary keeps that file for five years.

Three further provisions of the same instruction shape what is possible.

A note of candour on the underlying texts. Regulation 05-03 is expressed by reference to Ordinance no. 01-03, which is no longer the governing investment law, and it remains the text banks apply. That mismatch is not a reason to disregard it; it is a reason to have the intermediary bank confirm, in writing and in advance, the documents it will require.

7. What does the law lock in once the structure is set?

The counterpart to all of the above is that the effort is not annual. Once the structure is in place and the investment registered, two provisions freeze it.

Article 13 of Law 22-18 provides that the effects of future revisions or repeals of the law do not apply to an investment realised under it, unless the investor expressly requests otherwise. Article 38 maintains rights and advantages lawfully acquired under earlier legislation, and keeps investments registered under a previous law governed by that law until the advantages expire.

8. What do we see go wrong in practice?

The following are observations from our engagements supporting foreign investors, not rules of law. They are stated as practice, and they are composite — no client, bank, sector or nationality is identifiable in any of them.

None of these is a legal obstacle in itself. Each of them is a fact that was easy to fix on the day it happened and expensive to fix afterwards — which is the whole argument of this article.

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BENSAID Farouk

Financial & Economic Research Consultant — ProfitPilot NextGen Consulting

Certified sole trader and expert in financial studies, risk analysis and market research for SMEs, startups and investors in Algeria. View full profile →