doing business and investing in albania

Doing Businessand Investingin Albania

www.pwc.com/al

2011 Edition

Doing business and investing in Albania 3

Guide to DoingBusiness andInvesting inAlbania

The purpose of this guide is to assistPwC clients and other parties interestedin doing business in Albania. It doesnot exhaustively cover the subject, butis intended as a synopsis of some of theimportant initial issues of concern to thoseplanning to do business in Albania.

It is intended to provide a generalguide only on the subject matter and isnecessarily in a condensed form. It shouldnot be regarded as a basis for determiningthe tax liability in specific circumstances.Professional advice should always be takenbefore acting on any information in thebooklet.


Partner’s letter

I am glad to present the 1st edition of our guide“Doing Business and Investing in Albania”.The guide is based on latest legislation andinformation.

Although it went under a strong shock by theexternal environment, during 2010, the Albanianeconomy managed to record growth, consolidatemacroeconomic stability and strengthenedfinancial system. The economic activity has grownprogressively supported by positive global economyperformance and private sector dynamism.

The guide to “Doing Business and Investing inAlbania” 2011 publication will be of valuableassistance to domestic and foreign investors orpotential investors alike, regardless of the type,size and character of the investment.

It aims at providing comprehensive and up-to-dateinformation on conducting business in Albania.This includes commentary on the latest legaldevelopments, audit and accounting changes,major tax and investment incentives and generaleconomic and business conditions.

Since 2005, PwC has been advising companiesand individuals on how to do business in Albania.We draw on our significant experience in thelocal market, as well as the strength of ourinternational network to help build value, managerisks, and improve the performance of yourbusiness in Albania. With 40 highly-qualified andexperienced staff, PwC Albania can assist in yourbusiness plans from commencement of operationsto expansion of business to multi-sector tradingand investment enterprises.

A brief guide such as this cannot answer all yourquestions. However, it will provide you with somevaluable insight in the Albanian market and makeyou better prepared to meet challenges ahead.More detailed advice should be sought to each ofour professionals in PwC Audit sh.p.k.

We hope to be of service to you during this excitingperiod of new opportunities in Albania.

October 2011

Stefan WeiblenCountry Managing Partner

Welcome to the first publication in the series of guide to“Doing Business and Investing in Albania”


Content1. Albania – a profile

1.1. Introduction

1.2. People

1.3. Governing structures

1.4. Legal system

1.5. Economy

1.6. Trade

1.7. Energy

2. Business environment

2.1. Business environment

2.2. Technology and industrial zones

3. Foreign investments

3.1. Investment background

3.2 Investment incentives

4. Banking and finance

4.1. The banking system

4.2 Performance

4.3 Central Bank

4.4 Insurance market

4.5 Leasing companies

4.6 Stock exchange

5 Import and export

5.1 Foreign trade regime and major regulations

5.2 Customs regime

6 Business entities

6.1 Company registration

6.2 Forms of business entities

6.2.1 General Partnerships

6.2.2 Limited Partnerships

6.2.3 Limited Liability Companies (sh.p.k.)

6.2.4 Joint-Stock Companies (sh.a.)

6.2.5 Representative offices

6.2.6 Branches of foreign legal entities

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6.3 Regulatory environment

6.3.1 Competition law

7 Labour relations

7.1 Labour

7.2 Employment contracts

7.3 Public holidays

7.4 Employment of Foreigners

8 Taxation

8.1 Profit Tax

8.1.1 Corporate income tax

8.1.2 Tax rate

8.1.3 Taxable persons

8.1.4 Exemptions

8.1.5 Taxable base

8.1.6 Permanent establishment

8.1.7 Capital gains

8.1.8 Dividends

8.1.9 Fiscal losses

8.1.10 Transfer pricing

8.1.11 Bankruptcy

8.1.12 Filing requirements

8.2 Personal Taxation

8.2.1 Personal income tax

8.2.2 Tax rate


8.2.4 Taxable base


8.3 Withholding Tax

8.3.1 Basis of taxation

8.3.2 Tax rate

8.3.3 Taxable income

8.3.4 Exemptions

8.3.5 Reduced WHT rates


8.4 Social and Health Contributions

8.4.1 Taxable person

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8.4.2 Foreign individual taxation

8.4.3 Tax rate


8.5 Value Added Tax

8.5.1 Standard VAT rate

8.5.2 Reduced VAT rates

8.5.3 Exempt supplies

8.5.4 VAT computation

8.5.5 VAT exemptions on import

8.5.6 VAT deferral scheme

8.5.7 Supplies for which input VAT cannot be credited

8.5.8 VAT reimbursement procedures


8.5.10 Application of the reverse charge mechanism onthe import of services

8.6 Excise Tax


8.6.2 Taxable base

8.6.3 Exemptions

8.6.4 Reimbursement

8.7 Local Taxes

9. Accounting and audit

9.1 Accounting

9.2 Audit

10. Introduction to PwC

10.1 General information

10.2 PwC in Albania

10.2.1 Assurance Services

10.2.2 Tax and Legal Services

10.2.3 Advisory Services

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Office Location

Contact detailsPricewaterhouseCoopers Audit sh.p.k.Blvd. Dëshmorët e KombitTwin Towers, Tower 1, 10th

Tirana, Albania

Phone: +355 4 22 42 254Fax: +355 4 22 41 639

[email protected]

www.pwc.com/al

Tirana


Investingin Albania – Highlights

Albania offers positive macroeconomicsenvironment with one of the lowestinflation rates in the region and a stablecurrency;

The market in Albania offers skilledhuman resources making it verycompetitive in the region;

Albania has a very favourablegeographical position, making it verystrategic and attractive. The ports ofDurres and Vlora will soon be amongthe most important ports in the Balkansand entry points for the 8th Corridor. Ithas road infrastructure that integratesit into the regional and the Europeantransportation networks;

Albania presents a number oftruly remarkable advantagesfor potential investors:

Albania has developed a highly-liberalised foreign trade policy and hassigned Double Tax Treaties with morethan 30 countries;

Albania is a land rich in naturalresource, including oil, gas, coal,iron, copper, chrome, and water/hydroelectric potential.


Albania – a profile

1.1. Introduction

History

The history of Albania goes back toprehistoric times, from the 4th century BC.The first inhabitants to populate Albania,at the beginning of the Bronze Age, werethe Illyrians, an Indo-European peoplewho settled in the Balkan Peninsula. Thename Albania (in Albanian: ‘Shqipëri’),derives from one of the Illyrian tribes called“Albanoi” meaning the “Land of Eagles”.

In 395 AD, Albania was occupied by theByzantine Empire which establishedan administrative system comprising ofmilitary provinces which contributed tothe eventual rise of feudalism in Albania.

In 1190 the first Albanian medieval state,the Principality of Arber was foundedwith Kruja city as the capital. In themiddle ages, the name Arbëri began tobe increasingly applied to the region nowcomprising the nation of Albania.

In the late 14th century, with the expansionof the Ottoman Empire towards theBalkans, Albania became a battlefield. Forabout 25 years, the well-known leaderof that time, Gjergj Kastrioti Scanderbegunited the Albanian provinces, leadingthem in their resistance against theOttoman army. Following his death in1468, the Ottomans occupied the countryfor about five centuries.

Albania proclaimed its independence in1912 and the present day national borderswere sanctioned by a Conference ofAmbassadors in 1913.

A short-lived monarchy (1914–1925) wassucceeded by an even shorter-lived firstAlbanian Republic (1925–1928), to bereplaced by another monarchy (1928–1939), which was consumed into FascistItaly during World War II.

Albania finally achieved independenceon 29 November 1944, waging a NationalLiberation War and siding with the alliesof World War II first, against Italy and thenagainst Germany.

Thereafter, Albania became a communiststate, called Republic of Albania (1946 –1976) and the Socialist People’s Republicof Albania (1976 – 1991), which, for themost part of its existence, was dominatedby Enver Hoxha (d. 1985). It was RamizAlia who oversaw the disintegration of thecommunist state during the wider collapseof the Eastern Bloc in the latter 1980s.

The Republic of Albania was founded in1991 and the former communist partywas routed in elections in March 1992,amid economic collapse and social unrest.Further crises during the 1990s, peakingin the 1997 Financial Pyramid Schemes,led to the mass emigration of Albanians,mostly to Italy, Greece, Switzerland,Germany and North America.

Albania became a full member of NATO in2009. The country has applied to join theEuropean Union.

Geography and Climate

Albania is located in South East Europein the west of the Balkans and sharescommon borders with Macedonia to the

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East, Greece to the South and Kosovo andMontenegro to the North. It has access tothe Adriatic and Ionian Seas in the westand southwest being less than 72 km awayfrom Italy, across the Adriatic Sea.

The country covers an area of 28,748 sqkm. The climate is Mediterranean with dryhot summer and cool rainy winter.

The terrain is mostly mountainouscombined with a beautiful coastline andnumerous rivers and lakes.

The geographic coordinates of Albania are41°00’N, 20°00’E. Albania falls within theCentral European Time Zone (GMT + 1).Between April and October, it switches todaylight savings time, i.e.GMT+2.

The highest point in Albania is KorabiMountain (2,751 m). The three largeand deep tectonic lakes of the BalkanPeninsula, Lake Ohrid, Prespa Lakeand Lake Shkodra, are partly located inAlbania. The capital and the largest cityis Tirana, with 800,199 inhabitants. Theprincipal cities are Durrës, Korça, Elbasan,Shkodra, Gjirokastra, Vlora and Fier.

1.2. People

Population

Albania has a population of 3,195,000 witha density of 111.1/km2 (327.8/sq m). 58%of Albanians live in villages.

Main cities in Albania Population*

Tirana 800,199

Fier 374,005

Elbasan 343,054

Durrës 310,442

Korça 257,530

Vlora 246,016

Berat 211,734

*Including districts

After the demise of the communistdictatorship regime, Albania experienceda demographic change. Hundreds ofthousands of Albanians emigrated toItaly, Greece, the EU and North Americancountries.

Language

The official language in the Republicof Albania is Albanian. Albanian is anIndo-European language spoken byapproximately 7.6 million people, primarilyin Albania and Kosovo, but also in otherareas of the Balkans, in which there is anAlbanian population, including westernMacedonia, southern Montenegro,southern Serbia and north-western Greece.

Religion

The Constitution of Albania provides forfreedom of religion, and the governmentrespects this right in practice. There havebeen no reports of societal abuses ordiscrimination based on religious beliefs orpractice.

Albania has been free of religiousconflicts, mainly because Albanians havetraditionally displayed a high degree ofreligious tolerance.

Education

The first two levels of education (1-5 and6-9) are compulsory but most studentscontinue at least until a secondaryeducation.

Most schools are public and financedby the government, but recently severalprivate schools of various levels have beenopened. There are about 5000 schoolsthroughout the country. With largepopulation movements in the 1990s tourban areas, the provision of educationunderwent a transformation. TheUniversity of Tirana is the oldest university


The President is the head of state and iselected by a three-fifths majority vote ofall Parliament members. The Presidentserves a term of five years with the right toone re-election. Although the position islargely ceremonial, the Constitution doesgive the President authority to appoint anddismiss from office some civil servants inthe executive and judicial branches and toissue decrees. The current President’s termexpires on 23 July 2012.

The Prime Minister is appointed by thePresident and approved by the Parliament.The Prime Minister serves as the Chairmanof the Council of Ministers, which consistsof the Prime Minister, Deputy PrimeMinister, and 15 ministers.

1.4. Legal system

The Albanian legal system is based ona system of civil law. All legal acts mustbe in compliance with the Constitution.International treaties and conventionsratified by Parliament prevail in theevent of an inconsistency with Albanianlegislation.

Legal acts are issued and approved by therespective organizations as follows:

Laws are proposed by the Councilof Ministers, any member of theParliament or 20 thousand voters(people), approved by Parliament of theRepublic of Albania and proclaimed bythe President of the Republic;

Parliamentary decisions are issued bythe Parliament;

Decrees are issued by the President ofthe Republic;

Normative acts, decisions, instructions,regulations and orders are issued by theCouncil of Ministers;

in Albania, founded in October 1957. Apartfrom the State University, there are severalprivate universities offering a wide rangeof subject specializations.

Living standards

Albania remains a poor country byWestern European standards. It’s GrossDomestic Product (GDP) per capita ofEUR 2,572, stood at 26 percent of the EUaverage in 2010. Still, Albania has shownpotential for economic growth, as moreand more businesses relocate to Albaniaand consumer goods become availablefrom emerging market traders as part ofthe current massive global cost-cuttingexercise. The country ranks as one of thecountries with the lowest average salary inthe region, EUR 295 per month.

1.3. Governing structures

Albania is a Parliamentary Republic.Sovereignty in the Republic of Albaniabelongs to the people. The Constitution isthe highest law in the Republic of Albania,and was adopted by popular referendumon 28 November 1998. The system ofgovernment is based on the separation andbalancing of the legislative, executive andjudicial powers.

The unicameral Parliament represents thelegislative branch. The executive branch isrepresented by the President as the Chiefof State, Prime Minister as the Head ofGovernment, and the Council of Ministers.The judicial branch is composed of theConstitutional Court, the Supreme Courtand multiple Appeal Courts and DistrictCourts.

The unicameral Parliament consistsof 140 seats distributed by a system ofproportional election zones lists. AllParliament members serve a four-yearterm.


Instructions, regulations and orders areissued by each Ministry;

Court decisions are issued from FirstInstance Courts, Courts of Appeal, andthe Supreme Court. Individuals or legalentities can appeal to the SupremeCourt only if they claim that the rightfor a fair legal trial has been violated. Alaw, after approved by the Parliament,is promulgated by the President ofthe Republic, and enters into force 15days after its publication in the OfficialGazette;

The Constitutional Court which is notpart of the ordinary judicial systemhas a special role and has jurisdictionover the review of the constitutionalityof laws and other normative acts.The Constitutional Court guaranteesand upholds compliance with theConstitution, which it has the ultimatepower to interpret.

Justice system

The court system consists of the SupremeCourt, the Appeal Courts, and theDistrict Courts. The Constitutional Courtcomprises nine members, appointed bythe People’s Assembly for a maximumterm of 9-years. The Constitutional Courtinterprets the constitution, determines theconstitutionality of laws, and resolves casesof conflicts of competences between localand central authorities. It is not part of theordinary judicial system.

The First Instance Courts and theAppeal Courts judge cases underthree jurisdictions: criminal, civil andadministrative. There is also a militarysection within the structure of the Firstinstance Courts. The Courts of Appealconsist of 6 Appeal Courts and 1 MilitaryAppeal Court. The cases in the AppealCourts are judged by panels of three

judges. The judges serve 7-year terms. ThePresident of the Republic chairs the HighCouncil of Justice.

A panel of three judges or one judgerenders Albanian court verdicts in thename of the Republic; there is no “trial byjury’’ system in Albania.

High Council of Justice

The High Council of Justice is composed of15 members: the President of the Republic,who chairs the High Council of Justice, theChief Justice of the Supreme Court, theMinister of Justice, three members electedby the Assembly, and nine judges from anylevel in the court system elected by theNational Judicial Conference.

The High Council of Justice proposes to thePresident of the Republic the appointmentof judges of the courts of first instanceand the courts of appeal, decides on thedismissal of judges of the courts of firstinstance and the courts of appeal, decideson the transfer of judges, decides on thedisciplinary measures taken against judges,and appoints and dismisses the Chiefs andthe Deputy Chiefs of the courts of firstinstance and the courts of appeal.

1.5. Economy

General description

The economy of Albania has undergonea transition from its communist pastinto an open-market economy in the lasttwo decades. Although the country isrich in natural resources, the economyis mainly bolstered by emigrant annualremittances, services, and the agriculturalsector. Albania’s economy has improvedsubstantially over recent years and hasoutperformed many other countries in theregion. During 2010, the GDP real growthrate was 3.5%, higher than the previous


into the regional and the Europeantransportation networks;

Natural resources include significanthydroelectric power potential, largeswathes of fertile agricultural land andvaluable mining deposits.

Currency

The Albanian official currency is Lek. Thecurrency code for Albanian Lek is ALL.

There are two inter-bank payment systemsin Albania both operated by the Bank ofAlbania (the National Central Bank); a realtime gross settlement system (AIPS) and aretail payment system (AECH).

The use of foreign currencies for paymentis allowed.

Transport

Albania is situated in the Western Balkansand enjoys a favourable geographiclocation in South-Eastern Europe. Albaniais very close to and related to largereconomies such as Greece and Italy –which are its two most important tradingpartners, hosts of Albanian immigrantsand sources of investment.

Albania benefits from a strategicgeographical position (Corridor VIII).Instigated by the European Commission(EC), “The Corridor VIII” is one of tentrans-European corridors that connect theAdriatic Sea to the Black Sea. It starts fromthe Italian ports of Bari and Brindisi andknocks on the door of Durrës in Albaniabefore carrying on through Tirana, Skopjeand Sofia, finally arriving in the Black Seaports of Burgas and Varna. This Corridorhas a significant importance for Albaniaand Macedonia from a geopolitical andgeo-economic point of view.

Currently, there are four main highways in

year (3.3%), according to the InternationalMonetary Fund.

Albania’s GDP stood at Euro 8,748 millionand Euro 8,169 million in 2010 and 2009,respectively. According to preliminary datafrom the World Bank’s Poverty AssessmentProgram, 12.4% of the population livedbelow the poverty line in 2010, marking aconsiderable improvement from 25.4% in2000. The official unemployment rate for2010 is 13.80%, with almost 60% of theworkforce employed in the agriculturalsector, although the construction andservice industries have been expandingrecently. Tourism has been boostedsignificantly by ethnic Albanian touristsfrom throughout the Balkans.

Why investing in Albania?

Strong economic potential

Albania has a strong economic potentialand is the right destination in SouthEastern Europe (SEE) for foreign directinvestment, because:

It has a rapidly growing economy at asteady pace associated with a low rateof inflation;

Albania is a land rich in naturalresources (such as chrome, copper, oil,water);

The market offers skilled humanresources at low cost making it verycompetitive in the region;

It has very favourable geographicalposition, making it very strategic andattractive;

The ports of Durrës and Vlora willsoon be among the most importantports in the Balkans and entry pointsfor the 8th Corridor. Albania has aroad infrastructure that integrates it


Albania: the highway connecting the cityof Durrës with Tirana, the one connectingDurrës and Tirana to Shkodra andMontenegro, the one connecting Durrëswith Lushnja and Durrës-Kukes Highwaywhich connects Durrës with Kosovo.

All cities in the country are linked bynational roads. Albania has a roadnetwork of close to 18,000 km, of which12,290 km is paved. The country reliesheavily on its road network both fortransit trade into southern and centralEurope and to link its urban and ruraldwellers. The development of crucialsectors – from agriculture to tourism – isdependent on the country’s transportinfrastructure and to this end, a numberof key road development projects havebeen undertaken in the last decade. Roadconstruction continues to be a high priorityfor the country.

The railways in Albania are administeredby the National Railway Company andextend over a network measuring 399 km.

The railway network is mostly obsolete andpoorly connected and needs considerableinvestment. Some trains and railwayequipment were damaged during the 1997unrest in Albania. Carriages currentlybeing used have been obtained second-hand from other European railways andsome are in a dilapidated condition.Although the official maximum speed limitis 80 km/h, the actual speed the networkbears is 28 km/h.

Ports

With its Adriatic and Ionian coastline andclose proximity to North Africa and theMiddle East, Albania is strongly positionedas a regional hub for maritime trade;however there is low capacity and alsolow levels of computerisation in all ports.Albania has four major seaports – Durrës,

Vlora, Saranda and Shëngjin, with Durrësaccounting for the largest volume of freight– around 75% of the nation’s total.

The Port of Durrës is the biggest port ofAlbania; it is formed between two moles,with a west-north-westerly orientedentrance approximately 183 metres wide asit passes between the ends of the moles.The Port of Durrës has approximately 763meters of alongside pier space on the WestMole and a fishing harbour lies at the northend of the East Mole.

Aviation

Tourism is Albania’s fastest growing sectoras increasing numbers of visitors discoverwhat the country has to offer. This positivetrend coupled with its growing integrationwith Europe both politically and financiallyhas necessitated a heavy investment in airtransport.

Tirana’s Mother Teresa Airport hasundergone significant modernisationand expansion in the last decade – withannual passengers increasing from around700,000 to well over 1 million a year andthe number of international air operatorsincreasing from 7 to 18.

Mother Teresa, Tirana InternationalAirport, is the only international airportin Albania, and is operated by a GermanCompany, under a concession to build,operate and transfer granted by theAlbanian Government.

Telecommunications

Albtelecom is the biggest operatorproviding telecommunication services onlandline telephony in Albania. It offerslocal, national and international telephoneservices for its network subscribers and atthe same time it supports and links othertelecommunication operators in Albania.


Albtelecom has around 240,000subscribers, more than a half of whomlive in Tirana. In 2007, Albtelecom wasprivatised by a Turkish consortium oftwo companies, Calik Holding and TurkTelekom, with the former holding 80% ofthe consortium’s stake.

Albania’s country code is: +355.

Albanian post offices operate throughoutAlbania providing service both withincountry and abroad.

Tourism

Tourism in Albania, although stillunderdeveloped, has witnessed asubstantial increase in recent years.Official data show that 567,835 touristsentered into Albania in the period fromJanuary to May 2011. The total numberof tourists was 2,302,899 in 2010, or 29%higher than 2009.

Lonely Planet recently listed Albania asthe number 1 choice on its list of top-10countries to visit for 2011.

In terms of tourism assets, Albania has avery rich natural and cultural heritage,such as:

Coastal Tourism - the Albanian Rivierais one of the most beautiful places ofthe Mediterranean with a virtuallyunexploited tourist potential;

Mountain & Rural Tourism - very rich inmountains and traditional characteristicvillages;

Cultural Tourism - with around2000 archaeological /historicalsites (fortresses, castles, religiousmonuments, vernacular architecture) artgalleries etc.;

Flora & Fauna - with a great variety ofplants and number of rare birds andanimals;

Outdoor Activities - with excellent sitesfor outdoor sports and activities.

Some of the most visited cities include:

Berat, known as the town of ‘a thousandand one” windows and Gjirokastra, thecity of stone, which are both part of thecultural heritage of UNESCO;

Durrës, known as the old port city ofDyrrhachium;

Kruja, the balcony over the Adriatic sea;

Tirana, the capital;

Vlora, the city of sea, olives and grapes;

Lezha, the historic diplomatic capital ofAlbania;

Pogradec, the poet’s city;

Saranda, the honeymooners’ city;

Shkodra, the city that is home, amongother, to the Rozafa castle.

Over a third of the country is coveredwith forests while the Albanian territoryincludes areas that rank at the top ofEurope’s high biodiversity reserves suchas the Karavasta lagoon, Lake of Shkodra,Buna River and Butrinti National Park.

The Albanian coast, which is 316 km long,encompasses two Seas: the Adriatic andthe Ionian. The Adriatic coast has longun-populated beaches. Restaurants, ferrylines and ports are nearby. The Ioniancoast has an infinite number of smallbays offering total privacy. Within a fewminutes one can leave the mountainsand reach the sea, finding views of rarebeauty. Not surprisingly, it’s called “TheMediterranean’s last pristine beach”.Albania has eternally been on borders thathave marked empires and eras, while italso embodies cultures, legends and well-known characters. Here we can find thefootprints of Aeneas, the wars of Alexanderthe Great, the campaigns of Epirus and theschools where Roman emperors learned.


Albania is a strikingly beautiful countrywith a unique culture and a wealth ofhistorical sites.

1.6. Trade

International relations

Albania is currently pursuing a pathof greater Euro-Atlantic integration.Its primary long-term goals are to gainEU membership and to promote closerbilateral ties with its neighbours, the EUcountries and with the United States.Albania is a member of a number ofinternational organizations, as well asmultiple regional organizations andinitiatives, including NATO, OSCE, UN,the Stability Pact, the Adriatic Charterand WTO. In June 2006, Albania andthe EU signed a Stabilization andAssociation Agreement (SAA), the firststep to EU membership, which focuses onimplementing essential rule of law reformsand curbing corruption and organizedcrime. Albania filed its application forEU candidacy on 28 April 2009 buthas not yet been granted candidatestatus. In November 2010, the EuropeanCommission listed conditions still to bemet by Albania.

Trade Liberalization in SAA Terms

The interim Free Trade Agreement (FTA)between Albania and the EU guaranteesthe establishment of a free trade areaaccording to the commitments of Albaniaunder the agreements signed with theWorld Trade Organization.

Interim Agreement and the FirstTransition Period

Albania and the EU started to enforce theinterim agreement on free trade betweenAlbania and the EU on 1 December 2006.Under this agreement, Albania and the EU

have established an asymmetric approachwith regard to the market opening for bothindustrial and agricultural goods. Thus,Albania has a 5-year period to abolish allthe customs tariffs for industrial goods andwill apply a more relaxed liberalization inthe field of agricultural products, whilethe EU will ensure a rapid opening of itsmarket for industrial and agriculturalgoods from Albania.

Interim Agreement and RegionalCooperation

Albania is a party to the FTA betweenSouth Eastern European countries as wellas to the Central European Free TradeAgreement (CEFTA). The 2006 InterimAgreement on Free Trade between Albaniaand the EU, CEFTA, will ensure benefitsfor the Albanian economy by expandingthe markets for Albanian products withpreferential treatment.

1.7. Energy

Historically, there have been a numberof challenges facing the energy sector inAlbania, including the lack of primaryenergy resources, limited production andinterconnection capacities and the fulldependence for its power production onhydroelectric resources.

Albania imported up to 2.8 billion kWhof electricity in 2008 and 2009, being thehighest imported amount of electricityin a single year, over 78% of its totalconsumption (3.61 billion kWh). Importof electricity (2.5 billion kWh) fell to 69%of total consumption (3.6 billion kWh) in2010. During the first three quarters of2011, Albania produced 5.1 billion kWhand imported only 1.9 billion kWh due tothe improved hydro electrical situation.Domestic demand shows no indicationof levelling off. During 2011 it increasedby 83% compared to 2010. The Vienna


Institute for International Economic Studiespredicts that average growth in electricityconsumption in Albania will continue by anaverage 4% per year until 2020.

In 2006 Albania set out a National EnergyStrategy (NES) for the period 2006-2020,in order to boost the security of supplythrough diversification and constructionof new generation facilities and inter-connection lines and the use of renewablesources of energy. The implementationof the NES has resulted in an increasingnumber of concessions being granted inlocal hydropower plants.

Albania is a mountainous country as 70%of its territory is occupied by mountains,hills, the surfaces of lakes and rivers, withrelatively numerous rainfalls. In terms ofwater resources and hydroelectric powerpotential, it is ranked among the topcountries in Europe. The average height ofhydrographical territory is considerable,about 700 meters above sea level.

Investments

The Government of Albania has enteredinto a concession agreement with a jointventure partnership between EVN AG andStatkraft AS, Austrian and Norwegiancompanies, respectively, through whichthe Government of Albania has grantedto the joint venture the right to develop ahydropower project on the Devoll Riverin Albania. The joint venture companywill plan and construct three peak-loadhydropower storage plants with a totalcapacity of approximately 340 MW and anaverage production of approximately 1.000GWh. The overall investment will amountto EUR 950 million and the plans shouldbe realized within a time frame of roughlyeight years and be finalised in 2016.

A fourth Hydroelectric Power Plant (HPP)will be constructed in Ashta, in the north

of Albania. Verbund has reached a 35 yearconcession agreement with the Governmentof Albania for the construction andoperation of the hydropower plant of Ashtasituated on the Drin River in the north ofAlbania, with a capacity of 53 MW. The totalinvestment will amount to EUR 200 million.

The Government has awarded to Tecnimonta contract for the construction of a new 97MW, EUR 78 million low-sulphur distillateoil fuelled power plant about six kilometresnorth of Vlora.

An EU approved study examined thepotential to harness the river Drin with fiveplants. Each of these plants will have aninstalled power and will produce electricityon average per year as follows:

Skavica 350,000 kW and 1.5 billion kWh

Fierza 500,000 kW and 1.8 billion kWh

Koman 600,000 kW and 2.0 billion kWh

Vau i Dejes 250,000 kW and 1.0 billionkWh

Bushat 100,000 kW and 0.4 billion kWh

In the meantime, a feasibility study isbeing conducted to assess the hydroelectricpotential of three of the largest rivers inAlbania.

During 2008 the government approvedan energy park to be located in SpitalleDurrës near Porto Romano and there arediscussions with Italian companies to buildseveral coal-fired Thermo Power Plants(TPPs) with an installed capacity of 800MW.

Another important event in the energysector is the signing of the first agreementwith Trans European Energy BV forthe project for the construction of thegasification of liquid natural gas in SemanFier and an undersea gas pipeline linkingAlbania with Italy.


Investments in renewable energy

Albania is implementing the EC Directive2001/77/EC to promote directly orindirectly Renewable Energy Sources(RES) projects.

Pursuant to the Law No.8987, dated 24December 2002, “On creating facilitatingconditions for the construction of newsources of electricity generation” eachinvestor that builds sources of productionof energy with installed power of notless than 5 MW per source and that usesliquid or solid fuels, without restriction forother renewable sources of production, isexcluded from payment of customs taxesfor the machinery and equipment thatare part of the object of the production ofenergy.

A new draft law for the promotion ofRenewable Energy Sources is underdiscussion.

The Government of Albania also granted alicense to Albanian Green Energy to build aThermo Power Plant using biomass with aninstalled capacity of 150 MW.

The Government is also promoting theTrans Adriatik Pipeline (TAP) and IonianAdriatik Pipeline and their inclusion in theWest Balkan pipeline project (part of theEnergy Community Ring).

In addition to these large projects,the government has approved severalconcession contracts for small scale HPPs.By September 2008, the government hadapproved 27 concession contracts to buildsmall HPPs with a total installed capacityof 125 MW. In total, the governmentreceived 120 unsolicited proposals todevelop small HPPs.

The World Bank is also sponsoring afeasibility study for HPPs on the Vjosa andOsumi rivers and the government plansto solicit proposals for the exploitation ofthose rivers.

All of these projects in the energy sectorare expected to boost foreign directinvestments in the near future andmay possibly resolve Albania’s chronicelectricity problems.


Business environment2

2.1. Business environment

Both fiscal and monetary policiesare focused on the preservation ofmacroeconomic stability, as a preconditionfor providing high and sustainableeconomic growth in the future and a rapidcaching up with the average EU welfarelevels.

The country’s fiscal policy is orientedtoward the consolidation of publicfinances. The main quantitativeoperational targets of the fiscal policyframework for the medium term (2011-2013), are:

Public debt ceiling as a ratio to GDP will

be 60% for each year from 2011 to 2013.

Overall fiscal deficit ceiling as a ratio ofGDP will be 3.5% for 2011, and 3% ofGDP for 2012 and 2013.

Capital expenditures for each year, 2011to 2013, will be no less than the overalldeficit.

For the period 2011 to 2013, Albania willcontinue to prioritize public investmentallocations to sectors such as education,infrastructure, health care, andagriculture.

The monetary policy objective is toachieve and maintain price stability.


The quantitative target of the monetarypolicy is to achieve an annual changeof Consumer Price Index of 3%, witha tolerance band of +/- 1pp, over themedium term. The annual inflation ratereported for 2010 and 2009 was 3.6% and2.2% respectively.

Monetary policy will continue to beconducted under a flexible exchangerate regime, where the value of Lekagainst other foreign currencies is freelydetermined in the foreign exchangemarket by its supply and demand.

The projected macroeconomic policymix, accompanied by structural reformsaimed at increasing competitiveness inseveral domestic products and services,is expected to reduce the current accountdeficit to more sustainable levels. Theimplementation of key structural reformswill continue in the medium-term,supporting the objectives of policy mix.In this regard, further measures willbe taken, aimed at improving the legaland regulatory framework for businessoperations, improving the overall businessclimate, increasing the competitiveness ofdomestic products and services, furtherimproving the financial sector, reducingthe informal economy, completingreforms of the public administration, andimproving conditions in the labour market.

2.2. Technology andindustrial zones

In recent years government measures havebeen introduced through an Informationand Communication Technology strategythat aims to bring Albania up to speed inthe digital age. Legislation has liberalisedthe telecommunication industry, bringingit into line with the EU regulatoryframework for communications.

In 2007, the National Agency forInformation Society (NAIS) was set

up, drafting the National Strategy onInformation Society and legal framework,to coordinate ICT related projectswithin the government and achievestandardisation and provide technicalassistance. Aided by UNDP funding, ithas initiated major programmes suchas the e-schools project. It providesindividuals, business and government aninterface to the services that are providedelectronically by the government, to thesestakeholders.

Projects such as these saw the percentageof the population using the internet risefrom 2.4% in the middle of the decadeto 16% in 2010. At the same time, thegrowth in SMEs and the influx of foreigncompanies is fuelling ICT expansion.

With one of Europe’s youngest and mostmultilingual populations (the averageage of the Albanian population is 28),the government’s long term aim is to adevelop an IT-literate, knowledge basedsociety increasing its worth as a businessdestination and a prospective memberof the European Union, and bringingopportunity to its people.

Albania is also developing industrial zonesthrough the economic development ofindustrial cities like Tirana, Durres, themain port city, and Elbasan, a city whichin recent years has become an importantlocation for the development of industrialactivities in Albania. Other importantindustrial zones are located in the north-east of Albania, in places such as Bulqiza,Puka and Kukes, which are rich withmineral resources like chrome, copperetc. During recent years, the governmenthas undertaken a number of incentivesto increase the investments in this areathrough the liberalization of the processesrequired to enter the market. A largenumber of concessions have been grantedrecently to foreign companies whichoperate in the mining sector in Albania.


Foreign investments

3.1. Investment background

All investors, whether foreign or domestic,have the same rights over the ownershipof local companies. The total amount ofForeign Direct Investments (FDI) between2000 and 2010 is estimated to amount toEUR 3 billion.

The minimum capital requirement fora business start-up as a limited liabilitycompany is only ALL 100 (equivalent ofEUR 0.7 and USD 1). Registration of acompany is done through the NationalRegistration Centre in Albania by anapplication at the one-stop-shop. Itcomprises tax registration at national andmunicipal levels, labour inspectorate,National Statistics Institute, healthand social security. A new electronicsystem contributes to a simpler and afaster method to register companies andother legal entities, also storing relevantinformation on them. Moreover, the aboveregistration procedure is performed in asingle place and day.

The public procurement system in Albaniahas developed in the right directiondue to the adoption in 2006 of a newPublic Procurement Law (PPL). Thislaw takes into account the principles ofnon-discrimination and equal treatment,transparency, and legal protection ofinterests of bidders on public contracts.

With effect from 1 January 2008, Albaniaimplemented a 10 % flat-tax system, beingone of the lowest in Europe. The latterreform is one of the biggest steps towardsthe common objective of Albanians to

improve the business climate in order tomake Albania an easier place to invest.Albania has signed Double Tax Treaty(DTT) agreements with 36 countries out ofwhich 30 are currently in force.

3.2 Investment incentives

According to the Albanian Law ‘On foreigninvestments’ foreign investors willingto operate their business in Albania willbenefit, among other things, from thefollowing:

No prior government authorizationis needed and no sector is closed toforeign investment;

There is no limitation on the share offoreign participation in companies - 100percent foreign ownership is possible;

Foreign investment may not beexpropriated or nationalized directly orindirectly, except for designated specialcases, in the interest of public use andas defined by law.

Foreign individuals cannot purchaseagricultural land in Albania; on theother hand they have the right to leaseagricultural land for up to 99 years. Thereare no restrictions on other types of land.Other incentives are a flat corporate andpersonal income tax rate of 10% and acost-productive (flexible) workforce.

Foreign investors have the right to transfer,outside the territory of the Republic ofAlbania all funds and contributions in kindrelated to a foreign investment, including:

3


revenues;

compensations;

payments deriving from an investmentdispute;

payments made pursuant to a contract,including loan and interest paymentsmade according to a loan agreement;

proceeds deriving from the sale or thepartial or complete liquidation of aninvestment;

dividends deriving from the reductionof the capital of the company inaccordance with Albanian legislation.

A so called ‘Special protection for foreigninvestments in Albania’ is granted to allforeign investments that exceed or areexpected to exceed the value of EUR

10 million. This protection sets out thatthe foreign investor is substituted inthe judiciary process by the Albanianstate. Once this special state protectionis granted, any injunction order issuedby the court shall be executed over stateproperties. This special state protection isgranted until 31 December 2014.

The “Albania 1 Euro” initiative, aims togrant entry into the market for literally oneEuro. This initiative focuses on offeringstate-owned properties (assets, naturalresources, economic activities, fees forpublic services, etc.) for a fee of one euroto qualified investors. Concessions forsocially indispensable services such ashealth service, education, water and wastedisposal, infrastructure, energy and rawmaterial production - are also included inthis initiative.


Banking and finance4

4.1. The banking system

The banking system in Albania comprisesthe Bank of Albania (the Central Bank),as the only first tier bank, with secondlevel banks, being the commercial banks.It also comprises the Deposits InsuranceAgency, which is a state owned insuranceagency, which insures savings deposits inLek and foreign currency that are not usedfor commercial purposes. Deposits, to theextent that they exceed the amount of ALL2.5 million (EUR 17,730) are not insured.

As at the end of June 2011, 16 second-levelbanks operated in the banking market.International banking and finance groupssuch as Raiffeisen International, CalikHolding, Intesa SanPaolo, Piraeus Bank,Alpha Bank, National Bank of Greece,ProCredit Holding, Credit Agricole, SocieteGenerale, Veneto Banca Holding, and FirstInvestment Bank are all present in theAlbanian banking market.


4.2 Performance

The market structure of the AlbanianBanking Sector has changed significantlyin recent years. During the 1990s, Albaniaexperienced deregulation, penetrationby foreign banks in the market, and anaccelerated process of consolidation andcompetition in the banking sector. Thesituation worsened in 1997 by the pyramidschemes which led to a lack of confidencein the banking system and a local financialcrisis.

Since then, the regulatory authorities havestrengthened supervisory monitoring,moving towards well developed risk-basedsupervision and depositor’s confidence hasbeen restored.

The situation is fully stabilised since1999. As at the end of 2010, the Albanianfinancial system and banking sector were

assessed as being stable. The bankingsector’s activity has expanded further andits contribution to the Albanian economyhas increased. Profit indicators haveimproved relative to the previous period.The capitalization and operating liquidityposition is good. The need to improve loanquality remains the main challenge facingthe banking sector.

The banking sector’s share in the nationalGDP as at the end of 2010 is 85.7%.Banking sector’s assets amounted to ALL990.6 billion, accounting for 94.5% oftotal financial system assets. The annualgrowth rate of loans was 9.1% in 2010,out of which about 7.1 % represents thegrowth rate of business loans. Bankingsector deposits rose to ALL 805 billionin 2010. The positive performance ofthe banking sector is also due to thesmooth operation of the payment systems

Following is a complete list of the banks operating in Albania:

The four largest banks as at June 2011are Raiffeisen Bank (RZB InternationalAG, Austria), Intesa SanPaolo BankAlbania (ISP, Italy), Banka KombëtareTregtare (Calik Holding, Turkey) andTirana Bank (Piraeus Bank SA, Greece).Their assets weighting to the overallbanking system assets is more than60%, whereas their deposits weightingto the overall banking system depositsis more than 50%.

No. Bank Name

1 Alpha Bank

2 Credins Bank

3 Credit Bank of Albania

4 Emporiki Bank Albania

5 First Investment Bank Albania

6 International Commercial Bank

7 Intesa Sanpaolo Bank Albania

8 National Bank of Greece

9 Banka Kombëtare Tregtare

10 ProCredit Bank

11 Raiffeisen Bank

12 Societe Generale Bank Albania

13 Tirana Bank

14 Union Bank

15 United Bank of Albania

16 Veneto Banka


infrastructure. Liquid assets accountedfor 26% of total banking sector assets.At the sector level, the Capital AdequacyRatio dropped slightly to 15.4% in2010 compared to 16.2% in 2009 (theminimum required is 12%). The bankingsector’s profit was positive at ALL 6.7billion in 2010, almost twice the profitreported in 2009. The annualized returnon assets was 0.72%, and annualizedreturn on equity was 7.6% in 2010.

4.3 Central Bank

The Bank of Albania is the supervisoryauthority for banks, branches of foreignbanks and non-bank financial institutions.It carries out its supervisory role, pursuantto the Law “On banks in the Republic of

Albania”, through licensing, the issuingof bylaws, conducting financial analysesof financial data received periodically,on-site inspections, corrective actionsand cooperation agreements withtheir supervisory authorities abroad.Concerning the assessment of risks facingthe banking sector, the Bank of Albaniaconducts periodic stress tests in orderto assess the resilience of the bankingsector to possible adverse economicdevelopments in several macroeconomicand financial indicators, on an individualor combined basis.

During 2010, several new regulations wereintroduced as well as amendments madeto other regulations related to bankingsupervision.

4.4 Insurance market

Insurance companies are regulated by the Albanian Financial and Supervisory Authority.Seven companies operate exclusively in the non-life segment.

Company name Parent Company

Non-life

1 Sigal Uniqa Group Austria Uniqa Group Austria

2 Sigma Vienna Insurance Group Vienna Insurance Group

3 Interalbanian Vienna Insurance Group

4 Intersig Vienna Insurance Group

5 Atlantik Local ownership

7 Albsig Local ownership

8 Eurosig Local ownership

Life

9 Sigal Life Uniqa Group Austria Uniqa Group Austria

10 Sicred Local ownership

Non-life and life

11 Insig State owned


Two companies operate exclusively inthe life segment and the state run “Insig”provides both life and non-life insuranceservices.

Uniqa Group Austria and Vienna InsuranceGroup are the international insurancecompanies that lead the insurance marketin Albania through their ownership inSIGAL, SIGMA, Interalbanian and recentlyIntersig.

Substantial improvements have been madein efforts to increase the effectivenessof the supervision of the insurancesector. The legal framework has beenstrengthened with the approval ofprimary legislation broadly in line with EUrequirements.

The insurance market in Albania is mainlyoriented towards compulsory insurance,which represents 50.29% of totalpremiums as at June 2011, compared with49.71% of voluntary insurance.

Life insurance accounts for 11.93% ofthe total gross written premiums inthe Albanian insurance market as of 30June 2011 (2010: 9.26%). Debtor’s lifeinsurance accounts for 67.2% (2010:65.9%) of the life insurance market’s grosswritten premiums, followed by Life withsavings insurance at 13.5% (2010: 18.1%)and Group life insurance at 12.7% (2010:8.7%).

Non-life insurance accounts for 88% oftotal gross written premiums as at 30 June2011 (2010: 90.74%). Compulsory motor,third party liability, insurance accounts for50.29% of non-life insurance gross writtenpremiums (2010: 55.64%).

Property insurance accounts for 14.8% ofnon-life insurance gross written premiumsas at 30 June 2011 followed by sicknessinsurance of 12% and motor hull vehicleinsurance for 8.3%.

Despite its relatively quick development,the insurance sector suffers fromaggressive competition, governanceissues and lack of experience in financialreporting, etc.

Supervision authority

The Albanian Financial SupervisoryAuthority (AFSA) is a public independentinstitution. The AFSA is responsible forthe regulation and supervision of thenon-banking financial system in general,and the operations of the insurance sectorin particular. The AFSA reports to theAlbanian Parliament. The main areasof its activities fall under the following:insurance market and its operators;securities market and its operators;private supplementary pensions marketand its operators; other non-bankingfinancial activities, with the exception ofleasing companies and non-bank financialinstitutions.

Latest developments

The adoption of IFRS in the insurancemarket, as well as the expected adoptionfrom the European Union of the newregulatory regime, Solvency II, createssubstantial challenges to the sector’soperation and its supervision. The quickadoption by the market of the two newstandards, IFRS Phase II and Solvency II,is a priority of the Financial SupervisoryAuthority.


4.5 Leasing companies

The Law “On financial leasing” was enacted in 2005. There are seven leasing companiesoperating currently in Albania. Four of them are part of international groups such asRaiffeisen International, Piraeus Bank, EELF, and Societe Generale.

Company name Parent Company

1 Raiffeisen Leasing Raiffeisen Bank sh.a.

2 Tirana Leasing Piraeus Bank SA

3 Landeslease Emerging Europe Leasing and Finance

4 SocieLease Albania Societe Generale Albania

5 Credins Leasing Owned by local entrepreneurs

6 BI Leasing Owned by local entrepreneurs

7 Star leasing Owned by local entrepreneurs

4.6 Stock exchange

Tirana Stock Exchange has beenestablished since 2002. The StockExchange is not operational. It has onlyfive participants of which three are localbanks.

An important part of the activity of theTirana Stock Exchange is dedicated to

cooperation with important domestic andforeign institutions, in order to develop thecapital market, including cooperation withIFC. IFC is expected to provide technicalassistance to the Tirana Stock Exchange,training its staff, as well as helping withvarious activities for business informationabout governance and capital markets.


Import and export55.1 Foreign trade regime and

major regulations

Albanian foreign trade has been liberalizedsince 1990 and follows guidelines set bythe European Union. As a result of theongoing process of harmonization ofthe Albanian customs regulations withthe EU system, imports and exports ofcommodities are not generally subjectto special authorization requirements.Exceptions apply to quotas or controlrequirements imposed through differentbilateral or multilateral agreementssigned by Albania. Licenses are requiredfor specific commodities with restrictedcirculation within the country (such asmilitary or strategic goods, radioactivematerials and psychotropic substances).Licences can be obtained from the Ministryof Defence (for military or strategiccommodities), Ministry of Health (fordrugs and psychotropic substances).

Exports are not subject to any export taxes,fees or other barriers with a similar effect.Most imports of goods from the EuropeanUnion are tax free. All imports are subjectto VAT and some items, such as tobacco,alcoholic beverages and fuel are alsosubject to an excise tax.

Albania applies WTO rules on importlicensing, e.g. to products affectinglife, health and the environment. Since1 October 1999, Albanian exportsto EU countries have benefited fromthe asymmetric regime in the form ofautonomous measures. The regimeis applicable both to agricultural andindustrial goods.

5.2 Customs regime

The General Directorate of Customs(GDC) is the institution responsiblefor the management of customs in theRepublic of Albania. GDC is subordinateto the Ministry of Finance and conductsits activity pursuant to the Law No. 8449of 27 January 1999 “On Customs Code ofthe Republic of Albania” and its respectiveby-laws. The Albanian Customs Code isdesigned based on the Instruction of theCouncil of Europe EEC No.2913/92 of 12October 1992.

Albania is member of the World CustomsOrganization since August 1992. InJanuary 1985, Albania became a partyto the TIR (Transport InternationalRoutier) Convention of the United Nations.Albanian Customs also adheres to theJohannesburg Convention “On mutualadministrative assistance on customsmatters” and Nairobi Convention “Onmutual administrative assistance on theprevention, investigation and percussionof custom rules violations”. Bilateralagreements on customs assistance havebeen also signed with several Europeancountries.

Customs Tariffs

Custom tariffs are applied to all goodsspecified in the nomenclature based onthe Harmonized System (HS) of the WorldCustoms Organisation (WCO) as well asany other nomenclature which is wholly orpartly based on the HS.

Tariff levels applied by the AlbanianCustoms vary according to the type of


goods and country of origination andrange from 0% to 15%.

Customs tariffs include:

The rates and other charges normallyapplicable on goods covered by thenomenclature based on the HS.

The Preferential Tariff Measurescontained in agreements which theRepublic of Albania concludes withcertain countries which provide forgranting of preferential tariff treatment.

Autonomous suspense measuresproviding for a reduction or relief fromimport duties chargeable on certaingoods (preferential tariff treatment).

Other tariff measures provided for inthe framework of the Albanian tradepolicy.

Custom tariffs in the Republic of Albaniaare subject to frequent amendments aimedat the reduction of tariff levels according tothe requirements of the WTO.

Albanian preferential tariffs and quotasapply to products originating in theEuropean Union, Turkey, CEFTA-2006 andEFTA.


Business entities6

6.1 Company registration

Foreigners enjoy the right to engage ineconomic activities in Albania withoutthe need to request permission orauthorization. The Albanian legislationprovides that in all cases and at all times,foreign investments shall receive fair andequitable treatment and shall enjoy fullprotection and security.

No sector in Albania is closed toforeign investors and there are nolegal barriers to market entry. TheNational Registration Center of Businessesprovides a “one-stop-shop” solution forbusiness registration. The NRC serves as

a single “window” for all types of businessentities throughout Albania to perform andapply for all business registration-relatedprocesses, including tax registration atnational and municipal levels, healthand social security, labour inspectorateand the National Statistics Institute.E- Procurement, E-taxes, simplificationof taxes and simplification of licensingprocedures are the major elements of theGovernment of Albania business reform.

In order to attract FDIs, the Governmentof Albania has developed a range ofincentives for investors and has applied aset of liberal fiscal policies.


6.2 Forms of businessentities

The Law No. 9901, “On Entrepreneurs andCompanies” shall regulate the status ofentrepreneurs, the founding and managingof companies, the rights and obligationsof founders, partners, members, andshareholders, companies’ reorganizationand liquidation. Companies are founded asgeneral partnerships, limited partnerships,limited liability companies or joint-stockcompanies. The registration requirementsare standardized based on the law onNational Registration Center (NRC).

Companies are founded by two or morepersons, who agree on achieving jointeconomic objectives through contributionsdefined by the Statute. Limited liabilitycompanies and joint stock companies mayalso be founded by one person only (singlemember company).

The Law No. 9901 does not apply to non-profit organisations to which the Law No.8788 “For the non profit organization”applies.

6.2.1 General Partnerships

A company is a general partnership if it isregistered as such, conducts its businessunder a common name and the liability ofpartners towards creditors is unlimited.

Contributions

The initial contribution of partners may bein cash or in kind (property, rights, labourand services). Partners’ contributionsshall be equal. The partners in a generalpartnership shall evaluate any contributionin kind by mutual agreement and expressits value in money. If no agreement canbe reached, any partner may request thecompetent court to appoint by a bindingdecision an evaluation expert. The

partners’ or the expert’s report on theevaluation shall be submitted to the NRCwith the other data required.

Management

All partners shall have the right tomanage the business of the partnershipas Managing Directors. If the Statute hasassigned management to one or severalpartners, the other partners are excludedfrom management.

Liability

Partners are personally and jointlyliable for the obligations of the generalpartnership without limitations includingeven their own property.

6.2.2 Limited Partnerships

A partnership is a limited partnership, ifat least one partner’s liability is limited tothe amount of his contribution (limitedpartner), while the liability of otherpartners is unlimited (general partners).General partners have the status ofpartners in a general partnership.

Management

One or more general partners are entitledto manage the business activity of thelimited partnership as Managing Partners.Limited partners are excluded frommanagement. A limited partner cannotobject to the management activities ofthe general partner, unless these actionsgo beyond the ordinary activities of thecompany’s business.

Liability of Limited Partners

Up to the outstanding amount of hiscontribution, the limited partner shallbe personally liable to the creditors ofthe limited partnership. As far as thecontribution has been paid further, liabilityis excluded.


An increase of the registered contributionnot registered at NRC, only has effect asagainst creditors if the company informedthem about the increase or if it has beenpublished in the newspapers or othernormal information sources.

Any agreement of the partners releasinga limited partner from paying hiscontribution or postponing the payment isineffective as against creditors.

6.2.3 Limited Liability

Companies (sh.p.k)

A limited liability company is a companyfounded by one or more individualsor entities, who are the shareholdersof the company and who are not liablefor the company’s commitments andwhich personally bear losses only to theextent of any unpaid parts of stipulatedcontributions. Members’ contributionsconstitute the company’s basic capital.Each member shall acquire his share in thecompany in proportion to his contribution.The basic capital is divided betweenmembers accordingly. If the companyis founded by an individual, he/she iscalled “sole partner”. The limited liabilitycompany has a name that can includethe name of one or more of the partnerspreceded by or immediately followedby the words “Shoqëri me Përgjegjësi tëKufizuara” or the initials “sh.p.k.”, as wellas the amount of the statutory capital.

Limited liability companies may not offertheir shares to the public. Legal relationsbetween members may be freely designedin the Statute unless the law providesotherwise.

Basic capital

According to the current law, the minimumvalue of capital for this type of companyis ALL 100. The capital is divided in equal

shares. Otherwise, the company should betransformed into another form.

Transformation into a sole partnercompany

When the number of partners decreasesto one, the sole patner shall register thedecrease and his name in accordancewith Art. 43 of the Law on the NationalRegistration Centre. Article 43 specifiesthat it is obligtory to notify the NRC of anychanges to the statute of the company, orany other founding act, within 30 daysfrom the moment that the change happens.If the sole partner fails to do so, he shallbe personally liable for the commitmentsthe company assumes in the meantime andalso a penalty of ALL 15,000 (euivalient ofEUR 110) will be applied.

Co-Ownership of shares

A share acquired on the basis of acontribution may belong to one orseveral persons.

If a share belongs to several persons,these persons shall be regarded as onemember in relation to the company andthey shall exercise their rights througha common representative. They are,however, jointly and severally liable forthe commitments of membership.

Several members owning one share mayagree that they own this share in equalor different parts.

The company’s actions in relation tothe share will have effect as against allowners even if it was addressed to onlyone of them.

The company may issue a certificatein order to prove the ownership of theshare. Such certificate shall not have thecharacter of a security. The certificateshall be issued in the name of themembers concerned.


6.2.4 Joint-Stock Companies

(sh.a)

A Joint Stock Company is a company thebasic capital of which is divided into sharesand subscribed by founders. Founderscan be individuals or entities, which arenot liable for the company’s commitmentsand which bear losses only to the extentof their unpaid value of the issued sharesin the basic capital. The company can beestablished by and can have one or morepartners.

Basic capital

The basic capital of a Joint StockCompany with private offer shall not beless than ALL 2,000.000.

The basic capital of a Joint StockCompany with public offer shall not beless than ALL 10,000.000.

Types of contribution

Shareholders’contributions may consistof cash or property and rights valued inmoney. They may not consist of labour orservices.

Par value and issuance of shares

Each share shall have a minimum parvalue;

Shares may not be issued before theregistration of the company with theNRC;

Shares issued earlier are invalid. Thefounders are jointly and severally liableas against the holders for any damagecaused by such issuing;

The rights connected with the sharescannot be transferred before registrationof the company with the NRC.

Establishment costs

The founders may request the companyto reimburse formation costs up to thehighest amount set for formation costsby the Statute. Foundation costs are paidfrom profits generated by the company.Shareholders may decide to give thempriority when profits are distributed,unless otherwise provided by the Statute.

6.2.5 Representative offices

Foreign companies may open theirrepresentative offices in Albania to carryout non-income generating and non-commercial activities. Representativeoffices are not legal entities and thereforecannot conduct commercial activitiesin Albania. Foreign investors still userepresentative offices if their presencein Albania only consists of promotingthe activity of one of their foreign groupcompanies in Albania.

6.2.6 Branches of foreign legalentities

Branches of foreign legal entities can beregistered to conduct commercial activitiesin Albania. A branch is subject to corporateprofit tax in the same manner as otherAlbanian companies but there is currentlyno branch remittance tax in Albania. Theforeign Company shall be liable with itsentire assets for the liabilities arising out ofits branch’s operations.

Foreign investors rarely choose branchesfor their investments, unless they planfor a temporary presence in Albania, or ifinvestors decide not to legally separate theAlbanian entity from the parent company.


6.3 Regulatory environment

6.3.1 Competition law

The purpose of this law is to establishrules for market-operators, their rightsand obligations in circumstances of faircompetition.

The law is applicable for all entitiesthat exercise commercial, financial andproduction activities in the territoryof the Republic of Albania as well as to

entities that exercise activities abroad,when the consequences of this activity aredemonstrated in the home market.

This law is applied to all individuals orentities, native or foreigners, private orstate, that exercise commercial, financialand production activity, based on freecompetition, which supply or demandgoods, the acquisition or consumptionof which is subject to their free will andinitiative.


Labour relations77.1 Labour

The most immediate impact of the radicaleconomic reforms in post-communistAlbania was a sudden increase inunemployment. The privatization offormer government-owned establishmentsresulted in a period of turbulence in thelabour market, affecting both the demandand supply of labour. Further, populationmovements both abroad (to as many astwenty different countries) and within thecountry (from rural areas to major cities)changed the composition of the locallabour force and placed additional strainson both the domestic and foreign labourmarkets. Industries required skills thatwere scarce in the Albanian labour market.

The unemployment rate in Albaniadecreased from 16.40% in 2000 to 13.80%in 2009. In 2010 the unemployment ratewas 13.49 %.

7.2 Employment contracts

Employment contracts are regulatedby the Labour Code of the Republic ofAlbania. One of the principles of theLabour Code is that the employmentcontract should be regulated by the law ofthe country where the employee usuallycarries out the job, even if he/she istemporarily assigned to perform the jobout of his/ her normal place of bussines orin another country.

7.3 Public holidays

Below are listed the National Holidays inthe Republic of Albania:

Calendar Day National Holidays

January 1 and 2 New Years’s Day

March 14 Summer Day

March 22 Nevruz Day

Variable date* Catholic Easter

Variable date* Orthodox Easter

May 1 Labor Day

Variable date** Eid al-Fitr(End of Ramadan)

October 19 Mother TeresaBeatification Day

Variable date** Eid al-Adha(Feast of Sacrifice)

November 28 Independence Day

November 29 Liberation Day

December 8 National Youth Day

December 25 Christmas Day

* Note: The Catholic and Orthodox Easter holidaysmay be subject to changes each year.

** Note: The Eid al-Fitr and Eid al-Adha holidaysmay be subject to changes according to the lunar

calendar.

7.4 Employment of Foreigners

Visas

Foreign citizens may enter in the territoryof Albania with or without visa (dependingon the nationality).

Residence permit

Foreign citizens staying in Albania formore than 90 consecutive days from theirlast entry into the territory of Albania, are


required to obtain a residence permit. TheMinistry of Internal Affairs and the Councilof Ministers decide on the standard formof residents permit, the proceduresfor acquiring, renewal and refusal of aresidence permit, and the documentationnecessary to support the application.Application forms can be obtainedfrom the migration offices at regionaldirectorates of border and migration in theterritory where the foreigner resides at thetime of application. Residence permits canbe granted for: 3 months, 6 months, oneyear, two years or permanently.

A foreign individual can apply for apermanent residence permit if he/she hashad a legal stay of five consecutive yearsin the Republic of Albania, and he/shecontinues to have a connection with oractivity in Albania.

Work permit

As a general rule foreign citizens workingin Albania for a period greater than onemonth, are required to obtain a workpermit issued by the Ministry of Labourand Social Affairs.

The Ministry of Labour and Social Affairsand the Council of the Ministers decide onthe forms of the work permits, proceduresfor acquiring, renewal and refusal of thework permits, and the documentation tobe submitted in suport of the work permit

application. The application forms can beobtained at the Migration Department inthe Ministry of Labour and Social Affairs,in Albanian embassies and consulatesabroad, and in the regional labour officesof the respective districts.

The timeframe for issuance or refusalof a work permit is not longer than 30days from the date of application, bythe relevant authority. In specific cases,as foreseen by the law, this timeframeincreases up to 40 days.

Foreign driving license

Foreign citizens holding a national drivinglicence or an international driving licenceare not required to apply for and obtain alocal driving licence, provided that theyreside in Albania for a period of not morethan one year.

In addition, foreign nationals holdinga driving licence issued by one of themember countries of the European Unionand who have obtained a residency permitin Albania are entitled to apply for andobtain an Albanian driving license bysubmitting a request to the competentauthorities in Albania.

Lastly, foreign vehicles are allowed tocirculate in the territory of Albania for amaximum period of one year using theforeign circulation permit.


Taxation8

8.1 Profit Tax

8.1.1 Corporate income tax

Corporate Income Tax (CIT) is paid by allAlbanian entities on the profit realised inthe territory of Albania and /or abroad.

The taxable period for CIT purposes runsfrom 1 January until 31 December of eachcalendar year.

8.1.2 Tax rate

The current CIT rate in Albania is a flatrate of 10%. CIT is self-assessed by thetaxpayer by adjusting the accounting profitfor all items of taxable income and non-deductible expenses.


Taxable persons for CIT purposes,are considered all juridical persons,partnerships and branches of foreignentities which are registered for VATpurposes, provided that they are notsubject to the small business tax.

8.1.4 Exemptions

The following entities are exempt from CIT:

Central and Local Government Bodiesand the Central Bank of Albania;

Legal entities which conduct religious,humanitarian, charitable, scientific oreducational activities;


Trade unions or chambers of commerce,industry or agriculture;

International organizations, agenciesfor technical cooperation and theirrepresentatives, the tax exemptionsof which are established by specificagreements;

Foundations or non-banking financialinstitutions established to support thedevelopment policies of the governmentthrough credit activities;

Film studios and cinematographicproductions (among other types ofentity/activity) that are licensedand funded by the NationalCinematographic Centre.

8.1.5 Taxable base

Taxable profit will be determined by theaccounting profit adjusted for tax purposeswith non-deductible expenses. TheAlbanian legislation defines the followingspecific costs as non-deductible:

The interest paid on outstanding loansand prepayments, which exceeds fourtimes the amount of the net assets;

Benefits in kind and gifts;

Distribution of dividends and profitshares;

Fines and other tax-related sanctions;

Wages, bonuses and any other form ofincome deriving from an employmentrelationship and paid to the employeesin cash;

Payments made in cash of amountsexceeding ALL 300,000;

Provisions and reserves (with someexemptions applicable to the financialsector);

Personal living expenses and familyexpenses;

Loan interest exceeding the 12-monthsaverage interest rate in the bankingsector as published by the Central Bankof Albania;

Increases of capital;

Deductible personal income tax, exciseduties, profit tax, and VAT;

Expenses for technical services,consultancy and management, receivedfrom foreign entities which are notregistered for tax purposes in Albania,for which no withholding tax has beenpaid by 31 December, at the latest;

Losses, damages, wastage incurredduring production, transitingor warehousing, exceeding thenorms defined by laws and relatedinstructions;

Depreciation and amortisationcalculated at rates exceeding the taxdepreciation rates;

Impairment losses on fixed assets;

Representation expenses that exceed0.3 % of annual turnover;

Sponsorships exceeding 3% of profitbefore tax, and sponsorships of pressand other publications exceeding 5% ofprofit before tax.

Bad debts are only deductible if all of thefollowing conditions have been met:

An amount corresponding to the baddebt has been already included in thetaxable income;

The bad debt is written off and removedfrom the taxpayer’s accounting books;


All possible legal action to recover thedebt has been taken.

8.1.6 Permanent establishment

A permanent establishment (PE) shallimply a fixed place of business throughwhich the business activity of an enterpriseis wholly or partly carried out eitherdirectly or through a dependent agent ormore specifically a PE could include anadministrative office, a branch, a factory,a workshop, a mine or any other place forexploitation of natural resources, as well asa building, reconstruction, installation orassembling site.

The Albanian law provides for no minimumperiod of time in relation to a PE, whereasthe respective Double Tax Treaties (Treatiesfor Avoidance of Double Taxation of Capitaland Income) provide for different minimumperiods. The provisions of the Double TaxTreaties prevail over local income tax law.

8.1.7 Capital gains

Capital gains are treated as ordinarytaxable income.

8.1.8 Dividends

Dividends and other profit distributionsreceived from Albanian entities, as wellas foreign entities subject to CIT, areexempted from CIT in Albania.

8.1.9 Fiscal losses

Fiscal losses may be carried forward forup to three consecutive years. However,losses may not be carried forward if morethan 25% of direct or indirect ownershipof the share capital or voting rights of thecompany is transferred during the tax year.

8.1.10 Transfer pricing

Any transaction concluded betweenrelated parties shall be determined atarm’s length. Transfer pricing adjustmentsmay be made if the conditions set in atransaction between related parties differfrom those that would have been set if theparties were independent.

In particular, the following are regarded asrelated parties:

A legal entity and any person that owns,directly or indirectly, at least 50 % ofthe shares or voting rights in that entity;

Two or more legal entities if a thirdperson owns, directly or indirectly, atleast 50 % of the shares or voting rightsin each entity.

8.1.11 Bankruptcy

The Albanian tax authorities are obligedto request the initiation of bankruptcyprocedures for a taxpayer upon fulfilmentof one of the below conditions:

After 2 years the taxpayer maintains ina passive status;

If a taxpayer declares negative net equityfor at least three consecutive years;

Performs no business activities for 2years;

Results in unsettled tax liabilities for atleast 2 years.


The final tax return for CIT is dueby 31st March of the following year.Predetermined advance payments of CITare due by the 15th day of each month.

Companies should decide on the use oftheir prior year net profits within the


first six months of the following year andsubmit their decision to the tax authoritiesno later than 31st July.

The decision on the use of the company’sprior fiscal year after-tax profit should besubmitted to the NRC within 30 days of thedecision date.

Companies have an obligation to pay taxon dividends to the tax authorities nolater than 31 July of the year in whichthe dividend is approved, regardless ofwhether or not the dividend has been paidto the shareholders.

8.2 Personal Taxation

8.2.1 Personal income tax

Personal income tax is paid by individualson the overall income they earn fromvarious sources in Albania and abroadduring a calendar year, excluding theexempt income.

8.2.2 Tax rate

The following tax rates apply to incomegenerated from employment:

Income brackets Income tax

(in ALL) (in ALL)

0 up to 10,000 0%

10,001 – 30,000 10% for the amountabove 10,000

above 30,000 10% of the totalamount

The minimum monthly salary in Albania isALL 20,000 effective from 1 July 2011.


Individual taxpayers, both residents andnon-residents, are subject to personalincome tax. Albanian law applies the

principle of world-wide taxation. Residentindividuals are taxed on all sources ofincome in and outside the territory ofAlbania, while non-resident individualsare taxed on income generated only in theterritory of Albania.

An individual is deemed to be a residentof Albania if he has a permanent home inAlbania or if he stays in Albania, eitherconsecutively or intermittently, formore than 183 days in a calendar yearirrespective of his citizenship or livinginterests.

8.2.4 Taxable base

The following categories are subject toincome tax:

Salaries and other remuneration inconnection with current employment;

Dividends and profit shares ofpartnerships;

Interest (except interest received ontreasury bonds and other securitiesissued by the government before 21January 1999);

License fees and other royalties;

Rental income;

Proceeds from the transfer ofimmovable property;

Income from copyright and intellectualproperty;

Gross income from lottery or othergames of chance;

Capital gains resulting from investmentin securities or immovable property;

Incomes from donations;

Gross income realised outside theterritory of the Republic of Albania;


Other gross income not mentionedabove.

Resident individuals with annual incomeof less than ALL 800,000 are entitled tosome deductions, based on the limitsprovided in the legislation.

The following are exempted from personalincome tax:

Income arising from obligatoryinsurance under an obligatory socialand health insurance scheme as wellas economic benefits for individualswithout income or with low income,as set out in the relevant legislation inforce;

Fellowships of pupils and students;

Benefits received in the case of diseasesand hardships in agreement with therelevant legal provisions in force;

Benefits, both monetary and/or inkind, given by the owners as a bonus

for expropriation made by the state for

public interests;

Income which is exempted on the basis

of international agreements ratified by

the Parliament of Albania;

Interest received on treasury bonds

and other securities issued by the

government before 21 January 1999;

Contributions paid by employers for

the life and health insurance of its

employees;

Compensation and bonuses arising from

the employment of foreign individuals

with diplomatic status as per the

provisions of international conventions

signed by the Albanian Government.


An individual is required to submit an

annual income declaration at the central

tax administration, not later than 30 April

of the year following the tax period for

which the declaration is made.

The tax paid during the year will be

deducted from the amount of tax

calculated as per law. In the event that

the individual declaration results in a tax

liability, he/she should make the payment

of the tax due within 30 days from the day

of the submission of the annual income

declaration.

The following categories are excluded

from the obligation to complete an annual

income declaration (although volontary

declaraion is possible):

Self-employed taxpayers with an annual

income of no more than ALL 2,000,000;

Individual taxpayers generating anannual income of no more than ALL200,000;

All taxpayers who during a year,generate income only from employmentand for which income tax has been paidat source.

Whereas the declaration is made on anannual basis, the taxpayer has an obligationto pay the tax to the tax authorities by 20th

day of the month following the month thepayment is made.

Employers are required to withhold PIT onsalaries and other compensation related tocurrent employment.


8.3 Withholding Tax

8.3.1 Basis of taxation

An Albanian entity which makes paymentsto a non-registered foreign entity forservices which the latter provides to theAlbanian entity, is required to withholdfrom the invoiced amount and pay tothe tax authorities the Withholding Tax(WHT).

8.3.2 Tax rate

The standard WHT rate in Albania is 10%.

8.3.3 Taxable income

All resident entities in the Republicof Albania including central and localgovernment authorities, non-profitorganizations and any other entity, createdunder the legislation in force, are obligatedto withhold tax at the rate of 10% from thefollowing gross payments sourced from theRepublic of Albania:

Dividends;

Profit shares;

Interest;

Payments of copyright fees androyalties;

Payments for technical, management,financial and insurance services;

Payments for participation in directingcouncils;

Payments for construction, installation,assembly or associated supervisorywork;

Rental payments;

Payments for performance of actors,musicians, or sportsmen, includingpayments made to persons that

employ artists or sportsmen or act asintermediaries for the arrangement ofshows or performances;

Income generated from gambling andcasino.

8.3.4 Exemptions

The above provision shall not be applicablein the following cases:

The beneficiary of the products areAlbanian residents registered as CIT andVAT;

Taxpayers or taxpayers registered forlocal tax on small business;

Payments made to entities notregistered in Albania for servicesrelated to the international transport ofpassengers and goods.

8.3.5 Reduced WHT rates

In cases where a Treaty for the Avoidanceof Double Taxation on Income and Capital(DTT) exists between Albania and thecountry of residence of the foreign entity,the payment of WHT might be avoided orreduced, provided that the conditions setup in the respective DTT are satisfied. Thereduced rates, based on the DTTs, mightvary from 0% to 5%.

Albania is party to 36 DTTs of which 30 arealready in force. Please see the detailed listof DTTs in Annex 1.


The taxpayer is required to remit WHTto the state by the 20th day of the monthsubsequent to that in which the payment ismade to the service provider.


8.4 Social and HealthContributions

8.4.1 Taxable person

Subject to compulsory Social and HealthContributions (SHC) are employedpersons, the self-employed, employers andpersons who obtain regular income fromdifferent sources.

8.4.2 Foreign individualtaxation

Foreign individuals who work in Albaniaunder a local employment agreement arerequired to pay SHC in the same manneras local employees. Foreign employeesworking under a foreign employmentcontract in Albania (with some exceptions)have the right to choose between theAlbanian Social and Health Insurancescheme, or another scheme of their homecountry.

8.4.3 Tax rate

Employees pay social securitycontributions at the rate of 11.2%. Theemployee contributions are composed of9.5% social insurance contribution and1.7% health insurance contribution.

Employers are liable to pay social securitycontributions for their employees at therate of 16.7%. The employer contributionis made up of 15% social insurancecontribution and 1.7% health insurancecontribution.

The monthly minimum and maximumsalaries for SHC purposes are 17,540 ALLand 87,700 ALL, respectively.


Employers are required to withholdSHC on salaries and other permanent

compensation related to currentemployees.

The submission of the tax returns,including the declaration and payment ofSHC, must be made by the 20th day of thefollowing month.

For the purposes of SHC, company’sshareholders who also have administrativeroles in the company are considered tobe employees. The company is requiredto calculate and pay social and healthcontributions for these individuals atthe same rates applicable for all otheremployees.

8.5 Value Added Tax

Value Added Tax (VAT) is a tax imposedby government at each stage in theproduction of a good or service.

The standard VAT period is one calendarmonth.

8.5.1 Standard VAT rate

The standard rate is 20%, and applies toall goods and services not qualifying forreduced or zero rates.

8.5.2 Reduced VAT rates

A reduced 10 % VAT rate is applicable onthe supply of drugs and health servicesprovided by private or public institutions.

The zero-rate VAT applies to the followingsupplies:

Export of goods;

The supply of goods and services relatedto the international transport of goodsor passengers;

The supply of goods and services inrelation to trading and industrialactivities at sea;


Services related to transport of goodsand passengers;

Services related to internationaltelecommunications.

8.5.3 Exempt supplies

The following are considered VAT exemptsupplies:

Leases of land and buildings andinterest payments on leasingtransactions;

Provision of services performed byAlbanian subcontractors relevant tothe processing of semi-finished goodsintended for export;

Financial services;

Gold and banknotes supplies made bythe Central Bank of Albania and secondlevel banks;

Educational services;

Hydrocarbon operations;

The supplies of packages and materialsused for the manufacture andconfection of drugs;

Postage stamps;

Gambling, casino and racetrackservices;

Written media and books;

Advertising in electronic media;

ID Cards;

Supply of free goods distributed foremergencies;

Export of services;

Sale of land and buildings (althoughthe construction process is not exempt).

8.5.4 VAT computation

The amount of VAT to be paid is calculatedas the difference between the VAT appliedto purchases (input VAT) and the VATapplied to sales (output VAT). If theinput is higher than the output, then thedifference is a VAT credit which can becarried forward to subsequent months.Otherwise, if the output VAT is higher thanthe input VAT, the difference representsVAT payable to the state.

Taxpayers who carry out VAT activities aswell as VAT exempt activities, can creditonly that portion of their Input VAT thatcorresponds to the VAT subject activities.To determine the amount of input VAT thatcan be claimed from the state, the taxpayershould estimate a VAT credit coefficient,being the ratio between VAT subjectincome over the total of VAT subjectactivities and VAT exempt activities.

8.5.5 VAT exemptions on import

The VAT Law establishes VAT exemptionsin respect of specific cases of import ofgoods into Albania, including:

Final import of exempted goods;

Import of goods placed under transitregime;

Import of goods declared to be undertemporary allowance regime and activeprocessing;

Goods related to the implementationof research stages and development ofhydrocarbon operations;

Import of live animals donated byvarious donors;

Goods imported from NATO;

Import of ships.


8.5.6 VAT deferral scheme

The VAT deferred scheme for machineryand equipment imported by a taxpayerfor the purposes of its business activity,regardless of their type, is applicablefor a period of up to 12 months from themoment of importation. The VAT may bedeferred for a term beyond the 12 monthperiod upon a decision of the Minister ofFinance when certain requirements havebeen met.

8.5.7 Supplies for which inputVAT cannot be credited

Input VAT on the following supplies is notconsidered deductible for VAT purposes:

VAT on fuel used for non-technological(operational) purposes;

VAT on mileage, hotel accommodationexpenses and likewise;

VAT on acquisition of cars and on carrelated expenses, such as maintenance,except for cars purchased for furthersale, or for business activities such asleasing, taxi services, etc.;

VAT on promotional and publicityexpenses;

VAT on any services in relation to any ofthe above.

8.5.8 VAT reimbursementprocedures

Taxable entities have the right to claim aVAT reimbursement if the following twoconditions are met:

The period in which VAT credits arecarried forward exceeds 3 months, and

The total amount of VAT credits is equalto or above ALL 400,000.

VAT taxpayers who are in a VAT credit

position have the right to request(if all legal conditions are met) thereimbursement of the VAT credit within 30days after the request is submitted to therelevant tax authority. In the event thatthe tax authorities do not proceed with thecash reimbursement, the taxpayer shall beentitled to reduce payments of other taxobligations by an amount equal to the VATclaimed, provided that approval from thetax authorities is received.


The deadline for the electronic filing ofVAT books is the 5th day of the followingmonth.

The deadline for the electronic filing oftax returns and the payment of the relatedtax liability is the 14th day of the followingmonth.

8.5.10 Application of the reversecharge mechanism on theimport of services

The reverse charge mechanism should beapplied to all services received from non-registered entities which are consideredto be consumed in Albania or relate toimmovable property (within the VATthreshold). In this case, the Albanianbeneficiary of the service is required toissue a VAT fiscal invoice in the samemonth in which the invoice from theforeign entities is received. The fiscalinvoice should be declared in both the VATpurchase book as well as in the VAT salesbook.

8.6 Excise Tax


Any individual, or legal entity (includingtheir fiscal representatives) who eitherproduces or imports into the territory of


the Republic of Albania any commercialgoods defined to be subject to excise tax, issubject to excise tax in Albania.

8.6.2 Taxable base

In the case of imports, the taxable base isthe customs value of the imported goods,including customs duties.

As a general rule, for produced goods thetaxable base is the sales price of the goods.

As a general rule the payment of exciseduty occurs at the time of import or at themoment when the goods are produced.

8.6.3 Exemptions

Goods subject to excise do not requirepayment of excise in Albania when they are:

To be exported;

Under excise custom suspensionregime;

Imported by diplomatic representativeslocated in Albania or by internationalorganizations on the grounds of ratifiedagreements;

For fuel sold to fishing boats inaccordance with the conditionsspecified from the Council of Ministers.

8.6.4 Reimbursement

Reimbursement of excise tax can beobtained on:

The excise tax paid on fuel used byentities engaged in the constitutionof energy resources with installedcapacities of not less than 5 MW forboth its own needs and for sale;

The excise tax paid on fuel usedin greenhouses as well as in theproduction of industrial andagricultural products;

Plastic, glass, and mixed packaging used asinput in local recycling industries of thesematerials are reimbursed at the rate of50% of the excise paid for the packaging.

8.7 Local Taxes

The local tax offices, as part of theMunicipalities and Communesadministrattion, are responsible for thecollection of all local taxes. Local taxesare applied either as a percentage or asspecific amounts and vary dependingon location and/or the type of businessactivity engaged in.

Tax on small business

Physical persons or legal entities thatconduct business activity in Albania andhave an annual turnover of less than orequal to ALL 5 million are subject to localtax on small business.

For small businesses with an annualturnover less than or equal to ALL 2 milliona fixed tax is applied, depending on thebusiness category.

Tax on impact on infrastructure

Tax is levied on new construction projectsfor the impact they have on the existinglocal or national infrastructure. The tax islevied as a percentage of the investmentvalue and varies from 2% to 4% in Tiranaand 1-3% in other districts.

For the energy sector the tax is reducedto 0.1% of the value of the investment(including machinery and equipment) butnot less than the cost of rehabilitation ofthe damaged infrastructure.

Real estate tax

All physical persons and legal entitieswhether local or foreign who own realestate property in Albania are subject toreal estate tax.


Real estate tax on buildings. The taxamount is determined based on the surfacearea and varies depending on the districtwhere the building is located.

Real estate tax on agricultural land. Thetax is levied on each hectare and variesdepending on the district where theagricultural land is located and on the landproductivity categorisation.

Tax on transfer of ownership rightsfor real estate

For buildings, the tax is determined basedon the surface of the building that is thesubject of ownership transfer and variesaccording to the district and the purpose ofuse of the real estate.

For other kinds of real estate, exceptbuildings, the transfer tax is defined as 2%of the sale price.

The tax is not applied to:

Individuals who are subject to personalincome tax;

Ministry of Finance and central andlocal government bodies;

Donators who grant donations ofreal estate in favour of governmentalentities, religious institutions or non-profit organisations, provided that thedonation is related to a non-profitableactivity.

Hotel accommodation tax

The hotel accommodation tax is levied onthe total invoice amount at the rate of 5%.

Taxes for the use of public areas

Local authorities determine taxes onthe use of public areas for commercialpurposes, which is based on the surfacearea of the occupied space and the locationof the area.

Advertising Tax

Local authorities impose a tax onbillboards used for identification ormarketing purposes. The tax variesdepending on the surface of theadvertisment and the purpose of itsexhibition.

Tobacco advertisements on billboardsor any other form of publicity are notallowed.

Other taxes

There exist several additional taxesand fees such as cleaning tax, TV andtelephone taxes, port charges, consularfees, airport taxes, registration taxes, taxon vehicles, etc.


Accounting and audit99.1 Accounting

Since 1 January 2008 Albania appliesInternational Accounting Financial andReporting Standards (IAS/IFRS) orNational Accounting Standards (NAS)subject to the requirements of the Law no.9228 dated 29 April 2004 “On Accountingand Financial Statements”.

IFRS/IASs, as published by IASB andtranslated into Albanian under thesupervision of the National AccountingCouncil, are obligatory for application by:

a) All entities listed in a stock exchangeand their affiliates, subject of accountsconsolidation;

b) Banks, insurance and reinsurancecompanies and other similar financialinstitutions;

c) Other unlisted entities that haveexceeded, in the last two years, an annualturnover of ALL 1,250,000 and an averagenumber of employees of at least 100 peryear.

All other entities are obliged to apply theNational Accounting Standards, issued bythe National Accounting Council, whichrepresent a shorter and simplified versionof the IFRS/NAS, suitable to be applied bythe Small and Medium Enterprises.

Entities are classified as follows:

Criteria Micro Small Medium-sized Largeenterprises enterprises enterprises enterprises

Average number 0-9 10-49 50-249 >250of employees

Annual income <10,000,000 10-15,000,000 <250,000,000 >250,000,000(ALL)

The local Chart of Accounts published bythe National Accounting Committee is notmandatory, but rather serves as a referenceto the entities applying NAS.

The accounting year in Albania is thecalendar year.

Based on the Law “On Accounting andFinancial Statements”, each legal entityoperating in Albania should maintainits accounting records and prepare thefinancial statements in Albanian languageand in Albanian Lek as the presentationcurrency.

The entity should store all accountingdocumentation (including electronicaccounting records) for at least 10consecutive years.

Transactions in foreign currencies areallowed to be carried at the respectivecurrencies provided that they aretranslated into local currency (ALL) forreporting purposes as per the requirementsof the Albanian legislation.

Entities in Albania are allowed tooutsource accounting services.


The practical application of the accountinglaw is not without challenge. There areareas of practical difficulty surrounding:

The lack of trained accountants in theindustry who are familiar with IFRS;

Inconsistent interpretation of IFRSand the trend in adopting a more taxcompliant approach;

Benefits of applying IFRS are not alwaysunderstood by local companies.

A set of financial statements shouldinclude all the requirements of IAS 1‘Presentation of financial statements’. NASfinancial statements are easier to prepareand require less explanatory notes to bedisclosed.

In the case of commercial banks, except forIFRS, they need to use the Methodologyon Reporting and Content of FinancialReports and Regulations of the Bank ofAlbania for the purpose of reporting to theCentral Bank. This reporting framework isdifferent from IFRS or NAS and is mainlybased on banking regulations.

9.2 Audit

The audit profession is regulated by theLaw no. 10091, dated 5 March 2009,“On legal audit, the organisation of thecertified auditor profession and certifiedpublic accountant”. The following entitiesmust have their financial statementsaudited by an external auditor before suchfinancial statements are published, orsubmitted to the tax authorities:

all commercial companies which applyIFRS, regardless of their legal form;

all joint stock companies whichimplement NAS as their financialreporting framework;

limited liability companies which applyNAS when at least two of the threeconditions below are met:

total assets at the end of therespective financial period, areequal to or higher than ALL 40million;

total turnover of the economicactivity for the financial periodis equal to or higher than ALL 30million;

average number of at least 30employees during the financialperiod.

The financial statements of the companieswhich are subject to supervisoryregulations or laws, i.e. financialinstitutions, are subject to external auditto be performed by independent auditors,irrespective of their size.

Certified auditors or certified auditcompanies in Albania, use theInternational Standards on Auditing,which are applicable to any kind of auditof the financial statements. Auditorsof financial institutions should be pre-approved either by the Bank of Albaniaor the Albanian Financial SupervisoryAuthority and can perform the audit ofa bank or insurance company for sevenand four consecutive financial years,respectively.

Listed entities, banks and insurancecompanies must have an audit committeecomprised of non-executive directors ofthe administrative body or members ofthe Supervisory Board of the entity. Atleast one of the members of the auditcommittee needs to be independent andhave appropriate accounting or auditknowledge.

1)

2)

3)

b)

a)

c)


Introduction to PwC10

10.1 General information

PwC (www.pwc.com) is the world’sleading professional services organization,drawing on the knowledge and skillsof more than 161,000 people in 154countries.

PwC offers assurance, tax, legal andadvisory services to leading global,national and local companies and publicinstitutions worldwide aiming to assistclients, build value, manage risk andimprove performance.

10.2 PwC in Albania

PwC established its presence in Albaniain 2004. The team in Tirana currentlycomprises a total of 40 staff and offersaudit, accounting and tax advice, financialadvisory services, including mergers andacquisitions, project finance and litigationsupport,outsourcing services and legalsupport.

PwC services in Albania reflect thedemand of today’s competitive,developing and rapidly changingAlbanian marketplace. We recognizethe importance of having experienced,


dedicated staff who can build strong,sustainable relationships, understandyour business and work together withyou to develop solutions to your businessneeds. Our combination of internationaland Albanian expertise is fundamental tothe high quality of advice and assistancewe offer. As elsewhere in the world,PwC, in Albania, uses the benefit of itshand-on experience to provide a stronglevel of local understanding and support,in accordance with the internationalprofessional standards of the PwCworldwide organization.

The clients of PwC in Albania are keyplayers in the Albanian market, leadingAlbanian and international companies.We consider as our mission, helping ourclients find solutions to complex problemsarising in the course of today and offeringthem services of the highest quality.To serve our clients best, we aspire tounderstand their business and the specificsof the industry in which they operate. Weoffer solutions that provide competitiveadvantages to our clients and meet theirneeds.

At PwC in Albania, our services areorganised into Lines of Service. Each ofthese lines is staffed with highly qualified,experienced professionals.

Our lines of service:

Assurance Services

Tax, Accounting and Legal Services

Advisory Services

10.2.1 Assurance Services

PwC has the knowledge and experiencenecessary to help companies andorganizations both large and small.Our audit and assurance approach,is tailored to suit the size and nature

of your organization. With our deepunderstanding of local and internationalregulation and legislation we can also helpwith complex reporting issues involvingSarbanes-Oxley and InternationalFinancial Reporting Standards (IFRS).

Additionally, we are leaders in thedevelopment of non-financial performancereporting, helping our clients respondto the need for greater transparency,improved corporate governance, andbusiness models based on the principles ofsustainability.

Our assurance services include:

Financial statements audit;

Regulatory compliance & reporting;

Sarbanes-Oxley compliance;

IFRS reporting;

Independent controls & systems processassurance;

Internal audit.

The Albanian statutory auditors areholders of Certified Public Accountants(CPA) and Association of CharteredCertified Accountants (ACCA) certificatesand are members of the Institute ofCertified Public Accountants in Albania.

10.2.2 Tax and Legal Services

Clients realise that, by seeking our expertadvice, tax savings can be achieved. PwCin Albania provides comprehensive taxadvisory services on all aspects of Albaniantaxation, as well as on internationaltaxation.

We provide tax and legal advice, answersto your questions and/or offer opinionson tax matters including research,discussions, memoranda and attendance at


meetings related to these matters. We giveclients the benefits of our internationalexpertise and our in-depth understandingof the local authorities. Our tax staff hassubstantial practice experience as well asacademic experience through ongoingtraining within PwC.

Our tax services include:

General Tax Consulting Services

Indirect Tax Services - Value Added Tax

Tax Structuring and Compliance

Tax Management Accounting Services

Expatriate Tax Services

10.2.3 Advisory Services

Our Advisory Services practice focuses onthe strategic development of businesses,including the purchase or sale of

businesses and assets, and assisting inthe development of new projects. Bycombining the global knowledge pool ofAdvisory Services with our local skills weare able to provide an exceptional serviceto clients by effectively linking regionalcommercial reality with internationalresources and finding a position of mutualacceptability and consensus.

Our advisory services include:

Transaction Services

Performance Improvement

In Advisory Services we support andadvise our clients in developing newprojects, including feasibility studies,valuations, business plan preparation andmarket surveys. We also advise on theentire process of mergers, acquisitionsor takeovers of businesses or parts ofbusinesses


List of Double Tax TreatiesAnnex 1

No.

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

Tax Treaty with:

Malaysia

Poland

Romania

Hungary

Czech Republic

Turkey

The Russian Federation

Croatia

Macedonia

Bulgaria

Italy

Norway

Sweden

Greece

Malta

Switzerland

Moldova

Belgium

China

Egypt

France

Kosovo

Serbia & Montenegro

The Netherlands

Bosnia and Herzegovina

Latvia

South Korea

Austria

Slovenia

Spain

Luxembourg

Irlande

Estonia

Germany

Kuwait

Singapore

Effective since

1 January 1995

1 January 1995

1 January 1995

1 January 1996

1 January 1997

1 January 1997

1 January 1998

1 January 1999

1 January 1999

1 January 2000

1 January 2000

1 January 2000

1 January 2000

1 January 2001

1 January 2001

1 January 2001

1 January 2004

1 January 2005

1 January 2006

1 January 2006

1 January 2006

1 January 2006

1 January 2006

1 January 2006

1 January 2009

1 January 2009

1 January 2009

1 January 2009

1 January 2010

4 May 2011

In process

In process

In process

In process

In process

In process

Dividends(%)

5/15

5/10

10/15

5/10

5/15

5/15

10

10

10

5/15

10

5/15

5/15

5

5/15

5/15

5/10

5/15

10

10

5/15

10

5/15

5/15

5/10

5/10

5/10

5/15

5/10

0/5/10

5/10

5/10

5/10

5/15

0/5/10

5

Interests(%)

10

10

10

0

5

10

10

10

10

10

5

10

5

5

5

5

5

5

10

10

10

10

10

5/10

10

5/10

10

5

7

6

5

7

5

5

10

5

Royalties( %)

10

5

15

5

10

10

10

10

10

10

5

10

5

5

5

5

10

5

10

10

5

10

10

10

10

5

10

5

7

10

5

7

5

5

10

5


Country Managing Partner

Tax and Legal Services

Assurance and Business AdvisoryServices

Address

Stefan [email protected]

Loreta [email protected]

Kledi [email protected]

Blvd. Dëshmorët e KombitTwin Towers, Tower 1, 10th

Telephone: + 355 42 242 254Fax number: + 355 42 241 639

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

Office contact details

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