December 12th, 2011
Albanian Legal Environment is often created with the assistance of EU and US agencies and generally reflects principles consistent with Western democracies and free market economies. In the last two decades Albania has been undergoing several legislative reforms and this has resulted in a large amount of approved legislation. This trend will likely continue in the future as Albania is preparing for EU membership.
The sources of law in Albania are the Constitution, ratified international conventions, the acts of Parliament and the normative acts of the Council of Ministers. The territorial reach of legislative acts of local governments extend only within the territory where the local government exercises its jurisdiction. Directives of other government institutions apply only within their area of jurisdiction.
The Albanian judicial system is composed of 29 District Courts, 6 Courts of Appeals, one Military Court of Appeal, the Supreme Court and the Constitutional Court.
Albania is a member of the Council of Europe and a party to the European Convention on Human Rights. Consequently, the Albanian government may be held liable in front of the European Court of Human Rights. As a member of United Nations, Albania is a party to the Statute of the International Court of Justice. Albania has ratified the Rome Statute of the International Criminal Court. Albania is also a party to the European Convention on International Commercial Arbitration.
NATO Membership: NATO–Albania relations date back to 1992, when Albania joined the North Atlantic Cooperation Council (renamed the Euro–Atlantic Partnership Council in 1997). In April 2008, Albania was invited to start accession talks with members of the Alliance. The accession protocols were signed on July 9, 2008 and Albania officially became a NATO member on April 1, 2009.
WTO Membership: Albania became the 138th member of the World Trade Organization on September 8, 2000. Albania has agreed to assume its WTO obligations upon accession. In addition, it signed on to the multilateral agreements on government procurement and on trade in civil aircraft. Albania's accession package included market–access commitments on goods and services.
Stabilization and Association Agreement (SAA): SAA came into force on April 1, 2009, following its ratification by the 25 EU Member States which constituted the EU at the time the SAA was signed, and by the Albanian Parliament. The ratification process was concluded and completed with the ratification by the Greek Parliament on January 15, 2009. This gave Albania the green light to submit its application for candidate country status.
The general framework of the SAA rests on four pillars: political dialogue and regional cooperation, trade provisions relating to the progressive liberalization of exchanges until the establishment of a free trade area between the parties, community freedoms and cooperation in priority areas, especially in the area of justice and home affairs.
Protection of the Competition: Article 11 of the Albanian Constitution determines that the economic system of Albania is based on the market economy and the freedom of economic enterprise. Competition is an essential element of the market economy.
The Albanian competition law aims at preserving the market economy and the freedom of economic enterprise by protecting competition.
Albanian competition law resembles the EU competition law. The Albanian Competition Authority frequently refers to principles developed in EU competition law.
Protection of the Foreign Investments: The legal framework to encourage investment is already in place. Law No. 7764, dated November 2, 1993 “On Foreign Investments,” as amended from law no. 10316, dated September 16, 2010, is designed to create and maintain a favorable investment climate for foreign investors in the country. The law offers considerable guarantees to all foreigners (either natural persons or legal entities) willing to invest in Albania.
Law No.9723, dated May 3, 2007 “On the National Registration Center”, establishes the National Registration Center (NCR), which has made the set-up of a business an easy and fast procedure.
Law No.9901, dated April 14, 2008 “On entrepreneurs and companies”, regulates the status of entrepreneurs, the incorporation and management of companies, the rights and obligations of founders, partners, members and shareholders, and company reorganization and liquidation. Notably, statutory provisions requiring disclosure of information on a company website may be satisfied by establishing an effective link to the registered information about the company on file with the National Registration Centre.
The Albanian tax system does not discriminate against foreign investors. Similarly, legislation concerning the public procurement process does not make any distinction between foreign and domestic firms.
The legal framework of foreign investments in Albania is grounded on the 1998 Constitution, which provides that the fundamental rights and freedoms contemplated in the Constitution also extend to foreigners, condemning any discrimination based on race, ethnicity, language or economic conditions.
In 1993 Albania passed a new foreign investments law that greatly liberalized foreign investments and provided a number of basic guarantees and protections for foreign investors. Law No. 7764/1993 “On Foreign Investment” Parallels World Bank guidelines and addresses the admission, treatment, expropriation and settlement of disputes concerning foreign direct investment.
Under Law No. 7764/1993, foreign investments are liberally defined and are permitted and treated on conditions no less favorable than those that apply to domestic investments in similar circumstances, excluding the ownership of land, which is regulated by a special law. Law No.7764/1993, in line with the 1998 Constitution, also provides that foreign investments will not be expropriated or nationalized, either directly or indirectly, except for public purposes and upon payment of compensation equivalent to the fair market value of the expropriated property.
The Law no. 10316, dated December 2010 that have recently amended the Law 7764/1993 for the first time have recognized the European Companies and sets up a new type of protection for foreign investments and investors called state special protection. The Council of Ministers, upon proposal from the competent Minister, can provide a special protection for a foreign investment related to public infrastructure, tourism, energy or agriculture.
Additionally, Albania has been a member of the Convention on Multilateral Investment Guarantee Agency (MIGA) since October 15, 1991. MIGA provides investment guarantees against certain non-commercial risks (e.g. political risk insurance) to eligible foreign investors for qualified investments in developing member countries. Along with the MIGA Convention, Albania has signed the New York Convention of 1958 on the recognition and enforcement of foreign arbitral awards and the Geneva Convention on the execution of foreign arbitral awards. The Overseas Private Investment Corporation (OPIC), a US-government sponsored entity, can make available insurance and project finance resources to US investors in Albania. OPIC’s three main activities are risk insurance, project finance and investment funds.
Investors in Albania are entitled to judicial protection of the rights related to their investments. Parties to a dispute may agree to submit claims for consideration by an arbitration institution. Foreign investors also have the right to submit disputes to an Albanian court or to the Arbitration Court in Tirana. Provisions on domestic and international commercial arbitration are incorporated in the Code of Civil Procedure.
The Law on Foreign Investments defines a foreign investment dispute to mean any disagreement pertaining to a foreign investment in Albania and it allows the foreign investor to contract for the dispute resolution procedure of choice. In the event of a dispute arising between a foreign investor and either a private Albanian party or any branch of the Albanian Government, the dispute may be submitted for resolution to a previously agreed dispute resolution procedure. If no such procedure has been specified, the foreign investor may submit the dispute to an authorized court or arbitrator as provided by Albanian law.
Arbitration is also a recognized form of conflict resolution in Albania. An Arbitration Court has been established in Tirana. With Law no. 8012, dated October 18, 1995, Albania ratified the international convention “On the reconciliation and arbitration in OSCE”. As a result, many disputes between the Government and international companies or organizations, or between private companies, are currently resolved through arbitration.
Law No. 9901, dated April 14, 2008 “On entrepreneurs and commercial companies” regulates e.g. the status of entrepreneurs, the establishment and management of commercial companies, rights and obligations of partners, and the company reorganization and liquidation. Under Albanian law, an investor may set up several types of legal entities, including sole proprietorships, partnerships, limited partnerships, limited liability companies and joint stock companies. In addition, it is possible to establish a branch office of a foreign corporation.
Law 9901 establishes the basic legal framework for commercial companies. It is modeled after portions of relevant French, Italian, German and British laws and has as its main purposes the promotion and encouragement of the development of private enterprises in Albania and the approximation of the Albanian legislation to the laws of the European Union countries and the acquis communautaire. Law 9901 does not apply to non-profit legal entities (associations and foundations), whose legal framework is based on Law No. 8788, dated May 7, 2001 “On Non Profit Organizations”.
Sole Proprietorship and Commercial Companies: In order to organize a business activity in Albania, a foreign investor may choose to (i) set up a locally incorporated company (sole proprietorship, general partnership, limited partnership, limited liability company, joint stock company and joint venture) or (ii) establish a branch or representative office (iii) joint venture.
Sole Proprietorship - (Tregtari): A sole proprietorship is the simplest way of operating a business in Albania. To form a sole proprietorship a local or foreign investor must first register as a physical person or under a business name. This is accomplished by submitting a simple application in which the investor sets forth his data, address in Albania, proposed business activity and specimen of the sole proprietor’s signature. This application and an identification document is submitted to the NRC of the district where the business will be conducted. Following registration, the investor must then register with the tax authorities. A sole proprietor has unlimited liability for the debts of his or her business.
General Partnerships - (Shoqëri kolektive): In a general partnership, all partners are jointly and severally liable, without limitation, for the obligations of the partnership. Creditors of a general partnership at first have to claim against the partnership as a whole and only if they have failed in this process they can turn and claim against a partner for the debts of the partnership.
There is no minimum capital required to form an Albanian general partnership. As it is typically the case with general partnerships, the Albanian general partnership is a mutual agency relationship where each of the partners has authority to bind the partnership vis à vis third parties without notice. Unless the contrary is stipulated in the bylaws filed with the NRC, all of the partners are considered as administrators of the partnership.
The partnership is dissolved upon the death, bankruptcy, loss of a business license, or incompetence of a partner.
Notwithstanding the foregoing, there are circumstances where continuity can be provided in the partnership bylaws. The partnership must file annual financial reports.
Limited Partnerships - (Shoqëri komandite): A limited partnership has general and limited partners. In a limited partnership, limited partners are liable for the obligations of the partnership only to the extent of their investment while general partners have unlimited liability for the obligations of the partnership.
Law No.9901 sets forth special provisions defining the rights and obligations of limited partners. These provisions specify that limited partners are entitled to receive financial reports at least twice a year. However, limited partners may not participate in the administration of the entity. If a limited partner takes part in the management of the partnership, he or she may incur unlimited liability. The articles of incorporation of a limited partnership should specify the total amount or value of the contributions of the partners and the percentage of the participation of the partners in the profits of the company.
In contrast to general partnerships, the death of a partner does not immediately dissolve a limited partnership.
Limited Liability Companies - (Shoqëri me përgjegjësi të kufizuar – Sh.p.k.): A limited liability company (Sh.p.k.) is the most common legal entity chosen by entrepreneurs entering the Albanian market. It is flexible and appropriate to a starting business.
A limited liability company requires a minimum initial capital of only ALL 100 (approximately USD 0.99 or EUR 0.72). It can be established by one or more partners, natural or legal persons, who will be responsible only to the extent of their contributions to the company capital. Contributions can be in cash or any other assets, although contribution of services is not permitted.
Decisions regarding the overall management of the company are made by the partners meeting and day-to-day management is conducted by administrators appointed by the partners meeting. Administrators are not required to hold an interest in the company. The law requires annual financial reports to be prepared and limited liability companies with revenues above a certain threshold are required to appoint certified public accountants to prepare financial reports.
Limited liability companies may be transformed into partnerships or joint stock companies upon decision of the general meeting of partners taken with a majority of three fourths provided that the last two annual financial statements have been approved.
Joint Stock Companies - (Shoqëri aksionare – Sh.A.): Unlike a limited liability company, an Albanian joint stock company (Sh.A.) has the option to make public offerings of its shares. A joint stock company must be incorporated with a minimum initial capital of ALL 10 million (approximately USD 99,000 or EUR 72,000) if it intends to offer its shares for sale to the public or ALL 2 million (approximately USD 19,800 or EUR 14,400) if it does not. The capital is divided in shares and the shareholders are responsible for losses only to the extent of their contribution. At least one fourth of the nominal value of the shares representing contributions in cash and the totality of contributions in kind should be paid in at the moment of the subscription of capital, with the company management to decide upon payment of the balance.
Major strategic decisions are generally taken by the general meeting of shareholders, which convenes at regular and extraordinary meetings. The company’s bylaws may be amended only by decision taken at an extraordinary meeting. The corporate governance of a joint stock company may follow one of two systems: monistic (single board) or dualistic (dual board). Under the monistic system, the Board of Directors and Administrators performs supervising and management functions. Under the dualistic system, in addition to the Board of Directors and Administrators a Supervisory Board is established: the Supervisory Board performs supervising functions while the Board of Directors is in charge of management decisions in accordance with the bylaws of the company.
A joint stock company may issue different classes of shares, subject to the limitation that all shareholders must have the right to vote proportionally to their shares at general meetings.
Branches and Representative Offices: Instead of setting up an Albanian commercial company, a foreign investor may prefer to establish a branch or representative office of a foreign company in Albania. Branches and representative offices have the same legal personality as the mother company. Branches are organized and administered separately and carry out their activities with third parties in the company’s name. Representative offices, on the other hand, do not to operate directly to create revenues but promote the company’s activity: they may sign agreements in the name and on behalf of the company.
Many foreign investors operate successfully in Albania through branch offices. The formal procedures provided for the establishment of a branch or representative office, while previously long and rigid, have been made easier by the new Law on Commercial Companies. A branch or representative office must be registered with the National Registration Center – NCR. Registration. A representative office is administered by a legal representative empowered by the company.
Joint ventures - (Shoqëri e thjeshtë): Joint ventures are foreseen by the Civil Code and the Albanian legislation uses the term “simple company” while referring to them.
Joint ventures are based on an agreement, executed by two or more persons, physical or judicial, who agree on engaging in an economic activity. What is particular to this type of partnerships is that joint ventures do not have legal personality: two companies might decide to create a new corporate entity for their joint venture and register it (under one of the forms indicated above); alternatively, they may agree by contract to start a joint enterprise without registering or creating a new corporation. In the latter case the activity would be carried on by the two entities rather than through a new corporation.
As a practical matter, those considering entering into a joint venture with a local partner should carefully determine beforehand the expectations of the parties concerning the various aspects of the relevant investment or project.
It is also recommended that foreign investors negotiate a dispute resolution mechanism (e.g., an arbitration clause) in the joint venture agreement.
Commercial Companies Registration – NCR: Law No.9901 of 2008 and Law No.9723, dated May 3, 2007 “On National Registration Centre” (“NRC” or QKR in Albanian), as amended, changed the business registration process from a court-administered judicial procedure requiring several days and numerous administrative steps to complete to a new streamlined administrative process.
Economic activities, including e.g. tourism, construction, telecommunication, fuel trade, radio and TV broadcasting, fishing, medical products trading, require a trade license. Law No.10081 “For licenses, authorizations and permits in the Republic of Albania”, dated February 23, 2009, greatly facilitates the licensing process through the establishment of a one-stop shop license center.
Documents required for the registration by the National Registration Center NCR:
1. Articles of incorporation and bylaws signed in the presence of a notary public:These should contain the company name, registered office, objective(s), initial capital, term (which in Albania can be unlimited) and the name of shareholder(s), administrators and/or directors;
2. Application form (NRC - QKR) completed and filed by the legal representatives of the company (or authorized attorney-in-fact).
Registration of a branch or representative office
In case of registration of a branch or representative office, the NCR requires, in addition to the above listed documents:
3. Application form completed and filed by the representative of the branch (or representative office) or of the mother company (or authorized attorney-in-fact);
4. Articles of incorporation and bylaws of the mother company, with amendments if any;
5. Extract issued by the company register or equivalent authority of the place where the mother company is registered dated not earlier than 90 days from the date of submission: This document must show (a) that the mother company is regularly registered at the relevant company register or equivalent authority, (b) that the mother company is not subject to dissolution or bankruptcy proceedings, and (c) information on the management of the mother company;
6. Resolution of the Board of Directors of the mother company resolving upon the creation of the branch or representative office in Albania and appointing its legal representative of the branch;
7. Financial statements of the mother company for the last financial year and related auditor report.
Real Estate Registration
The law regulating real estate registration in Albania is Law No.7843, dated July 13, 1994 “On Registration of Real Estate”. The central authority responsible for registration of real estate is the Central Office of Real Estate Registration, which coordinates the several Offices of Real Estate Registration located throughout the Albanian territory. In case real estate is registered for the first time, the competent Office registers it temporarily for 45 days, giving to all interested persons the time to submit claims or requests to the relative Office. According to the Albanian Civil Code, real estate shall not be subject to any transaction if not registered with the Real Estate Register.
Important data will be mandatorily registered with the Real Estate Register within 30 days from final registration, including: position of property (plans) and relative borders; date of registration as well as relative deed of ownership acquisition; identity of the owner; mortgages, leases, rights to use the property or other similar rights connected to the property, which are transferred from the owner to a third party. If no claims are submitted, the property is permanently registered. In case of claims which are not amicably settled, the competent court will decide on the dispute and the relevant Office will register the pending dispute and the name of the relevant court.
Acquisition of Land from Foreigners
According to Law No. 7980, dated July 27, 1995 “On the Acquisition of Land”, foreign persons are entitled to lease land on Albania but only foreign legal persons may lease land in government-owned areas. Foreign natural persons do not have the right to buy land in Albania while foreign legal persons may do so provided that the investment they make in such land exceeds by three times the value of the land.
Law No.10431, dated June 9, 2011 “On environmental protection”, Law No. 8990, dated June 06, 2003 “On the environmental impact assessment”, and subsequent regulations are the pillars of the Albanian legislation on environmental matters. We note an intensification of the legislative attention concerning environmental protection. The legislator is also seeking to integrate the legal framework with a view to an environmentally sustainable economic development and harmonization of Albanian environmental legislation with that of Europe.
Banking Legal Framework
Two laws regulate the structure and functioning of the banking system today: Law No. 9662 of 2006 “On Banks in the Republic of Albania” and Law No. 8269 of 1997 “On the Bank of Albania” (as amended), which are implemented through decisions, regulations, orders and directives issued by the Bank of Albania. Their aim is to ensure the stability of the banking system.
Bank of Albania (BoA)
The Bank of Albania is the central bank of Albania. Article 161 of the Constitution ratifies the status of the Bank of Albania and Law No. 8269 “On the Bank of Albania”, dated December 27, 1997 sets out its objectives, tasks, organization, ownership and financial transparency.
The Bank of Albania is a state owned-bank and is accountable to the Parliament. The Bank of Albania is managed by the Supervisory Council, composed of 9 members appointed by the Parliament for a term of seven years and eligible for reappointment. The Supervisory Council is headed by the Governor, who also serves as its General Executive Director in charge of the day-to-day business of the Bank of Albania. The Bank of Albania has a General Inspector appointed by the Parliament.
The primary objective of the Bank of Albania is to achieve and maintain price stability. The Bank of Albania, in accordance with its primary objective and based on the domestic banking market, promotes and supports the development of foreign exchange regime and systems, domestic financial market, the payment system and assists in improving monetary and lending conditions, supporting the country’s economic stability and development. Any other objective or task assigned to the Bank of Albania is conditioned by the achievement of the primary objective.
As part of its mandate to ensure a sound banking system, the Bank of Albania supervises and regulates the activity of commercial banks. In its capacity as regulator, the Bank of Albania designs rules on the establishment and licensing of banks. In its capacity as supervisor, the Bank of Albania examines and monitors the activity of these banks in order to ensure that they are safe and act pursuant to laws and regulations into force.
The Albanian insurance market opened up to private firms in 1996. Previously, a state-owned insurance institute monopolized this market. Under Law No.9267 of 2004 “On Insurance and Reinsurance Activity”, foreign and domestic insurance and reinsurance companies may establish operations in Albania. Law No. 9267 of 2004 permits a variety of insurance activities, ranging from property to life insurance. The only specific exclusions contained in the law address social security, health and areas covered by special laws. An amendment of the insurance law was adopted in early 2007 and increased the guarantee fund for insurance companies.
In order to insure property in Albania, the property must be physically present in Albania. Direct insurance from abroad is prohibited unless it involves maritime transportation, air transportation or has been specifically authorized by the Minister of Finance. All Albanian insurance companies must be established as joint stock companies and foreign insurance companies must establish a branch in Albania. In order to engage in insurance activity in Albania a company must first obtain an approval.
Since 1995, following the process of opening and liberalization of the market, the Albanian Government, supported by the IMF, the European Union, the US Treasury Department and other organizations, has adopted a series of tax laws.
Currently, the legal framework regulating the tax system in Albania is based on:
Law No.9975, dated July 28, 2008 “On the national taxes”, and subsequent amendments;
Law No.9632, dated October 30, 2006 “On the local taxation system” and subsequent amendments;
Law No.8438, dated December 28, 1998 “On the income tax in the Republic of Albania” and its subsequent amendments;
Law No.7928, dated April 27, 1995 “On the value added” and subsequent amendments;
Law No.8976, dated December 12, 2002 “On the excise duty” and subsequent amendments; and
Law No.9920, dated May 19, 2008 “On the tax procedures in the Republic of Albania”.
Decision of the Council of Ministers No. 55, dated February 3, 2010 “On obligatory electronic declarations of the tax documents and other documents related to taxes”, as per its name governs the obligation to file electronic tax declarations.
Income Tax: Law No.8438, dated December 28, 1998 “On the income tax in the Republic of Albania” and its subsequent amendments (“Law 8438”), which came into force on January 21, 1999, has substantially changed the tax system.
Law 8438 governs direct taxes on natural and legal persons.
Liable to the income tax are: companies, corporate groups, consortiums and institutions; Albanians and foreigners who conduct a business in Albania - all those that are subject to value added tax payment (“legal persons”). Law No. 8438 establishes a criteria of territoriality: all sources of income are taxable, even if perceived abroad. Subject to income tax are legal persons having their headquarters (residence) in Albania, as well as legal persons not resident in Albania but still having sources of income produced in Albania. A legal person is considered as resident in the case it has a registered office or place in Albania where it has the effective management of its affairs.
From January 1, 2008 the tax rate on income is 10%. The tax base is determined by the annual balance sheet and accounting records in accordance with accounting rules in force. The fiscal year of reference starts on January 1 and ends on December 31 of each year.
Law 8438 introduced an analytical list of non deductible expenses. Non deductible expenses include among others: the costs inherent to the acquisition, improvement, renovation and reconstruction of depreciable assets; the payments for voluntary social security contributions; capital increases; corporate dividends; interest on loans that exceed the average rate declared by the Bank of Albania; sponsorships that exceed 3% of income before tax, and books sponsorships that exceed 5% of untaxed income; personal items, gifts, fines; arrear interests and penalties; salary and any other form of compensation related to employment, payment of which is not made through the banking system; and any other expense that is not documented.
With the Law 10364, dated December 16, 2010 in force from January 24th, 2011 amending Law 8438 dividends and profits distributed from a resident or nonresident company that is subject of income tax will be considered as excluded from the income tax of company resident in Albania.
The tax on dividends distributed by companies, consortiums or groups of companies that have their headquarters or that actually manage their economic activity in Albania is not applied in respect of persons that (i) are subject to VAT and (ii) own no less than 25% of the shares/quotas or of the right to vote and not less than 25% of the initial share capital of the company, consortium or group. Tax authorities have discretionary powers to redefine the tax to be paid (in advance) if they believe the current year’s profits are higher by at least 10% over the period of reference. Tax evasion and false accounting are punished with a fine equal to 100% of the difference between the owed and the stated amounts.
Small Business Taxation: Since January 2006, small entrepreneurs (natural persons or legal entities) which have a gross annual turnover up to ALL 5,000,000 (approximately USD 49,500) are subject to local tax on small businesses, regulated by Law No.9632, dated October 30, 2006 “Local taxes system”, as amended (“Law 9632”). These taxes are collected by the Taxes and Duties Municipality Offices and flow into the municipal budget.
According to Law 9632, every taxpayer shall register with the register of local taxes before starting its business.
The amount of local tax on small business is determined by the turnover during the fiscal year and also varies according to the type of activity performed. Notwithstanding the declaration by the taxpayer, the tax office has the right to conduct inspections and remove the company from the register of taxpayers, giving notice to the Central Fiscal Authority.
The local tax must be paid in four installments: (1) first installment at the time of registration or renewal of the certificate of registration by April 20; (2) second installment by July 20, (3) third installment by October 20, and (4) fourth installment by January 20 of the following year.
Personal Income Tax: The new rules dictated by Law 8438 substantially modified the regime applicable to personal income. The following are required to pay tax on their entire income: residents and people treated as residents. Non-residents are subject to tax only on the income produced in Albania.
According to Law 8438 the tax is calculated separately for each category of income. Law No.9766, dated July 9, 2007 provides for a progressive tax for wages, salaries and other benefits resulting from annual reports of work.
On other income subject to taxation, for which there are no specific law provisions, the 10% fixed rate applies.
Value Added Tax (VAT): The introduction of VAT was approved by the Albanian Parliament in April 1995 as Law No.7928, dated April 27, 1995 “On value added tax”, entered into force on July 1, 1996 and has been amended by subsequent regulations (about twenty of which in recent years).
Law 7928 establishes two fundamental spatial criteria for the payment of value added tax. Such tax shall apply to:
(i) The supply of goods and services by a person who carries on business activities in the territory of the Republic of Albania; and
(ii) The imports of goods into the territory of the Republic of Albania.
All legal and natural persons performing taxable supplies that have an annual turnover exceeding ALL 5,000,000 (approximately USD 49,500 and Euro 35,800) are subject to pay VAT. Taxpayers are required to register within the first 15 days of the start of the economic activity. Natural persons and legal entities operating in the import/export industry are required to register regardless of the amount of their annual turnover. A special office dedicated to VAT registration operates in each District Tax Office.
Based on the Decision no. 18, dated 12.01.2011 of the Council of Ministers entered in force on 01.02.2011 subject of VAT will be also lawyers, notaries, doctors, dentists, architects etc. independently from their annual turnover.
The VAT rate is 20%. The taxable amount is the value of goods and services provided, excluding VAT. The taxable amount of imported goods includes transportation costs and insurance, import costs, taxes, duties or tariffs.
Law 7928 states that VAT is equal to 0% in some cases, including:
(i) Exports of goods outside the Albanian territory;
(ii) Services performed outside the Republic of Albania by a person whose place of business or place of residence (if individual) is located in Albania;
(iii) Provision of goods or services relating to international carriage of persons or property;
(iv) Provision of goods or services relating to commercial or industrial shipping.
Under certain circumstances, the fiscal authorities may make a discrete assessment of the VAT payable amounts and give written notice to the taxpayer. A taxpayer wishing to contest the amount of such obligations shall, in any case, first pay the disputed amounts and only then, within 30 days from the date of receipt of the notice, present a complaint before the Taxes General Directorate. The latter, through written replay, will inform the claimant about the acceptance or rejection of the claim.
Law 7928 grants to taxpayers that export goods the right to request a VAT refund in case of a credit higher than ALL 400,000 (approximately USD 3,960) for three consecutive months. The tax credit will be repaid by public authorities within 30 days of the taxpayer’s request.
Excise Tax: Legislation on excise duties was also entirely repealed and replaced by a new regulatory measure: Law No.8976, dated December 12, 1998 “On excise duty”, as supplemented by Law No.9041, dated March 27, 2003 and, more recently, amended by Law No.9136, dated December 27, 2003; Law No.9328 dated December 6, 2004; Law No.9598, dated July 27, 2006; Law No.9714, 9765 and 9854 of 2007; Law No.9954, dated June 26, 2008; Law No. 10067, dated February 02, 2009, Law No.10147 dated September 28, 2009, Law no. 10210, dated December 23, 2009, Law no. 10286, dated June 3, 2010, Law no. 10365, dated December 16, 2010 and Law no. 10404, dated 24.03.2011.
Excise duties apply to a limited number of products for mass consumption, in particular tobacco and its derivatives, petroleum, alcoholic beverages, soft drinks and coffee, as well as perfumes and deodorants.
Other Taxes: Because of economic policy choices and distribution of revenues from the collection of taxes and charges to both the central and local governments, in the Albanian tax system a distinction is made between taxes applicable at the national and local level. In recent times, the fiscal policy has been characterized by a particular focus on decentralization, with a particular strategic importance to the development of local economies.
National Tax: The recent Law No.9975, dated July 28, 2008 “On national taxes” determines the taxes applicable at national level and regulates their collection.
National taxes include:
(i) Port taxes;
(ii) The annual fee movement of vehicles;
(iii) The environmental tax, which consists of:
(a) Import duty on vehicles used;
(b) Carbon tax on gasoline, benzene and diesel;
(c) Tax on plastic bags for liquids produced locally or imported;
(iv) Taxes and mining royalties;
(v) Tax on transactions and stamp duty;
(vi) Fees for registration of gambling, national lotteries, sports betting, casino and equestrian events; and
(vii) All taxes on fishing.
Local Tax: Law No. 9632, dated October 30, 2006 “On the local tax system”, as recently amended by Law No.10146 of September 28, 2009 and Law no. 10354, dated November 18. 2010 regulates the tax payable to the local tax authorities.
According to this law, local taxes include: tax on small businesses, tax on real property (buildings and agricultural land), hotels tax, tax on infrastructure for new constructions, tax on the transfer of ownership, registration fees for vehicles, fee for public spaces use, charge of advertising and sanitation, and temporary taxes.
Social Security Contributions: According to Law No.7703, dated May 11, 1993 “On social security of the Republic of Albania”, as amended, and Law No.7870, dated November 13, 1994 “On the health insurance in the Republic of Albania”, as amended, employers and employees are required to pay mandatory contributions to social security and health care.
Mandatory contributions cover the following risks and/or the following situations: temporary inability to work due to illness, maternity leave, senior age, accidents at work and occupational diseases, unemployment.
Under the law in force, employers must pay monthly (except small firms which pay quarterly) to the Institute of Social Security for each employee a contribution equal to 27.9% of the salary received by the employee. Of this rate, 16.7% is borne by the employer and 11.2% is borne by the employee. The amount of contributions due by the employee are withheld from his salary and paid by the employer.
Double Taxation Treaties : Currently there are 25 agreements against double taxation in force between Albania and other countries, including:
Austria, Belgium, Bulgaria, China, Croatia, Italy, France, Greece, Malaysia, Moldova, Montenegro, Poland, Serbia, Turkey, United Kingdom, Romania, Russia, Hungary and Spain etc.
Employment Legal Framework
Labor relations between employees and employers are regulated by individual employment agreements pursuant to Law No.7961, dated December 12, 1995, “The Labor Code”, which was adopted in 1995 and last updated. Law No.7703, dated May 11, 1993 “On Social Insurance in the Republic of Albania”, as amended, and other regulations also apply. A National Council of Labor has been established, composed of government officials and representatives of trade unions and employers associations. A draft proposing a Social Understanding Pact, whose major goal is to improve social dialogue between the government, management and employees, has also been prepared.
Albania adheres to all basic international labor organization conventions protecting the rights of employees.
Employment Agreements: According to Article 12 of the Albanian Labor Code, an employment agreement is an agreement between an employer and an employee which regulates their mutual relations and sets their mutual rights and obligations.
Employment agreements can be executed for a definite or indefinite period of time. As a general rule employment agreements are signed for an indefinite period of time if the duration is not specified properly in the agreement.
An employment agreement may be concluded verbally or in writing.
Albanian law recognizes:
- Group employment agreements, which are agreements made between an employer and a group of employees as a whole, even if the former is considered to be separately engaged towards every employee;
- Part-time employment agreements, which are standard part-time agreements internationally used: the employee works a certain amount of hours or days but in any case for less than the normal working schedule of the other employees who work full time and under the same terms. The part time employee has the same rights, proportionally, as the other full-time employees;
- Home working employment agreements, which are agreements imposing to the employee to work from home or from another place accepted by the employer, alone or with the help of his/her family. The employee working from home has the same rights as the employee working on the company premises;
- Commercial agent employment agreements, which are specific agreements where the commercial agent (employee) has the obligation to negotiate or conclude an agreement outside of the company premises on behalf and according to the instructions of the employer. It is not considered to be a commercial agent a person who performs this activity independently;
- Professional training employment agreements, which are agreements in which a master helps an apprentice to qualify according to professional rules and the apprentice works for the master in order to so qualify.
In case of individual employment agreements for indefinite period of time, the first three months of work are considered as probationary period. A probationary period may not be imposed in cases where the parties have entered into an agreement to perform the same work previously. During the probationary period any of the parties may terminate the agreement upon at least 5 days written notice.
Termination of the Employment: After the probationary period, if an employer decides to dismiss an employee, the former must notify the employee in writing at least 72 hours before inviting him to a meeting. This meeting must be held to permit to the employer to discuss with the employee the reasons of the termination and to give the employee the possibility to express his or her opinion. Notice of termination is provided in writing within 48 hours to one week after this meeting. During this procedure, the employer may suspend the employee. In this case, parties retain all rights and obligations stemming from the labor agreement.
In any event, the notice of termination provided pursuant to the above procedure must be provided with one month advance of the termination date during the first year of work, two months in advance during the second year through the fifth year of work and three months in advance after more than 5 years of work. The parties may agree in writing upon a different notice period, provided that it must not be less than two weeks for the first six months of work and one month if the employee has worked for more than six months. In case one of the parties terminates the agreement without respecting the notice period, the termination will be considered as a termination with immediate effect, which entails certain penalties set forth in the law. The notice period is suspended during illness or pregnancy. Agreement for a definite duration terminate at the end of their term, without any preliminary notification needed. If the employment relation tacitly continues, the agreement is considered as extended with unlimited duration.
According to the law, after a maximum of three years of uninterrupted agreements with determined duration, the employer’s refusal to renew the agreement is considered as termination of a agreement of indefinite duration.
Employers and employees may, at any time, terminate the employment agreement immediately for just cause. An employer may dismiss an employee for just cause only when the employee acted in a grossly negligent manner, especially when he repeatedly violated the applicable rules and instructions in spite of a warning by the employer.
Certain procedures determined by the Albanian Labor Code apply.
The courts of law have jurisdiction to decide whether a cause existed to terminate an employment agreement. In case an employer terminates an employment agreement without just cause, the employee has the right to file a lawsuit with the competent court against the employer within 180 days from the date the notice period for termination has expired. The employer who has terminated the employment agreement without a just cause can be condemned by the court to indemnify the employee with up to one year salary plus the salary that the employee should have received during the notice period.
Collective Agreements: The right of employees to form trade unions is explicitly provided by both the Labor Code and the 1998 Constitution, which, among others, guarantees the right of strike. Trade union members include employees, pensioners and unemployed persons. At least twenty persons are required to form a trade union. Trade unions can be organized in federations and confederations. The bylaws of trade unions should be deposited at the Ministry of Labor, Social Affairs and Equal Opportunities.
Collective agreements are permitted between one or more employers on the one hand and one or more trade unions on the other hand. Union’s collective representation of employees should be formed on the base of decision taken by a majority of employees. Once signed, the collective agreement binds all employees regardless of whether they are or are not members of the trade union. When an employer transfers a business, the transferee is bound by the collective agreement for its duration. When a dispute arises, both the employer and the employee have the right to bring the matter to a Reconciliation Office or to the competent court. The Reconciliation Office is a special institution focusing on alternative dispute resolution.
Foreign Workers: According to Law No.9959 of 2008 “On Foreigners”, foreign workers and entrepreneurs who intend to operate in Albania must hold both a residence permit and a work permit, which are issued by the competent authorities.
The law provides for a fine to be levied against foreign citizens who reside or work in the Republic of Albania without permission.
To obtain a residence permit a number of documents are required, the work permit being the most important.
Other documents may be mandatory in specific cases, including for instance: authorization to conduct humanitarian or religious activities, documentation proving the status of refugee, family status certificate demonstrating the relationship with an Albanian citizen or documentation proving the status of foreign student in Albania. Foreign citizens who exercise their activity in Albania (entrepreneurs, employers, employees, consultants and professionals) must hold the above mentioned work permit. The Decision of the Council of Ministers No.680 of 1995 and Law No.8492 of 1999 specify that work permits are issued to foreign citizens by local authorities or by the Ministry of Labor and Social Issues, subject to the submission of a number of documents.
Intellectual Property Law
The intellectual property statutory legislation in the Republic of Albania is mainly represented by Law No.9947, dated April 27, 2008 “On Industrial Property” (“Law on Industrial Property”) and Law No.9380, dated April 28, 2005 “On Copyright and Related Rights” (“Law on Copyright”).
In addition to that, Albania has adhered to a series of international conventions and treaties established for the protection of copyright and related rights as well as industrial property rights that enhance the legal protection of intellectual property in Albania. Such protection has been significantly increased by way of a persistent work of the public authorities in charge of the protection of intellectual property rights, namely the Albanian State Copyright Office (ASCO) and the Albanian Patent and Trademark Directorate (ALPTO).
In 2003, the Government of Albania passed an anti-piracy statute, Law No. 9124, dated July 29, 2003, amending the existing Law No.8410, dated September 30, 1998 “On Public and Private Radio Television”, which required television stations to broadcast only programs duly licensed for broadcasting purposes. The law was successful in prohibiting the broadcasting of pirated movies and programs; however, it did not cover satellite or cable television programming. In order to close the loophole and regulate adequately digital broadcasting, on May 28, 2007 the Albanian Parliament approved Law No.9742 “On Digital Broadcasting”.
Albania ratified the Hague Agreement of 1960 on February 19, 2007 and ratified the 1999 Geneva Act on the international registration of industrial designs on March 23, 2000.
The Law on Copyright protects written works including computer programs; lectures, addresses, sermons and other orally expressed works; musical works with or without accompanying text; dramatic or dramatic-musical works; audiovisual works; choreographic works and pantomimes; works of fine arts: drawings, paintings, sculptures, engravings and lithography; architectonic works; photographic works; works of applied art; illustrations, maps, plans, sketches and three-dimensional works related to geography, topography, architecture and science, as well as unregistered designs and textile models.
Generally, the moral rights of a work are protected forever and the economic rights for the author's life plus 70 years after his/her death. For anonymous or pseudonymous works, rights are protected for 70 years from the first day of the first legal publication of the work, unless the true author is identified, when the general term is applied.
Photographic or audiovisual work that is of joint authorship is protected for 70 years from the day this work is legally offered to the public or, if never delivered to the public, for 70 years from the day of the production of the work, i.e. 70 years after its creation.
Use of copyright is permitted without payment or the author’s authorization in the following areas: (a) reproduction for personal use; (b) reproduction in the form of citation; (c) use for teaching purposes; (d) reproduction within libraries and archives for strictly related services; (e) reproduction for judicial and administrative use up to the extent required for that purpose and quoting the source of the work and its author’s name; (f) use for the purpose of providing information to the public.