www.pwc.com/al

Doing Business and Investing in

2017 Edition Partner’s letter

I am delighted to present the guide to “Doing Business and Investing in Albania”. The guide is intended to be of interest to business owners and investors looking to enter or grow their operations in the Albanian market.

Albania is a small country in South Eastern Europe that has been striving to improve its business, legal and tax climate in order to enhance its attractiveness to prospective foreign investors. Indeed, in the 2017 ‘Index of Economic Freedom’ Albania ranked 13th in the world in terms of trade freedom1. Albania continues to develop as an attractive destination for foreign direct investment in the region, despite strong competition with a number of neighbouring countries, which has led to a steady growth in GDP.

The PwC Albania team has brought together all of their experience and knowledge to design this guide and to provide a high level overview of the main issues and features that we believe every investor should consider before entering the Albanian market. The guide provides some basic information about Albania and its people, reviews the key business conditions in the country and then delves into the most important trade, legal, labour and taxation regulations in the Loreta Peçi country; which every prospective investor should keep in mind.

Country Managing Partner In particular, it contains a section dedicated to foreign investment, with a Tax and Legal Services discussion about the various incentives and favourable treatments that are Albania and Kosovo available to prospective investors. As an example, a recent on tourism encourages foreign and domestic investors to consider Albania as a business destination by providing very competitive investment terms aimed at transforming the tourism business in Albania into one of the most important sectors of the economy.

The information provided is not an exhaustive description of all the business, legal and tax regulations in Albania. Therefore, should you need any specific assistance or would like to inquire in more detail about any specific topic in this guide, please do not hesitate to get in touch with our team. We are always ready to assist you.

On behalf of PwC Albania, I wish you all the very best with your endeavours in Albania.

1 http://www.heritage.org/index/

Doing Business and Investing in Albania 3 Content

6 Office Location 22 6 Business entities 7 Investing in Albania – Highlights 6.1 Business registration 22 8 1. Albania – a profile 6.2 Forms of business entities 22 1.1 Introduction 8 6.3 Regulatory environment 24 1.2 People 8 26 7 Labour relations 1.3 Governing structures 9 7.1 Labour 26

1.4 Legal system 9 7.2 Employment contracts 26

1.5 Economy 10 7.3 Public holidays 26

1.6 Trade 12 7.4 Employment of foreigners 27 1.7 Energy and mining 13 28 8 Taxation 14 2 Business environment 8.1 Profit tax 28 2.1 Business environment 14 8.2 Transfer pricing 30

2.2 Information, communication & technology 15 8.3 Personal taxation 32 16 3 Foreign investment 8.4 Withholding tax 34 3.1 Attracting foreign investment 16 8.5 Social and health contributions 35

3.2 Investment incentives 17 8.6 Value added tax 36 18 4. Banking and finance 8.7 Excise duty 38 4.1 Banking system 18 8.8 Local taxes and tariffs 39 4.2 Central bank 18 42 9 Accounting and statutory audit 4.3 Insurance market 19 9.1 Accounting and financial statements 42

4.4 Supervision authority 19 9.2 Statutory audit 42 4.5 Latest developments 19 44 10 Introduction to PwC 4.6 Leasing companies 19 10.1 PwC in Albania 44 20 5 Importing and exporting 46 11 Corporate social responsibility 46 5.1 Legislation 20 47 Appendice 47 5.2 Prohibitions and restrictions 20

5.3 Customs duties 20

5.4 Customs regimes 21

5.5 Documentation and procedures 21

4 Doing Business and Investing in Albania Doing Business and Investing in Albania 5 Office Location Investing in Albania – Highlights

Albania is a country with clear potential Albania’s favourable climate and Albania’s stable economic situation for economic growth and development. abundance of natural resources offers has resulted in one of the lowest Located in the Western Balkan development opportunities in sectors inflation rates in the region (1.3% in Peninsula, its geographical position is such as energy, mining, agriculture 2016) and a consistent annual growth perfect for quick access to the markets and tourism. The country offers a rate of around 3.4%. With 38 double of Italy and Greece, as well as overland professional and skilled labour force tax treaties and other bilateral and into other European Union countries. with an average salary of around EUR multilateral agreements, coupled with It is also a crucial transport hub, with 300 per month enabling investors to recent changes to investment that Durres and Vlora ports linking up to consider Albania as a viable option promote investment incentives, Albania the regional road corridor networks for the manufacture, production and has created an amicable and liberal and enabling access to the sea to other processing of goods and services. business environment for those looking landlocked Balkan countries. to invest. Currently, Foreign Direct Investment is one of the highest in the region, with EUR 880 million invested in 2015.

Contact details

PwC Albania Str. Ibrahim Rugova, Sky Tower, 9/1 floor Tirana, Albania

Telephone: +[355] (4) 2 242 254 Fax: +[355] (4) 2 241 639

E-mail: [email protected] Web: www.pwc.com/al

6 Doing Business and Investing in Albania Doing Business and Investing in Albania 7 1

Adult education is also possible for those composed of the Constitutional Court, Court decisions are issued from First Albania – a profile adults who either did not complete their the Supreme Court, First Instance Instance Courts, Courts of Appeal, and basic education or those who wish to Courts and Courts of Appeal. the Supreme Court. continue with their learning. As of September 2017, the Government The Constitutional Court, which is not Not long after independence Albania and 1,500mm annually, with the higher There are about 2000 schools consists of 11 ministries. Whereas, the part of the ordinary judicial system, 1.1 Introduction became a communist state, led and levels of rain falling in the north. Nearly throughout the country (approximately unicameral consists of 140 has a specific role and has jurisdiction dominated by (d. 1985). 95% of the rain falls in the winter. 1500 schools for Basic Education, and seats based on a closed list proportional over the review of constitutionality The Republic of Albania was founded History 500 Secondary Education schools), representation system, where all of law and other normative acts. in 1991 and the former communist Albania falls within the Central and 38 universities, (15 public and Parliament members serve a four-year The Constitutional Court guarantees The begins to take party was removed from power in European Time Zone (GMT +1) and 23 private ones) with approximately term. and upholds compliance with the shape around 3000BC. The the elections of March 1992, amid between April and October switches to 146,000 students registered for the Constitution and has the ultimate were the first to populate Albania at the economic collapse and social unrest. daylight savings time, i.e. GMT +2. academic year 2015/2016. power to interpret its content. beginning of the Bronze Age, an Indo- Further crises followed during the Individuals or legal entities can also European people who settled in the 1990s, peaking in the 1997 financial Living standards Balkan Peninsula. The name Albania pyramid schemes scandal, and led to 1.4 Legal system address the Constitutional Court if (in Albanian: “Shqipëri”), derives from a mass emigration of from 1.2 People In 2016, Albania’s GDP per capita was they claim that the right for a fair legal process has been violated. one of the Illyrian tribes called “Albano” the country; mostly to Italy, Greece, EUR 3,781 p.a. The data generated from The Albanian legal system has a meaning the “Land of Eagles”. Switzerland, Germany and the U.S.A. Population the Ministry of Finance shows a 3.4% civil law system. All legal acts must Judicial system growth in economy. be in compliance with the Albanian In 1190 the first Albanian medieval Albania became a full member of NATO Albania has a population of just under Constitution which is the highest law in The judicial system consists of the First state, the Principality of Arbër, was in 2009 and in June 2014 was granted three million people, of which nearly a The minimum wage in Albania is the legislative hierarchy. International Instance Courts, the Appeal Courts founded, with Kruja city as the capital. candidate status to the European Union. third live in Tirana, the capital city. approximately EUR 185 (ALL 24,000) treaties and conventions ratified by In the middle ages, the name Arbëri was per month while the average monthly and the Supreme Court. The First Language the Parliament prevail over the local increasingly used to refer to the region Geography and climate salary in the public sector is around Instance Courts and the Appeal Courts legislation, apart from the Constitution, now comprising the nation of Albania. EUR 410 (54,500 ALL) and around EUR judge cases under three jurisdictions: Albania is located in South East Europe The official language in the Republic of in the event of an inconsistency with the Albania is Albanian (locally referred as 320 in the private sector (ALL 42,500). criminal, civil and administrative. Cases In the late 14th century, with the in the Western Balkan Peninsula local legislation. “Shqip”). Albanian is an Indo-European in the First Instance Courts are heard expansion of the and shares common borders with language, spoken by approximately 7.6 by one judge or a panel of three judges, towards the Balkans, Albania became Macedonia to the east, Greece to the Laws and other legal acts are issued and million people, not only in Albania and whereas cases in the Appeal Courts are a battlefield. For about 25 years, south and Kosovo and Montenegro to approved by a number of bodies, and Kosovo, but also in other countries in heard by a panel of three judges. The the national hero Gjergj Kastrioti the north. It has access to the Adriatic 1.3 Governing enacted as follows: the Balkans region where there is an Supreme Court deals with matters that united the Albanian and Ionian Seas in the west and Albanian presence, including western • Laws are proposed by the Council of are organised into three main panels: provinces, leading them in their southwest, with Italy less than 72 km structures Macedonia, southern Montenegro, Ministers, any member of Parliament Civil, Criminal and Administrative. resistance against the Ottoman army. away across the . southern Serbia and north-western The politics of the Republic of or 20 thousand voters (people), For the unification of judicial practice, Following his death in 1468, the Greece. Albania takes place in the framework approved by Parliament and enacted the Supreme Court can deal with Ottomans occupied the country for The country terrain is mostly mountains of a Parliamentary Representative by the President of the Republic. specific cases in Joint Panels, with the about five centuries. (almost 70% coverage), combined with a beautiful coastline and numerous Religion Democratic Republic. The Constitution After approval by Parliament, a law participation of all its members. is the highest law in the land and was enters into force 15 days after its Albania proclaimed its independence rivers and lakes, and covers an area of The provides for publication in the Official Gazette or The decisions are proclaimed by the in 1912 and the present day national 28,748 km². adopted by popular on 28 freedom of religion and the Government at another date as specified by the judge/s in the name of the Republic. borders were sanctioned by the November 1998. The highest point in Albania is Korabi respects this right in practice. There law. There is no “trial by jury” system in Conference of Ambassadors held have been no reports of societal abuse The system of government is based in London in 1913. A short-lived Mountain (2,751 m). Three large lakes Albania. of the Balkan Peninsula - Ohrid, Prespa or discrimination of any kind based on on the separation and balancing • Parliamentary decisions are issued monarchy (1914-1925) was succeeded religious beliefs or practice. of the legislative, executive and by Parliament. In August 2016, Albania’s parliament by an even shorter-lived first Albanian and Shkodra - are partly located in judicial powers. All three branches adopted a law on introducing vetting Republic (1925-1928). This was Albania. The capital and the largest city Education • Decrees are issued by the President of government are separate and for judges and prosecutors, passing the replaced by another monarchy (1928- in Albania is Tirana, with other cities of the Republic. independent to each other. law on Reassessment of Judges and 1939), which was headed by Prince located around the country, including: In Albania, attendance at school, Durrës, Korça, Elbasan, Shkodra, whether public or private, is mandatory • Normative acts, decisions, Prosecutors, known as the “vetting” Zog I. During World War II, Albania’s The Parliament represents the Gjirokastra, Vlora and Fier. for Primary and Secondary education. instructions, regulations and law. It is part of a wider judicial reform National Liberation Army fought legislative branch. The executive branch orders are issued by the Council of demanded by the EU and designed to alongside the allies first against is represented by the President as the Albania has a Mediterranean climate Higher education, although not Ministers. cleanse the justice system of corruption Italy and then against Germany. As Chief of State, the Prime Minister as the with an average temperature of 7 °C in compulsory, is also available in and political influence. a result, Albania finally achieved full the winter and 24 °C in the summer. various forms; colleges, universities, head of Government and the Council • Instructions, regulations and orders independence on 29 November 1944. Rainfall averages between 1,000mm academies etc. of Ministers. The judicial branch is are issued by each Ministry.

8 Doing Business and Investing in Albania Doing Business and Investing in Albania 9 1

and rocky shores. During the long and sunny summer, these Transport is a must for the development of for maritime trade. However, the 1.5 Economy beaches are a major attraction for Albanians and foreign tourism, giving tourists access to strengthening of the ports’ capabilities tourists alike, so it is little wonder that this is where the Regional and European cooperation vast seaside areas. The entire road is still a high priority and very much in the transport sector is seen as an Tourism business venture investments are concentrated. project is expected to have a length needed in order to accommodate important topic for the Albanian of about 350 km. and support the development of the A recent law on tourism encourages foreign and domestic Tourism in the mountains is also important. National parks Government. It is because of this that in multimodal transport ambitions for the • the Arbri Road, a dual carriage road, investors to consider Albania as a business destination and mountains like Valbona, Theth, Razma, Voskopoja, June 2004 Albania was a co-signatory country and for the region. 72 km long, that will facilitate road by providing very competitive investment terms aimed at Dardha and Llogora offer amazing scenery and well-run of the Memorandum of Understanding traffic travelling between Tirana and transforming the tourism sector in Albania into one of the resorts that offer opportunities for walking, hiking, adventure that created the regional transport One of the major developments Macedonia. most important sectors of the economy in the coming years. sports or just relaxation. organisation in South East Europe foreseen is in the new port of Shëngjin, Transport Observatory (SEETO) with in the north of Albania. The port is Official data shows that year on year, tourism is a growing Railway Transport There are also some UNESCO protected areas in Albania, the aim of promoting cooperation expected to become one of the largest industry. In 2016, over 4.5 million tourists entered Albania such as, Butrint, Berat and Gjirokastër, all known for their in the development of multimodal in the region, substituting the Port of (mainly by road), showing an increase of over 12% compared The Albanian railway network consists unique cultural values. transport infrastructure. Albania is also Durrës as the main industrial port of to 2015. of 441 km of single non-electrified track a member of BSEC (Black Sea Economic Albania. With a sixty million tons of In almost all cities of Albania, you can find cultural that connects a number of towns and In addition, in December 2016 the government approved the Cooperation), a fully-fledged regional cities in the country. The connection cargo operational capacity per year, monuments, museums, archaeological parks, castles and National Plan “Albania 2030” with the main goal to support economic organization which acquired through to Montenegro via Hani Hotit the port aims to cover the needs of the buildings that conjures up the history of ancient civilizations the urban development in Albania especially focusing on international legal identity by charter in (rebuilt to its previous condition in region (Kosovo, Serbia, Macedonia). and provides a compelling attraction for tourists. integrated planning for coast development in Albania by May 1999. 2003) gives access to the European Air Transport identifying the potential areas for tourism development. railway network. Some of the most notable international tourist magazines and The objective of Albania’s membership newspapers have finally discovered Albania and recognise the Civil aviation has undergone a major The Adriatic and Ionian seas that run along the coastline of and participation in these organisations However, it has to be recognised that country as one of the most attractive spots in the region and a transformation since 2005. A Public Albania, offer a large number of varied beaches, with sandy is to facilitate its integration within much of the railway network is obsolete must-visit destination. Private Partnership agreement was Southeast Europe and with the and poorly connected. For this purpose, awarded to a concessionaire to intention of utilising segments of Pan considerable investment has been operate Tirana’s “Mother Teresa” European Corridors IV, V, VII,X and, in ring-fenced for the development of the International Airport for a period of particular, Corridor VIII (Durrës-Varna following specific segments: through Tirana, which include the ports 20 years (extended for a further two of Durrës and Vlora, as well as Rinas • Tirana – Rinas (Airport)– Durrës years in 2016, on the condition that access is given to more international international airport in Tirana). • Vorë – Shkodër – Hani Hotit (border flights). Concessionaire was owned with Montenegro) Road transport from a consortium of companies • Durrës – Elbasan – Pogradec – Lin (Albanian-American Enterprise Fund Albania has 3,719 km of road network, (border with Macedonia) “AAEF, DEG-Deutsche investitions-und comprised of primary roads (32% of Entwicklungsgesellschaft GmbH and network length), secondary roads Maritime transport AviAlliance GmbH) until November (56% of network length) and planned 2016 when it was sold to Real Fortress The most important Albanian maritime new roads (the remaining 12% of Limited Company. network length). The most important ports are Durrës, Vlorë, Shëngjin and road segments (highways) are the Sarandë, which deal with the majority Infrastructure has been modernised ones connecting the city of Tirana with outgoing and incoming freight and and capacity expanded resulting in a Durrës, Shkodra and Montenegro, passengers; with the port of Durrës throughput of more than two million Tirana with Elbasan, Durrës with accounting for the highest volumes of passenger in 2016. Following an Lushnja, Durrës with Kukës and Kosovo. traffic. In addition, Albania has two amendment to the agreement with Recently, the construction of the Fier- very important petroleum terminals the concessionaire, the Government Levan-Tepelenë highway has been (managed and operated by the private now intends to develop air transport completed, greatly assisting with road sector under the supervision of the infrastructure even further with traveling the south of Albania and on Ministry), both serving the petroleum the construction of more airports in into Greece. industry and importing refined Saranda in the south and Kukës in the products. These are: north of Albania. The most important road projects for • Porto Romano (near Durrës) 2016-2020 include investment plans in: Telecommunications • Petrofilera (north of Vlora) • the Blue Corridor Road, part of Albania’s country code is +355. the seaside corridor, which will With its Adriatic and Ionian coastline eventually link Montenegro with and its close proximity to North Africa Landline and mobile telephony, as well Greece. Starting in Shëngjin and and the Middle East, Albania is ideally as postal services, are well regulated going through to Butrint, this road positioned to serve as a regional hub and monitored from the Authority of

10 Doing Business and Investing in Albania Doing Business and Investing in Albania 11 1

Electronic and Postal Communications (AKEP). In the fixed line conditions for interested parties. As an example, taxes have Albania and will enable the country sector, Albtelecom is the biggest player in the market with 71% been reduced or exempted in order to facilitate economic to become part of the international market share (out of 248,000 total subscribers in 2016). activity in specific sectors. The current approved areas are: 1.7 Energy and mining natural gas network. This will provide developmental solutions to the areas • Koplik, Shkodër (61 ha), a major city in the north of Electricity The mobile telephony sector is shared between four and zones where the pipeline passes Albania, bordering Montenegro, companies in Albania. The market is oriented towards prepaid Main players in the electricity market are KESH (Albanian Power Corporation), OST through by revitalizing economic services counting on 92% of total subscribers, with Vodafone • Spitallë – Durrës (209 ha), between the main port of (the transmission system operator) and OSHEE (the distribution system 0perator). life and increasing employment. The Albania having the highest market share. Durrës and the international airport at Rinas. Between them, they are responsible, respectively, for the production, transmission and TAP was certified as an independent distribution of electricity. In addition to KESH, there are several private companies transmission operator (ITO) for A number of private and foreign courier operators provide • Vlorë (289 ha), situated six kilometres from the city of (operating mainly on a concession basis) involved in the production sector. natural gas on 31 March 2016 and is postal, parcels and packages services in Albania. Posta Vlora, on the coast to the south of Albania. seen the future transmission system Shqiptare, a state-owned entity, is the biggest player in the The total network capacity, a combination of state owned hydro power plants and All three areas represent significant potential areas operator that will Albania with the market with about 94% market share. private concessionaires, in 2015 amounted to 1,895 MW. Total energy produced relies development across many business sectors such as agriculture, European gas market. on hydro resources with 25% of it produced from private companies. Another important development has been in the call centre goods and services, the automotive industry and other light Alternative sources in the energy industry which, as a subsector of the business process industry. sector outsourcing industry, has grown significantly in the last few In MWh 2012 2013 2014 2015 2016 years to become a major employer, especially for the younger Yerly 4,724,800 6,959,326 4,726,246 5,865,671 7,135,914 Given its coastal position and a generation. There are around 300 call centres in Albania with production Mediterranean climate that provides over 25,000 employees. The biggest operators are Italian 2,400 hours of sunshine per year, 1.6 Trade Import 3,230,144 2,322,528 3,355,987 2,355,358 1,826,753 companies which aim is to provide services to not only Italy Albania has the ideal geographical but also to other EU country markets. In June 2014, the European Council granted Albania Export 335,535 1,424,821 288,497 955,941 1,868,605 conditions for the development and candidate status to future EU membership. The Stabilization Domestic sustainable production of solar and Currency and Association Agreement (SAA) has been in force since 4,369,370 4,551,411 5,010,554 5,069,252 5,108,160 Consumption wind energy. The National Agency of April 2009 and Albania has continued to implement its The Albanian official currency is (ALL). The Natural Resources (AKBN) and donors obligations. Regular political and economic dialogue between Technical exchange rate regime is determined by the 3,250,039 3,305,622 2,783,182 2,195,837 1,985,901 have carried out a number of studies the EU and Albania has been maintained through the relevant losses and permits the use of foreign currencies for payment of for installing solar panels in both structures under the SAA. goods and services. The value of the ALL against foreign Source: INSTAT data residential and service sectors. There currencies is freely determined by the market and has proved The government is seriously involved in reforms related to are also plans to develop wind energy With the new 400 kV interconnection power line with Kosovo finalized in June 2016, to be relatively stable against both the Euro and the US Dollar EU integration and continues to make progress in meeting farms in Albania during the next few Albania took a further step towards its integration into the regional electricity market. in recent years. End of year 2016 exchange rates for US Dollar the objectives set out in the five key priorities for the opening years with ideal locations all across the Given the natural water resources in Albania and the large areas of hydrographic and Euro have been respectively; 1 USD: 128.17 ALL and 1 of accession negotiations. The integration process in the EU country, particularly in the mountains territory, the Government is giving high priority to renewable energy sources Euro: 135.23 ALL). serves as a significant motivator for the whole country to go and coastal lowlands. and promoting ‘Green Energy’ by offering a number of incentives and support to forward and carry on reforms in order to improve business Economic zones investments. Mining industry climate and align legislation with EU requirements. Albania has given high priority to the improvement of In January 2016 the government fully adopted the National Renewable Energy Action Albania has a long history of mining The liberalization of the foreign trade regime in Albania has economic development areas and the respective regulatory Plan which together with the 2013 Law on Renewable Energy aim to make Albania with significant mineral deposits been a major objective since 1990. This has been implemented framework. The government has approved a new legislation complaint with the acquis on renewable energy. of chromium, nickel, copper and in compliance with the rules and guidelines set by the EU and related specifically to these areas in order to provide adequate bitumen, as well as non-metallic the World Trade Organization (a WTO member since 2000). Oil & gas minerals such as limestone and In May 2016, Albania has become the latest WTO member to decorative stones. ratify the new Trade Facilitation Agreement (TFA). Imports Albania is one the largest exporter of crude oil in the region (first among Energy and exports of goods with the EU are not generally subjected Community countries). Exports of oil increased by 9.37% in 2015 compared to 2014, Currently, a number of small to to special authorization requirements. Exceptions are made to however production fell by 7%. The production of refined oil products also fell in medium size mining and quarry those quotas or control requirements imposed through different 2015, a decrease of 10% compared to 2014. companies that operate in Albania, bilateral or multilateral agreements signed by Albania. with only a few that could described sh.a. (state-owned company) is active in the development, production and as large-scale. By the end of 2015, trade of crude oil. A planned privatization plan of the company in 2016 has been put Albania has signed several Free Trade Agreements (FTAs) the AKBN reported 600 mining on hold from the Albanian government. with key markets (European Union, Turkey, CEFTA and EFTA licenses, out of which 112 licensees countries) allowing Albanian-based manufacturers to use the were extracting chromium ore from country as a gateway to markets in southern Europe and for Although the gas sector is not very developed yet, Albania has continued to focus on the development of the Gas Master Plan of Albania in order to have a well regulated the mines of Bulqiza. Production in transhipping to the EU. By using the SAA, Albania can export the mines in 2014 was estimated at a all industrial goods produced in the country and import all market in the future. In addition, in September 2015, the Albanian Parliament adopted a new law on natural gas sector, which transposes the Third Energy Package value of around US$175million with needed products into the country from EU countries without chromium as the biggest contributor at any customs tariffs. Albania has signed 43 bilateral treaties and establishes a general legal framework for further developing the gas market in compliance with the EU acquis communautaire. 76% of the domestic mining output.. which aim to protect and promote investments, as well as 41 Limestone and other construction double tax treaties. The development of the high profile Trans Adriatic Pipeline (TAP) project is bound minerals represented the second to have an effect on the local market. TAP is the largest foreign investment project in largest contributor with 12%.

12 Doing Business and Investing in Albania Doing Business and Investing in Albania 13 2

Business environment

2.1 Business environment 2.2 Information, Referring to the annual report of Bank of Albania, economic activity grew over communication 2016. Such growth mainly reflected the expansion of consumption and private investments. Economic growth was largely driven by the expansion in services, whose & technology contribution accounted for around 2.2% in the period under review, with services related to “Trade, hotels and restaurants, and transport” being the main contribution. Information, Communication & Construction, although slowing down the growth pace, continued to be one of the Technology (ICT) development in main growth factors. Albania is of high importance. In order to have positive results in this area a In line with the growth of economic activity, labor market improved as well, mainly number of actions have been taken driven from the expansion of employment in services determining in this way the which will facilitate the integration continuous reduction of unemployment over the year. of ICT within government agencies and institutions. The main objectives After a supply shock at the beginning of the year, inflation was upward during the of this exercise will be to improve rest of the year ending up with an average rate of 1.3% in 2016. Main reasons of and promote digital services enabling high inflation in the second half of the year are he weakened external disinflationary e-services for citizens and business in pressures and higher pressure from domestic demand. order to increase transparency and improve public administration services Fiscal policy showed a correcting trend over 2016, supported by the increase in in accordance with European principles revenues, while public expenditure maintained similar levels with the previous year. of competition. At the end of the period, the consolidated fiscal policy resulted into a considerable narrowing of the budget deficit for 2016. Budget was mainly financed by external Albania already has in place most funds, reducing the need of the government to borrow in the domestic market. of basic elements of a governing and regulatory framework which is Investments recorded an annual growth of 8% over the first nine months of 2016. responsible for the monitoring and The two main categories, construction and investments in machinery and equipment, stability of this sector. The Postal provided positive contribution, supported by the eased financing standards, the and Electronic Communications improved capacity utilization rate, and the increase of enterprises’ confidence, their Authority, National Agency on improved financial situation and the increase of foreign direct investments. Information Society, National Authority for Electronic Certification, the Commissioner for the Protection Indicators 2011 2012 2013 2014 2015 2016 of Personal Data, the Minister for Innovation and ICT are all institutions Real GDP Growth 2.6 1.4 1.1 2.0 2.7 3.4 with responsibilities for the Unemployment rate 14.3 13.8 16.4 17.9 17.5 15.7 development of ICT in Albania.

Labour force 68.5 63.4 58.1 63.6 65.3 65.7 In May 2015 the Albanian government launched the e-Albania portal Inflation 3.4 2.0 1.9 1.6 1.9 1.3 as a unique gate where citizens, government agencies, private sector Import (FOB, % of GDP) (40.0) (36.9) (35.7) (31.6) (29.9) (30.8) and investors can benefit of e-services. Export (FOB, % of GDP) 15.4 16 18 9.4 7.5 6.9 Based on interoperability with the government platform (approximately GDP per capita (EUR) 3,187 3,306 3,323 3,442 3,554 3,780 30 institutions) the portal provides 150 services focusing on public 59.4 62.1 70.4 72.1 72.7 71 Public debt (as % of GDP) procurement, local taxes, immovable FDI in mln euro 746 746 923 878 881 N/A properties, business registration, local government etc. Source: Bank of Albania & Ministry of Finance

14 Doing Business and Investing in Albania Doing Business and Investing in Albania 15 3

In order to further facilitate procedures, and tourism development projects, investment is worth three times the the National Registration Centre and with banks operating in the country price of the land. Foreign investment National Licensing Centre have been expected to be the main partners in • Investors in Albania are entitled merged into only one Agency – The this project. Another important goal of to judicial protection of the legal National Business Centre (QKB), to such initiative is to foster Public Private rights related to their investments. enable businesses to process and finalise Partnership schemes with foreign The Albanian Civil Procedure 3.1 Attracting guarantee specific protections for Foreign Direct Investment has increased required procedures for registration and investors. Code outlines provisions regarding foreign investors who invest EUR 1 – 50 significantly in the last few years, mainly licensing (when required) within a one domestic and international foreign million and create a certain number driven by the mining sector (primarily stop shop environment. commercial arbitration. The ICSID of new job vacancies, with the main oil and gas), telecommunications, Convention entered into force in Additionally, the Government of priority in the following sectors: financial intermediation and services. Albania on November 14, 1991. investment Albania, through the Albanian 3.2 Investment The Albanian Government is • Energy and mining; There has also been significant Investment and Development Agency incentives Other tax incentives include: (AIDA), provides effective ways to undertaking a wide range of structural • Agriculture and fisheries; improvement with regard to the • Imported goods in Technical and invest in Albania by supporting, A number of incentives have been reforms to create an international management of public procurements, Economic Development Areas • Transport, infrastructure and urban facilitating and monitoring introduced to generate a welcoming competitive business environment and with the respective legal framework (TEDAs) are exempted from import waste; administrative procedures (known as climate for foreign investors willing to to align the growth opportunities with becoming better aligned to EU directives. duties and VAT. the needs of foreign investors. assisted or specialised procedures). invest in Albania: • Telecommunications; Another important area is the law • Albanian goods that enter TEDAs on concessions and public private • No prior government authorisation For a strong and consolidated legal • Tourism; The Albanian government has are VAT exempted. partnerships (PPPs) which offers different announced the ‘One Billion Project is needed and no sector is closed to framework, the Government has • Goods can be transported from one • Economic zones; options and solutions to foreign investors Financing’, which will mainly support foreign investment. introduced laws on foreign investment TEDA to another without paying wishing to enter the domestic market. infrastructure, health, education and strategic investments, which • Priority Development Areas; • There is no limitation on the import duties or VAT. percentage share of foreign participation in a company – 100% • Capital expenses are 20% foreign ownership is possible. deductible for a period of two years if developers and users invest • Foreign investors have the right in TEDA within three years of its to expatriate all funds and operation. contributions in kind of their investment. • Developers and users are also exempted from 50% of the profit tax • Albania’s tax system does not rate (currently at a rate of 15 %) for distinguish between foreign and a period of five years. domestic investors. • A developer’s project is exempted • There are no restrictions on the from infrastructure taxes. purchase of private residential properties. • Buildings in TEDAs are exempted from real estate taxes for a period of • Foreign investments may not five years. be expropriated or nationalised directly or indirectly and will • Buildings transferred to a TEDA are not be subject to any measure or not subject to the transfer tax on similar action, except for public real estate. purpose determined by law. Foreign • Wages and social costs are 150% investments will be treated in a non- deductible for the first year and new discriminatory manner and paid expenses for wages and social costs immediately, in a fair and effective compared to the previous year are manner, in accordance with the law. 150% deductible for the subsequent • Agricultural land cannot be years. purchased by foreigners and foreign • Training costs are 200% deductible entities, however it can be rented for for a period of ten years. up to 99 years. • Research and Development costs • Commercial property may be are 200% deductible for a period of purchased, but only if the proposed ten years.

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the insurance sector in particular. AFSA reports directly to Banking and finance 4.3 Insurance market the Albanian Parliament. The main areas of its activities fall under the following: insurance market and its operators; Insurance companies are regulated by the Albanian Financial securities market and its operators; private supplementary The financial system in Albania consists of the Central Bank of Albania, second level banks and Supervisory Authority (AFSA). Seven companies operate pension market and its operators; other non-banking financial acting as commercial banks, the Deposits Insurance Agency, insurance companies, pension exclusively in the non-life service sectors. Two companies activities with the exception of leasing companies and non- funds, fund management companies, lease companies and brokerage houses. operate exclusively in the life service sector and the state-run bank financial institutions. “Insig” provides both life and non-life insurance services. Uniqa Group Austria and Vienna Insurance Group are the 4.5 Latest developments international insurance companies that lead the insurance market in Albania through their ownership of Sigal Life The adoption of International Financial Reporting Standards 4.1 Banking system 4.2 Central bank and non-life companies, Sigma, Interlbanian and, recently, (IFRS) in the insurance market, as well as the adoption of Intersig. the new European Union regulatory regime, Solvency II, on The banking system itself consists of 16 second level banks as at December Through its monetary and supervisory 1 January 2016, has created substantial challenges to the 2016, 14 of which are foreign owned. The four largest banks – National authority, the Bank of Albania performs the Company name Market Share sector’s operation and its supervision which will need to be Commercial Bank (BKT), Raiffeisen Bank Albania, Credins Bank and functions of a classical central bank towards properly managed. IntesaSanPaolo Bank Albania dominate the banking system, holding banks, branches of foreign banks, and non- Non-life together around 68% of the total assets of the banking system. bank financial institutions. The Bank of 1 Sigal Uniqa Group Austria sha 27.80% Albania formulates and implements policies seeking to achieve the primary objective, Sigma Interalbania Vienna 4.6 Leasing companies 2 15.20% Total Assets which is to keep inflation under control. Insurance Group sha No BANKS The Law “On financial leasing’ was enacted in 2005. There are 30 September 2016 Based on the domestic banking market, it 3 Eurosig sha 15.10% promotes and supports the development of nine leasing companies currently operating in Albania. Some of them are part of international groups such as Raiffeisen and in ALL (‘000,000) in %** the foreign exchange regimes and systems, 4 Albsig sha 11.60% Porsche Group. Banka Kombëtare Tregtare (BKT) – the domestic financial market, the payment 1 374,993 27% 5 Intersig Vienna Insurance Group sha 11.10% National Commercial Bank system and contributes to improving monetary and lending conditions which, 6 INSIG sha 7.40% No. Name Licensing date 2 Raiffeisen Bank Albania 263,650 19% in turn, supports the country’s economic stability and development. In addition, the 7 Ansig 6.60% 1 Tirana Factoring and Lease 3/28/2013 3 Credins Bank 158,577 11% central Bank promotes the maintenance of 7/15/2009 8 Atlantik-Shoqeri Sigurimesh sha 5.20% 2 Raiffeisen Leasing 4 Intesasanpaolo Bank Albania 156,161 11% liquidity, solvency and normal functioning of 3 Albanian Financial Institution 5/30/2016 the Albanian banking system. Life 5 81,296 6% 4 Landeslease 12/24/2009 9 Sigal Life Uniqa Group Austria 67.90% 6 Societe Generale Albania 79,375 6% 5 Porsche Leasing 10/29/2013 10 Sicred sha 22.20% 7 Alpha Bank Albania 73,426 5% 6 Albania Leasing 4/21/2014 11 Intersig Jete sha 9.90% 8 Union Bank 40,708 3% 7 Final 2/20/2009

9 NBG Bank Albania 39,881 3% Substantial improvements have been made to enhance the 8 Crimson Finance Fund Albania 11/16/2015 10 American Bank of Investments 34,983 2% effectiveness of supervision of the insurance sector. The 9 Tranzit 8/4/2010 legal framework has been strengthened with the approval of 11 ProCredit Bank 32,887 2% primary legislation broadly in line with EU requirements. Compared to the banking sector, leasing is considered to have 12 Veneto Banka 29,650 2% lower risk since the loan is backed by the financing contract. Despite this the Albanian leasing market has remained very 13 FIBANK Albania 18,744 1% 4.4 Supervision authority narrow in the country’s economy, mainly being used for financing the purchase of automobiles. Furthermore, the 14 International Commercial Bank 9,628 1% market is not addressing the business needs of small and 15 United Bank of Albania 7,005 0% The AFSA is a public independent institution. AFSA is medium businesses, for equipment and new technologies, responsible for the regulation and supervision of the non- which are considered necessary for growth. 16 Credit Bank of Albania 2,021 0% banking financial system in general and the operations of

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depending on tariff classification of process, participants in the European The outward processing regime allows goods, vary from 0% to 15%. Union’s Stabilization and Association Albanian goods to be temporarily Importing and exporting Process and Faroe Islands. exported in order to undergo a Goods which qualify a set of rules processing process. Typically, the repair determined in free trade agreements, Customs value of a commodity or replacement of defective products are considered as originating. Albania comprises the basis to which, customs under the outward processing regime, Food, animals, plants etc. are subject has ratified bilateral and multilateral duty rate determined in accordance due to a contractual obligation or a to sanitary, phytosanitary or veterinary 5.1 Legislation 5.2 Prohibitions free trade agreements that allow with tariff classification and origin, is guarantee, is not subject to duties upon controls and approvals are required for importing from or exporting to applied. Valuation rules in Albanian the subsequent re-importation. The movement of goods into and and restrictions the importation or exportation of these territories with preferential customs legislation are based on WTO valuation out of Albanian territory is subject goods. duty rate of 0% for almost all rules. Customs value includes several Exporting goods from the Albanian Domestic legislation and international to a customs declaration and subject originating products, with: elements such as cost, freight, insurance territory is not subject to customs regulations require the authorisation to formalities defined by customs and other services. Royalties and license duties. However Albania applies or licensing of the import or export of legislation. • EU Member States as part of fees that constitute a condition for sale mineral rent (royalty tax) to several certain types of goods. 5.3 Customs duties Stabilization and Association may also be included in customs value. mineral products extracted from As of 1 January 2015 Albania started Agreement, Albanian natural resources such as the gradual adoption of the new Prohibitions and restrictions apply to Customs duties for imported goods chromium ore, oil etc. If the taxes are “Customs Code of the Republic of military items, radioactive substances, • EFTA Member States, are applied on the basis of the customs not paid in the early stages, the customs Albania”, fully compliant with the dual use goods and technology, tariff, origin and customs value. authorities may collect this tax at the Union Customs Code that entered into precursors and narcotic drugs, waste • CEFTA 2006 Member States, 5.4 Customs materials, chemical agents causing The customs duty rate of a commodity point of exportation. force in the EU on 1 May 2016. The • Republic of Turkey. new legislation introduced simplified ozone depletion, CITES (endangered is determined on the basis of tariff regimes species) and cultural objects. Licenses classification. Albania classifies goods procedures that allow companies to Albania has also ratified the Regional The payment of duties and the moment to import or export such commodities in accordance with the EU Combined self-manage their customs operations Convention on pan-Euro-Mediterranean these duties arise depend upon the type can be obtained from the Ministry of Nomenclature (CN) that adds further under significantly reduced customs preferential rules of origin which sets of customs regime used. 5.5 Documentation inspections and supervision, compared Defense, Ministry of Health, Ministry subdivisions to the Harmonized System the same provisions regarding the

to the classical method of presenting of Environment or the Ministry of (HS) of the World Customs Organization origin of goods for EU Member States, In order to place goods into “free and procedures Culture. (WCO). “Third party customs duty rates” goods to a customs office. EFTA States, participants in Barcelona circulation” payment of duties is In order to import and export, or place required, while several ‘suspense’ goods under another customs regime, regimes allow the processing or a person must be established in the storing goods without being subject to Albanian territory. To be established in immediate payment of customs duties. the Albanian territory:

Temporary admission regimes enable • a natural person must be a resident for the importation and use of goods of Albania. in the Albanian territory for a limited period of time. Depending upon the • a legal person, must have type of goods, customs authorities may its registered office, central grant total or partial relief from duties. headquarters or a permanent business establishment in the Placing goods in a customs warehouse territory of Albania. or in a free zone suspends the payment of duties as long as the goods remain in The condition of being established storage. Companies can store goods in a in the Albanian territory does not free zone, in a public customs warehouse apply to persons who place goods in or can obtain an authorisation to international transit or temporary transform their own storage facilities admission, with the condition that their into a customs warehouse. representative is established in the Albanian territory. The inward processing regime allows manufacturers to suspend the payment Placing goods under temporary of duties for imports used during a admission, inward and outward production process. Generally, processed processing regimes require prior products are not subject to any duties as authorisation from the customs long as they are re-exported. authorities.

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Shareholders dissolution, commitment of the the NBC,otherwise they are invalid company in specific circumstances, etc. and the company’s founders are Business entities A limited liability company is founded jointly and severally liable toward by one or more shareholder(s), • the Administrator(s) which is/ the shareholders for any damage individuals or entities, each of which are responsible for the day-to-day caused as a result of such action. The are personally liable for the company’s activity of the company. rights related to the shares cannot be liabilities to the extent of unpaid parts transferred before registration of the Information on Joint-Stock 6.1 Business registration 6.2 Forms of of their subscribed contributions in the company with NBC. share capital. Companies (Sh.a.) In order to attract foreign investors, the Government of Albania has developed a A share may belong to one or several business entities A joint-stock company is a commercial range of incentives and has applied a set of liberal fiscal policies. The contribution of shareholders in the persons. If a share belongs to several company founded as a private placement The establishment of commercial company’s capital may be in cash or in persons, these persons shall be or public offering, the share capital of The Albanian legislation provides fair and equitable treatment of foreign investors companies and entrepreneurs, branches kind (movable/immovable property or considered as one shareholder in which is divided into shares subscribed with regards to the establishment of foreign businesses in Albania. and representative offices, organisation rights). relation to the company and they by its founders. and management rules, reorganisation shall exercise their rights through a Foreigners enjoy the right to engage in economic activities in Albania upon and liquidation of the same, are ruled Share capital commonly appointed representative. registration in the National Business Centre (NBC). Shareholders by Law no. 9901, dated 14.04.2008 They are, however, jointly and severally NBC serves as a “one-stop-shop” solution for business registrations for all types “On Entrepreneurs and Commercial The minimum share capital Shareholders of joint-stock entities can liable for liabilities arising from the of business entities in Albania. In addition to the registration in the registry of Companies”, as amended (hereinafter be individuals or entities, which are shareholding. is ALL 100 companies, it also implies direct registration for the purposes of taxes at national the “Companies Law”). liable for the company’s liabilities to the Management and municipal levels, health and social security and the Labour Inspectorate. (approximately EUR 0.8). extent of the unpaid value of the issued Commercial companies can be shares in the share capital. The company The managing bodies of a joint-stock The registration of an entity/entrepreneur with the NBC is finalized within 24 hours organized as general partnerships, can be established by one or more company are: from the submission of the completed documentation required and a payment of limited partnerships, limited liability Each shareholder owns one share in the shareholders. ALL 100 (approximately EUR 0.8), which can be reduced to ALL 0 if the registration companies or joint-stock companies. company in proportion to his/her/its • the General Assembly, which is is performed electronically. In practice, commercial companies are contribution in the share capital. The Share capital entitled to take the most important generally established as limited liability percentage that the share represents decisions related to the company’s The share capital of a joint-stock NBC also serves as an online public database, which reflects the status and key companies and joint-stock companies, in the share capital corresponds to the operation, such as the setting up company: information of an organization, the management and scope of activity of any founded by one or more shareholders. voting rights conferred to each of the of management rules and the registered entity and entrepreneur. shareholders. with private offer shall not be appointment of an Administrative Establishment, organisation and Council for a one-tier managing Additionally, NBC accepts and processes applications for licenses, as might be liquidation of joint-ventures are ruled A share may belong to one or several less than ALL 3,500,000 system and a Supervisory Council required for specific activities, and issues the same accordingly. by the relevant provisions of the persons. If a share belongs to several (approximately EUR 26,000), and/or an Administrator(s) Albanian Civil Code. persons, these persons shall be Simplification of business registration and licensing procedures are among the (if resolved in the Articles of considered as one shareholder in Association) for a two-tier managing major objectives of the Albanian Government’s business reform. Non-profit organizations are organized with public offer shall not be relation to the company and they system, any increase or reduction and registered respectively in shall exercise their rights through a less than ALL 10,000,000 of share capital, profit distribution, conformity with the Law no. 8788, commonly appointed representative. reorganisation and dissolution, dated 07.05.2001 “On non-profit (approximately EUR 74,200). They are, however, jointly and severally commitment of the company in organizations”, as amended and the liable for liabilities arising from the specific circumstances, etc. Law no. 8789, dated 07.05.2001 shareholding. Shareholders’ contributions may consist • the Administrative Council (of a “On registration of non-profit of cash or property and rights, valuable one-tier managing system), which organisations”. Their registration is Management in money. They cannot consist of labour will exercise both administrative performed by the court through a or services. specific decision. The steering bodies of a limited liability and supervisory powers. The company are: All shares (either ordinary or priority Administrative Council consists Information on Limited Liability ones) shall have a minimum par value. of 3-21 members (individuals), Companies (Sh.p.k.) • the General Assembly, which is appointed by the General Assembly. composed of all shareholders and is Each ordinary share grants to its holder They appoint one of more The limited liability company’s name entitled to take the most important a voting right. Priority shares may be administrators to exercise powers is immediately followed by the words decisions related to the company’s issued without voting rights; in such that are not exclusively granted to “Shoqëri me Përgjegjësi të Kufizuar” or operation, such as the setting up of cases they cannot constitute more that the Administrative Council. “Sh.p.k.”. management rules and appointment 49% of the share capital. The majority of the members of the of administrator(s), any increase Administrative Council should be Limited liability companies cannot offer or reduction of share capital, profit Shares may not be issued before the independent and different from the their shares to the public as a means of distribution, reorganisation and registration of the company with administrators of the company. investment.

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• the Supervisory Council (of a one-tier managing system), which is composed of 3-21 members is appointed by the General Assembly and will exercise 6.3 Regulatory supervisory powers. They cannot act as administrators of the company. In environment addition, one or more administrators appointed either by the Supervisory Council or the General Assembly (according to the company’s Articles of Competition law Association) will be responsible for managing the day-to-day activities of the The Anti-trust Law no. 9121, dated company. 28.07.2003, as amended, aimed Representative offices to set out the mechanisms for the identification of possible threats to fair Foreign companies may open representative offices in Albania to carry out non- competition and mitigate possible risks commercial activities. Representative offices are not separate legal entities and by setting out rules for the conduct therefore cannot conduct commercial activities in Albania. Nonetheless, foreign of enterprises and the obligations investors may use representative offices if their presence in Albania consists only of the institutions responsible for of promoting the activity of the foreign entity. competition.

Branches of foreign legal entities The law is applicable to all entities that conduct activities in the territory of the Branches of foreign legal entities can be registered to conduct commercial Republic of Albania, as well as to those activities in Albania. A branch is subject to corporate income tax in the same entities that conduct activities abroad, manner as other Albanian companies but there is no withholding tax in Albania for when the consequences of those the repatriation of after-tax profits. The foreign company shall be liable, with its activities are displayed in the domestic entire assets, for the liabilities arising out of its branch’s operations. market.

Foreign investors may choose to use the registration as a branch for their “Entity” shall imply any individual investments, if they plan a temporary presence in Albania, or if they decide not to or juridical person, either private or legally separate the Albanian entity from the parent company. public, that exercises an economic activity. Entrepreneur Consumer Protection Any natural person can conduct a business as a sole proprietor after being registered for this purpose in the NBC. The main legal acts regulating consumer protection are the Civil Code Joint Ventures and the Law no. 9902, dated 17.4.2008 “On Consumers’ Protection”. The A joint venture does not have the features of a commercial company; instead it protection of the legitimate rights of is a contract signed by the founding partners whereby they agree to conduct an consumers, as well as the development economic activity and share the profits. and implementation of consumer policy in accordance with the law, is also The contract is not subject to any particular form, except when required by the the responsibility of the Consumer’s nature of contribution of the partners to the joint capital. For example, if the Protection Commission (CPC). joint capital is composed of immovable properties, the contract must be signed in front of a notary. The contract may be amended only with the consent of all the The three most important functions of partners, unless otherwise agreed. the CPC are to supervise the consumer market, settle consumers’ complaints A partner’s contributions may be in cash or in kind, however contributions cannot and inform and advise consumers. The consist of work or services. It is presumed that partners are obliged to contribute, CPC may also constitute an alternative in equal parts between them, as necessary to achieve the purpose of the joint to the civil courts for the purposes of venture, unless it is otherwise provided in the contract. disputes’ settlement and the decisions of the CPC serve as guidelines for trade With regard to administration features, unless the agreement provides otherwise, enterprises. The CPC is entitled to the administration power belongs to each of the members separately from the impose fines and prescriptive orders for others. any violations of the consumer laws.

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Labour relations 7.4 Employment of foreigners Foreign driving license Residence permit Foreign citizens holding a national driving license or an international driving license are not required to apply for Foreign citizens staying in Albania for more than 90 and obtain a local driving license, provided that they reside consecutive days within a 180 day period are required in Albania for a period of not more than one year. 7.1 Labour 7.2 Employment contracts to obtain a residence permit. The application should be submitted and processed at the Directory of Borders and In addition, foreign nationals holding a driving license issued In Albania, employment relations are regulated by the A labour contract is an agreement between the employee and Immigration, situated near the Ministry of Internal Affairs. by one of the member countries of the European Union and Labour Code which has been approved by means of Law no. the employer, which governs the employment relationship The Directory issues a temporary residence permit to the who have obtained a residency permit in Albania are entitled to apply for and obtain an Albanian driving license by 7961, dated 12.07.1995 and amended several times during and contains the rights and obligations of the parties. applicant upon submission of the relevant documents and submitting a request to the competent authorities in Albania. the years 1996, 2003, 2008 and, most recently, in 2015. The within 60 days releases the final residence permit. Residence aim of the latest changes was to align the national law with Based on the Labour Code, the parties should formalize permits can be granted for three months, six months, one several Council Directives, such as Council Directive no. the employment relationship by signing the employment Lastly, foreign vehicles are allowed to circulate in the year, two years, five years or permanently. 2008/104/EC and 2010/18/EU. By means of these changes, agreement no later than commencement of the work. An territory of Albania for a maximum period of one year using extension of 7 days at the latest might be granted in justified the foreign circulation permit. the employment relationship between the employer and A foreign individual can apply for a permanent residence circumstances, otherwise, the employer becomes subject to the employee is defined more clearly, in terms of rights, permit if he/she has had a legal stay of five consecutive years penalties. obligations and procedures. in the Republic of Albania, and he/she continues to have a connection with or activity in Albania.

Citizens of the United States are subject to a favourable 7.3 Public holidays regime, which allows them to stay in the Republic of Albania for at least one year without a residence permit. The national holidays of the Republic of Albania are as follows: Work permit

Calendar Day National Holidays An expatriate can work in Albania after being equipped January 1 and 2 New Years’ day with a work permit. There are several types of work permit, depending on the reason for working in the country. March 14 Summer Day March 22 Nevruz Day The application for a work permit is filed at the Directory of Migration, Labour Office, situated near the Ministry of Social Variable date* Catholic Easter Wellness and Youth. Variable date* Orthodox Easter The timeframe for issuance of the work permit is within May 1 Labour Day 30 days from the date of submission of the required Variable date** Eid al-Fitr documentation. (End of Ramadan) A work permit can be granted for different terms depending October 19 Mother Teresa on the type of permit requested. Beatification Day Variable date** Eid al-Adha Citizens of the European Union and the Schengen Area (First of Sacrifice) are exempted from the obligation to obtain a work permit November 28 Independence Day for their work in Albania. However, this category of expatriates is required to obtain an “Exemption from Work November 29 Permit”, which is a document released by the Labour Office December 8 National Youth Day after submission of the relevant set of documents. The December 25 Christmas Day applications procedure is similar to the one for obtaining the work permit. *Note: The Catholic and Orthodox Easter holidays may be subject to change each year. In addition, citizens of the United States, in the field of employment, enjoy equal rights as those of Albanian ** Note: The Eid al-Fitr and Eid al-Adha holidays may be subject to change citizens. according to the lunar calendar.

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Permanent establishment Payments on account General Assembly decision on Taxation profit distribution A permanent establishment (PE) During the taxable period, the taxpayer shall imply a fixed place of business should prepay CIT on a monthly or Companies should decide on the use of through which the business activity quarterly basis. With this regards, CIT their prior year net profits within the of an enterprise is wholly or partly prepayments may be processed either first six months of the following year • Foundations or non-banking financial • Provisions and reserves (with carried out either directly or through a on the fifteenth of each month of that and submit their decision to the tax 8.1 Profit tax institutions established to support some exemptions applicable to the dependent agent. A PE could include an year or quarterly within each quarter authorities no later than 31 July. the development policies of the financial sector). administrative office, a branch, a factory, (31 March, 30 June, 30 September, 31 Corporate income tax a workshop, a mine or any other place December). The decision on the use of the government through credit activities. company’s prior year net profit should Corporate Income Tax (CIT) is paid • Personal living expenses and family for exploitation of natural resources, • Film studios and cinematographic The amount of each CIT prepayment is be submitted to the National Business by all Albanian entities on the profit expenses. as well as a building, reconstruction, productions that are licensed determined by the tax inspector, based Centre within 30 days of the decision realised in the territory of Albania and/ installation or assembling site. and funded by the National • Expenses for technical services, on the annual turnover. More specifically, date. or abroad. Cinematographic Centre. consultancy and management, The provisions of the double tax treaties the amount of monthly prepayments is Payment of tax on dividend The tax year for CIT purposes runs from received from foreign entities which prevail over the local legislation. based on the amount of CIT declared in • Voluntary pension funds managed are not registered for tax purposes in Nonetheless, there is a procedure to the two tax years prior to the current tax 1 January until 31 December of each Companies have an obligation to pay to by the management company of Albania, for which no withholding be followed up with the General Tax year, calculated as per below: calendar year. the tax authorities the dividend WHT voluntary pension funds. tax has been paid by 20 January of Directorate in order to be able to apply • In each of the months January, on 15% of the amount distributed to Tax rate the following year, at the latest. the rates provided by the double tax Taxable base February and March of the current shareholders no later than 20 August treaties. • Losses, damages, wastage incurred taxable period, the amount of profit of the year in which the dividend is The current CIT rate in Albania is a flat Taxable profit will be determined by during production, transiting tax for the taxable period of the two approved, regardless of whether or not rate of 15%. CIT is self-assessed by the the accounting profit adjusted for tax Capital gains or warehousing, exceeding the preceding years is divided by 12. the dividend has been paid. taxpayer by adjusting the accounting purposes with non-taxable income and profit for all items of non-taxable norms defined by laws and related Capital gains are treated as ordinary non-deductible expenses. • In each of the nine other months Branches cannot decide on the income and non-deductible expenses. instructions. taxable income. of the current taxable period, designation of their profits or their The Albanian legislation specifies that • Depreciation and amortisation Dividends and profit distributions the amount of profit tax for the financial statements, which are Taxable persons the following expenses are considered, calculated at rates exceeding the tax preceding taxable period is divided approved by the parent company. among others, as non-deductible For CIT purposes, taxable persons are depreciation rates. In determining taxable profit of a by 12. considered to be all juridical persons, expenses: resident person, dividends and profit • Impairment losses on fixed assets. distributions are excluded from taxable When the taxpayer is in its first year partnerships and branches of foreign • The interest paid on outstanding income when they are distributed by of activity, the prepaid CIT amount entities which are registered for VAT loans and prepayments, which • Representation expenses that companies and partnerships of resident is based on the turnover estimations purposes, provided that they are not exceeds four times the amount of exceed 0.3 % of annual turnover. and foreign non-resident companies made by the taxpayer or by the tax subject to the simplified profit tax for the net assets, or amounts to more that are subject to profit tax, regardless authorities. small businesses (see section 8.8). than 30% of tax adjusted earnings • Sponsorships exceeding 3% of profit before tax, and sponsorships of press of the quota of participation, in value or before interest, taxes, depreciation Failure to pay the CIT prepayments Exemptions and other publications exceeding number, of the share capital, the voting and amortisation (EBITDA) within the deadlines shall be subject to 5% of profit before tax. rights or participation in the share The following entities are exempt from beginning from 2018. a penalty equal to 10% of the principal capital. CIT: amount provided as payable by tax • Loan interest exceeding the Bad debts are only deductible if all of authorities. • Central and Local Government 12-months average interest rate in the following conditions have been met: Fiscal losses Bodies and the Central Bank of the banking sector, as published by • An amount corresponding to the bad Fiscal losses may be carried forward Filing requirements Albania. the Central Bank of Albania. debt has been already included in against profits for up to three Albanian taxpayers are obliged to • Legal entities which conduct the taxable income. consecutive years, according to the • Benefits in kind and gifts. electronically submit the annual CIT religious, humanitarian, charitable, principle ‘first loss before the last one’. • The bad debt is written off and return to the tax administration’s scientific or educational activities. • Penalties and other tax-related sanctions. removed from the taxpayer’s If during a taxable period the direct and official website on or before 31 March • Trade unions or chambers of accounting books. / or indirect capital or voting rights of of the following year and to pay, within commerce, industry or agriculture. • Wages, bonuses and any other a person changes, by more than 50% in this deadline, the difference between form of income deriving from an • All possible legal actions to recover the CIT liability as per the submitted • International organizations, value or in number, the fiscal losses are employment relationship and paid the debt have been taken. CIT return and the CIT prepayments agencies for technical cooperation forfeited. to the employees in cash. made during the tax period. and their representatives, the tax Special considerations on bad debts are Losses cannot be transferred to other exemptions of which are established provided for in the financial sector. • Payments made in cash of amounts parties. by specific agreements. exceeding ALL 150,000.

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8.2 Transfer pricing Audits and penalties Albania’s Tax Authority has stepped up on the number of Introduction transfer pricing audits. The types of transactions targeted Albania’s transfer pricing regulation adheres to ‘arm’s include tangible goods, intangible property transfers (e.g. length’ principles for related-party transactions. The royalty payments), intra-group services and financial governing rules are set out in the Law “On Income Tax” transactions. and in the Instruction “On Transfer Pricing” issued by The Tax Authority can adjust the taxable income of the Ministry of Finance. They are based on the OECD companies whose related-party transactions fall outside Transfer Pricing Guideline for Multinational Enterprises acceptable ranges. In case of contravention, the Tax and Tax Administrations 2010. Amendments to transfer Authorities may also penalise non-compliance with ‘arm’s pricing rules in May 2014 have extended the ‘arm’s length’ rules and documentation requirements. The length’ application to business activities. penalty is set up to 25% of the tax shortfall. Regarding Scope and methods annual controlled transactions notice, a penalty of ALL 10,000 applies for every month of post due date delivery. The regulations provide a specific definition of related parties, which includes direct and indirect control, as Benefits from transfer pricing documents well as control over the board of directors. The types preparation of transactions covered include the transfer and use of While the submission of the transfer pricing tangible and intangible assets, provision of services, documentation is not subject to a late submission penalty, financial transactions (including leases, interest, the preparation of the transfer pricing documents brings guarantee fees etc.) and other types of transactions two main benefits, which include the adjustment at any prescribed by the Ministry of Finance. point in the market range instead of the market median Taxpayers are allowed to use the most appropriate appointed by law and the ability to pay the additional transfer pricing method to evaluate the ‘arm’s length’ obligation and interest, not the penalties, in case of self- result of a controlled transaction. The accepted methods correction. include comparable uncontrolled price, resale price, Advance pricing agreements cost plus, profit split and the transactional net margin method. The advance pricing agreement (APA) is a procedural agreement between one or more taxpayers and one or Applicable documentation more Tax Administrations regarding the adoption of a Companies engaged in controlled transactions must pricing method to be applied to cross-border transactions disclose related-party information in their annual between affiliated entities. Regarding APAs, the governing income tax returns, as well as prepare a transfer pricing rules are set out in the Instruction “On Advance Pricing report and other relevant documents. This report does Agreements”. Transfer pricing regulations in Albania not need to be submitted at the time of the return filing, provide for unilateral, bilateral and multilateral APAs. but where a taxpayer has prepared documentation Applications for APAs will only be considered if the accordingly, it must be submitted to the tax authority controlled transactions for the entire period covered by the within 30 days of a request being made. agreement will exceed EUR 30 million and the maximum covered period for the APA is five years (except when the Taxpayers engaging in controlled transactions exceeding APA includes the application of a reciprocal Government ALL 50,000,000 (loan balance included) per period, agreement ratified by law). in aggregate, are required to complete and submit an annual controlled transactions notice by 31 March of the following year.

Transfer pricing documentation may be submitted in Albanian or English language, in electronic or paper format. However, where documents are submitted in English, the Tax Authority has the right to request translation of English documents into Albanian. This translation must be provided within 30 days of request for translation.

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• Income from copyright and intellectual property. Filing requirements In case of material error, the declarant has the right, within three months from the date of submission of the declaration, 8.3 Personal taxation • Income from loans and leases, except when income is Individuals resident in the Republic of Albania and non- to make the necessary corrections. Within this period, the generated by the development of a commercial activity, in residents who generate income sourced in the territory of the individual has the right to correct the statement twice, with Personal income tax terms of commercial law. Republic of Albania are required to submit an annual income no penalisation. In the event of a third time, sanctions will Personal income tax is paid by individuals on the overall • Proceeds from the transfer of immovable property. declaration not later than 30 April of the year following the apply. income they earn from various sources in Albania and abroad tax period for which the declaration is made. during a calendar year, excluding the exempt income. • Income from gambling. The difference between total gross income and the sum • Proceeds from the difference between the sale and Individuals who generate annual gross taxable income less of deductible expenses and income from employment Tax rate purchase price of shares. than ALL two million are exempt from the requirement to constitutes the taxable income of the individual. The tax submit the annual income declaration. paid during the year will be deducted from the amount of tax The following tax rates apply to income generated from • Other income, generated by individuals resident or non- calculated as per legislation in force. employment: resident, sourced in the Republic of Albania. An annual income declaration may be complemented by other individuals who do not have a legal obligation to file, if they • Cash income for the increase of capital, sourced from Where an individual’s income is sourced abroad and taxed in Taxable income want to benefit from the scheme of deductible expenses when outside the company, which was subject to tax but has not the country where the income is generated, the deductibility (ALL/month) certain conditions are met. Tax rate been taxed earlier, and that is not accompanied by official of the foreign tax shall be allowed as per the relevant double documents proving the origin of the funds. tax treaties in force. From to (inclusive) Non-residents do not benefit from the right of deductible expenses. The amount of deductible expenses should not be The following are exempt from personal income tax: The annual income declaration is submitted electronically to 0 30,000 0 % greater than the sum of the gross annual taxable income. the regional tax directorate. • Income arising from obligatory insurance under an + 13 % of the amount above obligatory social and health insurance scheme, as well as 30,001 130,000 30,000 ALL economic benefits for individuals with no income or with low income. 13,000 ALL + 23% of the 130,000 And above • Scholarships for pupils and students. amount above 130,000 ALL • Benefits received in case of diseases and hardships.

The minimum monthly salary in Albania is ALL 24,000 • Compensations in cash and/or in kind due to effective from 5 May 2017. expropriation made by the state for public interests. • Income exempt on the basis of international agreements Taxable Persons ratified by the . Individual taxpayers, both residents and non-residents, are • Financial compensation provided by the state to former subject to personal income tax. Albanian law applies the political convicted. principle of world-wide taxation. Resident individuals are taxed on all sources of income inside and outside the territory • Contributions paid by employers for the life and health of Albania, while non-resident individuals are only taxed on insurance of its employees. income generated in the territory of Albania. • Benefits for compensations obtained by final decisions of the courts, as well as certain compensations for court An individual is deemed to be a resident of Albania if he has costs. a permanent home in Albania or if he stays in Albania, either consecutively or intermittently, for more than 183 days in a • Income received from state institutions for achievements calendar year irrespective of his citizenship or living interests. in science, sports, culture. However, the provisions of the double tax treaties (if any) • Transfer of the right of ownership of agricultural land prevail over the local legislation. by a registered farmer to a farmer or a legal person who performs agricultural activity. Taxable base • The contribution made by each member of a voluntary The following categories are subject to personal income tax: pension fund to the extent determined by the law on • Salaries and other remuneration related to the current voluntary pension funds and contributions made by employment (salaries include the basic salary and all the employer or any other contributor, on behalf of the permanent allowances). voluntary pension fund member. • Dividends and profit shares of partnerships. • Returns on investments, including capital gains, from investments made by the pension fund assets, during • Bank or securities interest income. administration by the management company.

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Exemptions conditions set up in the respective DTT Filling requirements 8.4 Withholding are satisfied. The reduced rates are 8.5 Social and health tax The above provision shall not be applied according to the terms of each contributions Employers are required to withhold social and health applicable in the following cases: specific DTT. contributions on salaries and other permanent compensation Basis of taxation Taxable person related to current employees. • The beneficiaries of the products are Albania has signed DTT agreements An Albanian entity which makes Albanian residents registered for CIT with 41 countries, out of each 38 are Social and health contributions are compulsory for For the purposes of social and health contributions, company payments to non-registered entities and VAT or taxpayers registered for already into force. employed persons, the self-employed, employers and shareholders who also have administrative roles in the company for services it provides to the entity is simplified profit tax. persons who obtain regular income from different are considered to be employees. The company is required to required to withhold from the invoiced Filling requirements sources. calculate and pay social and health contributions for these • When payments are made to entities amount and pay Withholding Tax individuals at the same rate applicable for all other employees. not registered in Albania for services The taxpayer is required to pay WHT to (WHT) to the tax authorities. Foreign individual taxation related to the international transport the tax authorities by the twentieth day Taxpayers are required to electronically submit monthly payrolls Tax rate of passengers and goods. of the month subsequent to the month Foreign individuals who work in Albania under a local providing details on the social and health contributions and on in which the payment is made to the employment agreement are required to pay social the income tax obligations deriving from their employment on service provider. There is an exception and health contributions in the same manner as local the twentieth day of the following month. The standard WHT rate Reduced WHT rates regarding the payment of dividend, employees. Foreign employees working under a foreign They are also obliged to submit a list of newly employed in Albania is 15% Where a treaty for the avoidance of in this case the legal entities should employment contract in Albania (with some exceptions) Double Taxation on Income and Capital pay WHT to the tax authorities by the have the right to choose between the Albanian social employees at least 24 hours before the official start of work, (DTT) exists between Albania and the 20th of August of the year in which the and health insurance scheme, or another scheme of their existing employees and departing employees within ten days of Taxable income country of residence of the foreign financial result is approved, irrespective home country. their departure. entity, the payment of WHT might be of whether the dividends are distributed All resident entities in the Republic avoided or reduced, provided that the or not. of Albania including central and local Tax rate government authorities, non-profit organizations and any other entity created under the legislation in force, are obliged to withhold tax at the rate of Employees 15% from the following gross payments pay social security sourced in the Republic of Albania: Employers are contributions at The employee • Dividends. liable to pay social security the rate of contributions are composed contributions on behalf The employer • Profit shares. 11.2%. of 9.5% social insurance contribution is made up • Interest. contribution and 1.7% of their employees at the of 15% social insurance • Payments of copyright fees and health insurance contribution. rate of 16.7%. contribution and royalties. 1.7% health insurance • Payments for technical, financial contribution. and insurance services. • Payments for construction, installation, assembly or associated The contributions are composed of 3.4% supervisory work. health insurance contribution of not less than • Payments for management and The self-employed individual is required to pay participation by a board of directors. the double minimum salary, i.e. ALL 48,000. social insurance contributions of not less than 23% • Rental payments. of the minimum salary ALL 24,000. • Payments for performances of actors, musicians or sportsmen, including payments made to any entity that employs artists or sportsmen, or acts as an intermediary The monthly minimum and maximum salaries for social and health contribution for the arrangement of shows or performances. purposes are ALL 24,000 and ALL 105,850, respectively. • Income generated from gambling and casinos.

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Exempt supplies VAT computation Place of supply of services

8.6 Value added tax The following are considered VAT exempt supplies without The amount of VAT to be paid is calculated as the difference As a general rule, the place of supply of services is Albania Value Added Tax (VAT) is a tax imposed by government at credit rights: between VAT applied to sales (output VAT) and VAT applied when the receiver of the service is a registered taxable entity to purchases (input VAT). If the input VAT is higher than the in Albania, or the receiver of the services is an individual and each stage in the production of a good or service. • Certain activities in the public interest such as postal services, hospital and medical care and closely related output VAT, then the difference is a VAT credit which can be the supplier of the service is a taxable entity registered in The standard VAT period is one calendar month. activities, the provision of medical care and closely related carried forward to subsequent months. If output VAT is higher Albania. activities, exercise of the paramedical profession, supply of than input VAT and credit VAT from prior periods, a VAT Standard VAT rate liability results. Location of human organs, blood and milk, supply of services closely Location Location of the buyer Place of The standard rate of VAT is 20% and applies to all goods and related to social welfare, education, religious, cultural and of buyer Taxpayers who carry out both taxable and exempt activities the supplier (taxable supply services not qualified as exempt, with or without credit rights. sports activities. (individual) can credit only the portion of their input VAT that corresponds entity) • Insurance services. to taxable activities. If a clear division of input VAT cannot Starting from June 2017 a reduced VAT rate of 6% is applied be made, a credit coefficient, which is calculated as the ratio Outside of Non-taxable to the supply of accommodation services in all accommoda- • Financial services. Albania between the turnovers on taxable activities over the total Albania in Albania tion facilities, as determined by the applicable legislation for • Gold and banknotes supplies from the Bank of Albania and turnover, is applied. the tourism sector. second level banks. Outside of Taxable in Albania Reimbursement of credit VAT is possible if the taxpayer has Albania Albania Zero-rated supplies • Hydrocarbon research operations. been in a VAT credit position for three consecutive months, Outside of Taxable in • Gambling, casino and racetrack services. Albania A VAT rate of 0% (exempt with credit rights) is applicable on and the value exceeds ALL 400,000. Albania Albania the following supplies: • Supplies of immovable property (excluding construction services). Application of the reverse charge mechanism on the Outside of Outside of Non-taxable • Export of goods. supplies of services from foreign entities Albania Albania in Albania • Supply of land. • The supply of goods sent or transported outside of the • Supply of rented premises for periods of more than two If services are provided by a foreign entity not registered in Filing requirements territory of the Republic of Albania by the buyer of those months. Albania to a registered entity in Albania, the reverse charge goods who is not present in Albania. mechanism can be applied by the latter. The deadline for the electronic filing of the VAT books is the Furthermore, certain imports are exempt from VAT such as: tenth day of the following month. • Supply of goods from not-for-profit organizations, • Import of goods which, if supplied within Albania, would If services are provided to an entity not registered in Albania, exported as part of their humanitarian, educational or have been exempt from VAT. the foreign supplier should appoint a VAT representative in The deadline for the electronic filing of the VAT declaration charitable activity. Albania, if the place of supply of services is deemed to be in and the payment of the related tax liability is the fourteenth • Import of personal used goods or in the baggage of day of the following month. • Supplies of services intended for goods which are travellers. Albania. imported under the inward processing regime. • Goods imported by diplomatic and counsellor bodies. • Supply of services, inclusive of transport and other additional aid operations, related directly to export or • Imports declared to be under the temporary allowance regime and active processing. import of goods as specified in the Law on VAT. • Import of machinery as an inward investment with a value • Supply of goods destined to be transported in the personal equal or higher than ALL 50,000,000. baggage of travellers. • Import of machinery from businesses subject to simplified • The supply of goods and services related to international Corporate Income Tax. transport. • Import of machinery as an inward investment in • The supply of goods and services performed in the scope agribusiness, regardless of investment value. of diplomatic or consular relations. Supplies for which input VAT may not be credited • The supply of goods and services within the Republic of Albania destined for the armed forces of members of Input VAT is the VAT paid through purchases made by NATO. taxpayers during the course of business. As a general rule, input VAT may be credited if it is to be used in the provision of • The supply of gold for the Bank of Albania. goods or services subject to VAT. • The supply of services from intermediaries in the name However, input VAT on specific taxable supplies cannot be and on behalf of third parties, for a set of transactions as credited by the purchaser of the service and this includes: prescribed in the Law on VAT. • Input VAT on fuel expenses, unless the latter is used for • Supply of goods intended for temporary import regimes, resale purpose or technological purposes. customs warehousing or destined for a free zone. • VAT on the acquisition of vehicles and on car related • The supply of goods which are intended to be admitted expenses, unless used for activities such as leasing, car into territorial waters for the fuelling and provisioning of sales or taxi services. drilling or production platforms. • VAT on travelling expenses, hotel accommodation expenses and the like.

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8.7 Excise duty • Placing in a customs suspense regime. 8.8 Local taxes and tariffs Real estate tax • Use in metallurgy. Excise duty is a tax applicable to certain goods consumed in Local tax offices, within municipality administrations, are All physical persons and legal entities, whether local or Albania, whether imported or produced in the country. • Energy products used in mineralogical processes. responsible for the collection of all local taxes. Local taxes foreign, who own a real estate property in Albania, are subject to real estate tax. • Fuel for fishing boats. are applied either as a percentage or as a specific amount and Albanian excise legislation is based on EU Council Directive vary depending on the location and/or type of activity being 2008/118/EC that defines common provisions applicable • Fuel for international airlines. Real estate tax on building conducted. for all excisable goods. It also integrates specific provisions Excise legislation provides several other exemptions which are The tax amount calculated is based on surface area and varies applicable for each category of excise products. Simplified income tax specified for each category of products subject to excise duty. depending on the district where the building is located. It is calculated as a fixed value per square metre and varies on an Categories of products subject to excise duty in Albania are: Physical persons or legal entities that conduct business in Reimbursement annual basis from ALL 5 to ALL 400 per m2. • Energy products (e.g. petroleum, gasoil, gas) Albania and have an annual turnover from ALL five million Excise duty is reimbursed for: to ALL eight million are subject to simplified income tax. The The following are exempt from real estate tax on building: • Tobacco products (e.g. tobacco, cigarettes) applicable tax rate on profit is 5%. • Goods that are used in a process previously approved by • Properties owned by the state or the local government • Alcohol and alcoholic beverages (e.g. beer, wine, spirits) the customs authorities. For small businesses with an annual turnover less than or used for non-profit purposes. • Other products (e.g. baked coffee, energy drinks, • Exported products that have previously been subject to equal to ALL 5 million, the simplified income tax rate is 0%. • Buildings used by religious institutions. fireworks) excise duty in Albania. Entities that are subject to simplified income tax have an • State-owned assets, transferred with a decision by the Excise duty is usually calculated as an amount per quantitative • Fuel used by companies involved in the construction of obligation to submit an annual tax declaration providing Council of Ministers, under the state administration of measuring unit defined for that product (e.g. per litre, per electric energy resources, with an installed power of not details on total revenues, deductible expenses, taxable profit, public companies. kilogram, per hectolitre, per 1000 pieces). less than five MW per source. tax liability and any other details required for the correct Real estate tax on agricultural land Suspension arrangement • Fuel used in greenhouses, for the production of industrial completion and submission of an annual tax return. and agri-industrial products. The tax is levied on each hectare owned and varies depending Excise duty for imported goods arises at the moment of Taxpayers with an annual turnover up to ALL 5 million, are • Biodiesel used in transportation. also obliged to submit an annual tax return. on the district it is located and the land productivity importation (release into free domestic circulation). However, categorisation. It varies on an annual basis from ALL 700 to if authorised, a company may suspend the payment of excise The reimbursement procedure is subject to special provisions The deadline for submission of an annual tax declaration is ALL 5,600 per hectare. duty as long as goods remain in a fiscal warehouse. In this and pre-defined criteria on the basis of which the amount to the 10th of February of the year following the tax period for case, excise duty becomes chargeable upon the moment goods Where the agricultural land is planted with fruit trees and be reimbursed is calculated. which the tax declaration is completed. are released into the market for consumption. viticulture, the taxpayer is exempt from paying the real estate Tax for impact on infrastructure tax on agricultural land for five years. Producing and processing excise goods in Albania is subject to a special authorization issued by the customs authorities. Tax is levied on new construction projects for any impact they Real estate tax on land might have on existing local or national infrastructure. The Tax markings The tax amount calculated is based on surface area and varies tax base is the new investment’s value or the sale price per depending on the district where the building is located and Excise legislation requires that tobacco products, alcohol and square metre of the project. the purpose of its use (household or business). It is calculated alcoholic beverages, imported or produced in Albania, must In case of construction for residential purposes that are not as a fixed value per square metre and varies on an annual have affixed fiscal stamps when released for consumption in 2 intended for use in the tourism, industry or public sector, basis from ALL 0.14 to ALL 0.56 per m for households and the domestic market. 2 the tax rate varies from 4% to 8% of the sale price per square from ALL 12 to ALL 20 per m for businesses. Several oil by-products in Albania are subject to marking with metre. The sale price per square metre is based on reference Tax on transfer of ownership rights for real estate fiscal markers and dying substances, as per the requirements market prices. of Albanian excise legislation, upon exportation or release for For buildings, the tax is determined based on the surface area consumption in the domestic market. For constructions other than those intended for residential of the building that is the subject of ownership transfer and accommodation, the tax is levied as a percentage of the varies depending on the district and the purpose of use of the Exemptions investment value and varies from 2% to 4% in Tirana and 1% real estate (residential or commercial). to 3% in other districts. Excise products are exempted from excise duty when intended The tax on transfer of ownership rights for real estate ranges for: For infrastructure projects, national road construction, from ALL 100 to ALL 2,000 per m2. • The use of diplomatic and consular missions. ports, airports, tunnels, dams or the construction of energy infrastructure, the tax levied on impact on infrastructure For other kinds of real estate, other than buildings, the • The use of international organisations. is 0.1% of the investment value (including machinery and transfer tax is defined as 2% of the reference sales price. • Military forces of NATO member states. equipment), but not less than the cost of rehabilitation of Hotel accommodation tax • Personal consumption when carried in personal baggage damaged infrastructure. of travellers, in limited quantities. The tax obligation lies with the investor. The basis for calculating the tax on hotel accommodation is • Export. the number of nights spent in the hotel.

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The tax rate is a fixed value per night of stay depending on the designated zone (Tirana vs. other regions) where the hotel is located and the quality of the hotel, for which the number of stars is used as a proxy. The rates range from ALL 35 to ALL 350 per night.

Advertising tax

Local authorities impose a tax on billboards used for identification or marketing purposes. The tax varies depending on the surface size of the advertisement and the purpose of its exhibition.

The tax can vary from 0 to ALL 90,000 per m2 and is applied every year.

Tobacco advertisements on billboards and any other form of publicity are not permitted.

Temporary tax on educational infrastructure

Families, individuals and juridical persons, local or foreign, who live and conduct economic activity within the territory of the municipality of Tirana are subject to temporary tax on educational infrastructure.

For companies, the tax ranges from ALL 4,000 to ALL 37,000 per year depending on the economic activity and turnover of the company.

This temporary tax is applicable for a seven year period.

Tariffs for the use of public areas

This tariff is paid for the use of public areas for commercial purposes and is based on the surface area of the occupied space and the location of the area. It is calculated as a monthly obligation of the taxpayer.

In Tirana, the tariff for the use of public areas is uniform within any particular geographic designation in the district, irrespective of the type of activity performed. The tax varies on a monthly basis between ALL 200 to ALL 1,500 per m2.

Tariffs for cleaning and waste removal

All physical persons and legal entities whether local or foreign who live and conduct business activity within the territory of the municipality of Tirana, are subject to cleaning and waste removal tariffs.

For businesses the tariff depends on the business activity they perform and their annual turnover, and varies from ALL 3,500 to ALL 450,000 per year.

Other

There are several other taxes and tariffs in existence, such as TV and telephone taxes, port charges, consular fees, airport taxes and registration taxes.

40 Doing Business and Investing in Albania Doing Business and Investing in Albania 41 9

Accounting and statutory audit

• Commercial banks, financial • Limited liability companies when at 9.1 Accounting institutions, insurance and least two of the following criteria are reinsurance companies, investment at the end of accounting period for and financial funds and entities licensed in two consecutive years, met: investment trading, even if not listed i. Total assets of ALL 50,000 in an official stock exchange. statements thousand or more. Accounting and financial reporting in • Other entities not listed in a stock ii. Total turnover of ALL 100,000 Albania is referred to and regulated by exchange, when they exceed thousand or more. Law no. 9228, dated 29.04.2004 “On both of the following thresholds Accounting and Financial Statements”. simultaneously for the last two iii. Average number of 30 employees The duration of the accounting period years: during the same reporting in Albania is twelve months beginning period. on 1 January and ending on 31 i. Annual turnover of ALL Financial Statements are audited December. Financial statements are 1,250,000 thousand, and in accordance with International prepared and presented in the Albanian ii. Average number of 100 Standards on Auditing (ISA), as language, and accounts are presented employees per year. issued by the International Audit and in Albanian Lek. Accounting records Assurance Standards Board (IAASB). must be retained for ten consecutive Commercial banks in Albania are The statutory auditor is rotated after a years after the accounting period, also required to report to the Central maximum period of seven consecutive unless a longer period is compulsory. Bank of Albania in accordance with years with a minimum of two years the “Methodology on Reporting and The National Accounting Standards cooling-off period. The statutory Content of Financial Reports” and (NAS) issued by the National auditor is subject to the supervision of regulations of the Bank of Albania, Accounting Council, as revised the Public Oversight Board (POB) and being a rules-based reporting and improved in 2015, and the the Institute of Authorized Chartered framework specific for banks. International Financial Reporting Auditors of Albania (IEKA). Standards (IFRS) issued by the Public Interest Entities (PIE) are International Accounting Standards required to establish an audit , Board (translated into Albanian by the responsible for the monitoring of the National Accounting Council), are the 9.2 Statutory audit internal control environment of the two financial reporting frameworks Statutory audit is regulated by Law entity, as well as the independence of used. The revised NAS are largely based no. 10091, dated 5 March 2009 “On the statutory auditor and the audit firm. on the IFRS for SMEs. Statutory Audit, the Statutory Auditor PIE includes listed entities, commercial Entities should generally apply NAS in and certified accountant profession” as banks, insurance companies, fund preparing financial statements unless amended with laws 10297, dated 8 July companies and investment and pension they fall into one of the categories listed 2010 and 47/2016. The statutory audit funds, as well as any other entity below, in which case they must adopt is compulsory for the following entities: determined by separate decision of the IFRS. Council of Ministers. Appointment of • All commercial companies that the statutory auditor and the audit firm • Companies listed in an official stock prepare their financial statements in by banks and insurance companies is exchange, or subsidiaries subject accordance with IFRS. subject to the pre-approval of the Bank to consolidation of the accounts of • All joint stock companies; of Albania and the Albanian Financial listed companies. Supervisory Authority.

42 Doing Business and Investing in Albania Doing Business and Investing in Albania 43 10

Introduction to PwC Assurance services by seeking our expert advice, tax Legal services at PwC include: savings can be achieved. PwC has the knowledge and experience • Legal advice. necessary to help companies and PwC in Albania provides working with all industries represented organisations both large and small. comprehensive tax advisory services for • Legal due diligences. 10.1 PwC in Albania in Albania, we have built particularly Our audit and assurance approach all aspects of Albanian taxation, as well • Litigation and representation in civil strong expertise in areas such as is tailored to suit the size and nature as for international taxation. As elsewhere in the world, PwC in and administrative courts, as well as Albania uses the benefit of its hand-on banking, insurance, construction, of your organisation. With our We provide tax advice, answers to your arbitration tribunals. experience to provide a strong level energy, oil and gas, telecommunication, deep understanding of local and questions and/or offer opinions on tax of local understanding and support, infrastructure and retail. international regulation and legislation • Preparation and negotiation of matters including research, discussions, in accordance with the international we can also help with complex contracts. At PwC, our purpose is to More than 70 specialists in Albania memoranda and attendance at professional standards of the PwC reporting issues involving Sarbanes- build trust in society and and Kosovo provide daily professional meetings related to these matters. We worldwide organisation. Oxley and IFRS • Preparation of corporate deeds and solve important problems. assurance, tax, legal and business give clients the benefits of international establishment procedures. We’re the largest professional In Albania we are proud to offer advisory services to clients in Albania Additionally, we are leaders in expertise and in depth understanding services network, uniting services to leading domestic and by making use of their expertise and the development of non-financial of the local authorities. Our tax staff • Assistance in bankruptcy/ international competence. Most of them liquidation procedures. more than 223,000 people international companies and public performance reporting, helping our have substantial practice experience as undertake Association of Chartered clients respond to the need for greater well as academic experience through services institutions. Our clients • Compliance and regulatory from 157 countries, who Certified Accountants (ACCA) studies, transparency, improved corporate on-going training within PwC. range from the largest and most requirements. are committed to delivering complex organisations to start-ups and with many already being members. governance and business models based We place a high priority on problem quality in assurance, innovative entrepreneurs. Others are members of the Institute of on the principles of sustainability. • Assistance in licensing procedures. advisory, tax and legal Certified Public Accountants in Albania solving, creativity and building long- Our Assurance Services include: term relationships with clients. services. We tailor our services to match the and/ or Certified Public Accountants, • Immigration services. needs and requirements of each client, all prepared and experienced to help • Audits of financial statements Our tax services include: considering their size and specific our clients build value, manage risk and • Real estate transactions. prepared in accordance with IFRS. needs. While we have experience improve their performance. • Tax compliance and accounting. • Secretarial services. • Audits of financial statements prepared in accordance with the • Tax reporting strategy. Advisory services generally accepted accounting • Transfer pricing. principles in Albania. Our Advisory Services practice focuses • Tax advisory. on the strategic development of • Reviews of financial reporting. businesses, including the purchase • International tax. or sale of businesses and assets and • Agreed upon procedures. assisting in the development of new • Tax planning, structuring and projects. By combining the global • Expert opinions on accounting optimisation. technical issues. knowledge pool of Advisory Services • Tax due diligence, reorganisations with our local skills we are able to • Training on accounting and financial and post-deal integrations. provide an exceptional service to reporting. clients by effectively linking regional • Tax appeals and litigations. commercial reality with international • Assistance with various accounting resources to create a position of mutual related matters. • International assignment services. acceptability and consensus. • Regulatory compliance and • Expatriate tax services. In Advisory Services we support and reporting. Legal services advise our clients in developing new • Sarbanes-Oxley compliance. projects including feasibility studies, Our PwC legal team has the local valuation, business plan preparation • Independent controls and systems and international knowledge and and market surveys. We also advise on process assurance. experience in assisting clients in all mergers and acquisitions or takeovers of legal aspects of their business in Albania businesses. • Internal audit. and cross border transactions. With a Our Advisory Services also include Tax services commercial awareness approach and a solution oriented mind-set, we are transaction and performance Tax is a major factor in virtually every dedicated to providing legal advice, improvement services. business decision. Clients realise that, strategy and alternative resolutions.

44 Doing Business and Investing in Albania Doing Business and Investing in Albania 45 Corporate social responsibility Useful sources of information

We know that it takes more than just responsibility. What we do every day We participate in various charity Financial Supervisory Authority http://www.amf.gov.al/ nice words and good intentions to helps to increase the transparency and initiatives. In addition to offering make the world a better place to live. reliability of the Albanian environment funding, our employees act as Albanian Association of Banks http://www.aab.al/al/ and contributes to alleviating the volunteers to make a contribution of Ministry of Urban Development http://www.zhvillimiurban.gov.al/ Making a lasting contribution requires problems in society. their time and know-how. one to deliver real actions. It may come Gateway to Albania: http://albania.al/ in various forms – a monetary support, We take pride in conducting our own We care about those we work with, an environmentally responsible business in an honest and ethical respect and value our colleagues, share General Tax Directorate: https://www.tatime.gov.al/eng/ behaviour or advising those in need are manner. We participate in vocational work-related knowledge and experience, Customs Administration: http://www.dogana.gov.al/en only a few of the possibilities. associations and legislative drafting as appreciate healthy ways of living and well as share our knowledge in training promote sports and active lifestyle. Institute of Social Insurance: http://www.issh.gov.al/al/sigurimi-i-detyruar/ Therefore, on top of continuously sessions and seminars. striving to fulfil and exceed our Our motto and aim is building Councils of Ministers: https://www.parlament.al/ clients’ expectations, we feel a wider We help those in greater need. relationships through creating values. Ministry of Finance: http://www.financa.gov.al/en

Bank of Albania: https://www.bankofalbania.org/

Institute of Statistics: http://www.instat.gov.al/en/Home.aspx

Electronic and Postal Communications Authority: http://akep.al

Official Publications Centre: http://www.qbz.gov.al

Other useful addresses and websites:

PwC Albania: http://www.pwc.com/al/en.html

Albanian Investment Development Agency: http://aida.gov.al/home

The World Bank - Doing Business in Albania: http://www.worldbank.org/sq/country/albania

Portal of public services: https://www.e-albania.al/

Foreign Investors Association of Albania: http://fiaalbania.al/

46 Doing Business and Investing in Albania The material contained in this guide is for general information purposes only and does not contain a comprehensive analysis of each item described. Before taking (or not taking) any action, readers should seek professional advice specific to their situation. No liability is accepted for acts or omissions taken in reliance upon the contents of this publications. At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com. “PwC” is the brand under which member firms of PwC International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. © 2017 PwC. All rights reserved.