Setting up a holding company in Algeria: three definitions of a group, and nobody tells you they do not overlap

Chapter 01

A holding company is not a status-less arrangement: the law names it

This is the first thing to correct, and it changes how the whole subject is approached. Almost every page devoted to Algerian holding companies presents them as a contractual construction — an ordinary company whose corporate purpose happens to be taking participations, with no regime of its own. That is wrong.

The word has been in the statute since ordinance 96-27. And it does not stand alone: section 2 of the chapter on joint-stock companies, headed “Subsidiaries, participations and controlled companies”, devotes eight articles to it — 729 to 732 bis 4 — defining the subsidiary, the participation, control, indirect holdings, the locks against cross-shareholdings, the disclosure obligations, the number of statutory auditors and consolidated accounts.

The practical consequence is immediate. You do not “set up” a holding company: you become one. No filing, no clause in the articles, no particular registration creates the status. It attaches automatically to a factual situation — control — and it carries obligations you bear whether you know it or not.

Two economic forms, one legal regime

The customary distinction, which is not in the statute but structures the thinking, sets two configurations against each other:

• the pure holding — the parent carries on no industrial, commercial or service activity; its assets consist essentially of shares in its subsidiaries;
• the mixed holding — the parent keeps a business of its own alongside its participations.

Algerian law draws no distinction: the regime of articles 729 and following applies as soon as control exists, whatever the controlling company's own activity. In practice, almost all private Algerian groups are mixed holdings that do not know it — an operating company that has, over the years, taken majority stakes in other companies.

Chapter 02

First definition: the Commercial Code, and its thresholds

The Commercial Code reasons in percentages of capital and voting rights. It sets out two distinct notions, and a definition of control that cannot be reduced to a percentage.

The three control tests of article 731

One company controls another:

• “where it holds directly or indirectly a fraction of the capital conferring the majority of voting rights in general meetings”;
• “where it alone has the majority of voting rights by virtue of an agreement with other partners or shareholders that is not contrary to the company's interest”;
• “where it determines in fact, through the voting rights it holds, the decisions taken in general meetings”.

Indirect holdings: article 732

“Any participation, even below 10%, held by a controlled company is deemed to be held indirectly by the company controlling it.”

The rule looks technical and is far-reaching: it pushes up to the holding company every participation held by its subsidiaries, however small. The scope you have to report is therefore not that of the companies you hold, but that of the companies held by the group you control.

The two locks against cross-shareholdings

Neither article is decorative: taking a participation in breach of article 731 is a criminal offence, on the same footing as the disclosure failures described in the next chapter.

What the holding must disclose, and to whom

Article 732 bis 1 imposes two distinct disclosure duties on the board, the management board or the manager:

• Disclose any participation taken during the year in a company with its registered office in Algeria, or the acquisition of more than half its capital, in the report to the shareholders and, where applicable, in the statutory auditors' report;
• Report on the activity of the subsidiaries by line of business and set out the results obtained.

Failure to make these disclosures is a criminal offence — and the text specifies that the same penalties apply to the statutory auditors who omitted the same disclosure from their own report. It is one of the rare Algerian provisions that exposes the controller on the same terms as the controlled.

Chapter 03

Second definition: accounting law, and the contradiction

This is the most important point in the guide, and the one no competing page raises. It turns on a simple question: who must prepare consolidated accounts? Two statutes answer differently.

What the Commercial Code says

Read on its own, the provision is reassuring: an unlisted family holding would have nothing to consolidate. That is the reading found everywhere, and it is the one that exposes.

What the financial accounting law says

And the implementing texts leave no room for interpretation:

The accounting definition of control is broader than the commercial one

A second divergence, less spectacular but equally operative. For accounting purposes, control is “the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities”, and it is presumed in five cases (article 132-5 of the order of 26 July 2008, repeated in decree 08-156):

The two tests without equivalent are those resting on a contractual or statutory power, independent of capital. A company can therefore be a consolidating entity for accounting purposes without being a holding company for commercial purposes — and have to consolidate an entity in which it holds nothing.

The only exemption, and its two cumulative conditions

Article 132-4 is the only text that exempts from consolidation:

And combined accounts, for those without capital links

Article 34 of Law 07-11, repeated in article 132-19 of the order, covers a configuration that is very common in Algeria: “Entities present on national territory forming an economic whole subject to the same decision-making authority, located on national territory or not, with no legal links of domination between them, shall prepare and publish accounts called combined accounts, as if they were a single entity.”

That is the family group whose companies belong to the same individuals without any of them holding the others. Article 132-21 sets out the tests of unity and cohesion: entities managed by the same legal person or the same group of persons having a common interest; entities in the cooperative or mutual sector with a common strategy and management; entities not legally attached to the holding but carrying on the same activity under the same authority; entities linked by common structures or sufficiently extensive contractual relations.

Combined accounts follow the same rules as consolidated accounts, subject to what flows from the absence of capital links.

Chapter 04

Third definition: the tax authorities, and their 90% threshold

Tax law ignores both previous definitions and sets out a third, by far the narrowest. It is in article 138 bis of the Direct Taxes Code.

Three locks, and each one eliminates candidates:

• Joint-stock companies only. A SARL can never form a tax group, whatever its shareholding percentage. It is the leading cause of failure, and it is settled at incorporation or not at all.
• 90% held directly. Not 50% like the commercial subsidiary, not the mere “power to govern” of accounting law: ninety per cent, held directly. A chain parent → sub-holding → granddaughter does not qualify the granddaughter.
• The parent must not itself be held at 90% by an eligible third company. The regime targets the head of the group, not intermediate tiers.

The text adds that relations between member companies “must be governed exclusively by the provisions of the Commercial Code”, and that companies ceasing to meet the conditions are automatically excluded from the tax group.

The consolidated balance sheet option

The three advantages that genuinely exist

For a group where subsidiaries invoice each other for services, rent or goods, VAT is the decisive advantage — and it alone justifies checking whether the 90% threshold is reachable before dismissing the regime. The relief on internal capital gains, for its part, makes it possible to reorganise a group — moving a building or a business from one subsidiary to another — without tax friction.

And the drawback nobody announces: the dividend cascade

This is the most important point in the chapter, and it runs against everything said about holding companies. Interposing a holding in Algeria has a tax cost, because the “parent-subsidiary” exemption no longer exists.

The “parent-subsidiary” regime that neutralised this double taxation was in article 147 ter of the CIDTA. It was repealed by the 2022 Finance Act; the current article 147 ter deals only with Islamic finance and takaful insurance. The cascade has therefore been the rule for four financial years.

The three definitions, side by side

No line coincides. A single group can be a holding company without being an exempted consolidating entity, and a consolidating entity without being a tax group. That is why the three tests have to be run separately, rather than looking for a single threshold that does not exist.

Chapter 05

The calculation nobody makes: control against interest

Two different percentages are computed on the same chain of holdings, and they do not serve the same purpose. Confusing them is the most frequent technical error, and it distorts both the scope and the equity.

The three methods, driven by control

Minority interests are therefore determined only under full consolidation. That follows directly from the definition: they represent the share of the net assets and profit of a consolidated entity held by the parent neither directly nor indirectly through its subsidiaries.

Treasury shares held within the group, and the shrinking denominator

This is where the calculation gets awkward, and it is more common than people think in family groups built by successive contributions.

The same mechanism operates on the consolidating company itself: if a company inside the scope holds 10% of the group's head, those 10% do not vote at the head's meeting, and shareholders outside the group command 100% of the exercisable voting rights over the remaining 90%.

Two dates not to miss

• Consolidated accounts are drawn to the same date. If an entity within the scope closes more than three months before the consolidation year-end, the consolidated statements are prepared from interim accounts drawn at the consolidation date and reviewed by the statutory auditor of the consolidated entity, or failing that by a professional responsible for auditing accounts (article 132-9).
• Foreign entities are translated by a prescribed method (article 132-8): assets and liabilities at the closing rate, income and expenses at the transaction rate — an average rate being accepted in practice — and the resulting exchange differences recognised in consolidated equity until the net investment is disposed of.

Chapter 06

The obligation specific to holdings: two statutory auditors

This is the most specific provision of the regime, and the only one in all of Algerian company law that imposes a joint statutory audit.

The provision sets no threshold, no exception and no option. It attaches to the status of holding company — therefore, by reference to article 731, to the exercise of control. A company controlling a single subsidiary is subject to it.

How two statutory auditors work together

The arrangements are set by executive decree 11-73 of 16 February 2011, which expressly cites article 732 bis 2 in its recitals. It runs to five articles, three of which matter:

What a holding's statutory auditors check in addition

Beyond the general engagement, four points are specific to them:

• Participations taken — article 732 bis 1 requires their disclosure in the statutory auditors' report, and failure to disclose is a criminal offence, for them as much as for the officers.
• Interim accounts of subsidiaries closing more than three months apart, which they review under article 132-9.
• Exclusions from the scope, which must be justified in the notes to the consolidated accounts (article 132-6).
• Related-party agreements across the group, whose validity article 628 makes conditional on the board's prior authorisation following their report.

Chapter 07

Setting up the holding: what is decided before the notary

Since the status flows from control rather than from a formality, “setting up a holding” really means setting up an ordinary company whose incorporation decisions anticipate obligations that will arrive later.

The threshold question: SARL or SPA?

It turns on a single criterion, and it is a tax one.

The SARL closes no door but one, and it is the most valuable. If your project involves flows between group companies — recharged services, rent, sales of goods — the intra-group VAT question arises immediately, and it requires a SPA. If the holding is purely patrimonial and the subsidiaries exchange nothing, the SARL is enough and costs less.

The incorporation decisions

Chapter 08

What the holding costs, and what it unlocks

The reasoning is the same as for the SPA: the question is not whether the structure is “better”, but whether the project needs what its cost buys.

The cost column

The benefit column

The three situations where a holding is not justified

• Two companies with no flows between them and no sale in prospect. You will pay two statutory auditors and an annual consolidation for information nobody is asking you for.
• A group of SARLs aiming at the tax advantage. There is no tax group for SARLs. Without conversion into a SPA — barred for two years for an existing SPA, and costly the other way round — the advantage stays out of reach.
• A shareholding capped at 60 or 70%. You will have holding company status and every obligation that goes with it, without ever reaching the 90% of the tax regime. It is the most expensive configuration: all the duties, none of the benefits — plus the 5% withholding on every dividend flowing up.

Chapter 09

Nine pitfalls we meet on engagements

None is visible at incorporation. All surface at the first due diligence, the first inspection, or the day a minority holder decides to read the management report.