The double taxation agreement between the UK and Algeria entered into force on 26 June 2016. The agreement was signed on 18 February 2015.

The agreement will be effective in the UK from 1 January 2017 for withholding tax; from 1 April 2017 for corporation tax and from 6 April 2017 for income tax and capital gains tax. In Algeria the agreement will be effective from 1 January 2017 for withholding and other taxes.

The agreement will however take effect from 16 June 2016 in relation to the Articles on exchange of information, mutual agreement procedure and assistance in collection of taxes.

The agreement generally follows the provisions of the OECD Model Tax Convention but the following should be noted:

Permanent establishment

The definition of a permanent establishment includes a building site or construction or installation project if the activity continues for at least six months.

The performance of services, including consultancy services, by an enterprise through its employees or other staff engaged for the purpose constitutes a permanent establishment if services are performed on the same or a connected project in the other contracting state for at least 183 days in any twelve month period.

Withholding tax

The maximum amount of tax that may be withheld in the source state on dividends paid to a company resident in the other contracting state is 5% if the beneficial owner is a company (other than a partnership) owning at least 25% of the capital of the company paying the dividend; or 15% in all other cases.

The maximum withholding tax on interest is 7%, with some exemptions; and for royalties the maximum tax withheld in the source state is 10%.

Mutual agreement procedure

The Article concerning the mutual agreement procedure provides for an arbitration procedure where the competent authorities are unable to reach agreement on an issue within two years of the presentation of the case to them. In this case the competent authorities must submit the issue to arbitration if the taxpayer so requests. The arbitration decision shall be binding on both states unless a person directly affected does not accept the mutual agreement implementing the arbitration decision.