Investment in Albania 2017

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Investment in Albania 2017 | 93

KPMG in Albania

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Edition 2017

Investment in Albania is one of a series of booklets published by KPMG member firms to provide information to those considering investing or doing business internationally.

Every care has been taken to ensure that the information presented in this publication is correct and reflects the situation as of March 2017 unless otherwise stated. Its purpose is to provide general guidelines on investment and business in Albania. As the economic situation in the country continues to undergo changes, further advice should be sought before making any specific decisions.

For further information on matters discussed in this publication, please contact Heris Jani, Managing Director.

Deshmoret e Kombit Blvd. Twin Towers Buildings Tower 1, floor 13 Tirana, Albania Telephone: +355 4 2274 524 +355 4 2274 534 Fax: +355 4 2235 534

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General Information...... 7

Geography and climate...... 7

Population and language...... 7

Infrastructure...... 8

Communications...... 10

Currency ...... 10

Labor force...... 11

Political system...... 11

Opportunities created via EU-funding...... 11

Albania and NATO...... 12

Economy...... 12

Opportunities for International Investors...... 20

Protection and promotion of foreign investments...... 20

Privatization and investment opportunities...... 20

Profit and capital repatriation...... 25

Establishment of new business entities or acquisition of shares in existing entities ...... 25

Branches...... 26

Representative offices...... 26

Concessions ...... 26

Renewable energy...... 28

Banking and finance...... 30

International private law...... 31

Company Law...... 33

Rules applicable to all forms of business association...... 33

Limited liability company (‘‘SHPK’’)...... 36

Joint stock company (“SHA”)...... 38

Other forms of business association...... 40

Commercial Register...... 42

Real Estate...... 43

Types of ownership over real estate...... 43

Evidence of title...... 44

Acquisition of real estate...... 44

Accounting and Auditing...... 46

Accounting...... 46

Auditing...... 48

Taxation...... 51

Tax system...... 51

Corporate tax...... 51

Taxation of individuals...... 55

Local taxes...... 57

Real estate tax...... 59

Value added tax...... 60

Customs duties...... 63

Excise duties...... 64

Employment Regulations...... 66

Legislation...... 66

Employment contracts...... 66

Working hours...... 67

Holidays...... 68

Medical check-ups...... 68

Healthy and safe working conditions...... 69

Termination of employment contracts...... 69

Foreign nationals working in Albania...... 70

Foreign Nationals...... 71

Legislative framework and general principles...... 71

Visas...... 71

Residence permits, residence certificates and residence cards...... 72

Work Permits...... 74

Government Control...... 77

Public procurement...... 77

Concessions and public-private partnership...... 79

Competition and antitrust regulations...... 80

Protection of intellectual property rights...... 81

Supervision of the Bank of Albania over the activities of banks and other financial institutions...... 83

Insurance companies and insurance intermediaries in Albania...... 85

Foreign exchange regime...... 86

International payments and transfers...... 86

Appendix A: Bilateral Agreements...... 87

Appendix B: Double Taxation Treaties...... 89

Appendix C: Bilateral Social Security Agreements concluded by Albania...... 91

Geography and climate The population of Albania started to decline Albania is situated in South-Eastern Europe, from 1990 onwards as a consequence of in the western part of the Balkan Peninsula. a massive emigration. It is estimated that It is bordered by Montenegro to the around 500,000 people emigrated in the northwest, Kosovo to the northeast, the period 2001-2011. Former Yugoslav Republic of Macedonia Ethnic Albanians represent 82.6% of the to the east, and Greece to the south and population. The other recognized ethnic southeast. It has a coast on the Adriatic and cultural affiliations include Greeks with Sea to the west and the Ionian Sea to the 0.9%, other 1% (Vlach, Roma (Gypsy), southwest. Macedonian, Montenegrin, and Egyptian), Albania has a total area of 28,748 square and unspecified 15.5%, according to kilometers and has 362 kilometers statistics from the 2011 census). of coastline. The terrain is mostly Nearly 56.7% of the Albanian population mountainous, often covered with scrub adheres to Islam, Catholics comprise 10%, forest. The average altitude of 708 meters Orthodox 6.8%, atheist 2.5%, Bektashi is about twice as high as the European 2.1%, other 5.7% and unspecified 16.2%. average. The country’s official language is Albanian, The coastal lowlands have a typically which is taught in schools and spoken Mediterranean climate with warm, dry in national institutions. The Albanian summers and mild, wet winters; the language belongs to the Indo-European highlands have a Mediterranean continental language family and has its own specifics. climate. It is spoken by approximately 7.4 million inhabitants of the eastern Adriatic coast in Population and language Albania and also in neighboring countries, The population of Albania, as per principally in Kosovo, Montenegro and information from the National Statistical Macedonia. The official language was Institute (INSTAT) as of 1 January 2017, is based on the northern Geg dialect at the approximately 2.9 million. The population beginning of the Albanian state until World in urban areas is 53.5% while 46.5% live War II, and since then has been modelled in rural areas. The capital of the country, on the Tosk dialect. Tirana, has a population of some 764,000 The most commonly spoken foreign inhabitants. The average age of the languages in the country are English and population increased from 30.63 years in Italian. 2001 to 35.8 in 2013.

Infrastructure to the Trans-European Transport Networks. Under this framework, the priority for Roads and railways Albania is the rehabilitation of the railway The road system is mostly under network which is run down and very poorly construction and fairly underdeveloped. The maintained. The total length of the main country has some 18,000 kilometers of railway lines is about 420 km, whereas road, of which 7,450 kilometers comprise secondary lines and branches measure the main network. During the winter approximately 200 km. The immediate months, travelers may encounter snow priority for the sector is the rehabilitation and ice conditions on the roads throughout and construction of the Durres-Tirana mountainous regions in northern Albania railway segment and construction of the segment connecting the Durres-Tirana Several international initiatives are railway segment with the Airport that is being undertaken by the World Bank, anticipated to commence in 2017 and end the European Bank for Reconstruction in 2019. and Development (EBRD) and others to improve and develop Albania’s transport Buses travel between most major cities system. The so-called Durres-Kukes almost exclusively during the day. Currently, highway and tunnel is a connection to the there is a project for the construction of Kosovo border. A limited highway connects Tirana Public Transport terminal where all Tirana with the north, south and east of intercity and international buses will stop Albania. The highway Tirana-Elbasan was and passengers will be able to connect to completed in 2013. urban buses, taxis, taxi-vans and a tram.

Currently, the investment projects which Rent-a-car agencies operate in Albania and aim at improving main and local roads offer competitive rates. Avis, Hertz and in the country include: construction of SIXT provide such services along with local Vlora Bypass, a highway of 29 kilometers rental companies. bypassing the city of Vlora and facilitating A transport initiative is Ecovolis bike the road traffic flow along the southern rentals in Tirana. Before it, Tirana was not cost of Albania, and Rrogozhina bypass considered bicycle friendly. As the results which will connect the ports of Durres have been encouraging, the initiative will and Vlora to the border with the Former continue to spread in other cities such as Yugoslav Republic of Macedonia. Other Durres. A major project under development important road infrastructure projects is the construction of a tram line in the city include the Adriatic – Ionian Corridor of Tirana which will be the first tram line in which is part of the Albanian North-South the country. Road Corridor and which will connect the Montenegrin coast to the Greek coast, Ports and the East-West Road Corridor (part of Albania is accessible by several seaports. Corridor VIII) which links the Port of Durres They are all located on the eastern side to Macedonia. of the Adriatic and Ionian Sea. Albania is a The major priority in the transport sector for mere 100 kilometers (60 miles) from Italy the Western Balkans is their full integration across the Adriatic.

Durrës Port is the main seaport of north and northeast parts of the country Albania with a capacity of 12 ships a as well as to expand commercial activities day, located on the coast of the Adriatic with Kosovo. The port’s development will Sea approximately 30 kilometers (in a follow a master plan funded by the World straight line) to the west of Tirana. This Bank and the State and envisaged several facility can accommodate ships as large investment stages. as 4,000 tons and is limited to vessels with drafts of 26.25ft (8 meters) or less. Airports The rehabilitation of piers no. 7 and 8 is Albania has only one civil airport, Tirana underway. This project, valued at International Airport (TIA), also known as EUR 40 million and co-funded by the Rinas Airport or Mother Theresa Airport. European Investment Bank (EIB), the It is located 17 kilometers northeast of European Bank for Reconstruction and Tirana, approximately 20 minutes by car Development (EBRD), the European from the city center and operates Commission and the Albanian Government, 11 airlines to 18 destinations including is expected to be completed in 2017. Rome, Munich, Vienna, Istanbul, and Other ports in Albania are those in Vlora, Ljubljana. In 2015, 1.9 million passengers Saranda and Shëngjini. They have direct traveled through the airport, representing connections with various ports in Italy and an annual increase of 6%. Greece. The key market remains Italy, covering approximately 60% of the traffic to/from TIA. Vlora is located in the southern part of Albania on the Adriatic Sea. The Vlora Port In 2007, a new terminal was built and a is the biggest port of the south serving as shorter road was constructed. A bus to a transit way not just for Albania, but also Rinas Airport departs every hour, day Kosovo, Macedonia and Bulgaria, allowing and night, from the National Museum for access of commercial ships and ferries. on Skanderbeg Square, Tirana; tickets It is part of Pan-European Corridor VIII cost ALL 200 (approximately EUR 1.60). which links Albania, and more specifically Alternatively, taxis are easy to arrange to Durres and Vlora ports, with the Black Sea, and from the airport and a one-way trip Burgas and Varna. would cost about EUR 20.

The Port of Saranda, measuring 18,000 In 2016, the Albanian government and square meters, is the only one located in TIA signed an agreement marking a major the south of Albania on the Ionian Sea. The step towards the development of air area is expected to attract tourists from transport in Albania and the liberalization Greece. According to the new master plan, of international flights. The agreement city facilities will be transformed to host gave the green light to Kukes airport being passengers while shipping activities will be opened to international flights and other performed on the docks. airports to be developed such as the ones in southern Albania, namely in Vlora The Port of Shëngjin is located in the and Saranda. northwestern part of Albania on the Adriatic Sea. It is expected to serve the

Communications and service quality vary widely. Numerous investments are being made to improve Fixed-line communications the quality of services and transmission Communications in Albania have capacities in the internet field. Internet developed considerably in recent years. use is not widespread in rural areas, but The biggest company in the fixed line is common in urban areas, especially in sector is Albtelecom (a former state- Tirana. There are numerous internet cafés owned national operator). 76% of its in the bigger cities and fees amount to shares are held by the Turkish telecom USD 0.7 – 1.5 per hour. companies Çalik and Turk Telekom. Electronic payment methods By the end of 2015, the number of fixed Credit and debit card use is gaining line subscribers was approximately popularity, with an increasing number 227,000 compared to 230,000 at the of consumer retailers accepting such a end of 2014. The overall phone density form of payment. Local banks offer online decreased by 17% in the last year due to banking services, debit card services, and the shift in favor of mobile phones. various forms of electronic payment for utility and telephone charges. Mobile communications Four mobile telephone companies currently The Bank of Albania (BoA) operates two provide services in Albania: Vodafone inter-bank payment systems: a large value Albania, Telekom Albania (former Albanian payments system in domestic currency Mobile Communications), Eagle Mobile (Albanian Interbank Payment System, AIPS) which is the brand of Albtelecom, and and a retail payment system (Albanian Plus Communication. Currently, Vodafone Electronic Clearing House, AECH) to Albania, Telekom Albania and Eagle Mobile develop and maintain a national mobile operate under 4G network. In 2015, there infrastructure for electronic payments were 4.7 million mobile subscriptions, in the country. AIPS processes all exceeding considerably the number of systemically important payments in leks. the population. Based on publicly available Such payments include interbank payments information, Vodafone Albania has a 47.5% and customer payments equal to or market share as of the end of 2015, exceeding ALL 1,500,000. followed by Telekom Albania with 32%, Albtelecom (Eagle Mobile) with 14% and Currency Plus Communications with 6.5% of The official currency in Albania is the market share. Albanian lek (ALL). The Bank of Albania has the exclusive right to issue banknotes and Internet coins in the Republic of Albania. The lek is At the end of 2015, there were an circulated in notes of ALL 100, ALL 200, estimated 1.3 million internet users (both ALL 500, ALL 1,000, ALL 2,000, ALL 5,000 fixed and mobile) in the country. This is and coins. a vibrant market populated by different The value of the lek against foreign internet service providers whose rates currencies is determined in the foreign

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Albania 2017 | 11 exchange market by its supply and demand. government on 15 September 2013. The Official exchange rates for foreign currencies current Prime Minister is Edi Rama. are quoted daily by the Bank of Albania for Under the new Law 115/2014 dated statistical and accounting purposes. 31 July 2014 on the Administrative-Territorial Division of Local Government Units in the Labor force Republic of Albania, the country is divided Approximately 67.3% of the population into 61 municipalities grouped into aged 15 and above comprised the country’s 12 counties. The prefects are appointed by labor force in 2015. While the Albanian the Council of Ministers. Local elections labour force is generally highly skilled are held every four years and, out of these, and well educated, wage levels in the County Councils are elected. City mayors country are significantly lower than those are directly elected by voters. The next local in Western Europe, creating a significant elections will be held in 2019. upside potential for labor-intensive investments. The unemployment rate in Opportunities created via EU funding 2016 in the country decreased to 14.7% Albania participates in the Stabilization compared to 17.7% in 2015. and Association Process (SAP). The development of political and economic Political system relations between the European Union Albania is a parliamentary republic. The (EU) and Albania in the framework of SAP current Constitution was adopted by is facilitated through the Delegation of referendum on 22 November 1998 and the European Union to Albania, which is a came into effect on 28 November 1998. It permanent diplomatic mission. replaced the interim Constitution in place following the abandonment of the Marxist- Visa liberalization for citizens of Albania inspired constitution in April 1991. traveling to the Schengen area has been in force since December 2010. Monitoring The national legislative body, a unicameral mechanisms by the EU Commission are in Assembly, is comprised of 140 members place over the progress made by Albania in elected by proportional representation from the implementation of reforms introduced 12 regional lists. They all serve a four-year under the visa roadmap. term. The president is the head of state and commander-in-chief of the army. The In June 2014, the EU granted candidate current President is Bujar Nishani who was status to Albania. Becoming an EU elected by the Parliament on 11 June 2012 candidate country has a number of political for a five-year term. and economic effects for Albania. The next important step will be the opening of Executive power rests with accession negotiations; however, this will the Government. depend on further specific and sustainable Albania held a parliamentary election on reforms in Albania and is subject to 23 June 2013. The next elections are due agreement from all EU Member States. in June 2017. The Socialist Party of Albania, Pre-accession financial assistance with the majority of seats, and the Socialist is provided under the Instrument for Movement for Integration formed a coalition Pre-Accession Assistance (IPA). Albania

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 12 | Investment in Albania 2017 has benefited from IPA components areas such as political, military and I – Transition Assistance and Institution security-sector. Priorities were set to Building and II – Cross-border Cooperation. meet democratic standards, reduce corruption, fight organized crime, improve Under IPA II, Albania will benefit from public administration, and enhance good- EU assistance for 2014-2020 with a total neighborly relations. indicative allocation of EUR 640 million. IPA II is envisaged to support the Economy successful implementation of the reforms and investments needed for the integration Macroeconomic trends process in the areas of rule of law, In the last few years, major changes democracy, economic governance and have taken place in Albania leading to a public finances. significant economic shift as construction Albania will also receive support under and services replaced agriculture and the IPA multi-country programs and will outdated industry as the main contributors participate in cross-border cooperation to the gross domestic product (GDP). programs with neighboring Western Balkan The macroeconomic landscape has countries and Member States and in trans- been characterized by rising exports national cooperation programs under the and an increasing trade gap financed by European Regional Development Fund. remittances, receipts from privatizations and concessions and foreign direct Albania participates in the following EU investments. The consequences of the programs: Seventh Research Framework difficult global economic situation after Program; Entrepreneurship and Innovation 2008, particularly the euro zone, continued under the Competitiveness and Innovation to affect the Albanian economy. In 2012, Framework Program; Lifelong Learning the real growth in GDP, as per data from Program; Europe for Citizens; Culture; and the Economist Intelligence Unit (EIU), Customs 2013. stood at only 1.6%, significantly lower than Albania has also recently concluded the 2011 growth of 2.5% or is in the process of concluding new The decrease was mostly caused by the agreements for a number of programs, slow foreign demand growth, increased including: Horizon 2020, Competitiveness risk premium in the financial markets, low of Enterprises and Small and Medium-sized level of consumption and investments, and Enterprises, Fiscalis 2020, Erasmus+, decreased fiscal stimulus which in turn led Creative Europe and Employment and to a weak aggregate demand. Social Innovation. The real GDP growth further decelerated Albania and NATO in 2013 reaching a level of only 1.4%, reflecting the prolonged double-dip Albania together with Croatia joined the recession in the euro zone, in particular the North Atlantic Treaty Organization (NATO) weak economic activity of the two main on 1 April 2009. economic partners of Albania, Italy and In order to become a NATO member, Greece. Nevertheless, the contraction of Albania undertook several reforms in the Albanian economy was also fostered by

2012 2013 2014 2015 2016

GDP at market prices, EUR million 9,674 9,891 10,217 10,406 11,259

Real GDP growth (%) 1.6 1.4 2.0 2.8 3.2

Consumer price inflation (average in %) 2.0 1.9 1.6 1.9 1.3

Current-account balance, EUR million (986) (1,068) (1,301) (1,115) (1,350)

Note: Apart from inflation, 2016 figure are estimated figures. Source: Economist Intelligence Unit

2012 2013 2014 2015 11m2016

Annual ALL Interest Rates - End of Period

Deposits 5.38 4.17 1.92 1.35 0.69

Loans (weighted avg.) 10.28 9.52 7.66 7.77 6.26

T-bills 6.37 3.66 3.33 2.40 2.47

Core Interest Rate (%) 4.00 3.00 2.25 1.75 1.25

Amounts in ALL Billion - End of Period

Deposits 930.70 950 977 987 997

Loans 554.70 548 560 547 553

Credit to economy (% of GDP) 42% 40% 40% 37% 36%

Note a: Annual interest rates are stated for one-year deposits and loans in ALL and one-year T-bills. Note b: Core interest rate for 2016 refers to the latest interest rate approved in February 2017. Source: Bank of Albania and Economist Intelligence Unit

2007 to around 40% in 2014, indicating owned energy sector losses. However, a strengthening of the financial system the inflationary effect of these factors, on the back of ample liquidity provided combined with a modest increase in by notably high levels of savings. In 2015, external and domestic demand, was largely despite continuous cut in the core interest offset by lower international oil and other rate, credit to economy incurred a subtle commodity prices. decrease reaching 38% of the GDP, A recovery in international energy and mainly due to the decrease in lending to other commodity prices and increased businesses. In 2016, despite the increase domestic consumption are expected to in loans, credit to economy subtly increase inflation to an annual average of decreased to 36% on account of the 2.8% in 2017-18. increase in GDP level.

Exchange rate Inflation For several years the Albanian lek was In 2013-2016, the inflation rate went below relatively stable against the euro; however, the minimum target rate set by the BoA, from 2009, the ALL depreciated against namely 2%, mostly due to the weak major foreign currencies, namely the euro performance of demand and decrease in and the US dollar. imported inflation. The subtle increase in inflation rate in 2015 reflects the higher This reached its peak during 2011, tobacco excise duties and increased when one euro was worth an average electricity tariffs, intended to cut the state- of ALL 140.33. Such depreciation was

2012 2013 2014 2015 2016 Exchange rates - Period Average ALL/USD 108.20 105.70 105.50 126.00 128.29 ALL/EUR 139.00 140.30 140.00 139.70 135.27 Source: Bank of Albania mainly affected by the increased level of lower than forecast revenues and increased government expenditure and a general budget deficits, accentuating the need to “euro-ization” tendency in the local market, adjust spending plans. with an increased number of transactions, The budget deficit widened in 2014 reaching especially in real estate, conducted in euro. almost 5% of the GDP. The increase is driven Meanwhile, the changes in ALL against the by significant payments of state arrears euro and US dollar in the period 2012-2014 to private businesses. On the other hand, reflect the difficulties in finding a solution revenue increase by 12% mostly due to the to the euro zone crisis. During 2014, one increased tax rates and improved revenue euro and one dollar averaged ALL 140 and collection. ALL 105.5, respectively. In 2015, the ALL In 2015, the budget deficit decreased by continued to depreciate markedly against 20% in line with the government’s fiscal the US dollar and be relatively stable consolidation program aimed at curtailing against the EUR, mirroring the trends in the public expenditure. exchange rate between the US dollar and the euro. As per the Economist Intelligence Unit, the current government has managed to Since it depreciated markedly against implement its medium-term strategy to the US dollar in 2015, ALL has remained restraint the budget deficit, by acquiring an broadly stable. The Economist Intelligence SDR 295.4 million (US 414 million) extended Unit expects that ALL will weaken further fund facility from the International Monetary against the US dollar mirroring to some Fund (IMF) in February 2014. extent the depreciation of EUR. It is forecasted that ALL will be supported by a In terms of public debt, based on IMF data, relatively high local currency interest rate the government debt of Albania exceeded and increased foreign currency remittances 60% of GDP, which is considered a relatively from Albanians working abroad as euro high ratio when compared to other emerging zone growth continues, although modestly, markets (average rate of 47%) and regional in 2017-18. peers. In order to accommodate the rising level of public debt, in December 2012, Fiscal indicators the legislation on public debt was changed The consequences of the global economic whereby the previous statutory ceiling on crisis in Albania, although initially less public debt of 60% of GDP was abolished. severe than in neighboring countries, The level of public debt increased by the end were underestimated and, as a result, the of 2012 reaching 62% of the GDP due to a expectations for public revenue were overly shortfall in revenue and the need to place optimistic. This situation eventually led to guarantees on behalf of the state-owned

2012 2013 2014 2015 11m 2016

In ALL million

Total revenue 330,382 327,178 366,721 379,206 368,310

Total expenditure 376,244 394,118 438,849 437,408 361,216

Deficit (45,862) (66,940) (72,128) (58,202) (7,094)

Public debt as % of GDP 60 65 70 72 71

Note: 2016 data for public debt as % of GDP is an estimate and it refers to full year 2016. Source: Bank of Albania and Ministry of Finance

2012 2013 2014 2015 2016 Exports of goods fob (USD million) 1,124 1,395 1,241 857 774

Imports of goods fob (USD million) 3,984 4,028 4,170 3,402 3,727

Trade balance (2,859) (2,633) (2,930) (2,547) (2,953)

Coverage ratio 28% 35% 30% 25% 21%

Note a: Coverage ratio is measured as the ratio of exports to imports. Note b: 2016 figures are estimates. Source: Economist Intelligence Unit

Main origins of exports 2016

Country % of total

Italy 55

Kosovo 7

Greece 4

Malta 4

Other countries 30

Source: Customs Authority of Albania Main origin of imports 2016

Country % of total

Italy 29

China 9

Turkey 8

Greece 8

Other countries 47

Source: Customs Authority of Albania

As per the Economist Intelligence Unit, framework agreement liberalizing foreign it is expected that a continuing increase trade between Albania and the European in economic activity in Albania will attract Union entered into force in December 2009. more imports, driven partly by increased Albania’s major trade agreements are with government spending ahead of the elections the following organizations: and the recovery in international oil and commodity prices. In addition, a recovery in WTO world fuel and mineral prices will increase not only the value of imports but also that of Albania has been a member of the exports, given that fuels and minerals are the World Trade Organization (WTO) second largest category of Albania’s exports. since 8 September 2000.

Trade agreements European Union The Central European Free Trade Agreement Prior to agreements between Albania and (CEFTA), which currently includes the European Community, since the year Albania, Bosnia and Herzegovina, Kosovo, 2000 certain incentives have been granted Macedonia, Moldova, Montenegro and with respect to Albanian products such as Serbia was signed in December 2006. In products of Albanian origin introduced as addition, another major trade agreement, duty free in the EU market and agriculture the European Free Trade Association (EFTA) products being subject to significant reliefs.

The Stabilization and Association Foreign investment Agreement between Albania and the Foreign direct investments (FDI) in Albania European Community and its Member have been rising steadily since the early States entered into force on 1 April 2009. 2000s. Despite the global economic crisis, FDI in Albania continued to increase even EFTA after 2008. According to the latest available According to the 1993 European Free Trade data of the United Nations Conference Association (EFTA) Agreement, trade with on Trade and Development (UNCTAD), EFTA countries (Iceland, Liechtenstein, the foreign investment stock as at end of Norway and Switzerland) enjoys 2015 reached a level of EUR 4,353 million preferential terms and conditions which are representing an annual increase of 15%. almost identical with those in the Europe Throughout the recent years, FDI stock Agreement of Association. stood at an average level of 35% of GDP. FDI have mostly been attracted by the Bilateral Free Trade Agreements various privatization initiatives of the As of 19 December 2006, all bilateral trade Government in sectors such as banking, agreements signed between Albania and telecommunications, manufacturing, countries in the region were transformed and increasingly energy, especially into a multilateral one, the Central hydroelectricity. European Free Trade Agreement, which currently includes: Albania, Bosnia and Foreign investments Stock in Albania, Herzegovina, Kosovo, Macedonia, Moldova, 2011-2015 Montenegro and Serbia. CEFTA’s main 5 000 45% 4 500 objectives are, inter alia, to expand trade in 40% 4 000 35% 3 500 goods and services and foster investment 30% 3 000 by means of fair, stable and predictable 25% 2 500 20% rules, eliminate trade barriers among the 2 000

EUR million 15% parties, provide appropriate protection of 1 500 1 000 10% intellectual property rights in accordance 500 5% 0 0% with international standards and harmonize 2011 2012 2013 2014 2015 provisions on modern trade policy issues FDI stock FDI as % of GDP such as competition rules and state aid. It Source: United Nations Conference on Trade and Development also includes clear and effective procedures for dispute settlement. In recent years, an important development in targeting investors has been the Albania is also party to a Free Trade adoption of the Law on Concessions Agreement with Turkey, which entered which aims to create a favorable into force in May 2008. According to this framework for promoting and facilitating agreement, Albanian industrial goods the implementation of privately financed exported to Turkey benefit from no tariffs concession projects in the development of application, while the applicable tariffs for infrastructure and public service areas in a certain Turkish products were gradually wide range of sectors. reduced to zero within a period of five years.

Apart from the uncertainty which Some of these facilities in favor of characterizes the euro zone economic the implementation of the strategic prospects, there are challenges in the investments include: investment climate in Albania including • One-stop shop: the Albanian Investment problems encountered in public Development Agency (AIDA) is the administration, legal system, corruption, one-stop shop where strategic investors inadequate electricity supply and may take all necessary steps in terms of infrastructure. However, most of these administrative procedures problems are considered to have been reduced recently as most were subject • Priority administrative procedures: to prerequisite conditions for gaining administrative procedures related to EU candidate status in mid 2014. strategic investments, including here inter alia the issuance of licenses, One of the important milestones in permits, and authorizations, are promoting foreign investments in the processed through accelerated country was the approval of the new Law procedures by the public administration on Strategic Investments that came into force at the beginning of 2016. It is aimed • Support measures offered by at promoting and attracting strategic the Albanian state: through state investments with significant capital participation in strategic investments, implemented in economic sectors, which support of investment through support are considered strategic for the country infrastructure, use of state immovable development. properties, etc.

More specifically under this law, the strategic sectors include the following: energy and mines, transport, infrastructure of electronic communications and urban waste, tourism, agriculture and fishery, technology and economic development zones. The law determines a threshold for investment value and/or number of new jobs created for an investment in each of these sectors for an investment to be considered strategic and be supplied with an assisted and special procedure.

The law offers strategic investors promoting and supporting mechanisms, considering such investments of priority, and guaranteeing a series of measures, services and administrative facilities.

Protection and promotion of foreign Albania is also a party to the Convention investments on the Settlement of Investment Disputes between States and Nationals of Other National treatment and most favored States. Every Bilateral Investment Treaty nation status has a standard clause providing that, in the The Albanian Law on Foreign Investments case of a dispute between the Republic provides for equal treatment of local and of Albania and a potential investor, this foreign investors in the Republic of Albania. dispute shall be submitted before the World Foreign investors in Albania can obtain Bank’s International Center for Settlement the same assistance and use the same of Investment Disputes. On these privileges and opportunities as granted by grounds, every investor in Albania has the the law to local investors. opportunity to protect their investment if adverse legislation is adopted. If a bilateral treaty, signed and ratified by the Republic of Albania, provides for more Privatization and investment favorable investment terms and conditions opportunities for international investors, the citizens or legal entities of the respective contracting The privatization of large-scale enterprises country will enjoy preferential investor is advancing. The Government expects to treatment (“most favored nation status”). privatize the state companies considered of strategic interest, such as oil national Protection of investments company Albpetrol, and it also plans to put up for sale the remaining public stakes in The Republic of Albania is a party to national fixed-line operator Albtelecom. In 43 bilateral agreements for mutual addition, the Government intends to fully protection and encouragement of foreign privatize its assets in non-strategic sectors investment. Currently, there are six other which are estimated to reach a value of bilateral agreements which are under EUR 5 million. negotiation process. In addition, Albania is also a party to 38 bilateral agreements for However, certain actions have already economic, trade and technical cooperation been undertaken in response to future and five other agreements which are under privatizations, including concession projects negotiation process. such as the development, implementation,

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Albania 2017 | 21 and management of the national broadband the farmers, and low level of development network as well as the maintenance of of the processing industry. However, with major national road segments. the energy and road infrastructure rapidly improving or scheduled to improve in the Several sectors in Albania still offer mid-term, the sector looks more attractive. opportunities to access long-term gains One of its selling points is that most of its that can come from investing in a fast- agricultural products are generally free from growing, low-cost economy with fairly artificial additives or pesticides, placing the untapped natural resources and a flexible country in a promising position to become workforce. an important producer and exporter of Some of the strategic sectors set out in quality organic foods. the Law on Strategic Investments are Some agriculture sub-sectors with a presented in the following sections. high potential for export and investment opportunities include: medicinal plants and Agriculture herbs, vegetables, canned products such The favorable climate and low-cost rural as olives/olive oil, fresh and processed fish. workforce make Albania a good investment destination in the agricultural sector. Energy/power generation Compared to other EU Member States, Currently, Albania relies almost entirely on where the agriculture sector represents hydropower generation to meet its rising around 2% of GDP and 6% of the electricity demand (comprising 98% of employment according to Eurostat, the the total energy production), making it agriculture sector in Albania significant and quite vulnerable to climate changes. The contributes the highest part to the GDP River Drin is the main source of electricity, with an average annual contribution of providing about 90% of the domestic 20% while it employs more than half of the electricity generation. workforce, according to INSTAT. In 2011, the weather conditions were Although it is expected that the sector characterized by a substantial drop in will develop quickly, it remains inefficient the level of rainfall, leading to energy and labor intensive, dominated by small production of 4.14 TWh, representing agricultural producers. an annual decrease by almost 50%. In The number of enterprises operating in those conditions, the Government of agribusiness has not changed significantly Albania considered the integration of the during the past years and averages about energy system of Albania, almost entirely 2,000 enterprises. hydropower based, and that of Kosovo, coal power plant based, two complementary The general level of interest in investing systems. Moreover, the importance of the in this sector has been low, mostly due to energy system unification in both countries certain issues faced by the sector such as: further increases with the construction of migration from rural areas, poor marketing the interconnection line of 400 KV between of products, underdeveloped irrigation and Albania and Kosovo, which was approved drainage systems, poor technological and late in 2013 and completed at end of 2015. infrastructure level, weak organization of

In 2016, the 110 KV connection line in Several fiscal incentives are designed southern Albania was completed. This is to encourage new means of power an important project which significantly generation. Companies investing in the increases safety and parameters of the construction of energy plants using power supply in the tourist area and renewable sources (such as water and southeastern Albania. wind) are entitled to an exemption from customs duties on the import of machinery The main priority of the Albanian and equipment needed for the construction Government is for the country to become of such plants. For investors in non- self-sufficient and be able to fulfill all of its renewable sources, this exemption applies energy needs. Eventually, the mid-term if the plant has an installed power capacity goal is to turn Albania into an important of more than 5 MW. player in the regional energy market by exporting excess capacities. Tourism The country’s recent draft National Energy Albania has yet to become a major tourist Strategy covers up to 2019 and describes destination rivaling neighbors like Greece plans to diversify Albania’s energy system and Croatia although the country is by fostering the development of renewable characterized by numerous national parks, energy generation assets (such as solar, mountains, and protected nature reserves, small hydropower plants, wind and ancient villages and ruins and a relatively biomass) and thermal power plants. well-preserved 611 kilometer-long coastline.

The state hydropower plants (HPPs) Aside from its coastline, Albania is rich in continue to be the main contributor to lakes which constitute not only important energy with around 70% of the total ecological sites but also a separate segment energy being produced by state HPPs and for the tourism sector. The potential for the rest by the private HPPs. the development of a wide range of year- During the past years, investments in round tourism activities is reinforced by the sector have aimed at improving the the prevalence of a hilly and mountainous transmission and distribution network and landscape which makes up almost two- decreasing the losses in the distribution thirds of the country’s surface area. network. In addition, several measures Cultural tourism offers good prospects are undertaken to increase the receivables as well, given Albania’s ancient past collection rate and the existence of a large number of The country has unused renewable sources archaeological centers and sites, castles and of energy such as sun and wind. Currently, fortresses, and various historical, cultural solar energy is only used for heating and religious objects. whereas the wind energy is completely Infrastructure issues have plagued the unexploited. The highest potential for wind sector historically; nonetheless, it has grown energy is along the Adriatic coastline. at a significant pace during the last few A number of local and foreign investors years and seems poised to continue this are licensed to study the wind energy pace in the future. Statistics from the World production in the country. Up to 2020, the Travel and Tourism Council indicate that the government aims at having 20% of the total contribution of travel and tourism to energy produced from wind sources.

GDP, including its wider economic impacts, nickel in order to raise their competitive is forecast to rise during the forthcoming advantage in domestic and foreign years so as to reach around 29% of GDP markets; the addition in production range in 2021. Interestingly, however, tourism and processing of other minerals such as continues to be mostly represented by bituminous sands, olivinites, basalts, and small, locally-owned operators with little decorative stones; and the introduction to no significant involvement of foreign and further application of modernized investors. technologies in mining and mineral processing. Investments in the tourism sector are regulated by the Law on Tourism in Albania Crude oil and gas which sets out the possibility for state assistance to private entrepreneurs for Oil production in Albania began in 1928 projects in this sector. Such assistance and has continuously increased since then. may be provided by the National Tourism The country is endowed with one of the Agency in the form of grants, loans or tax largest onshore oil fields in Europe, Patos- exemption. Marinza. Albania has high on- and offshore oil bearing potential and offers good Mining sector opportunities for oil and gas exploration via a favorable legislative framework aimed Albania is rich in extractable mineral at attracting foreign, qualified companies resources, including chromium, copper, in the development and production of oil nickel and coal. The quality and quantity of and gas from existing oil fields. In recent chromium is particularly high and it is worth years, the production of crude oil has been noting that prior to 1990 Albania was the increasing and, as per the latest statistics, world’s third-largest producer and is today it reached a volume of about 1.4 million the only European country with significant tonnes in 2014 as compared to just reserves of this mineral. 0.4 million tonnes in 2004. The mining industry in Albania has According to the Albanian National Agency been undergoing privatization and the of Natural Resources, land-based geological Government has also offered concessions reserves of oil are estimated at about for construction and operation in this sector. 260 million cubic meters and of these At present, Albania’s coal and nickel mines 54 million cubic meters are considered are privatized, while the three largest copper recoverable reserves; however, the economic mines are being operated via a 30-year feasibility of extracting these reserves is still concession contract. Other mines operated under consideration. Geological oil reserves under concession contracts include the at sea are estimated to be 200 million cubic chromium mines of Bulqiza, Katjel, Pojska, meters of which about 50 million cubic the copper mines of Lak Rosh and Karme meters recoverable reserves. and the bitumen mine of Selenica. Gas exploitation for industrial use started in The strategy for the development of the 1963 in Bubullime (in the Kallm area). Later, mining industry in Albania has prioritized in 1964, a natural gas resource in Divjake the increase in production and processing was found, followed by the discovery and of such minerals as chromium, copper and

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 24 | Investment in Albania 2017 use of other natural gas resources such as announced the discovery of oil reserves Frakulla (1972), Finiq-Krane (1974), Ballaj in an onshore block in Albania in which it (1983), Povelca (1987) and Delvine (1989). holds 25% interest, with the remainder held by Shell. Natural gas historically was an important element in supplying the Albanian Telecommunications market with energy; however, its current contribution is low due to minimal The largest and most important provider production levels. of fixed-line telephony in Albania is Albtelecom. In recent years, however, a Meanwhile, imports via international growing number of alternative providers pipelines are currently impossible due to has been established and licensed by the the lack of connectivity of the Albanian gas Electronic and Postal Communications network to the international gas network Authority (EPCA). As per data provided by system. Studies carried out so far have EPCA, alternative providers served around aimed at identifying different ways of 20% of subscribers in 2015. connecting Albania with the European gas network. In this regard, the Trans Adriatic On the other hand, the mobile telephony Pipeline (TAP) project has started aimed at market is shared among Vodafone Albania, opening the new so-called Southern Gas Telekom Albania, Eagle Mobile, and Plus Corridor to Europe for natural gas from Communication. In total, these operators the Caspian Sea region. It will transport in 2015 had 3.4 million subscribers, gas via Greece and Albania and across the representing a yearly increase of 1% Adriatic Sea to Southern Italy and further to compared to 2014 and a penetration rate Western Europe. (number of subscribers per 100 inhabitants) of 119%. The country’s gas reserves have continuously decreased since 1985, Mobile telephony is becoming a reaching a minimum level in the early competitive market with operators 1990s due to the lack of new discoveries continually offering tariff reductions to pre- and the lack of investments in existing paid and post-paid customers and providing resources. internet services through mobile handsets and modem cards for PCs to all customer To date, the Government has licensed segments. various international companies for the development and production of oil and According to statistics from EPCA, the gas (such as Bankers Petroleum, Stream number of internet users with access to Oil & Gas, Sherwood, IEC Visoka and fixed broadband lines increased to 242,870 others), in addition to having issued several in 2015 (207,000 at the end of in 2014, hydrocarbon agreements for hydrocarbon 183,000 at the end of 2013). The internet exploration on-shore and off-shore. penetration rate through fixed broadband Currently, there are also several ongoing in Albania increased to 8.5% in 2015 negotiations for the exploration of new (compared to 7.4% in 2014) which is still far blocks on land and at sea. below the developed countries’ average of 72%, as per statistics of the International Early in 2014, Petromanas Energy, Telecommunications Union. an international oil and gas company,

During 2015, 80 registered operators • Income generated through an offered internet through fixed broadband investment and other related services locally. The main • Compensation against expropriation of operator is Albtelecom, which has been investments for state needs very active in the provision of internet access recently. As per statistics of EPCA, • Liquidation quotas upon termination of in 2014 Albtelecom continues to be the the investment major player in this market, representing • Proceeds from the sale of an 40% of the market followed by Abcom with investment 21% in terms of number of subscribers. • Sums received as a result of On the other hand, the situation is quite enforcement proceedings. different for internet through mobile broadband 3G and 4G where users This right may also be exercised by foreign reached 1.3 million in 2015 representing a individuals working in the country with substantial annual increase of 43%. respect to their remuneration, as well as those who have obtained a permanent The information and communication residence permit and are registered as sole technology infrastructure in the country traders or participate in a co-operative, in continues to be inadequate and an unlimited partnership or as unlimited underdeveloped. The demand increase partners in a limited partnership, after the has outpaced the modest progress in the payment of all taxes due. telecommunications infrastructure leading to an increased necessity for further Establishment of new business upgrades and improvements. entities or acquisition of shares in The Albanian Government has placed a existing entities special focus on the development of the The Albanian Law on Entrepreneurs and telecommunications sector and related Commercial Companies provides for the infrastructure. In this regard, considerable establishment of entities with foreign progress has been made in recent years participation or for the acquisition of shares regarding e-government, the creation of in local entities. Such companies must take online services conducive to business the form of entities under the Albanian activities and the introduction of reforms to Law on Entrepreneurs and Commercial improve the regulatory regime. Companies. There is no limitation on the Areas for further development encompass share participation of foreign legal entities new technologies such as LTE, DSL, cable and individuals. TV and WiMax. Under the Albanian Law on Entrepreneurs and Commercial Companies, the following Profit and capital repatriation entities may be set up and have foreign Foreign investors can freely transfer, and investor participation: purchase to transfer, foreign currency • Unlimited partnerships abroad after any corporate taxes due, including withholding taxes, have been duly • Limited partnerships paid. The following may be transferred: • Limited liability companies

• Joint-stock companies objects or activities which are exclusive state property or subject to sovereign state • Sole entrepreneurs. rights. The law has been effective from Generally, no prior permission from 25 May 2013 as amended. governmental institutions is required for the establishment of an entity of the above Trade licenses/permits types, except for cases involving banking or An additional license is required for insurance activities, investment or private performing economic activities in certain pensions’ funds. areas. The Law on Licenses, Authorizations and Permits in the Republic of Albania Branches and its sub-legislative acts set forth the Foreign legal entities may register branches provisions on the licensing regime. The in the Republic of Albania. Branches are National Business Center (NBC) is the entered in the Commercial Register at the institution which processes the issuance National Business Center. of licenses and permits. The NBC is also entitled to issue directly licenses and Though part of a foreign company, permits except for those whose issuance branches are considered independent and involves the material activity of other therefore must keep separate accounting public authorities. In the second case, books and prepare balance sheets. the procedure for obtaining the license However, registered capital is not required or permit is a two-step one with the for the establishment of a branch. NBC controlling, in the first stage, the documents submitted by the applicant, Representative offices and, in the second stage, the competent Under the Albanian Law on Entrepreneurs authority verifying the fulfillment by the and Commercial Companies, a foreign applicant of specific legal requirements for investor can have a representative office in the license or permit to be granted. Albania. The representative office must also be registered with the National Business The NBC provides a multipurpose Center and have a legal representative electronic database that enables the empowered by the company to manage processing of requests for licenses and the representative office. However, such an permits. This database is accessible online office is not entitled to perform commercial and publishes previously issued licenses activities. and permits. A license/permit is generally required to Concessions operate in the following sectors: Under the conditions of the Law • Tourism on Concessions and Public Private Partnerships, which regulates the terms • Construction for granting concessions and entering • Fuel trading into a public private partnership, the state authorities may grant concessions or enter • Energy into a public private partnership for certain • Fishing

• Telecommunication National Frequencies and Frequencies Usage Plan as well as with the law • Radio and broadcasting requirements. The individual authorization is • Education issued for a term not longer than 15 years.

• Trading in pharmaceutical and medical The ECPA may decide to hold a tender products procedure for issuing the frequencies in a specific band upon completion of the public • Hospitals, diagnostic centers, consultation process and approval from the laboratories competent ministry. In such a case, the • Road and maritime transport commencement of the services, term of authorization and the number of operators • Games of chance and hippodromes is determined by the respective Minister. • Property evaluation Radio and TV broadcasting services are • Mining regulated by the Law on Audiovisual Media in the Republic of Albania effective as of Licensing regime in electronic 3 April 2013. The Audiovisual Media communications Authority (AMA) is the competent regulatory Public electronic communications in authority for radio and TV broadcasting Albania, save for radio and television services and other supporting activities broadcasting and communication in this sector. All networks which require equipment used for national security use of radio and television frequencies as purposes, are governed by the Law on well as provision of audio and audiovisual Electronic Communications effective broadcasting services based on such from 25 June 2008. The Electronic networks are licensed by AMA. Communications and Postal Authority The Law on Audiovisual Media also (ECPA) is the competent body which regulates radio and television operators supervises the legal regulatory framework (operators offering audio and audiovisual in the electronic communications sector. media services). AMA issues Under the Law on Electronic licenses/authorizations to legal entities and Communications, public electronic individuals registered to perform audio communications services may be provided, and/or audiovisual services. under general authorization, by any legal The license/authorization term is up to entity or entrepreneur who meets the 15 years and the request for its renewal general requirements set out in the law, must be made 90 days before the after first notifying the ECPA. termination of the license/authorization term.

Where legal entities want to use Licensing regime in the energy sector frequencies from the Frequencies Usage The energy sector in Albania is governed Plan for the purposes of carrying out by the Law on Electric Energy Sector electronic communications, they have No. 43, dated 30 April 2015, and the to obtain an individual authorization Law on Renewable Energy Resources from ECPA. ECPA issues the individual No. 183/2013 dated 2 May 2013 as authorization in accordance with the

amended. The main regulatory body of • For retail public supply of electricity up the Albanian energy sector is the Energy to 5 years Regulatory Authority (ERA), which is • For supply of electricity to qualified responsible for the issuance, amendment customers up to 5 years and revocation of licenses for activities in the energy sector. The licensing procedures • For trade of electricity up to 5 years are governed by the Regulation of ERA on The license term may be extended only if licensing, amendment, full/partial transfer the licensee has applied for extension at and renewal of licenses. least six months prior to the expiration of In general, the law requires an individual the initial license term. license for the specific energy activity, In accordance with the Law, ERA upon a such as generation, transmission, trading, licensee’s request or at its own discretion wholesale and retail public supply, supply may decide to fully or partially transfer any of electricity of qualified customers and license. distribution of electricity.

No license is required for: Renewable energy In February 2017, the Albanian Parliament • Construction of a direct line for approved the Law on the Incentive for the transmission or distribution of electricity Use of Renewable Sources which repealed • Generation of electricity by self- the Law on Renewable Energy Sources producers not connected to the (RES) dated 2 May 2013. electricity grid or connected to the The new Law aims to partially harmonize electricity grid with an installed power the legislation with EU Directive 2009/28/EC up to 1 MW. There are restrictions on as well as with the changes and abrogation the transfer of a license or any assets of EU Directives 2001/77/EC and used for the licensed activity without 2003/30/EC. obtaining prior approval from ERA. The purpose of the new Law is to: Any local or foreign legal entity, fulfilling the requirements of the law, is eligible to • Promote the production of renewable receive a license for the activities listed energy above. The term for each license issued by • Reduce the import of organic ERA is as follows: combustibles • For generation of electricity up to • Stimulate the development of the 30 years energy market from renewable • For transmission of electricity up to sources in the region 25 years • Increase the diversification of the use of • For distribution of electricity up to energy and boost energy security 30 years • Provide incentives for the development • For wholesale public supply of of rural areas by improving the energy electricity up to 5 years supply.

An action plan for renewable energy bid open to all the producers may lead to The Ministry of Energy is obliged by the distorted results. new Law to draft, in cooperation with The Model Agreement is proposed by the other agencies, a National Action Plan for Minister of Economy and approved by the the sources of the renewable energy. This Council of Ministers. National Action Plan is to be approved by the Council of Ministers and revised every The Operator for the Renewable Energy two years. prepares an application form to be used by the producers in the competitive bidding National support measures for process. renewable energy producers The maximal duration of the Incentive According to the Law, producers of Agreement is 15 years. electricity from renewable energy sources asserted with priority are entitled to the Incentives for small producers of renew- incentive measures in the form of a bonus able energy as an increase in the reference price of the The Incentive Agreement model is not produced energy. This incentive is granted applied to small producers of renewable through a competitive bidding. energy having an installed capacity of Based on the Law, the Ministry of 2MW or 3 MW for wind energy. The Energy shall draft proposals on different Agreement is not applied in case of incentive measures that may be granted to demonstrative projects. producers of renewable energy. The purchase price from sources of renewable energy having an installed Support through the Incentive Agreement capacity of 2MW is established by the (Model Agreement for the price difference) ERA as per the methodology approved The support to producers under this kind by the Council of Ministers taking into of a standard Incentive Agreement set consideration the internal market price out in the new Law is based on a variable and the regional regulated markets plus a bonus calculated as a difference between bonus for the promotion of the renewable the price based on which the producer has energy. been awarded in the competitive bidding processes for granting of the bonus Operator of Renewable Energy and (established price) and the market price of Certificates of Origin issued by ERA the energy (reference price). The Operator is responsible for the billing The beneficiaries of the scheme are and collection from each power supplier of selected through a competitive bidding the payments for the renewable energy for process opened for all the producers all the categories of the producers asserted of the renewable energy except for any with priority as applied to customers. specific case as presented by the Law. The Council of Ministers determines The competitive bidding process may the Operator which acts as Operator be limited to specific technologies if the of Renewable Energy. The Operator is responsible for the signing and

Based on the Law, also recognized are Pursuant to the Law on Banks in the those certificates issued by an EU Member Republic of Albania (“Banking Law”), an State or another country member of the Albanian bank must be established in the Treaty of the Energy Community. legal form of a joint-stock company issuing only nominative shares with a fully paid-up Financing of renewable energy sources minimum registered capital of projects ALL 1 billion. Banking activities in Albania WeBSEFF, the Western Balkans may be performed only upon obtaining a Sustainable Financing Facility, is a financing bank license issued by the Bank of Albania. facility under which the European Bank A bank or branch of a foreign bank must for Reconstruction and Development obtain a certificate of deposits’ insurance, (EBRD) provides credit lines to partner before starting to conduct banking banks in the Western Balkans to on-lend to activities. businesses and municipalities wanting to A foreign bank registered in another invest in energy efficiency and small-scale country may perform banking activities renewable energy projects. in Albania only upon opening a branch in Albania is one of the countries which Albania and obtaining a license issued by benefits from the second phase of the the BoA. program, i.e. WeBSEFF II, a new An Albanian bank has the right to open EUR 75 million credit line facility launched branches or agencies in or outside the in October 2013. territory of the Republic of Albania, as well The EU supports WeBSEFF by providing as representative offices outside grant aid worth EUR 11.1 million. It is used the territory of the Republic of Albania. for investment incentives to borrowers

Non-banking financial institutions are court or arbitration by an agreement in legal entities other than banks which writing between the parties. are subject to registration in a special register kept by the BoA. They must be Applicable law established and organized pursuant to The legal status of legal entities and the Law on Commercial Companies. branches of foreign companies is regulated Pursuant to the Banking Law, the Bank of by the law of the state in which they are Albania determines the rules for licensing, registered. Therefore, the legal status supervision and functioning of these of legal entities and branches of foreign institutions, taking into consideration the companies registered in Albania shall be specifics of their financial activities. subject to Albanian law.

International private law Since ownership rights over movable and immovable property are regulated by the International Private Law Code (IPLC) law of the state within whose territory they The rules of the IPLC regulate the terms are located, Albanian law shall be applicable and conditions concerning the choice of to property located within Albania. applicable law in private legal relations, Contracts, including employment contracts, which have an international element. are regulated under the law chosen by the parties. Competence of Albanian courts and other authorities However, the choice of applicable law for an employment contract must not deprive The competence of Albanian courts is the employee of the protection under the exclusive only if it is explicitly provided mandatory rules of the law, which would for. For example, Albanian courts have be applicable in the absence of choice of exclusive competence on lawsuits applicable law. In the absence of choice of concerning: applicable law, the employment contract is • Ownership title and property rights over governed by the law of the state in which real estate situated in Albania the employee usually works, even if they are temporarily employed in another state. • Legal status of legal entities registered in the Republic of Albania Unfair competition and the restriction of competition are regulated by the law of the • Claims regarding industrial property, state in whose territory the interests of where the patent or trade mark has competitors or consumers are damaged or been issued or the registration made in may be damaged. the Republic of Albania

• Claims regarding the enforcement of Recognition and enforcement of foreign executive titles in Republic of Albania. awards in Albania

Where the dispute is outside the exclusive Decisions and other acts of foreign competence of the Albanian courts, any courts and authorities, including courts such action may be submitted to a foreign of arbitration, may take legal effect in Albania through their recognition and/

According to the ACCP, decisions and other acts of foreign courts may be recognized and enforced if the foreign court has been competent according to the Albanian law to issue the act subject to enforcement, and its recognition and enforcement does not contradict public order policy in Albania.

The New York Convention, to which Albania is a party, provides rules for enforcement of foreign arbitration awards in contracting states.

Procedure for enforcement of foreign court judgments and arbitration awards The procedure for enforcement of a foreign court judgment or an arbitration award starts upon the filing of a claim with the competent Court of Appeal. Attached to the claim must be a copy of the foreign act verified by the court or by the arbitration which has issued it and a certificate of the foreign court or arbitration that the decision has become final. These documents must be translated into the Albanian language by a certified translator and certified by the Albanian Ministry of Foreign Affairs. If the documents are submitted by the legal representative of the interested person, the respective power of attorney empowering the legal representative must be filed as well.

The Court of Appeal examines whether all pre-conditions for recognition and enforcement of the foreign act are fulfilled. However, the Albanian Court of Appeal does not review the case on its merits.

The primary law governing the formation, Rules applicable to all forms of operation, transformation and termination business association of companies is the Law on Entrepreneurs and Commercial Companies, effective from Articles of Incorporation and Articles of 21 May 2008 as amended. Association The adoption of the Articles of Incorporation There are four forms of business and Articles of Association is an initial step association in Albania under the Law on in the establishment of a company. Entrepreneurs and Commercial Companies: In general, the Articles of Incorporation and • Unlimited partnership Articles of Association must include the (shoqeri kolektive, SHK) following: • Limited partnership • Name of the business entity (shoqeri komandite, SHKM) • Identity of partner/shareholder • Joint-stock company (shoqeri aksionare, SHA) • Type (cash or in-kind) and amount of partners’ or shareholders’ contributions • Limited liability company (shoqeri me pergjegjesi te kufizuar, • Head office address of the company SHPK) • Management and representation of the All types of business association are company recognized as legal entities. The founders • Scope of the company’s activities may participate in one or more companies provided that the law does not prohibit • Duration of the activity, if any. such participation. Founders may be In cases when a partner or a shareholder Albanian or foreign companies and/or intends to make an in-kind contribution, the individuals. Irrespective of the nationality Articles of Association must state the name of its founders, each type of company is of the contributor, the full description of the considered to be Albanian. in-kind contribution, its monetary value, and The most usual forms of business the grounds for the contributor’s rights. association for foreign investors are the In the case of a joint-stock company, the limited liability company (SHPK) and the in-kind contribution must be valued by one joint-stock company (SHA). or more experts appointed by the court. The

report of the expert/s must contain a full

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 34 | Investment in Albania 2017 description of the in-kind contribution, the The Law on the National Business Center method of valuation, the valuation and its prescribes the general mandatory documents consistency with the share of the capital or for the registration of the above-mentioned the number, the nominal and issuing value subjects and the additional documents for of the shares being subscribed for by the each of them. contributor. The documents required to register a new business entity with the NBC are as follows: Registration Under the Law on the National Business • Application form (standard form) Center, all the entrepreneurs and commercial filled-in, signed and filed by the legal companies which carry out business representatives of the company or by activities in Albania must register with the an authorized person with a power of Commercial Register held by the National attorney Business Center of Albania. An application • Articles of Incorporation and Articles of for registration must be submitted to the Association NBC within 15 days from the beginning of the business activity. Any other application • Resolution on appointment of the for another mandatory registration must management bodies of the company be completed within 30 days from the • Documents reflecting the capital change of registered data. The application disbursement (when the contributions form is to be accompanied by the required are in cash, the bank statement or the original or authenticated documents. The notary public deposit deed is necessary documents must be drawn up in accordance and, when the contributions are in-kind, with the legislative requirements and must the report of an expert is requested), be presented in the Albanian language. when applicable. Provided that all the documents required by the law are in compliance with the legal Announcement of the annual financial requirements, the registration is completed statements within 24 hours from the application and the All forms of business associations under certificate is issued accordingly. Registration the Law on Entrepreneurs and Commercial procedures could be suspended if the Companies are obliged to present their documents filed for them are not consistent annual financial statements for the previous with the legal requirements. The NBC financial year to the Commercial Register. notifies the applicant of the decision about the suspension and a request for a correct Termination of business associations or complete application is to be submitted within 21 calendar days of the notification There are several grounds for the date. The registration may be lawfully denied termination of a company: when the application is not consistent with • Expiration of the term of the company the legislative requirements, is not complete or other grounds/circumstances or correct, or when the data required to be provided for in the Articles of registered are different from the data held in Association the Commercial Register.

• Resolution by the shareholders/partners of the participating companies with regard of the company adopted by the qualified to the transformation. The content of the majority prescribed by the law or the transformation draft agreement must Articles of Association be in compliance with the mandatory requirements of the Law on Entrepreneurs • Resolution of the respective district court and Commercial Companies. for declaring the company insolvent The transformation draft agreement must • Transformation of the company in be reviewed by an independent expert certain cases appointed by the legal representatives • Termination by a resolution of the court of each of the companies involved in the in cases provided by the law (e.g. where transformation. the company pursues objectives against The review of the transformation draft the law). agreement by the independent expert When one of the above occurs, is not obligatory if all shareholders the company undergoes liquidation of the companies participating in the proceedings unless an insolvency transformation express their explicit written procedure has already been initiated. consent that no audit of the transformation The company loses its legal status being is performed. deleted from the Commercial Register. The legitimate representatives of a limited liability company or a joint-stock Transformation of business associations company are required to adopt a report Chapter 9 of the Law on Entrepreneurs on the transformation. The report must and Commercial Companies regulates contain a detailed economic and legal mergers of two or more companies, explanation of the terms and conditions demergers into two or more companies, of the transformation, as specified in the and transformations whereby the type of transformation draft agreement. the company changes. The report and the transformation draft The applicable provisions specify agreement must be announced at the and classify the types of business Commercial Register with the National transformations, the procedure for execution Business Center simultaneously by each of the transformation, and the rights and participating company and at least 30 days obligations of the companies and their prior to the date of the General Meeting partners/shareholders. which will vote on the resolution for Prior to adopting a resolution authorizing transformation. a transformation, companies must The transformation draft agreement must draft a transformation draft agreement, be approved by the General Meeting of depending on whether initially there is one Shareholders of each of the companies or more participating company. It must involved in the transformation. The specify the names and head offices of the resolutions must be adopted by a qualified participating companies, share exchange majority of three-quarters of the capital. ratio, terms and conditions of the intended transformation, as well as the obligations The transformation enters into force from the date of its registration into the

Commercial Register with the National Liquidation Business Center. The liquidation procedure, in contrast The Law on Entrepreneurs and Commercial to insolvency, is voluntary, except for Companies also outlines simplified liquidation by a court decision in cases transformation procedures, provided that provided for by law, and it is initiated certain conditions are met. in the case of expiration of the term of the company as set out in its Articles of When all participating companies are Association, or with a resolution of the solely owned and the sole owner of their partners/shareholders. capital is one and the same person, the transformation is performed on the basis The General Meeting of Shareholders (or of a resolution adopted by the sole owner. the Partners in a SHPK), must appoint The rules regarding: (i) the appointment of a liquidator. The latter is responsible for an independent expert, (ii) the reports to inviting the company’s creditors to claim be prepared by the legal representatives of their receivables through announcement each participating company, and at the Commercial Register with the (iii) the approving resolution by the General National Business Center. After the Meeting of Shareholders/Partners do satisfaction of the creditors’ claims, the not apply. remaining assets are distributed to the partners/shareholders, but not before Insolvency thirty days have elapsed from the date of announcement of the second notice to A company is considered insolvent when it the creditors at the Commercial Register. is unable to meet its monetary obligations When all liabilities of the company have or in the case of over-indebtedness. The been settled and the remaining assets company’s management body must file distributed, the liquidator applies for an application with the relevant district deregistration of the company from the court for the commencement of insolvency Commercial Register. proceedings. The application may also be filed by any creditor of the company. Limited liability company (“SHPK”) If there are grounds for an insolvency The SHPK is a commercial company whose procedure, an insolvency administrator must shareholders’ liability is limited to the be appointed by the court. Immediately unpaid portion of their shares1. A SHPK is upon appointment, the insolvency liable to its creditors only to the extent of administrator represents and manages the its own assets. current affairs of the company, collects its receivables and converts its assets into cash This form of enterprise is convenient for and subsequently distributes the cash to the small and medium-sized business activities company’s creditors, unless a restructuring because of the advantages it offers over plan is adopted by the creditors and the the other types of business associations: competent court. • The minimum capital required is relatively low – ALL 100

1 The English word “share” does not explain the difference between a share in a SHPK and a share in a SHA. The most important differences are that the share in a SHPK is not freely transferable and is not necessarily of equal value, while the SHA can issue only shares of equal value and these are more easily transferable. In addition, the shares of a SHA are securities. For simplicity, shares in a SHPK will be referred to as a “quota.”

• Shareholders’ personal assets are up and filed with the Commercial protected from business debt because Register. their liability is limited to the amount of their contribution into the capital. By Capital contrast, unlimited partnership partners The statutory minimum capital of a SHPK are liable to creditors with their entire is ALL 100. The capital of the company is property divided into quotas and the size of each • The SHPK avoids the higher publicity shareholder’s quota determines their rights requirements and the complex and obligations concerning the company. It incorporation procedures applicable to is possible for the quotas of the individual a SHA company. shareholders to be of unequal value. The quotas of shareholders in a SHPK are not Because of these advantages, the vast securities. majority of foreign-owned companies operate in this legal form. One of the main characteristics of the SHPK is related to the transfer of The Albanian SHPK resembles the German shareholders’ quota. The transfer of and Austrian “GmbH” (Gesellschaft mit quota from one shareholder to another is beschränkter Haftung), the French “Sarl.” unrestricted but the transfer to a third party and the English private company limited by might be subject to other shareholders’ shares. consent or pre-emption right only if the company’s Articles of Association provide Formation for such restrictions. A SHPK can be formed by one or more persons. The Albanian Law on Management Entrepreneurs and Commercial Companies The SHPK is managed by the General does not provide for a minimum or Meeting of Shareholders (the sole owner in maximum number of shareholders in a the case of a sole partner SHPK) and by the SHPK. It should be taken into account that appointed administrator(s). a large number of shareholders will make the company’s management cumbersome, Each SHPK must hold at least one General since all important decisions must be taken Meeting of Shareholders each calendar by a majority of shareholders representing year (Annual General Meeting). It is usually 75% of the SHPK’s capital. convened at the administrator’s discretion, but it can also be convened upon the The specific formation rules applicable to written request of shareholders whose the SHPK are: quotas amount to at least 5% of the • The founders must appoint company’s capital. administrator(s) for the company. The Apart from the Annual General Meeting, administrator does not necessarily have the administrator may convene additional to be a SHPK shareholder, Albanian meetings commonly referred to as citizen or resident Extraordinary General Meetings. An • The Articles of Incorporation and Extraordinary General Meeting must be Articles of Association must be drawn called immediately when, according to

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 38 | Investment in Albania 2017 the annual financial statements or interim Joint-stock company (“SHA”) financial reports, the company’s assets The capital of a joint-stock company is cannot cover the due obligations within divided into shares, with shareholders, the following 3 months, or if the company individuals or legal entities which are not intends to sell or otherwise dispose of liable for the company’s commitments and assets with a value higher than 5% of the which personally bear losses only to the company’s assets as per the last annual extent of any unpaid parts of the shares in financial statements. There is no limit to the the basic capital they subscribed. number of General Meetings a company may hold each year. The company’s name is preceded or immediately followed by the words “Joint- The General Meeting is the company’s Stock Company” (“Shoqëri Aksionare”) or highest management body. It is the initials “SHA.” empowered to make key strategic and executive decisions regarding the company. The Albanian SHA resembles the French The shareholders are authorized to “Societe Anonyme,” the German and decide on the admission and expulsion Austrian “AG” (Aktiengesellschaft) and of shareholders, the appointment of is similar to the English public company administrator(s), a capital increase or limited by shares. reduction, approval of the annual report and balance sheet, the distribution of profits Formation and others. A SHA is incorporated by individuals or legal entities whereby all persons who The day-to-day management of a SHPK is subscribe for shares into the capital of conducted by at least one administrator. the new company decide to constitute The administrator represents the SHPK the company and adopt its Articles of in court and in dealings with third parties. Incorporation and Articles of Association. They are financially liable for damages A SHA may also be formed by a single caused to the company. For example, in the individual or legal entity. case of over-indebtedness or insolvency, the administrator must file an application The SHA is registered in the Commercial initiating insolvency proceedings. If the Register with the National Business Center administrator does not perform their duty, by filing its Articles of Incorporation and they may be held liable for damages to Articles Association and other documents both the company and its creditors. evidencing that:

• Its capital is fully subscribed Distribution of profits Shareholders cannot claim their quota back • A portion of the value of each share while the company is in operation. They are stipulated by the Articles of Association, only entitled to receive profits in proportion but not less than 25% of the nominal or to their quota, unless otherwise agreed by issuing value, has been paid the shareholders. • The administrator/s or, respectively, the Administration Council and Supervisory Council have been appointed, and

• The remaining requirements of the The Articles of Association may empower law have been fulfilled (e.g. banks, the administrator/s to increase the insurance and investment companies company’s capital up to a specified amount. have to obtain the necessary licenses Under this provision, new shares may be granted by the Albanian authorities). issued within five years from the date of the company’s incorporation. A resolution Capital which allows for the issuance of new shares may also be passed by amending General rules the Articles of Association of the company. The statutory minimum capital of a SHA If this is done, then the administrator/s with no public offerings is ALL 3,500,000 may increase the company’s capital up and ALL 10 million for companies with to the amount specified in the amending public offerings. A higher statutory resolution for up to five years from the date minimum is required for credit and financial of registration of the amendment in the institutions, investment companies, Commercial Register. insurance and health insurance companies. Decrease of capital The capital of the company is divided into shares. The SHA may issue ordinary A company’s capital may be decreased and preference shares. An ordinary share through either of the following: entitles its holder to one vote. Preference • Reduction in the nominal value of shares may provide a guaranteed or shares, or additional dividend or a specified share in the company’s assets in the case of liquidation. • Cancellation of shares. Non-voting shares cannot represent more A capital decrease requires shareholders’ than 49% of the company’s capital. approval. The resolution of the General The SHA must set up a reserve fund Meeting of Shareholders on the capital mainly to cover losses. At least 5% of the decrease must be announced in the company’s profit must be set aside until Commercial Register. the fund’s assets reach at least one-tenth of the company’s registered capital. Management

General rules Increase of capital The joint-stock company’s governing bodies A company’s capital may be increased in are the General Meeting of Shareholders one of the following ways: and the Administration Council (one-tier • Issuing new shares system), or the Supervisory Council and one or more administrators (two- • Increasing the nominal value of shares tier system). There are no requirements already issued, or regarding the nationality or residence • Converting debentures into shares. of members of either councils or administrator. An administrator may not The resolution to increase the capital be a member of the Supervisory Council. must be taken by the General Meeting of The administrators, the members of the Shareholders. Administration Council and the Supervisory

Council may be shareholders. All of Supervisory Board members may vary administrators and Council members are from 3 to 21. held liable jointly and severally before the The Supervisory Council does not company for damages caused in the course effectively take part in the management of their duties. of the company. The Supervisory Council In a single-member joint-stock company, appoints the administrator/s and exercises the owner is empowered to decide on all control over their activities and resolutions. issues otherwise handled by the General The administrator/s must report on their Meeting of Shareholders. activity to the Supervisory Council.

The General Meeting of Shareholders The day-to-day management of a SHA with consists of all shareholders entitled a two-tier management system is carried to vote. A regular General Meeting of out by the administrator/s under the control Shareholders must be held at least once of the Supervisory Council. If provided a year, not later than 30 June. General for in the Articles of Association, certain Meetings of Shareholders are usually resolutions of the administrator/s may called by the administrator/s, or in cases require prior approval from the Supervisory provided for by the law, the General Council. Meeting of Shareholders may be called by the Administration Council or by the One-tier system Supervisory Council, or upon a request of One-tier companies are managed shareholders representing no less than 5% and represented by an Administration of the company’s capital. Council. It consists of a minimum of The General Meeting of Shareholders 3 and a maximum of 21 persons. The may amend and supplement the Articles Administration Council delegates the actual of Association, transform and dissolve management and representation of the the company, elect and recall the company to one or more of its members administrator/s, the members of the who are subsequently designated as Administration Council or the Supervisory administrators. They serve at the discretion Council, appoint and dismiss registered of the Administration Council and can be auditors, approve the annual financial replaced at any time. statements as certified by the appointed registered auditor and resolve other Other forms of business association matters which fall into its prerogatives Unlimited partnership (SHK) by law or by virtue of the Articles of Association. In an unlimited partnership, all partners have trading capacity as well as unlimited Two-tier system liability, severally and jointly, for the debts of the company. Unlimited partnerships The company’s constituent Supervisory have their own business name, which Council must be elected prior to company may include the name of one or more of registration. Subsequent members of the partners, with the words “Unlimited the Council are appointed by the General Partnership” coming immediately after Meeting of Shareholders. The total number the name.

All partners are considered administrators other hand, limited liability partners are not and each partner may act on behalf of entitled to take part in the management the company, unless stated otherwise of the partnership although they might in the statute of the company. The oppose those actions of unlimited partners administrator’s actions, when matched which go beyond ordinary business activity. with the partnership’s objectives, engage the partnership toward third parties. Sole entrepreneur – Person Fizik (PF)

The company’s assets and capital are Every individual who exercises a business subject to claims for the partners’ activity independently by means normally portion thereof raised by creditors for the used to organize a business activity satisfaction of a partner’s personal debts. qualifies as an entrepreneur and their business activity is categorized as a sole The rights, duties and obligations of entrepreneur. The entrepreneur has a partners are governed by written Articles lawful obligation to register with the of Association. The partners’ contribution National Business Center (the identification may consist of cash or tangible or data, place of exercising the commercial intangible assets. A partner’s rights may economic activity, object of activity, as be transferred to third parties only with the it is determined, and specimen of the prior consent of the remaining partners. natural person’s signature). Filing with the National Business Center constitutes Limited partnership (SHKM) a simultaneous registration with the A limited partnership consists of one or tax authorities and the social and health more “unlimited” partners in the capacity insurance system. of entrepreneurs with unlimited liability and one or more “limited” partners whose Simple partnership pursuant to the Civil liability is limited to the amount of their Code agreed contributions to the initial capital. Simple partnership entities are governed A limited partnership has its own business by the provisions of the Civil Code and do name that may include the name of one or not have the characteristics of commercial more of the partners immediately followed companies. by the words “Limited Partnership.” A simple partnership is a contract between The Articles of Association of the company two or more persons who agree to perform govern the relations between limited and an economic activity with the purpose of unlimited partners. sharing the derived profits. Members may Unlimited partners in a limited partnership contribute to the partnership’s activity in have the same powers and liabilities money, goods or services. as those in an unlimited partnership. A simple partnership is required to follow They are in charge of the day-to-day a specific contract form only when it is management of the company and their deemed necessary in view of the nature of unanimous renunciation of the ordinary the goods contributed jointly. business activity entails the winding up and liquidation of the company. On the The contract duration may be extended without action for an indefinite period

The following are subject to registration with the Commercial Register:

• Individuals who carry out commercial activity

• Simple partnerships under the Civil Code

• Commercial companies

• Branches and representative offices

• Saving credit companies and unions

The major legislative acts which govern Public properties cannot be disposed of real estate and real estate transactions in (i.e. by sale purchase, donation, in-kind Albania are the Albanian Civil Code, the contribution, exchange) and cannot be Law on Real Estate Registration, the Law acquired on the basis of possession and on Sale and Purchase of Land Plots and the expired prescription period. However, Law on Land. limited property rights (e.g. construction right) may be granted for municipal public According to the Albanian Civil Code, real properties and for state public properties estate constitutes land, water sources, (except for exclusively state owned woods, buildings, floating constructions properties and those related to national connected to land and any other object security), when provided for by the law. firmly and continuously incorporated with the land or a building. Private properties can belong to individuals, entities, the state and municipalities Foreign investors may lease state owned or following the limitations provided for privately owned rural land for a period of foreigners (see Section “Direct acquisition” 99 years. The lease of rural land is regulated below). Private properties can be subject by the provisions of the Civil Code. to real estate transactions. The exchange of ownership title or construction right Types of ownership over real estate over private state and municipal real Ownership of real estate in Albania may be estate property can be performed only public or private. in cases explicitly specified in the law. Public ownership includes properties of The lease period for state and municipal public interest and those designated for private property cannot exceed 20 years public use only and public functions such and the granting of a lease is subject to as the coastal beach, national roads, forests public tender procedures or public private and parks, streets, squares, museums and partnership procedures. schools. When the property belongs to two or more Public properties belong to the state persons, co-ownership is established. The and municipalities. They can be granted co-owners decide operations by majority for operation to third parties through and each has a right of first refusal in emphyteusis or lease upon satisfying the case of disposal of the property. The conditions explicitly stated by law. In the co-owners can authorize one of them to latter case, the lease period for public state represent their co-ownership before and municipal properties cannot exceed third parties. 20 years, as the granting of the lease in both cases is subject to public tender procedures.

Evidence of title Indirect acquisition The ownership title and limited property The restrictions on the acquisition rights over real estate property in of land by foreigners do not apply to Albania are evidenced by ownership title Albanian legal entities involving foreign documents (usually in the form of a notary participation. Therefore, foreign legal deed). In addition, the law requires that entities and individuals can effectively title documents are registered at the Real acquire ownership rights over land through Estate Registry. Once the ownership title the acquisition of shares or an interest in is registered at the Real Estate Registry, existing Albanian companies, or through the owner or co-owners are provided the establishment of such companies with an ownership certificate issued by under Albanian law. It is possible for such a the Real Estate Registry Office. By virtue company to be 100% owned by a foreign of this registration, the acquisition of the investor. ownership title or limited property rights Another possibility for indirect acquisition becomes defendable against third parties. of a real estate in Albania for a foreign The ownership certificate contains among company or a foreign citizen is to buy others the name/s of the owner/s, type of shares in the capital of an already existing the real estate, its surface and location, Albanian company, which then may act any eventual mortgages, encumbrances or as acquirer. other limitations over such real estate. The Foreign companies and foreign citizens, ownership certificate is signed and sealed furthermore, can acquire shares in the by the responsible officer of the Real capital of an Albanian company which Estate Registry Office. already owns a real estate property in Albania. Acquisition of real estate

Direct acquisition Transaction documents The Albanian legislation on real estate does The general rule under Albanian law is that not provide explicitly for any restrictions transactions involving real estate (e.g. a for foreign individuals or entities to acquire purchase and exchange) must be executed the ownership over buildings. As regards with a notary deed before a registered land, pursuant to the Law on Sale and notary public. Purchase of Land Plots, foreign individuals The form of a notary deed is mandatory or legal entities may purchase land plots not only for transactions for transfer of for investment purposes, or land plots ownership title over real estate properties, being used or already used for investment but also for establishment of limited purposes. property rights or encumbrances over real Foreign investors acquire the right to estate properties (e.g. construction right, purchase land plots if the total value of right of use, and mortgages). the completed investment is at least three After execution of the deed, the notary times higher than the value of the land plot. public and/or any of the parties are obliged to register the transaction at the Real

Estate Registry in order to make the title of the acquirer defendable against third parties.

There are also special rules and procedures governing the acquisition of real estate arising from enforcement, insolvency and similar procedures.

Accounting value of assets of ALL 10 million at the year end and have less than 10 employees are Introduction defined as micro enterprises, and can keep The Albanian accounting legislation their accounting and prepare their financial has been aligned more closely with statements pursuant to the criteria defined the International Financial Reporting by the National Accounting Council and Standards (IFRS) framework. All entities approved by the Council of Ministers. which do not apply IFRS must apply the All entities must adopt an accounting National Accounting Standards (NAS) system in compliance with the accounting which have been published and enacted plans issued and approved by the Council by the Minister of Finance. Effective of Ministers. from 1 January 2015, enhanced National Accounting Standards have been enacted, In addition, there are two other accounting bringing the NAS broadly in line with the plans: International Financial Reporting Standard • Accounting Plan for Banks which covers for Small and Medium-sized Enterprises commercial banks, and (IFRS for SMEs). • Public Accounting Plan which covers Accounting principles and standards central and local governmental All economic for-profit entities in the institutions. Republic of Albania, including financial The Ministry of Finance can approve institutions and auditing companies, supplements to these plans depending on regardless of their legal form or specific the specific characteristics of each entity. legal requirements, are subject to Law No. 9228 dated 29 April 2004 on The fiscal year consists of 12 consecutive Accounting and Financial Statements. months and commences with the calendar Other entities, including not-for-profit year. Accounting records must be kept and organizations, are also subject to this maintained in Albanian lek (ALL) and in the Law, except for those cases when their Albanian language. Transactions in foreign financial statements and accounting are currencies are allowed to be carried out subject to specific laws and regulations through special accounts in the respective for regulatory and supervisory purposes. currencies. However, once a month and at the end of the fiscal year, foreign Financial reporting currency amounts must be converted into Albanian lek. All accounting books, source Entities which, in the current and preceding documents and financial reports must be years, do not exceed a turnover and/or total

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Albania 2017 | 47 retained for a period of 10 years. Normally, The Law on Accounting provides that accounting books and records can also financial statements must include the be maintained by third parties, with the following documents: exception of the cases specified by law. • Accounting balance sheet The financial reporting environment in Albania • Statement of income and expenses has historically been tax-driven and, hence, the use of IFRS or NAS can still present • Statement of changes in equity challenges to the preparers of financial • Cash flow statement statements and their existing internal company procedures and infrastructure. • Financial statement annexes, which include a presentation of accounting Law No. 9228 dated 29 April 2004 on methods, as well as other explanatory Accounting and Financial Statements material. introduced accounting standards for the first time. This Law sets out the concept Individual financial statements of national and international accounting standards, which serve as the basis for The financial statements consist of a selecting the treatment or accounting statement of financial position, statement methods applicable when preparing or of comprehensive income, statement of presenting financial statements. cash flows, and statement of changes in equity along with disclosure notes to the Standards issued by the International financial statements. Accounting Standards Board, translated into Albanian under the responsibility of The statement of financial position and the the National Accounting Council without statement of comprehensive income must changes from the original English version, be based on and supported by bookkeeping were announced by the Minister of Finance records. Comparative figures must be in May 2008 and are mandatory for the presented. following entities: Entities under the supervision of the • Publicly held companies and their Bank of Albania or the Albanian Financial branches, subject to consolidation of Supervision Authority, such as banks, accounts insurance companies, investment companies, pension and health insurance • Second-tier banks, financial institutions funds and listed entities, are required to file similar to banks, insurance and re- certain additional reports. insurance companies, security funds and all companies licensed to perform Consolidated financial statements investment activity in securities, even if Companies having a majority holding in, or they are not stock listed companies exercising control over subsidiaries must • Other large publicly held economic generally prepare consolidated annual units as defined by the Council of financial statements. Consolidated financial Ministers based on the following statements must present a true and fair criteria: annual sales of more than view of the group’s transactions with ALL 1,250 million and annual average third parties. To this end, all intra-group number of permanent employees of transactions and balances are eliminated. over 100. © 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 48 | Investment in Albania 2017

The consolidated financial statements are Publication of financial statements prepared and presented on the basis of the Entities which are registered with the accounting standards applied to prepare Commercial Register have to submit their and present the annual separate financial annual financial statements, together statements of the parent company. with an audit opinion, to the National According to IFRS, a parent which is a Commercial Register. wholly-owned subsidiary, need not present consolidated financial statements provided Auditing that certain other conditions are met. Such General audit environment a parent must disclose the reason why consolidated financial statements have not The Albanian Audit Law requires that been presented, together with the basis on financial statements of those entities which the subsidiaries are accounted for in meeting certain criteria have to be audited their separate financial statements. by a registered auditor.

Where prepared, the consolidated financial External audit requirements have previously statements must comprise a consolidated been included in the Law on Commercial statement of financial position, a Companies which requires that the consolidated statement of comprehensive financial statements of all companies income, a consolidated statement of cash subject to the Law on Accounting must flows, a consolidated statement of changes be certified by independent registered in equity and appropriate disclosure notes. chartered accountants if they meet at least two of the following three conditions:

Equity requirements • Total assets are more than ALL 6 million Equity includes share capital, reserves • Annual sales are more than (including revaluation reserves) and ALL 12 million, and retained earnings. Joint-stock companies are required to allocate one-tenth of their • Annual average number of permanent after tax profit to a statutory reserve employees is more than 10. until the amount of the statutory reserve On 14 April 2008, the Law on Entrepreneurs exceeds one-tenth of the share capital of and Commercial Companies was enacted the company. replacing the Law on Commercial Companies and, on 5 March 2009, the Law Filing requirements on Auditing, Organization of the Professions All enterprises are required to file their of Auditors and Authorized Accountants annual corporate income tax declaration (“the Audit Law”) was adopted. The Audit with the tax authorities by 31 March of the Law aimed to improve and strengthen the following year. This declaration needs to public oversight of auditors and authorized be accompanied by their annual financial accountants as well as to clarify the entities statements and the management is which are subject to mandatory auditing responsible for the timely preparation of as the Company Law is relatively silent the financial statements and their content. on such requirements. The Audit Law was

Under the Audit Law as last amended and The 2016 amendments to the Audit currently enacted, a mandatory financial Law have significantly remodeled the statements annual audit is required for the organization of the audit and accounting following legal entities: profession. The most important changes • All commercial companies which apply included: IFRS, regardless of their legal form • Establishment of a Public Oversight • All joint-stock companies which apply Board which oversees the activities of NAS accountants and auditor organizations

• All limited liability companies which • Establishment of a Certification apply NAS when at least two of the Authority which is responsible for the following conditions are met: testing of potential candidates for authorized accountants and auditors -- The total assets at the end of the respective financial period are equal • Establishment of a Registration to or higher than ALL 50 million Authority which is the body responsible for the registration or de-registration -- The total turnover of the economic from the public register of authorized activity for the financial period is equal accountants and auditors to or higher than ALL 100 million • A rotation requirement of seven years -T- he average number of employees is at has been set for individuals who are least 30 during the financial period. auditors or any individual partner in an Under the Commercial Law, partners with audit firm. a participation interest of at least 5% or The law also provides details for the as specified in the bylaws of the entity as organization and activities of authorized well as any creditors with an outstanding accountants and auditors and includes exposure of at least 5% of the share requirements on the continuing capital may require a special investigation, professional education, internal and including a financial statements audit. external quality review, code of ethics and Companies which are subject to transparency reports. supervisory regulations or laws, i.e. The latest amendments of the Law further financial institutions, are required, strengthen the role of the public oversight regardless of their size, to undertake an system through the Public Oversight Board annual audit. and aim at the alignment of legislation In accordance with the changes in the with European Commission Directives on audit practice in Albania, audit activities statutory audits. are no longer regulated by the Institute

The International Standards on Auditing have been translated into Albanian and are required to be applied in any audit of financial statements. Auditors of financial institutions must be pre-approved either by the Bank of Albania or the Financial Supervision Authority.

Tax system purposes. Profit calculations must be made The tax system of the Republic of Albania in accordance with the Law on Accounting consists of a package of tax laws, tax Standards and Financial Statements and the treaties with other countries, guidelines, relevant instructions issued by the Ministry regulations, methods for the assessment of Finance. of taxes, the conditions to ensure their According to the general principle of tax payment, as well as forms and methods deductibility, expenses are deductible only if of tax control and imposition of liability for they are incurred with a view to generating violation of tax legislation. taxable income.

The Albanian tax legislation provides for the Some expenses are specifically designated following main taxes: as non-deductible in the Albanian Law on • Corporate income tax Income Tax, including:

• Personal income tax • Cost of benefits in kind

• Withholding tax • Representation expenses when they are over 0.3% of the annual turnover • Value added tax • Cost of land and building site acquisition • Excise duties • Fines or penalties • Customs duties • Reserves or special funds (excluding • Local taxes certain reserves as provided for by the • National taxes. law) • Sponsorship expenses if their level Corporate tax exceeds certain thresholds The corporate income tax (CIT) rate in • Expenses which are not properly backed Albania is 15%. This rate applies for up by supporting documents taxpayers having an annual turnover higher than ALL 8 million (approximately • Salary expenses if paid to employees not EUR 57,000). Tax is levied on any domestic through the banking system or foreign legal entity whose status is • Expenses paid in cash exceeding determined by the Albanian laws in force. ALL 150,000. Corporate income tax is applied to the accounting profit after adjustments for tax

Taxable income cost of such an asset, then the net book value shall be recognized entirely as a Tax depreciation deductible expense. Entities may set depreciation rates for assets in accordance with their accounting Thin capitalization policies, while under the provisions of the Thin capitalization rules apply in Albania Law on Income Tax, maximum annual rates if a company’s debts exceed four times allowed for tax purposes are specified the amount of its equity (excluding according to a separate tax depreciation short-term loans). In such a case, the schedule. interest paid on the exceeded amount The straight-line method is applied for: shall not be tax deductible. The thin capitalization restrictions do not apply to • Intangible assets as patent, start-up banks, insurance and leasing companies. expenses, goodwill at a rate of 15%. In addition, interest paid exceeding the The declining balance method is applied for: average annual interest rate of loans published by the Bank of Albania is not tax • Computers, computer peripheral deductible. equipment, software and right to use software at a rate of 25% Interest Capping Rule • Buildings, including investment Starting from January 2018, a new interest properties, facilities, transmitting capping rule will be introduced. In line devices, electricity carriers and lines with it, the “net interest expenses” for communication; machinery and paid for loans or financing from related production equipment which are fixed parties will be considered tax deductible to the buildings/site of work at a rate only if these do not exceed 30% of the of 5% company’s earnings before interest, taxes, depreciation and amortization (EBITDA). • All other depreciable assets at a rate of For the purposes of application of this rule, 20%. net interest expenses will be considered If the residual book value of assets the difference between interest income depreciated at a rate of 5% (i.e. purchase, and interest expenses. Any net interest construction, improvement costs, etc.) at expenses which cannot be deducted in a the beginning of the fiscal period is less tax period (calendar year) may be deducted than 3% of the historical cost of the asset, in the following years unless the company then the net book value shall be recognized has passed a restructuring process where entirely as a deductible expense for the 50% of the shares or voting rights have fiscal period. been transferred.

If the residual net book value of assets The interest capping rule is not applicable amortized at a rate of 20 and 25% to banks, non-banking financial institutions, (i.e. computers, information systems, insurance companies and leasing software products, and data security companies. Further instructions on equipment) at the beginning of the fiscal application of this rule will be determined period is less than 10% of the historical by the Minister of Finance.

Tax losses Payment due dates and filing deadlines Tax loss can be carried forward over Any taxpayer is required to prepare the three tax periods. It can be offset against annual income tax return in the form set the positive financial result after tax out in the Instruction of the Minister of adjustments for the respective tax period Finance for the implementation of this according to the “first loss before the law. Taxpayers shall submit this annual last one” principle. The tax loss cannot be income tax return to the tax authorities by carried forward if the ownership of stock 31 March of the following year, along with capital or voting rights of an entity changes the balance sheet including its annexes by more than 50% in value or number. as well as any other data set out in the instruction of the Minister of Finance for Withholding tax the implementation of this law.

Under the Law on Income Tax, entities Advance corporate tax payments are due residing in Albania are obliged to withhold either on a monthly or on a quarterly basis. tax at a rate of 15% from the following During the first taxable period, the advance gross payments sourced in the territory of corporate tax payments are calculated on Albania: the basis of the entity’s forecast taxable • Dividends, profit shares, interest profit for this year. payments, copyrights and royalties, Advance corporate tax installments for the payments for technical, management, following taxable periods are calculated on financial and insurance services, the basis of the annual corporate tax return payments for constructions, installation, of the previous years. assembly or supervision of work which relate to such services The taxpayer shall make the corporate tax advance payment no later than the 15th • Rental payments, payments for of each month (in the case of monthly performances of actors, musicians settlement) or the end of each quarter (in or sportspeople, including certain case of quarterly settlement), in the tax payments made to persons who administration account. employ them or act as intermediaries in arranging shows or performances. A penalty of 10% is applied in case of late payment of the advance payments of the CIT. Following recent changes, withholding tax shall be declared within deadlines set Relief from tax out in the Law on Income Tax through a specific tax return. Foreign tax credits

The tax is not withheld when the payment According to the tax law provisions, income is provided to entities which are subject to taxes paid abroad by residents are credited corporate income tax and VAT in Albania. to the tax balance due in Albania.

Where there is a Double Tax Treaty in force Tax treaties between Albania and another country, Since 1992, Albania has entered into its provisions prevail over the local tax agreements to avoid double taxation with regulations.

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 54 | Investment in Albania 2017 respect to taxes on income and on capital Partnerships with various countries. Partnerships are treated as incorporated The agreements cover the taxation of entities for tax purposes. In other words, income from business profits, international partnerships are non-transparent entities. transport, dividends, interest, royalties, dependent and independent personal Anti-avoidance measures: transfer services, as well as income from real pricing estate. These apply to individuals and legal There are transfer pricing rules in Albania entities that are resident in one or both of that allow the tax authorities to adjust the contracting states. taxable profits if the transaction between related parties is not at arm’s length. Transfer The agreements specify the rules that apply pricing adjustments can be made by the tax to taxation of the above-mentioned types authorities only through the Commission of of income in the attempt to avoid double Transfer Pricing in the General Directorate taxation. In addition, for certain types of of Tax. income like dividends and interest the Agreements specify the maximum rate Instruction No. 16 dated 18 June 2014 on applicable in both contracting states. For a Transfer Pricing is based on the 2010 Transfer list of the DTTs in force and those ratified by Pricing Guidelines of the Organization for the Albanian Parliament but not currently in Economic Cooperation and Development force, please refer to Appendix A. (OECD). The definition of a “controlled transaction” Branch vs. subsidiary provides that transfer pricing rules apply only Permanent establishments/branches, are to transactions between an Albanian and subject to corporate income tax derived a foreign taxpayer related party (domestic from Albanian sources. Effectively, there transactions are excluded). is no difference between the taxation of The Law sets out the transfer pricing branches and subsidiaries with respect to methods to be used by taxpayers when business profits. performing a controlled transaction The repatriation of after-tax profits generated depending on the specifics of the by a branch is not subject to withholding transaction. However, it also provides for tax while payments of dividends from a the possibility that, if none of the methods subsidiary are subject to withholding tax laid down in the Law can be used in (unless a DTT states otherwise). a reasonable way to apply the market principles in the controlled transactions, Grouping/consolidated returns then the taxpayer has the right to choose another appropriate transfer pricing method. The concept of a consolidated company tax return is not accepted under the Albanian According to the Income Tax Law, the tax legislation. Companies may not transfer taxpayer is obliged to present to the tax their tax losses to other companies within a authorities, upon their request within corporate group. 30 days, the transfer pricing documentation proving that the taxpayer has analyzed the transaction for transfer pricing purposes.

The transfer pricing documentation may citizens and citizens who act as a be submitted either in electronic or paper consul, diplomat, or other officer outside format and either in Albanian or English. Albania However, where documents are submitted in English, the tax authorities may exercise • Individuals who are present in Albania their right to request an official translation for more than 183 days within a 365-day into Albanian. This translation is at the period. expense of the Albanian taxpayer and must Albanian resident individuals are subject be provided within 30 days from the request to personal income tax on their worldwide for translation. income, whereas non-resident individuals The taxpayers performing controlled are subject to tax only on income derived transactions exceeding an overall yearly from an Albanian source, unless a Double amount of ALL 50,000,000 (approximately Tax Treaty (DTT) provides otherwise. EUR 360,000) must present to the tax authorities an Annual Controlled Transactions Income subject to tax Notice as per the format provided in the Personal income tax is levied on the Instruction on Transfer Pricing. following categories of income: In addition, according to the amendments, • Wages, salaries and other a taxpayer may enter into an advance price agreement with the tax authorities compensation derived from labor to determine the necessary conditions relations that the taxpayer needs to fulfill to perform • Dividends and profit shares controlled transactions in compliance with the market principles. • Interest from bank deposits and other interest bearing securities The procedures to be followed in relation to the advanced pricing agreement are defined • Income from royalties in a special Instruction on Advanced Pricing • Income from loans and leasing, Agreements which entered into force on excluding cases when this income is 6 March 2015. generated through commercial activity

Corporate tax incentives • Capital gain from the sale of shares

There are no special corporate income tax • Other income (i.e. any other income incentives in Albania. that is not explicitly exempt by the law)

Taxation of individuals • Any income (not taxed before and not accompanied by supporting documents) Personal income tax contributed by an individual for the increase of the registered capital of a Residence company. Under Albanian law, all individuals are liable to income tax. Albanian tax residents are: Deductions

• Individuals who (i) have a permanent Albanian tax resident individuals realizing residence in Albania, or (ii) are Albanian a worldwide income up to ALL 1,050,000

(approximately EUR 7,500) per year, upon • Income from wages and compensation fulfillment of certain conditions, have the for labor relations of consular, diplomatic right to some deductible expenses as or similar officials of other countries and follows: international organizations attributed with diplomatic status • The amount of the interest rate paid for loans obtained for tuition, for • Income related to indemnification themselves or for children and persons assigned by a final court decision and in custody compensation for court costs

• Expenses for medical treatment for • Income received by governmental themselves or for children and persons institutions for contributions to science, in custody, for the part not covered by sport and culture. compulsory health insurance, according Contributions made by an employer for to the specifications regulated by the life and health insurance of employees are Council of Ministers. considered exempt income for personal income tax purposes. Exempt income The following types of income are exempt According to amendments to the Law from personal income tax: on Income Tax, the contribution made by a member of a voluntary pension fund • Pensions and other social security up to the amount specified in the Law benefits received from the Albanian on Voluntary Pension Funds as well as social security system and economic contributions made by the employer or benefits for individuals without income any other contributor on behalf of the or with a low income member of the voluntary pension fund • Scholarships for students shall be considered exempt income for personal income tax purposes. Other • Compensation given to employees exempt personal income includes return on in cases of diseases, death of close investment, including gains from pension relatives and other fund investments. • Compensation given to owners for expropriation made by the state in the Relief from tax public interest Individuals may credit tax paid abroad up to the tax amount due calculated as per • Income exempt on the basis of the tax rates applicable in Albania. The international agreements ratified by the payment of taxes processed abroad must Albanian Parliament be supported by a certificate issued by • Interest generated from government the competent tax authority in the foreign treasury bills or other securities issued country. before 1999 Tax rates and payment dates • Net profit earned by a sole entrepreneur, regardless of whether the latter is Pursuant to Law No. 8438 dated subject to corporate income tax or 28 December 1998 as amended, gross simplified income tax on small business salaries and compensation for employees

0 30,000 0% income up to a maximum monthly amount 30,001 130,000 13% of ALL 97,030. The health insurance 130,001 Unlimited 23% contributions which are calculated on the overall monthly gross income received by Other types of personal income such as the employee. Social security and health income from dividends, income from rent, insurance contributions are paid by the capital gains, income from bank interest, employer at a rate of 16.7%. Social security gains from lottery or games of chance and and health insurance contributions are paid any other income specified as personal by the employee at a rate of 11.2%. income of individuals are subject to personal income tax at a 15% rate. Contribution rate Social Health Annual personal income tax return security insurance Albanian tax resident individuals realizing Paid by employer 15% 1.7% a worldwide income of more than Paid by employee 9.5% 1.7% ALL 2,000,000 (approximately EUR 14,700) per year are obliged to submit with the Albanian tax authorities their annual The social security contributions for the personal income tax return by 30 April of self-employed individuals are calculated the following year to which the income based on a monthly gross salary not lower relates. The same rule is applicable to non- than the minimum salary on a national level tax resident individuals realizing an Albanian (ALL 22,000) and not higher than the sourced income of more than maximum salary used for the employed ALL 2,000,000 per year. individuals for the purposes of calculation of these contributions (ALL 97,030). Health Fringe benefits insurance contributions are calculated based Certain fringe benefits, such as food on the minimum salary on a national level expenses, funding of education, and use (ALL 44,000). of sports facilities, are treated as taxable if paid in cash to the individuals. If provided Local taxes in kind, fringe benefits are not taxable for Local tax authorities determine and collect individuals. local taxes from entities carrying on business in their municipalities. Payroll-related contributions According to the Law on the Local Tax The Albanian social security contributions System, a wide range of local taxes is levied are administered by the Institute of Social on every business activity. Most of them

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 58 | Investment in Albania 2017 are levied at specific amounts and differ by of the sales price per square meter. The location of business activity in the territory infrastructure tax rate applied for buildings of Albania. used for other purposes shall continue to vary in the ranges of 1 – 3% of the Tax on small business investment value (for the municipality of Individual entrepreneurs or legal entities Tirana, the applicable percentages are that conduct business activity in Albania 2 – 4%). and have an annual turnover of less than For infrastructure projects (construction ALL 8 million are subject to the local tax of national roads, ports, airports, tunnels, on small business. dams, and others), the tax on infrastructure Small businesses having an annual turnover is 0.1% of the new investment value but of less than ALL 5 million shall be exempt not less than the rehabilitation costs of from any obligation to pay a simplified the infrastructure damaged by the new income tax on small businesses. construction, unless an allowance for rehabilitation costs has been provided According to the recent amendments to for in the investment plan. Payment of the Law on Local Taxes, taxpayers with an infrastructure tax is an obligation of the annual turnover between ALL 5 million and investor. It is paid once a permit for a ALL 8 million will be subject to a simplified new construction is granted to the entity income tax on small business at a 5% rate. issuing such a permit. For buildings The simplified income tax on small business under a legalization process, the tax on is paid in advance on a quarterly basis, by infrastructure is 0.5% of the investment 20 April, 20 July, 20 October and value. 20 December, at the accounts of either the tax authorities or the Postal Office. City tax All small businesses have the obligation City tax is payable by all persons residing to submit in the tax system the annual tax in a hotel, both Albanian and foreigners. return by 10 February of the year following It is calculated and withheld by the hotel the year to which the tax returns relates. administration. The hotel administration must remit the total amount of city tax A penalty of 10% is applied in case of late collected to the respective municipality by payment of income tax on small business. the fifth of the following month in which Infrastructure tax the hotel invoice was issued. The city tax will be calculated based on the number of Tax on infrastructure is levied as a the nights accommodated and will vary for percentage of a planned investment or of the following categories: the sale price per square meter of the new construction. • For 4- to 5-star hotels, from ALL 105 to 350 per accommodation night per Following amendments to the law on Local person, depending on the location of Taxes, infrastructure tax levied on the sale the hotel of residential buildings or service facilities (not designated for tourism, industrial or • Guesthouse, motel and any other public use) shall vary between 4% to 8% accommodation as per the definition

of the Law on Tourism, ALL 35 to 140 of the building owned. The tax is levied on per accommodation night per person, each square meter and varies depending on depending on the location of the facility. the district where the building is located.

The local tax on buildings will vary from Other national and local taxes ALL 5 to ALL 400 per square meter. The There are a variety of other national and tax depends on the region where the local taxes and fees. These include royalties real estate is located and is calculated charged on extraction and sale of natural on an annual basis. The tax on residential resources, port charges, consular fees, TV buildings used for business purposes and telephone taxes, driving license fees, varies from ALL 40 to ALL 400 per square airport arrival and departure tax, cleaning meter, while the tax on buildings owned tax, advertising tax, circulation tax on by individuals varies from ALL 5 to vehicles, plastic and glass packaging tax ALL 30 per square meter. Buildings used and others. for production activities are subject to an National taxes also include written annual tax. Depending on the zone in which insurance premiums excluding premiums it is located, the annual tax amounts to 2 2 2 for life, health and green card insurance. ALL 200/m , 150/m or 100/m . The applicable tax is 10% of the value of In addition, the tax on buildings will be the written insurance premium. The tax doubled for any second or subsequent will be collected by insurance companies real estate property (apartment or house) licensed by the Financial Supervision owned by individuals. Authority and these companies will not Buildings owned by the state and local benefit from any commissions from tax governmental authorities as well as by collection. religious institutions are exempt from The deadline for declaration and payment this tax. of national taxes and tariffs is the 15th of the following month of reporting. Real estate tax on agricultural land The tax base is the area of agricultural land Real estate tax measured in hectares. The tax is levied Foreign and Albanian individuals and on each hectare and varies depending on legal entities who own or use real estate the district where the agricultural land is property in Albania are subject to tax located. The real estate tax on agricultural on real estate. Local tax on real estate land per hectare varies from ALL 700 to consists of the real estate tax on buildings ALL 5,600. and real estate tax on agricultural land and on land plots. Users of real estate who do Real estate tax on land plots not possess ownership documentation are Entities and individuals owning land plots obliged to self-declare the property to the shall be subject to real estate tax on municipality of its jurisdiction. land plots. The tax base is the surface of the land plot in square meters, under Real estate tax on buildings ownership or use. The tax payable shall The tax base is the area of the building vary based on four categories of local measured in square meters for each floor government units (LGUs) in which the land

Exports Tax on ownership transfer of real estate The tax is applicable in case of transfer of The export of goods from the territory the ownership right on buildings and other of the Republic of Albania is zero-rated, real estate properties. It is payable by the provided that certain transportation and individual/entity transferring the ownership documentation requirements are fulfilled. of the real estate. The tax base is the area Imports of the building measured in square meters for each floor of the building owned. The The import under the normal import regime tax on ownership transfer of buildings is is subject to Albanian VAT. VAT is payable by levied on each square meter and varies the importer to the customs authorities. from ALL 100 to ALL 2,000 depending on the district where the real estate is located. Place of supply and taxation of services The tax on ownership transfer of real Based on the general rule, the place of estate other than buildings is 2% of the supply of services will be considered to be sale price. Individuals subject to personal the place where: income tax are exempt from tax on • The recipient (a taxable person) has ownership transfer of real estate. Donors established its business of real estate property to governmental authorities, religious institutions or not-for- • The recipient has a fixed establishment, profit organizations are also exempt from if the services are related to the fixed this tax, but are held liable to pay a fee to establishment. the Real Estate Registration Office. If the beneficiary of the service is a not a taxable person and the supplier is a taxable Value added tax one, the place of supply of service will be VAT in the Republic of Albania is regulated considered the place where: by Law No. 92/2014 dated 24 July 2014 on VAT and the respective instructions. • The taxable person has established its business The location of goods at the time of the supply determines the VAT treatment. If • The fixed establishment is located, if the goods are located in Albania, then the the service is provided by the fixed supply is subject to 20% Albanian VAT. establishment.

If goods are dispatched or transported, In both of the above cases, in the the place of supply is the place where absence of a place of business or a fixed the goods are located at the time when establishment, the place of supply of dispatch or transport of the goods to the services will be considered to be the place customer begins, except in the cases where the taxable person has a permanent defined otherwise in the law. address or usually resides.

The cases below are considered an • Supply of goods and services relating to exception to the abovementioned general the international transport of goods and rule: passengers

• For services connected to immovable • Supply of goods and services relating properties, the place of supply is to maritime, commercial or industrial considered to be the place of location of activities. the property Exemptions • For passenger transport services, the place of supply is considered to be the The following supplies are considered VAT place where the transport takes place, exempt: proportionate to the distance covered • Supply of services performed outside • For restaurants and catering services the territory of Albania by a taxpayer supplied on board of ships, planes or whose place of business is in Albania trains, the place of supply is considered (export of services) to be the point of departure • Lease of a building for a period • For services of short term leases of exceeding two months and sale of land transport vehicles, the place of supply and buildings is considered to be the place where the • Financial services vehicle is made available to the client. • Supply of packaging materials for VAT rates medicines There are two VAT rates applicable in • Postal services Albania: • Supply of newspapers, magazines • 20% general rate applied to domestic and books within Albania, newspaper transactions and on imports of goods printing services, and incorporated advertising (excluding imports) • 0% rate applied to exports of goods and some other supplies explicitly listed in • Games of chance, casinos and race the law. track activities

The supply of medicines and medical • Hydrocarbon operations* services offered by private and public • Supply of educational services health institutions is considered a VAT exempt supply. • The import of machinery and equipment in Albania by certain categories of Zero VAT rates taxpayers as specified in the Law. VAT is applied at a zero rate (0%) in the *The supply of goods and services following cases: (including import of goods and services) • Supply of goods exported outside the made by contractors and subcontractors territory of Albania during the research phase of hydrocarbon operations and certified as such by the

National Agency of Natural Resources is When evidence is provided that, for any VAT exempt. The supply made during the reason, the taxable person did not carried development phase does not benefit from out business activity during the last fiscal the VAT exemption. year, the tax authorities, after completing administrative procedures of verification The Ministry of Finance has issued an of these taxable persons, have the right instruction providing the list of services of deregistration from the active register and equipment that are considered related by transferring the taxable person into the to the research phase as well as the passive register pursuant to the Law on tax procedure to obtain the VAT exemption. procedures in the Republic of Albania.

Registration for VAT purposes Obligations of VAT registered All taxable persons carrying out persons: VAT returns independent economic activities are Each VAT registered person must submit required to apply for a mandatory VAT VAT returns after submitting the purchase registration if their taxable turnover for a and sales book. calendar year exceeds ALL 5 million (or a proportion of such threshold if they start to The VAT return must be prepared on the provide the services in the middle of the basis of the information from the purchase calendar year). and sales book for the respective month. The deadlines for submission of the books There is no VAT registration threshold for and VAT return are respectively the 10th certain types of activity performed by and the 14th day of the month following registered freelancers such as lawyers, the reference tax period. public notaries, accountants, dentists and others. Recovery of input VAT Voluntary registration The credited (deducted) VAT is the amount A taxable person who does not meet of VAT paid by the taxable person during the the requirements for a mandatory purchasing of goods or services within the VAT registration but is carrying out country, as well as the amount of VAT paid an independent economic activity in by them for imports, with the condition that the country has the right to register these supplies will serve only as taxable voluntarily without fulfilling the threshold supplies that will be made by the taxable requirements. person.

Deregistration If the supplies received or imports, will serve to the exempt supplies that a taxable If a taxable person closes down their person could make, the crediting of VAT paid economic activity, they must ask to be in relation with the supplies received for deregistered not later than 15 days after these purposes shall not be allowed. the last day when they carried out taxable supplies. Deregistration becomes effective When supplies received by a taxable from the last day of taxable supplies. person, both by purchasing within the country or importing, are not destined for carrying on an economic activity, the taxable

A taxpayer who fails to pay a tax liability Reimbursement of VAT or contribution before the due date and If the tax credit for the tax period exceeds who also files an inaccurate tax return or the VAT charged for the next tax period, the refund request is liable for a penalty equal taxable person has the right to be credited to 0.06% of the outstanding tax liability for the coming period at the VAT amount in per each day of delay. The penalty cannot excess. be calculated for a period exceeding 365 A taxpayer may claim a reimbursement of calendar days. excess tax credit in the cases when: Customs duties • The taxpayer has carried forward The Customs Code in force in Albania is an amount of tax credit for three stipulated in Law No. 102/2014 and became successive months effective on 31 July 2014. It is harmonized • The reimbursement claimed exceeds with Regulation No. 952/2013 of the ALL 400,000. European Parliament and of the European Council dated 9 October 2013. Penalties Customs duties are levied according to the Offences in issuing tax invoices classification of imported goods in a six-digit Failure to issue tax invoices or VAT invoices harmonized system. Minimum customs is subject to a penalty equal to 100% values are applied to many imported items. of the undeclared or unpaid tax liability Major exemptions are applicable for: resulting from the non-issuance of a tax • Goods imported under agreements and invoice, while the tax liabilities and interest where the customs duties exemption is are calculated and paid according to the explicitly stated in an agreement provisions of the specific tax laws. The recurrent failure to issue fiscal invoices • Certain imports for contractors in oil for more than two times is treated as tax exploration evasion and gives the tax authorities the • Humanitarian aid right to file a criminal charge against the taxpayer. • Goods imported for charitable, philanthropic or assistance purposes Failure to file a tax return by the due date by not-for-profit organizations, religious For every tax return submitted after the institutions and public entities deadline, a penalty amounting to ALL 5,000

• Goods imported for trade promotion U.S. companies and customers are purposes and advertising. especially interested in buying goods through the GSP program because the The approved tariff contains only the exports are not charged tariffs, upon following tariff rates: 0, 2, 5, 6, 10 and 15%. entering the United States. Agreements Many items are eligible for GSP duty- • Albania has signed the Stabilization and free treatment. These include most Association Agreement with the EU. The manufactured goods, inputs used in Stabilization and Association Agreement manufacturing, jewelry, many types of entered into force on 1 April 2009. carpets, certain agricultural and fishery products, and many types of chemicals, • Albania is part of the Central European marble, and minerals. Free Trade Agreement (CEFTA) starting from 1 January 2007. Excise duties • In December 2009, Albania signed Based on Law No. 61 dated 24 May 2012, an FTA with the European Free Trade excise duties administered by the customs Association. EFTA member states are authorities are levied on certain domestic Iceland, Liechtenstein, Norway and or imported goods such as energy Switzerland. products, alcohol and alcoholic beverages, • The Free Trade Agreement between the tobacco and its products, and other Republic of Albania and EFTA focuses on products defined by this Law the liberalization of trade in goods. Both (i.e. coffee, fireworks, tires, and others). EFTA and Albania will abolish all customs Tax liable persons for excise duties are duties on industrial products, including licensed producers and importers of the fish and other marine products. Bilateral goods listed above. arrangements on agricultural products The Albanian Law on Excise Duties between individual EFTA States and specifically refers to certain transactions Albania also form part of the instruments as exempted from excise duties when establishing the free-trade area between evidence is given that: both sides. • Cigarettes, alcoholic beverages and The U.S. Generalized System of Preferences other products are for personal use and (GSP) Program in compliance with the non-taxable The General System of Preferences limits defined by the customs legislation (GSP) is a U.S. trade program designed to • Products are used for personal or official promote economic growth in developing needs in the context of diplomatic and countries by providing preferential duty-free consular missions (excluding Albanian entry of up to 3,500 products from 128 residents) countries, including Albania. The purpose of the GSP program is to give these exports a • Products are used for personal or official competitive edge in the U.S. market. needs of international organizations, known as such by the Republic of

Albania and in accordance with the provisions of International Conventions (excluding Albanian residents)

• Products are used for the supply of canteens for the armed forces of any NATO member country, except the Albanian Armed Forces

• Products are imported in the personal luggage of passengers or imported through other means of international transportation, in accordance with the limits provided in the customs legislation

• Goods are exported

• Goods have been settled under the temporary customs regime

• Goods have been imported by diplomatic representatives accredited in Albania and when it is specifically indicated that these will be exempted from excise duties.

The import of oil derivatives used during oil exploration and utilization of oil wells will not benefit from excise duty exemption.

The excise products which benefit from exemption must be supported by a specific authorization as per the template defined by the Council of Ministers.

Customs authorities may reimburse excise duties on certain goods when these are used for specific activities as mentioned by the law.

As of 1 January 2017, the excise duty applicable to certain products (i.e., cider and perry, other processed tobacco and its substitutes, natural gases) was changed.

Legislation One of the main goals of the Albanian The major item of legislation which governs employment legislation is to create a employment relations in Albania is Law minimum level of protection for employees. No. 7961 dated 12 July 1995 on the Labor As a result, the LC, as well as the other Code of the Republic of Albania, (“Labor relevant Albanian legislation, contains Code” or “LC”) as amended. The LC numerous mandatory rules and regulations regulates all major aspects of employment by which an employer hiring employees in relations, namely: Albania must abide and comply with.

• The conclusion, amendment and Employment contracts termination of employment contracts, including flexibility of hiring through Form of contracts and obligation for part-time and fixed-term contracts, notification grounds and notification rules for Generally, labor relationships in Albania, dismissal, priority rules for dismissal and as well as the rights and obligations under severance pay the agreements between employers and • Working hours, premiums for overtime employees, are set out in employment work, absences, holidays and paid contracts. annual leave and the minimum wage The LC regulates the following major types • Employment conditions and discipline of employment contracts:

• The compensation and contractual • Contracts concluded for an indefinite liabilities of the parties to an period of time (contracts with an employment contract indefinite term)

• Special protection for some categories • Contracts concluded for a defined of employees period of time (defined-term contracts).

• Procedure for collective redundancy of According to the LC, as a rule an employees. employment contract is concluded in writing for an indefinite period of time. However, Legal requirements are also set out in the provided that there are objective reasons Law on Health and Safety at Work, the Law connected to the temporary nature of the on Encouragement of Employment, as well work, an employment contract may also be as a number of Decisions of the Council of concluded for a defined period of time. Ministers adopted on the basis of the LC and the above laws.

The employment contract (either for an The duration of night work and work carried indefinite or defined term) must contain in out a day before or after must also be no particular: longer than eight hours without interruption. It must immediately be preceded or • Identity of the parties followed by a full day break. • Workplace Pursuant to the Albanian Labor Code, • General description of the job additional remuneration must be given to employees working between 7:00 pm and • Starting date of the job 10:00 pm and it must not be lower than • Duration, when the parties sign a 120% of the standard hourly rate. contract for a defined time period Every working hour taking place during the • Duration of paid vacations interval from 10:00 pm to 6:00 am entitles employees to an extra payment added to • Notice period for termination of the their salary, which is not lower than 50% of contract the salary. • Constituent elements of the wage and If the normal workday is exceeded or the day on which it is payable circumstances require extra hours of work, • Normal time of the working week an employee may perform overtime work. According to the Labor Code, the employee • Collective contract in force must not perform overtime when working • Specific disciplinary measures and the more than 48 hours per week. The overtime procedure to impose those. must be paid with a bonus of 25% of the regular rate or may be compensated with According to the LC, the employment holidays. contract may be concluded solely in writing. The first three months of employment The work performed on a weekly day off is can qualify as a probation period, which remunerated with a bonus of no less than can be reduced or removed by means of a 25% of the hourly rate or with time off that written or collective agreement. During the corresponds to the duration of the extra probation period, each of the parties may hours + 25% more (one hour of work on terminate the contract by informing the holidays = 1.25 hours of time off). other party about their decision at least five If an employee works on official holidays, days in advance. they are entitled to a remuneration with a bonus of no less than 25% of the hourly Working hours rate and with time off that corresponds to The LC provides that the normal workday the duration of the hours worked. must not exceed eight hours per day. The normal working week must not exceed The overtime performed during a weekly 40 hours. Employees who are less than day off or on official holidays is compensated 18 years old must not work more than six with a holiday or payment which are at least hours per day. 50% greater than the overtime performed or the normal salary respectively, unless otherwise defined by the collective contract.

Holidays Parental leave is a recently introduced Annual holidays concept in the Labor Code, providing for a total of four months of unpaid leave until Employees are entitled to annual leave the child reaches the age of six years. In other than public holidays. addition, maternity leave is provided for a The duration of the annual leave is not less period starting from 35 days before birth to than four calendar weeks during a year of 63 days after birth. Furthermore, three paid work. days off are provided for the spouse or the partner in case of childbirth. When an employee has not completed a full year of work, the duration of the paid Public holidays annual leave is defined proportionally to the The Albanian Government has set a duration of work. The periods of temporary number of days as public holidays on disability to work are considered working certain days during the year while religious time. holidays are subject to change every year.

An employee who, during the annual leave, The public holidays for 2017 are as follows: is hospitalized or stays at home because of sickness or an accident which can be 1 and 2 January – New Year holidays certified by means of a medical certificate 14 March – Summer Day may request postponement of annual leave. 22 March – Nevruz Day

The annual leave must be given during the 16 April * – Catholic and Orthodox Easter working year or until the end of the first 1 May – Labor Day quarter of the following year and it must not be less than one uninterrupted calendar 25 June* – Bajram Day week. 1 September* – Bajram Day

Other paid holidays 19 October – Mother Theresa

In the event of marriage or death of one’s 28 November – Independence and Flag Day spouse, their direct predecessors and descendants, an employee receives five 29 November – Liberty Day days of paid leave. 8 December – Youth Day

In case of serious sickness of family 25 December – Christmas members, a partner, direct predecessors and descendants certified by a medical * Subject to change every year report, an employee receives up to 30 days of unpaid leave. Medical check-ups All employees must undergo periodical When an employee is not able to work medical check-ups once every six because of sickness, the employer must months. The associated expenses are the pay the employee not less than 80% of employer’s responsibility. their wage for a period of 14 days which is not covered by social security.

Healthy and safe working employment contracts differs based on the conditions type of the contract. One of the main obligations of the In case of termination of an employment employer is to provide healthy and safe contract for an unlimited period, the parties working conditions. The law aims to secure notify each other through providing written greater protection of the employees’ life, notice of: health and working capacity by holding the employer responsible for the conditions • Two weeks if the employee has worked under which the employees carry out their for the entity up to six months employment obligations. • One month if the employee has worked The labor legislation sets forth strict for the entity between six months to obligations to the employer in relation to two years the provision and maintenance of healthy • Two months if the employee has and safe working conditions, which include worked for the entity for between two but are not limited to: to five years.

• Performing assessment of risks to • Three months if the employee has the health and safety of employees to worked for the entity for more than five prevent risks for accidents at work place years and professional diseases For employment contracts with defined • Determining protection measures to periods, the contract terminates at the end be taken and necessary protection of the period determined in the contract. In equipment to be used to provide the event the long term contracts signed individual and collective protection of for a period more than three to five years, it employees might be terminated by the employee after • Keeping a register of accidents at work three years and the notice period would when the employee benefits from be two months. Furthermore, when the temporary work disability for more contract is signed for more than five years, than three days due to accidents or it might be terminated from the employee professional diseases and preparing after five years and the notice period would reports in case of work accidents in be three months. order to provide to authorities. The Labor Code does not provide for the Undertaking the above obligations by possibility of the employer to terminate employers is subject to inspection and the employment contracts with a defined control by the Labor Inspectorate, which term. However, for all types of contracts is entitled to impose fines in the case of immediate termination can occur at any non-compliance with the rules and the time for justifiable reasons. In the event standards for healthy and safe conditions. of unjustifiable reasons, the employer may be required by a court decision to pay Termination of employment a penalty of not more than a one year’s contracts salary. It is also possible that both parties may agree to terminate the employment According to the regulations of the Albanian contract by mutual consent. Labor Code, the process of termination of

In addition, when terminating the employment contract, the employer must determine and include in the written notice on termination the reasons of contract termination. Such reasons may be related to the employee’s skills and behavior or operational needs of the enterprise.

Foreign nationals working in Albania The Albanian Labor Code provides for no special treatment for expatriate personnel. In most cases, foreign nationals seeking employment in Albania must obtain work permits. For a discussion of work permits, please refer to Chapter 8.

Legislative framework and general Foreigners who wish to reside in Albania principles on a long-term basis (in any case more than The legal status of foreign nationals in three months within each six-month period) Albania is governed by the Constitution shall be issued a residence permit. of the Republic of Albania, the Law Foreigners may work in Albania only after on Foreigners (2013) as amended, the obtaining a work permit, unless otherwise Decision of the Council of Ministers on stipulated by the law. There is a general determination of criteria, procedures and rule that foreign nationals are obliged to documentation for entrance, stay and obey Albanian laws and the established treatment of foreigners (2013) and the legal order in Albania. In this respect, Decisions of the Council of Ministers on foreign citizens residing in Albania bear procedures for provisioning, refusing, the same civil, administrative and penal renewing and cancelling of work permits responsibilities as Albanian citizens, unless in Albania (2014). Generally, the Albanian otherwise provided for under a special law, legislation concerning foreign citizens or an international agreement to which the is in compliance with the EU acquis Republic of Albania is a party. communautaire as related to immigration policy. Visas The Law on Foreigners is applied to those Visa system for foreigners traveling to foreigners who are not citizens of the Albania Republic of Albania (“foreigners”). This Law Albania is relatively easy to access. provides that the citizens of the United To enter the country, a valid passport States of America (USA), the EU and the or any other valid traveling document Schengen area countries enjoy equal recognized by the Albania is required. rights with Albanian citizens as regards Before traveling to Albania, foreigners employment and self-employment. should contact the diplomatic and consular Foreigners are divided into two categories representations of the Republic of Albania – those who must secure a visa when abroad to check if rules have changed. crossing the borders of the Republic of Foreign citizens can enter Albania after Albania and those who are exempt from presenting valid passports or any other that requirement. valid travelling document and if required entry visas issued by diplomatic or consular Visa requirements and the exemption representations of the Republic of Albania of such requirements for foreigners are abroad. The passport must be valid for at governed by bilateral agreements with least three months. other countries for visa regimes and the effective Albanian legislation.

Holders of ordinary passports missions can also provide them with valuable information about Albania. Some countries whose citizens are holders of ordinary passports can enter Albania Residence permits, residence without a visa. The list of countries whose certificates and residence cards citizens can enter Albania without a visa is periodically approved by the Council of Foreigners who wish to reside in Albania Ministers of Albania. They have to present on a long-term basis (in any case more than their valid passports or other valid traveling three months within each six-month period) document at a border checkpoint and are are issued a residence permit. granted a stay permit of 90 days. Foreign Residence and work permits are regulated citizens must have the necessary currency according to the Law on Foreigners to sustain themselves during their stay in No. 108/2013 dated 28 March 2013 and the Albania. respective sub-legal acts. This law regulates Holders of diplomatic and service the regime of entering into and exit of passports foreigners from the Republic of Albania as well as their residence, work and treatment Foreign citizens who are holders of in the country. The law determines the diplomatic or service passports can enter functions and competencies of the state Albania without a visa. They are allowed authorities and other subjects, public and to stay in Albania for up to 90 days within private, Albanian and foreigners, related to each 180 days period. foreigners.

For citizens who enter the territory of There are different types of residence Albania without visas or who are requested permits based on the type of residence, as to get visas at border checkpoints, the follows: permit of stay is 90 days within a period of 180 days. During the first 10 days of • Residence permit type A, not renewable, their stay, they must register with the which entitles its holder to stay in the local authority responsible for border and Republic of Albania within the period for migration indicating the duration of their which it is issued stay, or face a fine when they depart from • Residence permit type B, renewable, Albania. The list of countries whose citizens which is issued for a defined period and are excluded from the obligation to register entitles its holder to enter, stay and exit with the local authority responsible for in/from the Republic of Albania within the border and migration is approved by the period defined therein Council of Ministers of Albania. • Residence permit type C which is issued Where to apply for a visa to enter the for an undefined period and entitles its Republic of Albania holder to enter, stay and exit in/from the All other foreigners who are not exempt Republic of Albania from obtaining a visa must be issued a visa • Residence permit type S renewable after before they enter Albania at the missions a six month interruption period, which of the Republic of Albania which cover the is issued for season works and entitles respective country of residence. These

its holder to enter, stay, and exit in/from • Youth exchange the Republic of Albania within the period • Voluntary services defined therein • Scientific research • Residence permit Blue Card AL, renewable, which is issued for a defined • Students period for highly qualified employees and • Humanitarian occasions entitles its holder to enter, stay and exit in/from the Republic of Albania within the • Victims of human trafficking period defined therein • Family reunion. • Residence permit Blue Card AL-C, which Each type of residence permits has specific is issued for an undefined period only for documents laid down in the Law on highly qualified employees and entitles Foreigners and sub-legal acts applicable its holder to enter, stay and exit in/from to it. the Republic of Albania If a residence permit is obtained, it must • Residence permit for employment be presented to the authorities whenever purposes which is granted in compliance requested. with the conditions of the work permit A residence permit can be issued for: • Residence permit for the self-employed which is granted to self-employed • A three month, six month, one year persons in compliance with the term and can be renewed not more conditions of a work permit than five consecutive times

• Residence permit for vessels crew • A two year term which can be renewed which is granted to the vessels crew, not more than once employed in a vessel registered in the • A five year term Republic of Albania and perform activity as employees for more than 90 days in • Permanent, if the foreign citizen has a period of 180 days as well as to the legally resided for five consecutive years crew that performs activity as employees in Albania and has stable activities or in a foreign vessel but according to the relationships in the country. specifics of the activity stays in the Citizens of the USA have a more favourable harbours of the Republic of Albania for regime, according to which they can stay more than 90 days in a period of 180 in Albania for at least one year without a days. residence permit. US citizens are entitled The Law on Foreigners provides for other to obtain the first residence permit for a types of residence permits apart from those period of five years. mentioned above. Some of these residence permits for special occasions are far:

• Seasonal works

• Vocational trainings

Work Permits In addition, there are two type C work permits which are issued for special General rules occasions and contracting services and one Persons who are not Albanian citizens and type D work permit issued for foreigners wish to work in Albania need a work permit who obtain a permanent work permit. issued by the Ministry of Social Welfare The specific documents for each of and Youth. these types are indicated in the Law on The request for a work permit must be Foreigners and the respective Decisions of completed before starting any work. All the Council of Ministers approved in this the required documents for the application regards. can be obtained from the Migration Office, Work registration certificate Albanian Embassy in one’s country of origin, or at regional labor office. The Law on Foreigners provides for a group of foreign citizen who are exempted Generally, the granting or refusal of a work from work permits obligation but have the permit takes no longer than 10 days after obligation to obtain a work registration submitting the appropriate documentation. certificate. A work permit can be granted with or The work registration certificate is granted without time restrictions. The validity period for a period of 60 days within a period of of the work permit is based on the type of one year to foreigners who fall into the work permit. The work permit will expire if following categories: the deadline is exceeded, if the foreigner leaves Albania for a period longer than six • Audit and consultancy service providers months or does not start the activity for a • Lecturers participating in common period of three months from the date the seminars work permit is issued. • Artists and technical staff participating in Foreigners who will perform economic cultural activities such as opera, ballet, activity on the territory of Republic of theatre, concerts, films or TV show Albania are provided with the following authors or actors types of work permits: • Foreigners who work in circus, or other • Work permits type A which are issued public entertainment activities depending on the purpose/type of work such as work permits for employees, • Foreigners who work in fairs or economic activities, seasonal work, exhibitions students, cross border employment, • Persons who install machinery or voluntary services, work permits constructions which are delivered for family members, sportsmen and from a foreign company and perform housekeepers service for machinery repairing as well • Work permits type B depending on the as services on training of Albanian or purpose/type of work such as: work foreign employees for operating such permits for independent economic machinery. activity, self-employed and investors.

The work registration certificate is granted • Students who enter in the framework for a period of 90 days within a period of of collaboration, training or experience one year to foreigners who fall into the exchange relationships. following categories: The work registration certificate is granted • Those involved in the border transport for an undefined period to foreigners who of goods and people, on the territory of fall into the following categories: Albania and whose place of residence is • Those of missions for technical registered outside Albanian territory assistance from international • Key personnel or board members organizations working with central or who work for companies but are not independent institutions or institutions employed having direct dependence from these institutions • Scientific employees, representatives of scientific institutions and scientist who • Consultants of central state participate in project implementation institutions, independent institutions, being important for the Republic or institutions depending directly from of Albania under a governmental these institutions, in the framework agreement or inter institutional of governmental agreements or collaboration programs international organizations projects

• Lecturers, teachers, researchers, • Managers or personnel of humanitarian foreign specialists, administrative staff and religious foundations or institutions, who enter Albania as participants in an not-for-profit organisations recognized educational cooperation program or are who are registered with the competent staff members of a central educational authorities of the Republic of Albania institution if this institution has a branch and do not get remuneration for their in Albania work

• Crew members of ships and airplanes • Civil or military officers who enter and work in Albania based on an agreement • Personnel performing unpaid with the government of the country humanitarian services for not-for-profit where they come from organizations or institutions, under special regulations or international • Representatives of mass media, cooperation programs correspondents or reporters, accredited in Albania, working for foreign • Trainers who enter Albania from employers foreign companies or their branches in other countries for training activities • Lecturers, members of scientific staff, for vocational trainings under cross and foreign specialists that enter Albania institutional collaboration programs based on a bilateral agreement between governments or educational institutions. • Experts in the fields of protection of cultural inheritance, libraries and archives

Foreigners who generally do not require a work permit in Albania The following are the main categories of foreigners who may work in Albania without the need for a work permit:

• Citizens of the USA, EU and Schengen area countries who are legally residing in Albania apart for those cases when, under the Albanian legislation, Albanian citizenship is required for the specific employment • Foreigners who stay up to one month within a period of one year for the following reasons:

-- Persons who negotiate for an agreement or are involved in a fair or conference -- Business visitors

-- Crew members of ships and airplanes -- Lecturers, members of scientific staff, and foreign specialists who enter the Republic of Albania based on a bilateral agreement between governments or educational institutions

-- Trainers who enter in the framework of collaboration between governmental institutions or education institutions -- Personnel of humanitarian organizations operating under international collaboration programs.

Public procurement The contracting authorities are:

Public procurement in Albania is regulated • Constitutional institutions, other central by Public Procurement Law No. 9643 dated institutions, independent central 20 November 2006 which establishes the institutions and municipal authorities rules on procurement of goods, works and services from contractual authorities in • Any entity meeting the following Albania. conditions:

Detailed information about limits of funds, -- Established to pursue a general interest procedures, winner selection, participants, with non-economic and commercial selection reasons, deadlines and contract features execution is available to interested parties -- Enjoys legal personality and the general public. The principle objective of the procurement law is transparency. -- Financed mainly by the state, regional or municipal authorities, or by other public Types of public procurement procedures entities or administered from them or with an administrative, managerial or The law sets out the following standard supervisory board, where more than procurement procedures: half of their members are appointed • Open procedures by the state, regional or municipal authorities or by other public entities • Limited procedures • Organizations established by one or • Procedures with negotiation, with more of these authorities or by one or or without prior proclamation of the more of these public bodies contract notification • Any contractual authority defined above • Request for proposal when carrying out each of the activities • Project competition mentioned in Article 58/1 of the Law

• Consultancy services. • Public enterprises if the contract is chosen as a winner for the purpose Main participants of carrying out each of the activities Public procurement award procedures usually defined in Article 58/1 of the Law involve many stakeholders, among which • Any other entity, not mentioned above, are the contracting authorities, candidates when carrying out one of the activities and tenderers, contractors, subcontractors, defined in Article 58/1 of the Law or a suppliers and service providers. combination of them, based on special

or exclusive rights granted by the secure storage, open and automated responsible authority. evaluation of tenders, and creation of regulatory reports. Contractual authorities are responsible for procurement and use public funds The Public Procurement Law provides for at their disposal. They must publish all a secure and standardized procedure to required tender documents and necessary file claims with the Public Procurement information regarding procurement on the Agency. official website of the Public Procurement Agency. Appeal of public procurement procedures

Any Albanian and foreign legal entities and Any decision, action or omission of individuals, as well as any combinations the contracting authorities in a public of them, meeting the legal requirements procurement procedure until conclusion of set out in the Public Procurement Law, the contract or of the framework agreement may participate in public procurement can be appealed by the interested parties procedures and be awarded public before the contracting authority and the procurement contracts. The application Commission of Public Procurement. process usually requires the provision of The appeal suspends the public many corporate and financial documents procurement procedure unless a temporary by the applicants to the contracting decision is taken by the Commission of authorities, certifying the fulfillment of Public Procurement for non-suspension of certain conditions, called selection criteria. the public procurement procedure. The criteria for selection of the successful participant in the public procurement The Commission of Public Procurement may procedure can be either the lowest price decide either to: or the economically most advantageous • Cease judgment when it identifies that tender. the appealed decision of the contracting authority has not been taken in breach Public Procurement Agency of law, or The Public Procurement Agency is the state • Instruct the contracting authority to authority governing public procurement cancel the illegal actions. in the country. Contractual authorities are responsible for the implementation of the The resolution of the Commission of Public procedures provided for by the law in order Procurement can be appealed before the to identify and select the winners of public Administrative Court. The appeal before contracts. Administrative Court does not suspend the public procurement procedure, e-Procurement conclusion of the contract or fulfillment of There is an e-Procurement platform procurement contract obligations unless which offers a collaborative environment the Administrative Court rules otherwise. for organizing tender-related activities. It supports tender workspace management,

Concessions and public-private economic operators. This agreement must partnership have as subject matter the completion of The conditions and procedure for granting, works, where the compensation for the implementation and termination of works completed consists of the right to concessions and public-private partnerships use such completed work or the respective (PPP) in Albania are mainly regulated by fee together with the right of use. the Law on Concessions and PPP, effective A concession of public services is an from 25 May 2013, and the Law on Public agreement concluded in writing between Procurement. The Law on Concessions and a contracting authority and one or more PPP approximates Directive 2004/18/EC of economic operators. This agreement must the European Parliament and of the Council have as subject matter the provision of of 31 March 2004 on the coordination of services, where the compensation for procedures for the award of public works the provision of such services consists of contracts, public supply contracts and the right to use the services or this right public service contracts. together with the respective fee. A mixed The Law on Concessions and PPP also concession is defined as a concession regulates the PPP as a legal concept which has as its object the completion and the terms and conditions for of works and provision of services implementation of projects as PPPs. identified as a concession of public works or a concession of public services. The The PPP is defined in the law as a long- determining factor to define whether such term contractual cooperation between one an agreement is a concession of public or more public partners, on the one side, works or services is whether the work to and one or more private partners, on the be completed is the main object of the other side, to implement projects of public contract or whether the work is just a interest through obtaining better value from characteristic for the public service which is the invested public resources and allocation the object of the agreement. of risks between the partners.

Granting of concessions or PPPs is Parties to concessions or public-private considered an appropriate method for partnership agreements governmental and local government The public contracting authorities which units to manage their properties by way grant concessions or public private of involving business entities in that partnerships are: management. • The Council of Ministers, and the respective Ministries Types of concessions A concession can be granted for public • The Parliament of Republic of Albania works or services or a mixture of these. • Municipalities.

A concession of public works is defined as The Law on Concessions and PPP provides an agreement concluded in writing, with that the concessionaires are selected a financial interest, entered into between only through an open procedure, where a contracting authority and one or more any interested candidate can submit an

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 80 | Investment in Albania 2017 offer. The open procedure is also applied competition in the market in the public by the contracting authority for selection interest. It covers three main targets which of the private partner in cases where the determine the protection of competition: concession is awarded to a mixed public- • Abuse of a dominant position private company. • Prohibited agreements in the form of The offers submitted by candidates are cartels evaluated by an evaluation committee appointed by the grantors of the • Control of concentrations of enterprises. concession. The evaluation criterion applied This Law guarantees the protection of by the evaluation commission is the competition in cases where competition is economically most advantageous offer, distorted by collusive agreements, abuse which is selected on the basis of different of a dominant position in the market, or criteria determined when opening of the merger agreements among companies concession procedure, such as: the quality which lead to the creation of a dominant of construction, the rendered service, price position or the strengthening of existing of construction, term of the concession dominant positions. and others. The Competition Authority is a public The maximum term of any concession authority and independent in accomplishing agreement is 35 years. The term can be its tasks of monitoring and investigating extended for another period if necessary agreements, abuses of a dominant position in cases of contract amendment and if or control of concentrations, and imposing additional works or services are granted. fines and sanctions in case of violation of In view of the long validity terms for which this law. they are typically concluded, the law The control of concentrations policy allows for the possibility that concession contributes to promoting the structural agreements may be amended, by virtue of and economic reforms in Albania towards written annexes but only in cases explicitly the consolidation of the market economy. provided by the law. The objective of this policy is to preserve a sufficient number of companies in the Concessions and Public Private market to support an effective competition Partnership Register and potentially lower prices. The Ministry of Finance keeps a public Concessions/PPP Register which The Law prohibits all agreements which contains information on each concession/ obstruct, limit or otherwise distort market PPP procedure from its initiation until competition, and especially those which the termination of the concession/PPP directly or indirectly affect the sale or agreement. purchase prices, limit or control the market, share the market, apply different conditions Competition and antitrust for similar transactions and others. regulations Abuse of monopoly or dominant position The Law on Protection of Competition was enacted on 1 December 2003. The aim The Law prohibits the abuse of a dominant of the Law is to ensure free and effective or non-dominant position. It prohibits

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Albania 2017 | 81 any abuse on the part of one or more of estimating, utilization or transformation enterprises with a dominant position in of artistic, scientific or literary works in the market, specifically in the cases of the Albanian territory. Subject to this law determining directly or indirectly unfair are original works and derived works and prices for sales or purchases, or other collections. The law includes the specific unfair market conditions. cases when its provisions are applicable to audiovisual works and computer programs. Control on concentration of economic The copyright includes the moral and the activities economic rights of the author over their The third main thrust of the Law on work. According to the law, the moral rights Protection of Competition is related to cannot be assigned or prescribed and concentration procedures. These are cases those might be protected by the author’s when a significant change of control occurs heirs after the author has passed away. as a consequence of: a) merger of two or Economic rights might be assigned through more enterprises or part of enterprises inheritance or contract, exclusively or non- independent from each other; b) acquiring exclusively. The law provides that every direct or indirect control by one or more agreement for the exclusive assignment of natural persons who simultaneously have economic rights must be filed, registered control of at least another enterprise or and certified by the Copyright Directorate. more, by one or more enterprises over one or more enterprises or part of the later The economic rights on literary, artistic and through purchase of shares, quotas or scientific works are prolonged throughout assets, agreement or any other legal mean; the author’s lifetime and 70 years after the c) direct or indirect control over one or more author has passed away, regardless of the enterprise or part of the latter. Concentration date when the work was legally published. is a part of industrial restructuring and In case of co-authors’ works, the duration is seen as a necessary response to the of economic rights as described above challenges of the global economy. starts from the date of the last co-author’s death. In case of anonymous works, the law Protection of intellectual property provides for a 70-year protection term for rights the economic right starting from the date of legal publication. When a work is published The major Albanian legislative acts in parts, episodes or volumes, the 70-year governing copyright and intellectual property term of protection is calculated for each part are the Law on Industrial Property and the separately. The economic rights cannot be Law on Copyright and Related Rights. protected when the works are not published The Law on Copyright and Related Rights within 70 years from their creation date. was enacted with the clear scope to protect All aforementioned terms are calculated the copyright and related rights in the from 1 January of the subsequent year of Albanian territory regarding literary, artistic the author’s death or publication of work. and scientific works. This law is applicable to The copyright might be exercised either local and foreign natural persons and legal for an individual work or collectively for a entities performing commercial, creative and group of works. The copyright might be productive activity or any other functions protected by the title-holders themselves,

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 82 | Investment in Albania 2017 their legal representatives or by a Collective designs, trademarks, services and origin Administration Agency selected by their marks are protected through registration free will. with the General Directorate of Patents and Marks (GDPM). The GDPM has the Collective Administration Agencies (CAAs) authority to keep and administer the are legal entities, established as not-for- registers for: profit organizations and licensed by the competent Ministry upon the proposal of • Applications for the registration of the Copyright Directorate. The scope of marks, industrial designs, geographical their activity is the collection of income indications and applications for from the utilization of the works and their granting the patents and registration of distribution to the title-holders of copyright integrated circuits and related rights who have assigned the • Patents, integrated circuits, marks, administration of these rights to an agency industrial designs, registered by means of a contract. The applicable fees geographical indications on copyright are determined by means of a general agreement between the Collective • Authorized representatives for the Administration Agency and representatives patents, marks, industrial designs and of the Users Association or by a decision geographical indications. of the National Copyright Council. The Law These registers are available for public on Industrial Property entered into force on inspection. Any data related to the 1 November 2008. This Law governs the protected industrial property rights or acquisition of industrial property rights and applications for their protection are protects copyrights, patents, trademarks, published periodically in the GDPM bulletin stamps, marks of origin, industrial designs not less than four times a year. The public and geographical indications. It is applicable may ask for further information regarding to the industrial, commercial and agricultural the industrial property in view of the fields and to the development of all natural respective tariffs and in accordance with and manufactured products. The provisions provisions of the Law. of the law are equally applicable to foreign persons or legal entities that are resident of All the contracts related to the request for member countries of: a patent or the patent property must be in writing and signed by the contracting • International treaties and conventions parties. Any changes made on the request where Albania is a member for a patent or patent property must be • Countries which are members of the registered with the Patents Register. World Trade Organization, or Only upon their registration does a patent title-holder become entitled to claims • Countries where the mutual or regional with regard to the patent. The patents are reciprocity principle with Albania is registered upon issuance date order. applicable. This Law provides for specific conditions Pursuant to this Law, inventions and the and requirements regarding the application use of a model are protected by patents for registration, publication of applications, issued by the Patent Office. Industrial registration, and rights deriving from the

© 2017 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Albania 2017 | 83 registration of patents, industrial designs, Supervision of the Bank of Albania marks and geographical indications. over the activities of banks and Furthermore, the Law lays down specific other financial institutions provisions related to limitation and Pursuant to the Law on Banks in the termination of the rights, refusal, waivers, Republic of Albania (“Banking Law”), the and appeals against the decision for refusal Bank of Albania (BoA) is the licensing of registration and court procedures related and supervising authority for banks, to patents, industrial designs, marks and non-banking financial institutions, savings geographical indications. and loan associations and their unions, The Law specifically sets out the and foreign exchange bureaus. The BoA international mandatory requirements exercises supervision over compliance according to the Collaboration Tractate of the activities of banks and financial in Patents field. As per this Law, the institutions, with the rules established protection of inventions may be ensured by the Banking Law and the regulatory through a request for a European patent framework of the BoA. effects and European patents in conformity Licenses for banking activities are issued with the regulation under the agreement by the Bank of Albania. In order to perform between the Republic of Albania and the services, the financial institutions are European Patents Organization. obliged to obtain licenses with the BoA for Furthermore, in 2000, Albania ratified the performance of their activities. the Marrakesh Agreement and became The Bank of Albania is the Central Bank signatory to the World Trade Organization’s of the Republic of Albania and was Trade Related Intellectual Property Rights established according to Law No. 8269 (TRIPS) agreement. In addition, Albania has dated 23 December 1997 on the Bank of signed the Convention of the Multilateral Albania. The legal independence and the Investment Guarantee Agency (MIGA). main duties of the Bank of Albania are MIGA provides investment guarantees provided for in a separate article of the against certain non-commercial risks Constitution. Under the terms of its charter, (i.e. political risk insurance) to eligible the BoA’s main responsibilities are: foreign investors for qualified investments in developing member countries. Along • Formulating, adopting and executing the with the MIGA Convention, Albania has monetary policy of Albania, which shall signed the New York Convention of 1958 be consistent with its primary objective (on the recognition and enforcement of • Formulating, adopting and executing the foreign arbitral awards) and the Geneva foreign exchange arrangement and the Convention on Execution of Foreign Arbitral exchange rate policy Awards. The Overseas Private Investment Corporation (OPIC), a US-government • Issuing or revoking of licenses and sponsored entity, can make available supervising banks that engage in the insurance and project finance resources to banking business in order to secure the US investors in Albania. OPIC’s three main stability of the banking system activities are risk insurance, project finance • Holding and managing its official foreign and investment funds. reserves

• Acting as banker and adviser to, and as orders to eliminate violations, prohibition fiscal agent of, the Government of the of certain transactions, prohibition on Republic of Albania foreign banks to carry out activities on the territory of Albania and the appointment of • Promoting an effective operation of conservators for a certain period. As a final payments system. and exceptional measure, the BoA has the The Bank of Albania fulfils its supervisory right to withdraw banks’ licenses or other function by: permits.

• Drafting and improving the regulatory The BoA supervision also covers those and supervisory framework activities of Albanian banks carried out abroad, as well as local activities of • Regulating the entry into the market branches of banks from other countries. of potential banks, shareholders and In exercising its supervisory powers, the administrators BoA shall cooperate with the relevant • Implementing principles of risk-based supervisory authorities of other countries supervision through regular on-site concerned. examinations and off-site analysis The Credit Registry, which is the electronic of licensed entities’ indicators, and database on bank borrowers, started to through corrective measures to address operate under the supervision of the Bank supervisory concerns of Albania in January 2008. All the banks • Cooperating with supervised entities, operating in Albania register information other domestic financial institutions, on the loans granted by them and on foreign supervisory authorities, and the related credit risk in the banking and foreign banks operating in the Republic financial system. Such information is of Albania through their branches or archived for a period of five years. The subsidiaries. Bank of Albania may request other financial institutions under its supervision to report The BoA has supervisory competencies for the purposes of the Credit Registry. with respect to banks, including but not be Other financial institutions not supervised limited to: by the Bank of Albania may also report • Requiring all necessary financial to the Credit Registry, according to the documents relevant agreements signed between them and the Bank of Albania and/or other • Performing on-site inspections regulatory authorities. Currently, 16 banks • Appointment of external independent and 12 non-banking financial institutions auditors operating in the area of lending and financial leases, two unions of savings and • Attending the meetings of management loan associations and one independent and supervisory bodies of banks. savings and loan association report to the In cases of violation of provisions of the Registry. law or other acts, the BoA is empowered All banks and branches of foreign banks to impose certain measures on banks operating in Albania are required to report such as: issuance of written warnings and

January – December 2016 January – December 2015

Insurance company Compulsory Voluntary Compulsory Voluntary insurance insurance insurance insurance market share market share market share market share

Sigal Uniqa Group Austria 27.41% 38.47% 28.71% 41.33%

Eurosig 15.63% 14.16% 15.21% 15.75%

Sigma Interalbanian VIG 14.46% 10.67% 16.36% 13.13%

Albsig 12.09% 15.16% 9.91% 9.59%

Intersig VIG 11.13% 9.28% 12.04% 9.89%

Insig 6.67% 3.61% 5.84% 4.05%

Atlantik 6.53% 4.85% 6.13% 2.62%

Ansig 6.08% 3.81% 5.78% 3.64%

Total 100.00% 100.00% 100.00% 100.00%

Source: Financial Supervisory Authority

The insurance agent is a legal entity or Foreign exchange regime an individual who performs insurance The Bank of Albania implements a free- intermediation under assignment of an floating exchange rate regime. The value of insurer, carried out on behalf and at the the lek against the other foreign currencies expense of the insurer. is determined in the foreign exchange The insurance industry in Albania was market by its supply and demand. The created in 1991 with the establishment of free-floating exchange rate regime allows the first insurance company INSIG, which the Bank of Albania’s monetary policy for held a monopoly position in the market for flexibility in achieving the inflation target. several years. The industry remains small despite increases in both the number of International payments and transfers companies and their product base. Commercial banks execute cross border bank transfers and payments between Vehicle insurance still remains the leading local and foreign persons only after being type of insurance in the market, accounting presented with documents evidencing the for 61.9% of the total value in 2016. During purpose of the transfer. 2016, gross written premiums were ALL 15.4 billion (EUR 114 million) or 9.15% The Law on the Payment System dated more than in 2015. 29 April 2013 includes provisions for the payment systems, security settlement Meanwhile, non-life insurance in 2015 systems, clearing houses and settlement amounted to ALL 14.4 billion agents, and payment instruments. (EUR 106 million). Pursuant to the Law, a payment institution The market for non-life insurance classified may perform payment services under a in compulsory and voluntary insurance license issued by the Bank of Albania in comprises the companies listed in the table cooperation with the Albanian Financial on p. 85 (with respective market shares as Supervision Authority, when the respective at the end of December 2016 and 2015). competences are interweaving, as in the case of securities. The market for life insurance is comprised of the companies listed in the table on p. 86 (with respective market shares as at the end of December 2016).

Insurance company Market share

January – December 2016 January – December 2015

INSIG 11.69% 8.42%

Sicred 28.35% 25.76%

Sigal Life 59.96% 65.82%

Total 100.00% 100.00%

Source: Financial Supervisory Authority

Bilateral Agreements

Bilateral Agreements for the Mutual Protection and Encouragement of Foreign Investment

Approved Agreements

Austria Kuwait Azerbaijan Lithuania Belgium-Luxembourg (Economic Cooperation) Malaysia Bosnia and Herzegovina Malta Bulgaria Moldova China Netherlands Croatia Poland Cyprus Portugal Czech Republic Qatar Denmark Romania Egypt Russia Finland San Marino France Slovenia FYROM Spain Germany Sweden Greece Switzerland Hungary Tunisia Italy Turkey Izrael Ukraine Korea United Kingdom Kosovo USA

Agreements under negotiation process

Belarus Morocco Canada Saudi Arabia Georgia Turkey TIKA

Bilateral Agreements For Economic, Trade and Technical Cooperation Approved Agreements

Argentina Malta Austria Montenegro Bulgaria Netherlands China Poland Croatia Qatar Czech Republic Romania Egypt Russia Finland Saudi Arabia France Serbia FYROM Slovenia Germany Spain Hungary Sweden Italy Switzerland Izrael Tunisia Korea Turkey Kuwait UAE Latvia Ukraine Lebanon United Kingdom Malaysia Uruguay

Agreements under negotiation process

Azerbaijan Palestine Bosnia and Herzegovina Philippines Korea

Double Taxation Treaties in force to which Albania is a party

State Dividends (%) Interest (%) Royalties (%) Austria 10/5* 5 5 Belgium 10/5* 5 5 Bosnia and Herzegovina 10/5* 10 10 Bulgaria 10/5* 10 10 China 10 10 10 Croatia 10 10 10 Czech Republic 10/5* 5 10 Egypt 10 10 10 Estonia 10/5* 5 5 France 10/5* 10 5 Germany 10/5* 5 5 Greece 5 5 5 Hungary 10/5* 0 5 Iceland 10/5* 10 10 Ireland 10/5* 7 7 India 10 10 10 Italy 10 5 5 Kosovo 10 10 10 Kuwait 10/5/0* 10 10 Latvia 10/5* 10/5* 5 Macedonia 10 10 10 Malaysia 15/5* 10 10 Malta 15/5* 5 5 Moldova 10/5* 5 10 Netherlands 15/5/0* 10/5* 10

State Dividends (%) Interest (%) Royalties (%) Norway 15/5* 10 10 Poland 10/5* 10 5 Republic of Korea 10/5* 10 10 Romania 15/10* 10 10 Russia 10 10 10 Serbia and Montenegro 15/5* 10 10 Singapore 5 5 5 Slovenia 10/5* 7 7 Spain 10/5/0* 6 0 Sweden 15/5* 5 5 Switzerland 15/5* 5 5 Turkey 15/5* 10 10 United Kingdom 15/10/5* 6 0

Double Taxation Treaties ratified by Albania but currently not in force

State Dividends (%) Interest (%) Royalties (%) Luxembourg 10/5* 5 5 Qatar 5 5 6 United Arab Emirates 10/5/0* 0 5

* The reduced rate can be applied under specific circumstances.

Bilateral Social Security Agreements concluded by Albania

Austria* Belgium Bulgaria Canada** Czech Republic* Greece*** Germany* Hungary* Italy**

Luxembourg Macedonia Romania* Turkey United States***

* Negotiations have started for revision to social security agreement between Albania and Bulgaria. ** Initialled and not yet in force *** Under negotiations

KPMG in Albania

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