tax system and investment climate in albania, 2016

Law. Tax. Transparency

Tax System and Investment Climate in Albania, 2016

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AL Tax Center

Fiscal Papers,

Nr. 2016/01/01

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[email protected]

Date 04.01.2016

Tirana, Albania

Tax System and Investment

Climate in Albania, 2016

Tax system. New developments. Investment incentives and rules about

doing business in Albania

This document is prepared by the experts of the AL-TAX, in a series of thematic collections, with the aim to

become a source of discussion for those who are interested, or have inseparable connection with taxation

in the implementation of their practices.

This is the fourth edition.

The copyright belong to © AL-TAX and everyone who will use this material, is obliged to tell the source.

The documenti can be found to the website www.al-tax.org

If you have requests and question, please send to [email protected]

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©AL-Tax Center



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Fiscal Papers

January 2016


CONTENT

I. Recent macroeconomic performance and investment climate

II. Workforce and employment rules

III. Corporate governance

IV. Foreign exchange controls

V. Accounting principles/financial statements

VI. Principal business entities

VII. Financial services and bank rules

VIII. Fiscal system

- Customs

- Tax system



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I. Macroeconomic performance and investment

climate

The Albanian economy presented an economic growth of 2.1% in 2014, characterized by a 9%

growth in exports. The GDP of Albania in 2015 stood at a preliminary growth rate of 2.8%.

Economic growth of past three decades of the Albanian economy is growing at an average 2.5%.

The main contribute in the growth of GDP belong to the construction sector with 1.96% and

extractive industries, energy power with 0.72%. The negative effect has been affected by the

agriculture sector with an effect minus 0.16%.

There has been no changes in the composition of GDP by sectors of economy. The services and

commerce are the most important sectors in GDP with 45.4 per cent, mainly due to the

development of the tourism sector. Industry and construction have a share of 21.9 per cent of

GDP. The agriculture (including forests and fishing) has a share in GDP with 20 per cent. Inflation

rate in 2015, at a yearly rate it was at the level of 1.9 percent. Unemployment according to

official statistics is at the level of 17.4 percent.

The tendency of unemployment is going to decrease as a result of employment promotion

policies promoted by the government through increased investment in strategic sectors (energy

production and services) and creation of an encouraging climate for foreign investments, which

are an indicator of increased confidence in Albanian market.

Albania has investment levels that achieve at least 7 -8% of GDP, compared to the 18% of GDP

average among the 28 EU Member States. This reflects both the tendencies of development of

Albania's productive capacity and the increasing share of public investments.

Greece, Italy and Canada are the largest source of Albanian FDI, representing 49 percent of

Albania’s 7 billion of foreign investment stock for 2008 – 2015.



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The export of goods from inward processing of textile products and footwear on the other side

and export of oil and chromium ore including agricultural products on the other side are the

products that dominated the Albanian export. Albania’s business climate is generally favorable to

foreign companies.

There are no restrictions on foreign ownership of businesses, and all sectors are open for foreign

direct investment (FDI), partnership private-public procurement process and makes no distinction

between foreign and domestic firms. FDI have mostly been attracted by the various privatization

initiatives of the Government in sectors such as telecommunication, manufacturing, banking, and

increasingly the energy sector, especially hydroelectricity.

Tax and legislative reforms have been put in place, as well as new laws on public and private

partnerships, public spending, free-trade zones, company registration and electronic signature.

Albania has also ratified the "Investment Charter": an initiative of the Stability Pact aimed at

reforming the legal environment in order to facilitate FDI in the Balkans. Measures are also taken

to reduce by half, non-tariff barriers and to shorten the length of time required to register a

company.

The application for initial registration of new businesses may be done in 24 hours with a low cost

of 100ALL (less € 1).

Requests for licenses/permits or respective subcategories may be done at the service window at

NLC’s office in Tirana or any other office window located in a municipality office at a cost of 100

ALL (less € 1).

Foreign investors have the right to expatriate all funds and contributions in kind of their

investment. No foreign exchange controls.

Albania’s tax system is one of the highly conductive to investments with one of the lowest rate of

profit tax in Western Balkans at 15%, VAT exemptions for machineries and imports with a value of

investment plan over 400.000 Euros.

Albania has concluded free trade agreements with all neighboring Balkan countries, thereby

easing the flow of products through its borders and ports.



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Albania has signed conventions for the protection of investment with: Greece, Germany, Italy,

France, Austria, the Netherlands, the United Kingdom, Denmark, Sweden, Portugal, Belgium,

Spain, Finland, Poland, Hungary, Slovenia, the Czech Republic, Switzerland, the United States,

Turkey, Romania, Bulgaria, Macedonia, Croatia, Russia, Israel, Tunisia, Egypt, China, Malaysia,

Serbia-Montenegro, South Korea and Kosovo.

Foreign investment in Albania is, therefore, generally permitted and treated according to

conditions no less favorable than those which apply to domestic investment in similar

circumstances, excluding the ownership of land, which is regulated by a special law. Indeed, the

restrictions on the purchase of real estate are notable:

- Agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years.

- Commercial property may be purchased, but only if the proposed investment is worth three

times the price of the land.

- There are no restrictions on the purchase of private residential property.

As further protection for investors, it is important to note that Albania has signed the convention

establishing the Multilateral Investment Guarantee Agency (MIGA). 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.

Over recent years, foreign direct investment has been channeled increasingly to energy,

machinery, transport, IT and communication (ICT), and agriculture, sectors where investors see

future potential. Investments in these areas and in transport, energy and agriculture

infrastructure may help the country to progress towards its EU targets, notably in R&D spending

and improvements in energy efficiency.

In 2015 the Parliament adopted a new law on Strategic investment. This law provides the rules

and institutional framework and organization for all strategic investments, such as that selected

according to the criteria of the procedures defined in this law and in these economic sectors



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defined by as strategic investment sectors. Strategic investments are considered to be of public

interest.

According to the law on Strategic Investment, to qualify as a strategic project of public interest,

the project is to be judged by the following criteria:

a) The value of the investment.

b) The time of the investment.

c) Productivity and added value of the investment.

d) Opening of new working places.

e) Economic priority sector.

f) Regional and local economic development.

g) The development or improvement of conditions and standards for the production of goods and

provision of services.

h) Provision of new technologies to enhance the competitiveness and efficiency of investment.

i) Increasing the overall level of security and quality of life of citizens.

j) Environmental and consumer protection.

In 2015, the government approved specific exemptions if the investors will develop their activity

to free economic zones, right now updated for new developments of investments in these zones.

The Albanian Investment Development Agency (AIDA) in the country provides information about

the authorizations required to set up business. According to AIDA, Albania benefits from

extensive Free Trade Agreements with EU, CEFTA, EFTA and Turkey giving free access to over 600

million customers.

Investors in Albania are entitled to judicial protection of legal rights related to their investments.

Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a

dispute may agree to arbitration. Albania is signatory of the New York Convention and foreign

arbitration awards are recognized by Albania. The Albanian Civil Procedure Code outlines

provisions regarding domestic and international commercial arbitration. However, many

companies complain that endemic corruption and inefficient court procedures undermine judicial

protection in Albania and therefore choose to seek international arbitration as a means for

dispute resolution.

http://aida.gov.al/



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Albania lately in 2015 has granted and plan to develop in partnership with Chinese investors the

Technical Economic and Development Area of Spitalle. In 2015 the Law on the Establishment and

Functioning of Economic Zones changed and awarded some more attributes for investment.

Primary incentive provided by this law is what the Stability Clause for investments entails. Every,

responsible institution may enter into a binding commitment, on behalf of the state, which will

have the effect of providing the suitable guarantees in favor of the investor, which will be

protected against the financial consequences of the legislation, which comes into force after

issuance of a license or permit to commence operations in the area.

The Ministry of Economy proposes free trade zones, which are ratified by the Council of Ministers

on a case-by-case basis. The Council of Ministers has the power to define the status of the zone

(free zone or industrial park), area and boundaries, the economic activities to be performed

within the zones, time constraints, the type of permission (lease, concession, etc.), and selection

procedures for the developer. Industrial parks may be used for production, manufacturing, agro-

processing, export-import, and supporting activities. Following the approval of the Law on the

Establishment and Functioning of Economic Zones, the government approved the construction of

the following economic zones:

- Economic zone with the status of Industrial Park in Koplik, Shkoder.

- Economic zone with the status of Industrial Park in Shengjin, Lezhe.

- Economic zone with the status of Industrial Park in Spitalle.

- Economic zone with the status of Industrial Park in Vlora.

- Economic zone with the status of Industrial Park in Shkoder.

- Economic zone with the status of Industrial Park in Lezhe.

- Economic zone with the status of Industrial Park in Laknas, Tirana.

- Economic zone with the status of Free Zone in a territory in Vlora.

- Economic zone with the status of Industrial Park in Rrashbull, Durres.

However, besides the Spitalle zone, none of these projects has moved beyond the licensing

phase.



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Fiscal incentives

Further incentives provided by this law are the fiscal incentives for areas of technology and

economic development. Benefits are outlined below:

a) The entry and exit of goods to / from the area, the formalities and procedures conducted

under the provision

b) Developers and users are exempt from paying 50% of the normal profit tax amount due

for the first 5 years from the start of their activity in the area.

c) Developers to invest in the area, within 3 years from the date of commencement of

work, or users who invests in the area, within 3 years from the beginning of the economic

activity of the area, is recognized as deductible expenses of tax period, 20% of annual

capital expenditure, regardless of the amount of depreciation, under the law on income

tax for a period of 2 years.

d) Supply of Albanian goods, intended to be placed in area, regarded as a supply for export

with zero rate tax, in accordance with the provisions of the law on value added tax and

customs legislation.

e) Project developers exempt from local tax of impact in infrastructure.

f) Construction made in this area, according to project of developers are exempt from real

estate tax for a period of five years. ions of the Code.

g) Developers or users of the area are exempt from taxes on transferring the right of

ownership of immovable property.

h) Costs of wages and social and health contributions, which the employer pays for the

employee, are recognized 150% of value during the first fiscal year of activity. In years

following, additional costs for wages, compared to the previous year, for the purposes of

calculating taxable profit, recognized as known expenses with 150% of their value.

i) Costs of employee training in areas of technology and economic development, for the

purposes of calculating taxable profit are recognized as a known expense for the tax

period with their double value, for a period of 10 years from the beginning of activity

economic.

j) Expenses for research and development are recognized as known costs at twice the

value, for a period 10 years from the start of economic activity.



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Albania's Strong points are:

- A strategic geographical position (with ports on both the Adriatic and the Ionian Sea); - Significant natural resources;

- Cheap manpower;

- Prospects of joining the European Union.

- Additionally, Albania is still a developing country which needs foreign investors to develop entire sections of its economy, a fact which provides interesting opportunities.

- New and fast improving infrastructure in transportation, telecommunications and energy

- Well-developed and low-cost sea transport facilities

- Well-established transportation routes and direct delivery mechanism to most of the EU countries

Albania's Weak Points are:

- Albania remains one of the least developed countries in Europe. A fifth of its population lives under the national poverty line. The Albanian economy remains yet fragile and still dependent on foreign financial and technical assistance.

- The main obstacle to FDI development has been the dominance of personal relations over the law and legal procedures: competition is rarely fair and in reality far removed from the legal decisions, corruption exists and despite efforts to fight it, it remains one of Albania's major problems.

- The taxation and Customs systems still need to be improved. Albania must continue its reforms and, above all, ensure they are effectively enforced, especially in the area of the fight against organized crime and corruption, the reinforcement of the Rule of Law, the freedom of the judiciary system and media freedom.



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II. Workforce and employment rules

Despite clear structural transformations of economy, agriculture remains a significant employer

of the Albanian workforce (near 30% of total), closely followed by manufacturing, construction

and trade industries. The labor market is highly competitive, with the lowest wage costs in the

region. The national minimum wage is 22.000 Albanian Leks (€ 1601 per month). Albania’s

population to 2.9 million includes a working population of slightly less than 2 million. Most

Albanians speak more than one language and, in terms of age, Albania together with Kosovo has

the youngest workforce in Europe.

Near to 57 % of the population is under the age of 35. Over 1.1 million young people are well-

educated and also are motivated professionals. Approximately 117 thousands students register

annually in all the universities, which mean that the skills of labor market are increasing year by

year.

Employment in Albania is largely governed and regulated by the Labor Code and the recently

amended “Law on the Status of the Civil Employee”. Both individual and collective employment

contracts regulate labor relations between employees and management.

Albania is a member of the International Labor Organization (ILO) since 1991 and has ratified 53

ILO international labor conventions, the entire set of fundamental and governance conventions

as well as two protocols. The Albanian government has established the National Council of Labor,

composed of government officials, trade unions, management, and employers’ associations, to

improve social dialogue between stakeholders. The institutions governing the labor market

include: Ministry of Welfare and Youth, Ministry of Innovation and Public Administration,

National Employment Service, State Labor Inspectorate, and private actors such as employment

agencies, and vocational training centers.

1 Exchange rate 1 Euro = 137.3 ALL in December 2015



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Albania has adopted a large variety of regulations to monitor labor abuses, but their enforcement

remains weak due to persistent informality in the work force. Law 108/2013 dated March 28,

2013 On Foreigners and various decisions of the Council of Ministers regulate the employment

regime in Albania. While there are no special treatments of labor in specific economic zones, the

Law on Foreigners limits to 10 percent of the total the number of foreigners hired by employers

in Albania.

The Code provides for the contractual regulation of the relationships between employer and

employee by means of individual and collective labor contracts. Foreigners may be employed in

the Republic of Albania provided that they have the requisite work permits and residence

permits, which are covered by immigration provisions in the Law on Foreigners, the requirements

of which fall outside the scope of this discussion.

The only potential complication to obtaining a work permit is the requirement that a foreign

employer maintain a mandated number of local employees. The Law on Foreigners states that a

foreign employer will be granted a work permit if the number of foreign employees in the

company does not exceed 10 percent of the total number of employees on the payroll for the 12

proceeding months. Visa requirements to obtain residence or work permits are straightforward

and do not pose an undue burden on potential investors.



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III. Corporate governance

The general corporate governance legal framework in Albania is almost complete, despite the

lack of existence of a clear set of financial and company corporate governance rules. There are,

however, various laws that deal with rights, obligations and mechanisms involving, to a great

extent, corporate governance. The major reasons why corporate governance rules remain

unsophisticated are the lack of a capital market and listed companies. The recently established

Financial Supervisory Authority (as per the Financial Services Law 2014) has regulatory and

supervisory power over the securities market, and the authority to implement some corporate

governance standards that are laid down in Securities Law 2008. But insofar as no listed

companies and no licensed capital market are in existence, these powers remain almost passive.

There are no legal binding requirements for the state enterprises to adhere to OECD guidelines.

The corporate governance structure of the state enterprises includes the Supervisory Board and

the Directorate. The Supervisory Board is comprised of 3-9 members, who are not employed by

the SOE and are appointed one-third by the Ministry of Economy, one-third by the Ministry of

Finance and one third by the line ministry or institution to which the company reports. The

Supervisory Board and the Shareholder’s Assembly, which is the highest decision making

authority, appoint the Administrator for the state enterprises.

The Corporate Governance Code for unlisted joint stock companies incorporates the OECD

definitions and principles on corporate governance, but is not legally binding. The code provides

guidance for Albanian companies, aiming to provide a best-practice framework above the

minimum legal requirements, and assists Albanian companies in developing a sound governance

framework.



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IV. Foreign exchange controls

The stock exchange in Albania is currently inactive. There are no foreign currency exchange

controls applicable in Albania. Repatriation of payments may be made in any currency. However,

when the amount of foreign currency funds to be transferred abroad is large enough as to

negatively impact Albania’s balance of payments abroad, the Central Bank of Albania (BoA)

reserves the right to break it down into smaller amounts. Repatriation of income (dividends,

royalties, and consultancy services) is allowed if no tax liabilities are outstanding in Albania.

Foreign exchange is regulated by the 2009 Regulation on Foreign Exchange Activities no. 70 (FX

Regulation).

The BoA maintains a floating free exchange rate regime for its domestic currency, the Lek (ALL).

Foreign exchange is readily available at banks and exchange bureaus. However, when exchanging

large amounts, preliminary notification may be necessary as the exchange market in Albania

remains small.

The ALL has remained stable compared to the Euro, but depreciated by approximately 21 percent

compared to the dollar over the past year. Albanian authorities do not engage in currency

arbitrage and do not view it as an efficient instrument to achieve competitive advantage.

V. Accounting principles/financial statements

Financial Statements must be submitted in both offices, annually: Tax office and National

Registration Center. National Accounting Standards (NAS), International Accounting Standards

(IAS) and apply for all companies or some companies as below, effective January 1st, 2008, based

on their turnover. The National Accounting Council has approved 15 accounting standards based

on the NAS and IAS.



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Albania has already adopted IFRS for all or some companies. The Accounting Law (2004)2 requires

the following classes of companies to prepare their legal entity (separate company) and

consolidated financial statements using IFRS.

- Listed companies.

- Commercial banks, financial Institutions, insurance and reinsurance companies, and securities

funds and investment companies.

- Companies that are subsidiaries of any parent whose shares are listed in any stock exchange

around the world.

- Companies that exceed both of the following criteria in the two preceding years: annual

turnover more than Lek 1,250,000,000 (US$ 10 million) and average number of employees more

than 100. All other corporate sector entities must prepare their financial statements in

accordance with Albanian National Accounting Standards drafted by the National Accounting

Council of Albania (NACA) and approved by the Minister of Finance.

Because Albania has applied for membership in the European Union, Albania follows IFRS as

adopted by the European Union.

All domestic companies whose equity or debt securities trade in a public market are required to

use IFRS as adopted by the EU in their consolidated financial statements. However, trading of

shares on the stock exchange in Albania is currently inactive.

The Accounting Law (2004) requires large unlisted entities (which may meet the IASB’s definition

of an SME) to prepare their separate company and consolidated financial statements using IFRS.

All other corporate sector entities must prepare their financial statements in accordance with

Albanian National Accounting Standards drafted by the National Accounting Council (NAC) and

approved by the Minister of Finance.

2 Accounting Law (2004) in Albanian: http://kkk.gov.al/foto/uploads/File/Ligji%209228%20date%2029.04.2004.pdf

http://kkk.gov.al/foto/uploads/File/Ligji%209228%20date%2029.04.2004.pdf



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All entities must adopt an accounting system in compliance with the accounting plans issued and

approved by the Council of Ministers.

In addition, there are two other accounting plans:

- Accounting Plan for Banks, which covers commercial banks, and

- Public Accounting Plan, which covers central and local governmental institutions.

VI. Principal business entities

Commercial companies are guided by the 2008 Commercial Companies Law, which guarantees

foreign companies and investor’s equal treatment. The principal business entities in Albania are

as follows: (i) general partnership; (ii) limited partnership; (iii) limited liability company (locally

sh.p.k.); (iv) joint stock company (locally sh.a.); v) a branch; and vi) a representative office. Any

investment made through merger and acquisition, takeover and green field investment is

addressed in the Law on Entrepreneurs and Commercial Companies, 20083.

Branches

Foreign legal entities may register branches in the Republic of Albania. Branches are entered in

the Commercial Register at the National Registration Center. Though part of a foreign company,

branches are considered independent and therefore must keep separate accounting books and

prepare balance sheets. However, registered capital is not required for the establishment of a

branch.

Representative offices

Under the 2008 Commercial Companies Law, a foreign investor can have a representative office

in Albania. The representative office must also be registered with the National Registration

Center and have a legal representative empowered by the company to manage the

representative office. However, such an office is not entitled to perform commercial activity.

3 See www.qkr.gov.al

http://www.qkr.gov.al/



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The Commercial Register, a unique electronic database of business entities existing under the

Albanian law, is regulated by the legislative provisions for the NRC. The following are subject to

registration with the Commercial Register:

- Individuals who carry out commercial activity

- Simple partnerships under the Civil Code

- Commercial companies

- Branches and representative offices

- Saving-credit companies and unions

- Cooperation companies and any other entity subject to registration according to Albanian

legislation.

The NRC has the authority to receive all registration applications and keep all documents

containing information related to the incorporation, activity, statutory changes, organization of

businesses and legal representatives. The NRC provides full electronic access to the Commercial

Register, information for the general public, foreign investors and governmental institutions via

the internet. It offers a “one-stop-shop” solution for business registration as the registration with

the Commercial Register is simultaneous with the registration with the tax authorities, the social

and health insurance system and the Employment Inspectorate. The NRC serves as a single

“window” for all types of business entities throughout Albania to perform and apply for all

business registration-related processes.

According the Law on the National Registration Center, all the entrepreneurs and commercial

companies which carry out business activity in Albania should register with the Commercial

Register maintained by the National Registration Center of Albania (NRC). An application for

registration must be submitted to the NRC within 15 days from the beginning of the business

activity. Any other application for another mandatory registration must be completed within 30

days from the change of registered data. The application form is to be accompanied by the

required original or authenticated documents. The documents must be drafted in accordance

with the legislative requirements and be presented in the Albanian language. The registration

certificate is issued within the day of application. Registration procedures could be suspended if



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the request filed for them is not consistent with the legal requirements. The NRC notifies the

applicant of the decision about the suspension and a request for a correct or complete

application is to be submitted within 15 days of the notification date. The registration may be

lawfully denied when the application is not consistent with the legislative requirements, is not

complete or correct, or when the data required to be registered are different from the data held

in the Commercial Register.

VII. Financial services and bank rules

The Government has adopted policies promoting the free flow of financial resources as a

mechanism to promote any type of foreign investment in Albania. The government and Central

Bank refrain from restrictions on payments and transfers for international transactions. While

being a shallow FX market, banks enjoy enough liquidity to support sizeable positions.

Furthermore, portfolio investments remain limited mostly to company shares, government

bonds, and real estate. The credit market is quite competitive but interest rates can be high,

currently between 7 and 11.5 percent. Most mortgage and commercial loans are denominated in

euros as rate differentials between local and foreign currency average 2-4 percent. Commercial

banks have improved the quality and quantity of services they offer and the private sector has

benefited from the expansion of these instruments. However, the high rate of non-performing

loans and the economic slowdown has forced commercial banks to tighten their lending

standards, making access to local capital more difficult.

According to the Law on Banks in Albania (No. 9662, dated 18 December 2006; amended by the

Law (No. 8384, dated 29 July 1998) on the Addition of a Transitory Provision in the Law on the

Bank of Albania (No. 8269, dated 23 December 1997), commercial banks and non-banking

financial institutions provide a wide range of services under the supervision of the Bank of

Albania. The Bank of Albania operates as an independent legal entity accountable directly to the

Albanian parliament and is responsible for the formulation and implementation of monetary

policy in Albania. A law on financial leasing was enacted on 12 May 2005, and governs financial

leasing, the rights and obligations of the parties to a financial leasing agreement, and relations



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deriving from the lease of movable and immovable property. Entities exercising activity as banks

or non-banking financial institutions can engage in financial leasing activities only if the relevant

license or authorization therein expressly allows for financial leasing.

Instruments of payments such as cheques, bills of exchange and promissory notes have been

regulated by laws heavily based on the French Civil Code. The Law on Cheques is relatively old,

having been enacted in 1963, and has never been amended because of its precision and

predictability. Meanwhile, laws on bills of exchange and promissory notes were enacted in

February 1996. According to these laws, negotiable instruments must comply with some

requirements as to form, which if not respected may render the document and effect to be null

and void. The Bank of Albania issues instructions to banks to comply with anti-money laundering

procedures, including setting up specific units within bank structures to screen evidence and

report any suspicious transactions.

The Banking Law does not impose any restrictions on the purchase, sale, holding, or transfer of

monetary foreign exchanges. However, the Law on the Bank of Albania authorizes the bank to

temporarily restrict the purchase, sale, holding, or transfer of foreign exchanges in order to

preserve the foreign exchange rate or its official reserves. In practice, the Bank of Albania rarely

uses such measures.

Only licensed entities (banks) may conduct foreign exchange transfers and waiting periods

depend on office procedures adopted by the banks. Both Albanian and foreign citizens entering

or leaving the country must declare assets in excess of ALL 1,000,000 (€ 7,100) in hard currency

and/or precious items. Failure to declare such assets is considered a criminal act and punishable

by confiscation of the assets and imprisonment. Legal parallel markets are not in place in Albania

as the financial sector does not make use of convertible or negotiable instruments.

Although the Foreign Exchange Regulation provides that residents and non-residents may

transfer capital within and into Albania without any restrictions, capital transfers out of Albania

are subject to certain documentation requirements.



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In January 2015, The FX Regulation was amended and the requirement to present the

documentation showing the preliminary payment of taxes related to the transaction was

removed.

Albania is a member of the Council of Europe Committee of Experts on the Evaluation of Anti

Money Laundering Measures and the Financing of Terrorism (MONEYVAL), a Financial Action Task

Force-style regional body.

Bankruptcy and International Arbitration

The Bankruptcy Law establishes statutory time limits for insolvency procedures, professional

qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate

the profession of insolvency administrators. A simplified insolvency procedure for small

businesses is also in place.

A bankruptcy procedure can be initiated by debtors, creditors, as well as by tax authorities. Tax

authorities can request a bankruptcy procedure when the subject reports financial losses three

years in a row. The bankruptcy proceedings can initiate when the debtor is unable to pay the

obligations at the maturity date. In addition, the inability to pay the obligations in the near future

shall also be a reason for the debtor to file for bankruptcy.

According to the provisions of the Bankruptcy Law the initiation of the bankruptcy proceeding

would suspend the enforcement of the claims of all the creditors against the debtor subject to

bankruptcy. Creditors of all categories should submit their claims to the bankruptcy administrator

in order to be treated under the bankruptcy proceeding. The Bankruptcy Law provides specific

treatment for different categories, dividing them into: secured creditors; unsecured creditors;

and unsecured creditors of lower ranking (i.e. those whose claims would be paid after all the

secured and unsecured creditors are satisfied). The claims of the secured creditors will be

satisfied by the assets of the debtor, which secure such claims under security agreements. The

claims of the unsecured creditors will be paid out of bankruptcy estate excluding the assets used

for payment of the secured creditors, following the priority ranking described under the Albanian

Civil Code. Pursuant to the provisions of the Bankruptcy Law, the creditors have the right to

establish a creditors committee and the creditors’ assembly. The creditors’ committee is

appointed by the Commercial Section Courts, before the first meeting of the creditors’ assembly.



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According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors

with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim

is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign

currency are converted into Albanian currency according to the official exchange value applicable

to the place of payment at the time of the opening of the proceeding.

Under the Albanian Constitution, ratified international agreements prevail over domestic

legislation. Albania is a member state to the International Centre for the Settlement of

Investment Disputes (ICSID Convention). It is also a signatory to the convention on the

Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). They have

ratified the 1927 Convention and the European Convention on Arbitration (Geneva Convention).

In order for an arbitration award locally recognized the claimant must enforce the award before

the Court of Appeals.

The procedure for the recognition of a foreign arbitral award typically last around one month and

either party may appeal the Court’s decision to the Supreme Court. The appeal must be filed

within 30 days from the date of decision or notification of the other party (if absent). The

possibility of bringing an action before the local court in order to avoid arbitration proceedings is

remote. According to explicit provisions in the Albanian Code of Civil Procedure, if a party brings

actions before local courts despite the parties’ agreement to arbitrate, the court would, upon

motion of the other party, dismiss the case without entertaining the merits of the case.

The decision of the court to dismiss the case can be appealed to the Supreme Court, which has

30 days to consider the appeal. An alternative to dispute settlement via the courts is private

arbitration or mediation. Parties can engage in arbitration when they have agreed to such a

provision in the original agreement, when there is a separate arbitration agreement, or by mutual

agreement at any time when the dispute arises. Legislation distinguishes arbitration of

international disputes from arbitration of domestic disputes in that the parties involved in an

international dispute may agree to settle through either a domestic or foreign arbitration

tribunal. Mediation also is applicable in resolving all civil, commercial, and, family disputes and is

regulated by the law “On Dispute Resolution through Mediation.” Arbitral awards are final and

enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation

is final and enforceable in the same way.



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VIII. Fiscal system

1. Customs

Customs duties are levied on the import of goods into Albania at the rates specified in the

Customs Tariff. Customs duties are prescribed based on customs tariffs, and are amended every

year.

There are three categories of customs duties used in Albania:

1. Tax on the value: calculated as a percentage of the value of goods that will be taxed;

2. Specific duty: calculated as a fixed amount per item of the goods that will be taxed; and

3. Combined duties: composed from these two categories of customs duties.

In special cases, to reinforce or replace customs duties, the following duties can be temporarily

used:

- special customs duties: when imported goods are harmful to national manufacturers of

the same goods;

- anti-dumping duties: when goods are imported at a much lower price

than they are sold at in the exporting country; and

- balancing duties: when imported goods cause the slowing or stopping of the

production of the same goods in Albania.

The new Custom Code was approved by Albanian Parliament in 2014. The new code provides for

different regimes for the circulation of goods within Albania. The Custom Code is aligned to the

closest level to the new Regulation Commission no. 952/2013, dated 09 October 2013 'Union

Customs Code,' which is becoming an integral part of the new Code will replace the current

Customs Code (based on the EU Regulation no. 2913/1992, now repealed by the European

Parliament on 9 October 2013)

Customs Administration currently operates through a system of automated data processing,

Asycuda World. This system is able to make automatic processing of customs declarations (a)

entry of data and recording directly into the system by the declarant, (b) based on the data



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system performs risk analysis, calculation and assessment of duties and completes the with (c)

the accounting and payment of all duties.

Customs regimes require authorization from the authorities, which usually requires the applicant

to provide guarantees for the payment of any customs duties and confirmation that the

authorities will continue to be able to survey the goods. Treatment under a customs regime will

terminate upon the assignment of the goods to another destination or the placement of the

goods under another regime by the authorities.

Below is a general overview of the main customs regimes in place.

1.1. Free circulation

This allows the import or release of goods into free circulation within the territory of Albania.

Goods set under this regime are subject to all trade policy measures, such as customs duties and

other related payments. Value added tax on imports is paid at the time the goods enter the

Albanian customs territory.

1.2. Temporary permit

Non-Albanian goods that are imported and that are to remain for a certain period of time within

the territory, and thereafter exported, can remain in the Albanian customs territory completely

or partially exempt from import duties and any trade policy measures, provided that the goods

have not been altered (except for depreciation in value). The maximum period that goods can be

held under this regime is one year; after this period they must be exported. The amount of

customs duties payable in this case is 3 per cent of the total duties that would be paid for these

goods if they were subject to full customs duties.

1.3. Processing under customs control

This allows goods to be imported from outside Albania for processing operations, changing the

nature or status of the goods, without their being subject to import duties or other trade policy

measures. Duty becomes payable when the finished product is put into free circulation, as if it

had been imported directly in order to be put into free circulation.



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1.4. Active processing

This covers mainly foreign goods that are subject to amendment or transformation (to be

assembled, etc.) within Albanian customs territory. Such goods are not subject to import duties

or trade limitations, and reimbursement is permitted only if import duties were paid when the

goods were set into free circulation. The final goods must be exported after processing. The

goods must meet a processing measurement set by the authorities, and authorization for

processing commercial goods will only be issued when the subjects are established in Albania, the

imported goods are recognizable within the final goods, and the interests of Albanian producers

are protected.

1.5. Passive processing

This permits Albanian products to be temporarily exported for further processing outside the

country and to be brought back into Albania subject to total or partial exemption of import

duties. The relevant authorities will authorize the application of this regime upon request,

however, only if it is possible to identify the originally exported goods within the final imported

goods, and such is not contrary to the interests of local producers. There are also some other

restrictions.

1.6. Temporary warehouse

Under this regime, goods and products are permitted to be stored for a specific period in certain

customs storage warehouses that are approved by the relevant authority. During this period they

will not be subject to any customs duties. The storage period is 12 months with the possibility of

an extension for a further 12 months.

1.7. Transit

This regime covers the movement of non-Albanian goods and/or vehicles that pass through the

territory of Albania on their way to another country. Such goods transiting the territory of Albania

are exempt from customs duty, VAT and excise taxes. Evidence must be shown to the customs

authorities that the goods do not originate from Albania and are only passing through the

country.



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1.8. Export

This is applied to all Albanian products destined to be exported outside the Albanian customs

territory. Exports are exempt from VAT, and persons/companies exporting can benefit from a VAT

credit for purchases made in respect of the products to be exported.

2. Tax System

Taxes in Albania are grouped into three main categories: (a) indirect taxes (VAT, excise, gambling

and other indirect taxes), direct taxes (income tax, personal income taxes, taxes on capital); (b)

local taxes, and (c) social and health security contributions.

National Taxes, administered by the Central Tax Administration and Customs Administration

include:

1. Indirect taxes4

a. Value added tax;

b. Excise (since 2012 is administered by Custom administration);

c. Taxes on gambling, casinos and hippodromes;

2. Direct taxes

d. Income tax;

e. National taxes;

f. Other taxes, which are defined as such by special law, and

g. Customs taxes.

3. Social and health security contributions, as defined in the social insurances law

4. Local taxes and tariffs administered by Local Tax Administration include:

a. Tax on immovable property, which includes tax on buildings and agricultural land;

b. Tax on hotel accommodation;

c. Tax on impact of new constructions upon infrastructure;

4 See explanation of term in ANNEX



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d. Tax on transfer of ownership right on real estate;

e. Annual tax for vehicle registration;

f. Tax for occupation of public space;

g. Advertising tax;

h. Temporary taxes

i. Registration tariff for various activities;

j. Fee on infrastructure of education;

k. Vehicle parking tariff;

l. Tariff for services

2.1. Taxation of commercial companies

Each individual, who is a partner in a commercial company, is responsible for the company's tax

liabilities to the tax administration, according to provisions in the company charter. According to

commercial registry, over 98 percent of companies are limited liability companies. The remainder

is joint stock companies, partnerships and less than 0.5 percent is limited partnerships. The tax

period commences on 1 January and ends on 31 December of each calendar year.

At the moment a company is registered and starts its economic activity, it is responsible for:

- Calculation of VAT and timely declaration and payment;

- Payment of advance tax installments for profit tax to pay every three months;

- Calculation, timely declaration and payment of tax on incomes from employment

for employers and employees;

- Calculation, timely declaration and payment of social and health contributions;

- Withholding and payment of withheld tax, under obligation of Law "On Income tax";

- Calculation, timely declaration and payment of taxes according to specific activity

"for gambling, casinos and hippodromes" for the companies that have to deal with

this tax;

- Calculation, timely declaration and payment of excise under specific law "On Excises" for

the companies that have to deal with this tax;

- Calculation, timely declaration and payment of national taxes and local taxes (if).



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In order to calculate taxes, taxpayers who are subject to VAT or profit tax keep registers,

accounting records, books and financial information and issue tax receipt or tax coupon, in

accordance with relevant laws and regulations pursuant to them. Taxpayers keep their accounts

in accordance with provisions of the law "On accounting and financial statements" and act

pursuant to that law in accordance with IFRS principles. In order to register economic

transactions related to taxes, taxpayers can also use books, records or documents specified in

specific tax laws and respective regulation provisions. Taxpayers are required to use basic

documentation, including tax invoice, in accordance with tax legislation and relevant legal

provisions.

2.2. Tax exemption

Albania’s tax regime is considered by far one of the most important incentives for foreign

investment; however, the tax system as such does not discriminate against or in favor of foreign

investors. Likewise, legislation relating to the public procurement process makes little distinction

between foreign and domestic companies, as many activities in Albania require licensing within

the territory. The procedures for obtaining a license are, however, the same for national and

foreign companies. The government to date has not screened foreign investments and provided

little in the way of tax, financial or other special incentives.

2.3. Value Added Tax

The majority of goods and services are subject to VAT at a standard rate of 20 per cent, although

certain exemptions apply (such as for financial services, postal services, supplies of electronic and

written media for advertising, supplies of services at casinos and hippodromes (race tracks), sales

of newspapers, magazines and advertisement services in them, as well as research hydrocarbon

operations).

In 2014 it was approved by Albanian Parliament a new VAT Law, which applied since January

2015. All taxable persons carrying out independent economic activities are required to apply for a

mandatory VAT registration if their taxable turnover exceeds ALL 5 million 5 in a calendar year.

5 EUR 36,000



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Any taxable person that performs import-export activities and any tax registered freelancer

should register for VAT purposes regardless of the annual turnover.

The new law provides convenient and attractive environment, safety for local entrepreneurship

foreign legal consistency fiscal, well-defined rules to ensure:

- Uniformity in the application of VAT, and so unified taxation system in line with that of the EU

countries;

- Fair competition and equal conditions, eliminating factors that affect these conditions;

- Promoting the circulation of goods services, making our business competitive with other

countries.

According to the new VAT Law (No. 92/2014), the most significant incentives for investors in

Albania are as follows:

- VAT credit at the rate of 100 per cent for importers of machinery and equipment which

will serve entirely their taxable economic activity;

- exemption of VAT for export of international services;

- automatic VAT refund system from treasury, based on risk management

The tax export regime can be considered a kind of investment incentive for both foreign and

national entrepreneurs, and is applicable to all Albanian products destined for export outside the

Albanian customs territory. The export VAT rate it is 0 per cent. Exporters can benefit from a VAT

credit for purchases made on behalf of their exports.

Overall, if the tax credit for a taxation period is higher than the VAT applicable in that period,

taxpayers have the right to use the credit surplus for the following taxable period. Taxable

persons have the right to request a reimbursement of the credit surplus when they have a

taxable credit amount over three months that is above 400,000 Albanian Leks. As stated above,

and since they are essentially exporters, investors are entitled to VAT reimbursement on the

purchase of domestic goods or raw materials when it is for production purposes6.

6 For detailed explanation email to [email protected]




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2.4. Corporate taxation

2.4.1. Definition of Residence

A company is considered resident in Albania if it has its legal seat or place of effective

management in Albania. Further, partnerships and legal entities with a permanent establishment

in Albania would be considered resident taxpayers. Residents must register with the National

Registration Center (NRC).

2.4.2. Taxable Basis

Residents are taxed on their worldwide income; non residents are taxed only on their Albanian-

source income.

2.4.3. Taxable income

Taxable income of residents includes business profits, as well as dividends, interest, and realized

capital gains. Taxable profit is the difference between gross profit and related expenses. The

determination of the taxable profit is generally based on the profits shown on the financial

statements.

2.4.4. Tax income Rate

From the January 1st, 2014 the income tax rate of 15%.

2.4.5. Taxation of dividends received by residents

Dividend income is considered taxable income, unless the participation exemption or a

double tax treaty relief is applicable.

2.4.6. Participation exemption

2.4.6.1. Resident companies

Dividends and distribution of earnings are excluded from a resident’s taxable profit when

dividends and earnings are distributed from resident companies or partnerships which are

subject to corporate income tax despite the participation quota, in value or number, of the share

capital, of the right to vote or the participation in initial capital or share capital of the



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beneficiaries.

2.4.6.2. Nonresident companies

No participation exemption is in place for holding of foreign companies. Consequently, dividends

received from foreign companies would be included in taxable income. Taxation of dividends paid

to nonresidents – Dividend income distribution to a nonresident is subject to a withholding tax of

15%7, unless a double tax treaty provides for a lower rate.

2.4.7. Capital gains

Realized capital gains are considered as taxable income and are taxed together with other

income, at 15% on a net basis.

2.4.8. Losses

A loss may be covered by profits in the next three fiscal years, according to the principle ''first loss

before the last one”. The tax loss can not be carried forward if the ownership of stock capital or

voting rights of an entity changes by more than 50% in value or number.

2.4.9. Surtax

None

2.4.10. Alternative minimum tax

None

2.4.11. Reign tax credit

Double taxation is avoided through tax treaties. Albania currently has signed 40 tax double

treaties in effect with other countries. The treaties are based under principles of OECD Model Tax

Convention on Income and Capital. In 2013, Albania ratified the Convention on Mutual

7 Since January 2015, amended by Law 156/2014



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Administrative Assistance in Tax Matters, a multilateral agreement developed jointly by the

Council of Europe and the OECD.

Tax Double Treaties with Albania

When a Tax Double Treaty is in force between Albania and another state, its provisions prevail

over the local tax regulations. The effects of tax double treaties are in force with countries below,

since the year in addition.

Romania (1995), Malaysia (1995), Poland (1995), Hungary (1996), Turkey (1997), Czech Republic

(1997), Russian Federation (1998), F.Y.R.O. Macedonia (1999), Croatia (1999), Italy (2000),

Bulgaria (2000), Norway (2000), Sweden (2000), Greece (2001), Malta (2001), Switzerland (2001),

Moldova (2004), Belgium (2005), France (2006), China (2006), Egypt (2006), Kosovo (2006)8,

Netherlands (2006),Serbia and Montenegro (2006), South Korea (2009), Austria (2009), Bosnia

and Herzegovina (2009), Latvia (2009), Slovenia (2010), Spain (2011), Germany (2012), Ireland

(2012), Singapore (2012), Qatar (2013), Kuwait (2014), and U.K. (2014).

Tax treaties with the following countries have not yet entered into force.

Luxembourg (-), Estonia (-), India (-), U.A.E. (-)

2.4.12. Holding company regime

No application of this type of company regime.

2.5. Tax Incentives or tax expenditures

Every exemptions or tax incentive is granted only by law. The tax incentives comprise different

forms applied by law:

- low tax rates (15%) with no preconditions,

- special scheme for farmers,

- tax exemptions sectors (research of hydrocarbons),

8 The Law no. 62/2014 ratified by Parliament the Agreement between the Government of the Republic of Albania and

the Republic of Kosovo 'For the avoidance of double taxation with respect to taxes on either come bridges or capital

and for the prevention of fiscal evasion'.



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- contributions made by the employer to ensure the health and lives of employees are non

taxable,

- investment tax credits (investments of all kinds),

- tax loss carry forward,

- accelerated depreciation rates (see the table at Annex).

If the tax rate on income taxes can be compared with the neighbor countries with Albania, it can

be noticed that the income tax rates are competitive and attractive ones. The tax rate on income

and profit is applied on equal basis to all taxpayers regardless of the region, the branch they

perform their economic activity from or the type of activity.

Tax is granted for selected projects on a case-by-case basis and for every business as per under

- articles 18 of income tax law;

- articles 53, 54 and 56 of VAT law including the special scheme of exemption from VAT for

investments value over € 360,000;

- articles 10-12 of excise tax law; and

- article 9 of National Taxes law.

The investment projects may include investments channeled to public services, infrastructure

projects, as well as tourism and oil industries. More detailed the exemptions from taxes, tax

depreciation, legal and illegal business expenses and other explanations of tax bases for every

major tax type you can see at Annex.

2.6. Withholding tax

Withholding tax is applicable to dividend, interest, and royalty payments, as well as certain other

types of Albanian-source income earned by nonresidents.

Dividends are subject to a 15% withholding tax rate, unless the rate is reduced under an

applicable tax treaty. Interest is taxed at a 15% withholding tax rate, unless the rate is reduced

under an applicable tax double treaty. Royalties are subject to a 15% withholding tax rate, unless

the rate is reduced under an applicable tax double treaty.

Withholding tax must be paid no later than the 20th day of the month following the month the

remittance upon which the withholding tax is assessed. The payer of such amounts is responsible

for retaining and paying the tax on the account of the tax authorities.



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2.7. Other Albanian-source Income

A withholding tax of 15% is applicable to the gross amount of:

a) technical service fees;

b) management fees;

c) payments for construction, installation, assembly or related supervisory work;

d) rental payments; and

e) payment for the performance of entertainment activities, which are made to

nonresident taxpayers.

The income in the form of cash for increasing the capital with resources from outside the

organization are not taxed ago, and have been subject to tax and that are not accompanied by

official documents proving the origin of this income are taxable by 15% as personal income.

2.7.1. Repatriation of dividend tax

No tax.

Foreign investors can freely transfer, and purchase to transfer, foreign currency abroad after any

corporate taxes due, including withholding taxes, have been duly paid.

The owners of companies may transfer abroad:

- Income generated through an investment

- Compensation against expropriation of investments for state needs

- Liquidation quotas upon termination of the investment

- Proceeds from the sale of an investment

- Sums received as a result of enforcement proceedings.

This right may also be exercised by foreign individuals who have obtained a permanent residence

permit and are registered as sole traders or participate in a co-operative, in an unlimited

partnership or as unlimited partners in a limited partnership, after the payment of all taxes due.

2.8. Other taxes on corporations

2.8.1. Capital duty

No tax.



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2.9. Payroll tax

Resident employers are required to withhold personal income tax on employee wages and remit

to tax authorities on a monthly basis. The threshold of salary non taxable it is 30.000 Leks per

month (€ 215 per month). In Albania, since 2014 is applied the progressive tax rate, based in

three tax brackets, as can be seen in ANNEX.

3. Social Security and Health filing requirements

Employers must properly calculated social and health insurance contributions and must pay no

later than the 20th date of the month following the month of calculation. The total social security

contribution is 27.9 per cent of the monthly secured compensation salary. Social security and

health insurance contributions are paid by the employer at the rate of 16.7%. Social security

contributions paid by the employee are rated at 11.2%.

Albania doesn't have a sovereign wealth fund.

4. Local taxes

According to the Law on the Local Tax System, a wide range of local taxes is levied on every

business activity. Most of them are levied at specific amounts and differ by location of business

activity in the territory of Albania.

4.1. Transfer Tax of immovable property

The transfer tax which is imposed on the seller on a net basis from for the transfer of the

immovable property varies from one municipality to another. The minimum tax for residential

building it is 100 Leks/ m² per year and a maximum of 1.000 lek/ m². The minimum tax for

commercial building it is 300 Leks/ m² per year and a maximum of 2.000 lek/ m². However, this

tax may be credited on capital gains for income tax purposes.

No transfer tax is imposed on the transfer of securities.

4.2. Tax on small business

Individual entrepreneurs or legal entities that conduct business activity in Albania and have an

annual turnover of less than ALL 8 million are subject to the local tax on small business. Since

2016, small businesses having an annual turnover of less than ALL 2 million are not anymore



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subject to fixed tax obligation amounting to ALL 25,000 (approximately EUR 180) per year which

it was until 2015.

Also, the taxpayers with an annual turnover between ALL 2 million and ALL 5 million will not be

subject to the simplified income tax on small business at a 7.5 percent rate. This tax since 2016

will be 0%.

The taxpayers with an annual turnover between ALL 5 million and ALL 8 million will be subject to

a decreased rate of the simplified income tax on small business. Since 2016 the tax rate will be

5% instead of the 7.5 percent rate, which was until 2015.

The simplified income tax on small business for this segment will be paid in advance on a

quarterly basis, by 20 April, 20 July, 20 October and 20 December.

4.3. Property tax

The property tax includes (a) Property tax on real estate, (b) property tax on agriculture land, (c)

property tax on building ground.

4.3.1. Property tax on real estate

The property tax on real estate it is between 5 to 400 Leks per m², annually and is based on the

decision of Council of Municipalities according to the categories of municipalities.

The tax on residential buildings used for business purposes varies from ALL 5 to ALL 30 per m²,

while the tax on buildings owned by businesses varies from ALL 200 to ALL 400 per m². The

variation depends by on to other category of the municipality.

The tax on buildings are double for any second or subsequent real estate property (apartment or

house) owned by individuals.

4.3.2. The local tax on agricultural land

Property tax is also applicable to agricultural land at rates varying from ALL 700 to ALL 5,600 per

hectare, depending upon their use. A tax credit of 50% may be available for certain rural projects.



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4.3.3. The local tax on building ground

For the first time in the tax history of Albania since 2016 will be taxed also the construction

ground. The tax base is the area of construction land measured in hectares. The tax is levied on

each hectare and varies depending on the district where the agricultural land is located. The real

estate tax on agricultural land per hectare varies from ALL 1,400 to ALL 5,600

4.4. Tax of impact on infrastructure

The tax base is the value of the new investment required to undertake or value in Leks of

domestic sales price per square meter of the new investment.

In the case of buildings for residential or service unit from building companies, which are not

intended for use in the tourism sector, industry or public the tax of impact on infrastructure it is

4% to 8% of the sales price per m².

In the case of other buildings, the tax rate is shown as a percentage of the investment value and

is 1 to 3 percent of this amount, while in the Municipality of Tirana is 2 to 4 percent of it.

4.5. City tax

City tax City tax is payable by all persons residing in a hotel, both Albanian and foreigners. In 2016

this tax has changed and is not with 5 percent of the accommodation price, but instead it is Euro

1 per night for person.

This tax is calculated and withheld by the hotel administration. The hotel administration must

remit the total amount of city tax collected to the respective municipality by the fifth of the

following month in which the hotel invoice was issued.

4.6. The other local taxes are advertising tax; annual tax for vehicle registration; Tax for

occupation of public space; Temporary taxes; Registration tariff for various activities; Vehicle

parking tariff; Tariff for services

In 2016, the cleaning tax is substituted with the tax on infrastructure of education, which it is €

1.05 /month for every family.



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5. National taxes

The national taxes are levied by a specific law, which was amended for 2016 for specific royalty

taxes. There are a variety of other national taxes and fees. These include port charges, consu lar

fees, TV and telephone taxes, driving license fees, airport arrival and departure tax, circulation tax

on vehicles, plastic and glass packaging tax. Royalties shall be declared within deadlines provided

by the Law on National Taxes through a specific tax return. The detailed list and taxes are to

Annexes.

5.1. Luxury Tax

For the first time in tax history of Albania in 2016 enters in force the luxury tax on cars with motor

over 3000 cm³ or with a value equal or more than € 50,000. The registration tax for the first time

for cars that are imported it is 70 thousands Leks per year. The annual tax it is 21 thousands Leks.

6. Anti-avoidance rules

Transfer pricing – Albania applies the arm’s length principle. Since 2014 in Albania are in force the

transfer pricing guidelines9. The Albanian Tax Instructions refer to the OECD transfer pricing

guidelines, 2010 for guidance in applying transfer pricing principles.

7. Thin capitalization

The tax deduction for interest paid is restricted when:

- The debt-to-equity ratio is equal to or greater than 4:1. (Note, however, that banks,

insurance and leasing companies are not subject to this rule);

- Interest paid is in excess of the 12-month average rate of the inter-bank rate as officially

publicized by the Bank of Albania.

9 Instruction No. 16/2014, signed by Minister of Finance



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8. Excise tax

Excise duties are levied on certain domestic or imported goods such as alcoholic beverages, fruit

juice, water and other refreshment beverages, cigarettes, coffee, fuel oils, cosmetics, perfumes,

packaging materials etc. Tax liable persons for excise duties are licensed producers and importers

of the goods. Excise goods in the Republic of Albania and the relative tax rates are shown in the

link10

9. Investment Incentives of economic sectors

Manufacturing sector Lease of public property

Government can lease public property of more than 500 m2, or grant a concession for the

symbolic price of 1 euro if the properties will be used for manufacturing activities with an

investment exceeding 10 million euro, or for inward processing activities.

The Government can also lease public property or grant a concession for the symbolic price of 1

euro for investments of more than 2 million euro on activities that address social and economic

issues in a certain area, as well as activities related to sport, culture, tourism and cultural

heritage. Criteria and terms are decided on a by case basis by the Council of Ministers.

Manufacturing activities are exempt from VAT on machinery and equipment. The employer is

exempt from the social security tax payment for 1 year for all new employees. The state pays the

salaries for 4 months for the new employees and offers various financing incentives for job

training.

Apparel and footwear producers are exempt from 20 percent VAT on raw materials as long as the

finished product is exported.

The hydrocarbons sector, exploration and exploitation

Companies operating in the oil and gas extraction industry pay profit tax at the rate of 50 percent

(different from the flat 15 percent corporate income tax applicable for all other taxpayers) after

10 http://www.dogana.gov.al/sites/default/files/Ligj%20142%20Per%20%23%20Ligjit%2061_Akciza_FZ -174-2014.pdf

http://www.dogana.gov.al/sites/default/files/Ligj%20142%20Per%20%23%20Ligjit%2061_Akciza_FZ-174-2014.pdf



www.al-t ax.org 44

deduction of all capital expenditure and operating and administrative expenses, in accordance

with the respective petroleum sharing agreement signed with the government (PSA are

negotiated on a case by case basis). The import of goods or services relating to the performance

of exploration/research phase of petroleum operations, carried out by contractors who work for

these operations, is VAT exempt.

Energy power sector

Cement and iron imported for the construction of HPPs is VAT exempt. Foreign tax credit: Albania

applies foreign tax credits rights even in case there is no double tax treaty in place with the

country where the tax is paid. If a double taxation treaty is in force, double taxation is av oided

either through an exemption or by granting tax credit up to the amount of the applicable

Albanian corporate income tax rate (currently 15 percent). Corporate income tax exemption: Film

studios and cinematographic productions, licensed and funded by the National Cinematographic

Centre are exempted from paying corporate income tax.

Tax exemption of dividends designated for investments

Dividends and profit share paid by a resident or non-resident company to a resident taxpayer will

not be subject to corporate income tax for the resident taxpayer. This applies, despite the

participation quote, in amounts or number of shares, in shareholder capital of the voting rights or

participation in initial capital of the beneficiary.



www.al-t ax.org 45



www.al-t ax.org 46

The AL-Tax Studio has a team of quality fiscal experts and CPAs that are highly skilled. All experts are known

to have excellent relations with their clients and are adapt in providing the right solution for the client in

resolving the legal problems they face. The close team network means that all experts are able to draw

upon the expertise of others in the office to help provide a complete, comprehensive service and anticipate

and defuse any potential legal problems.

2016. Our mind it’s your solution!

Director

Aurela GJOKUTAJ

[email protected]

www.al-tax.org


http://www.al-tax.org/



www.al-t ax.org 47

ANNEX

Commercial

companies

Small

businessIndividuals NGO Public institutions

Commercial

companiesSmall business Individuals NGO

Source: Parliament of Albania

Accommodation in hotels and resorts

Taxable value for processed, imported

gold is established according to the List

of Customs Tariffs and it also includes (if

not included) expenditures for

transport, security and other

expenditures included in the import of

goods and delivery until the moment of

entry in the territory of the Republic of

Albania, excluding the value of gold

used as raw material.

Supply of import of ships, according to headings 8901 20, 8901

30, 8901 90, 8902 00 in the Combined List of Goods

Supply of import of goods by NATO and its organizations in the

framework of operations and international agreements

Supply of services for processing non-Albanian goods by

subcontractors, designed for re-export by authorized taxable

persons

Special schemes Tax rate

Supply of mail stamps for use in mail services or similar stamps

Supply of goods and services for NGOs with public status

according to authorization from the Minister of Finances

The scheme for exemption of VAT

payment for machinery and equipment

imported by taxable persons, according

to this law, for the purpose of their

economic activity, regardless of the

type of activity.

Supply of gold from the Bank of Albania and second-level

banks

Supply of banknotes and coins from the Bank of Albania

0%

20%

Renting buildings for a period ≤ than two months

Supply of buildings, except construction process

Renting buildings for a period longer than two months

Supply of medications and packaging of materials used for

production and packaging of medications

Supply of services from religious or philosophical organizations

for purposes of spiritual wellbeing

Supply of services provided by contractors or their

subcontractors confirmed as such by National Agency for

Natural Resources to conduct hydro carbon research

Supplies for diplomatic and consular missions and their

personnel on the basis of reciprocity

Supply of printing services for newspapers, supply of

newspapers, magazines and books of any kind, as well as

supply of publicity service by printed and electronic media

Supply free of charge as aid "For civil emergencies"

Exempted base (supplies)

Supplies for international organizations based on international

agreements

Supply of import of live breed animals donated by different

donors

Tax base for VAT and special schemes in the law

Taxable base (supplies)

For goods exported from the territory of the Republic of Albania

Mixed supply inside the country

Supply of goods inside the country

Supply of services inside the country

For the supply of goods and services related to commercial or

industrial activity at sea

For international transport of goods or passengers and supply of

goods and services related to it

Supply of educational services from public and private

educational institutions

Supply of financial services

Supply of services for gambling, casinos and hippodromes

Supply of ID cards

Supply of import of devices, including adapted cars, which help

integration of physically disabled, paraplegics and

quadriplegics

Supply of services provided outside the territory of the

Republic of Albania by taxable persons, whose country of

economic activity is Albania, or, in the case of individuals,

whose usual country of residence is Albania



www.al-t ax.org 48

For commercial

companies *Entry in force

For taxpayers of

local tax on small

business **

Entry in force

1 Cost of purchase and improvement of land and terrain; √ 1999 √ 2010

2Cost of purchase, improvement renovation and reconstruction of active assets depreciated

according to law√ 1999 √ 2010

3 Value of in-kind remuneration √ 1999 √ 2010

4Paid interests exceeding the 12-month average interest rate on loans for the bank market

√ 2004 √ 2010

5 Penalties, arrears and other penal conditions √ 1999 √ 2010

6 Creation or increase of contingencies and other special funds √ 1999 √ 2010

7 Personal income tax and tax on business income √ 2010

8 Personal income tax, excise, profit tax and deductible VAT √ 1999

9Expenditures for representation and receptions exceeding the amount of 0,3 % of annual

turnover √ 2001 √ 2010

10 Expenditures for personal consumption √ 1999 √ 2010

11 Sub legal √ 2007 √ 2010

12 Expenditures for gifts √ 2003 √ 2010

13Any expenditures the amount of which is not confirmed with documents by taxpayers

√ 1999 √ 2010

14Expenditures for technical, consultancy and bookkeeping services by third parties that

taxpayers have not liquidated within the tax period √ 2003 √ 2010

15Losses, damages, expected losses during production, transit and storage beyond norms

established in special legal and sub-legal acts √ 2004 √ 2010

16

Expenditures for salaries, remuneration and any other form of personal income related to

employment relations that have been paid to employees and administrators outside the

bank system

√ 2007 √ 2010

17 Amounts paid in cash , above 300 thousand ALL √ 2007 √ 2010

18Interest paid on exceeding amount when loan and advance payment exceed the total of own

capital by an average of four times during the tax period***√ 2007 √ 2010

19 Bad debt if the three conditions established in article 24 of the law are not fulfilled √ 2010

20Expenditures for travel, food, accommodation and movement beyond established norms

√ 2010

21Increase of the company's own capital or that of each individual in a partnership

√ 1999

22Declared dividends and profit shares for shareholders of commercial companies as well as

profits in the case of partnerships √ 1999


* These legal norms last more than 10 years whereas some of them have entered in force for 5 years

** These legal norms last more than 1 year

*** This definition does not apply to banks, insurance companies and leasing companies

Non-recognized expenditures

Name

Non-recognized expenditures for businesses completing financial statement

No.



www.al-t ax.org 49

For

commercial

companies

Entry

in

force

For taxpayers of

local tax on small

business **

Entry

in

force

Land, terrain, works of art, antiquaries, jewelry, precious stones and metals √ 1999

Costs for purchase, construction, improvement, renovation or reconstruction of buildings,

machinery and equipment with long-term service

With remaining

value5% 2010 5% 2010

Depreciation for costs of purchasing non-material assets is calculated separately for each asset In linear form 15% 2005 15% 2010

Computers, IT systems, software products and data storage equipment With remaining

value25% 1999 25% 2010

Any other active asset used in the business activityWith remaining

value20% 1999 20% 2010


* When depreciation base does not exceed 5,000 ALL, all depreciation base should be deductible activity cost

Depreciation normsExempted

from

depreciation

Form of

depreciation*

Entry

in

force

Name

Accepted depreciation norms for active assets for businesses completing financial statement

Tax base

Residents - For income earned from:Residents - For income

earned from:

Non-residents* - For

incomes earned from:

Different services

Bank interests and similar Scholarships for students

Author's rightRemuneration for sickness

and misfortune

Emphyteusis loan, rent Expropriations

Property transferCompensation for former

political prisoners

GamblingEmployer's contribution for

life and health insurance

International agreements

exchange of property right on

land with the property right

on buildings constructed on

that land

Increase of capital from sources external to the company Salaries and remuneration

below 10 thousand ALL


DividendsBenefits from social and

health insurances schemes

2. Tax is paid by individuals

transferring property right on

immovable property before

registration of above

property, in compliance with

legal acts. Immovable

property will not be

registered without proof of

tax payment with Office for

Registration of Immovable

Property.

1. Transfer of property right

on immovable property,

land, buildings, is taxed at

15% of capital earnings. This

paragraph does not apply for

exchange of property right

on land with the property

right on buildings

Transfer of property on long-

term material assets Tax rate

Personal income tax and withheld tax

15%

Exemptions from tax base

Sale of shares



www.al-t ax.org 50

No. Type of tax Tax rateEntry in

forceExemptions

1 Port tax 1 Euro 2008

2 Circulation tax on gasoline 5 ALL/liter 2009

Vehicles owned by international organizations and embassies enjoying diplomatic status

accredited in the Republic of Albania, on the basis of reciprocity

Legal entities and private individuals who, within January of current year, declare that they will

not circulate during the same year with vehicles they own and they want to deregister by

submitting respective plates and circulation permit to GDRTS ;

Payments of tax on vehicles blocked with decision from the court, prosecution, etc., for the

blocking period

Cars with 4+1 seats and cylinder no bigger than 2500 cc when such vehicles are owned by

physically disabled, antifascist war veterans, work invalids, blind, paraplegics and quadriplegics

enjoying this status according to relevant laws if such vehicles are used only for their personal

needs and not for private activity

Agricultural machinery4 Tax on mining rent See List 2 2008

Formal actions required by foreign authorities based on reciprocity

Registration of birth and death and services in the civil registry

6 Tax on carbon and gasoline See List 4 2008

1 Circulation Tax on carbon and gasoline See List 4 2009

7 Tax on exercising fishing activity See List 5 2009

8 Tariff for crossing air borders of Republic of Albania 2008

9 Tariff for use of TV devices and Albanian Public Television 2008

10Tariff for consular services from the Ministry of Foreign Affairs or

Albanian embassies abroad 2009

11 Tariff for provision of sailing passport from port authorities 2008

12 Tariff for provision of driving license from GDRTS 2008

13

Service Tariff for circulation of foreign passenger transport vehicles

with capacity for more than 20 passengers, including driver and

vehicles for transport of goods, loaded or not, is established on

reciprocity

2011

14 Tariff for radio telecommunication services from AEPC 2008

15Tariff for actions or services from the judicial administration in the

Ministry of Justice, prosecution office, notary and real estate

registration office

2008

16 Tariff for radio television broadcast services from NCRT 2008


* Persons mentioned above are not entitled to these benefits if they exercise private activity as private individuals or legal entities

Persons enjoying the status of disabled based on Law nr. 7889, date 14.12.1994 “On the status

of disabled", amended, the status of war disabled based on law nr. 7663, date 20.1.1993 “On

the status of disabled during the antifascist war", amended, or the status of blind, based on law

nr. 8098, date 28.3.1996 “On the status of the blind” *

List of national taxes and tariffs for services

2010

5 See List 3Tax on stamp and acts 2008

3 Tax on used transport vehicles See List 1



www.al-t ax.org 51

List 1

Age of

vehicle

Coefficient for years

used

Age of

vehicle


used

Age of

vehicle


used

1 0,00 1 0,00 1 0,00

2 0,00 2 0,00 2 0,00

3 0,00 3 0,00 3 0,00

4 0,18 4 0,20 4 0,07

5 0,19 5 0,22 5 0,08

6 0,20 6 0,24 6 0,09

7 0,21 7 0,26 7 0,10

8 0,22 8 0,28 8 0,11

9 0,23 9 0,30 9 0,12

10 0,24 10 0,32 10 0,13

11 0,28 11 0,34 11 0,14

12 0,32 12 0,36 12 0,15

13 0,36 13 0,38 13 0,16

14 0,40 14 0,40 14 0,17

15 0,44 15 0,42 15 0,20

16 0,48 16 0,44 16 0,23

17 0,52 17 0,46 17 0,26

18 0,56 18 0,48 18 0,29

19 0,60 19 0,50 19 0,32

20 0,64 20 0,52 20 0,35

21 0,68 21 0,54 21 0,38

22 0,70 22 0,56 22 0,40

23 0,72 23 0,58 23 0,42

24 0,74 24 0,60 24 0,44


Age coefficient for annual tax on used vehicles

Note: After 24 years of use, the coefficient for "Buses" increases with 0.03 and for "All other

vehicles" with 0.0. For "Motor vehicles, cars and vehicles for mixed transport" it increases with

0.04

Motor vehicles, cars, vehicles

for mixed transportAll other types Buses



www.al-t ax.org 52

List 1

Age of

vehicle


used

Age of

vehicle


used

Age of

vehicle


used

1 0,00 1 0,00 1 0,00

2 0,00 2 0,00 2 0,00

3 0,00 3 0,00 3 0,00

4 0,18 4 0,20 4 0,07

5 0,19 5 0,22 5 0,08

6 0,20 6 0,24 6 0,09

7 0,21 7 0,26 7 0,10

8 0,22 8 0,28 8 0,11

9 0,23 9 0,30 9 0,12

10 0,24 10 0,32 10 0,13

11 0,28 11 0,34 11 0,14

12 0,32 12 0,36 12 0,15

13 0,36 13 0,38 13 0,16

14 0,40 14 0,40 14 0,17

15 0,44 15 0,42 15 0,20

16 0,48 16 0,44 16 0,23

17 0,52 17 0,46 17 0,26

18 0,56 18 0,48 18 0,29

19 0,60 19 0,50 19 0,32

20 0,64 20 0,52 20 0,35

21 0,68 21 0,54 21 0,38

22 0,70 22 0,56 22 0,40

23 0,72 23 0,58 23 0,42

24 0,74 24 0,60 24 0,44


Age coefficient for annual tax on used vehicles

Note: After 24 years of use, the coefficient for "Buses" increases with 0.03 and for "All other

vehicles" with 0.0. For "Motor vehicles, cars and vehicles for mixed transport" it increases with

0.04

Motor vehicles, cars, vehicles

for mixed transportAll other types Buses



www.al-t ax.org 53

List 2

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16 Stone coal

17

18

19

20

21

22

23

23.1

23.2

23.3

23.4

23.5

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39 Oil and GasSource: Parliament of Albania, 2015

10 % of selling price

Copper 6 % of selling price

Nr. Royalty taxes according to classification

Percentage

of

royalty

First Group (I) METALLIC MINERALS

Silver 10 % of selling price

Gold 10 % of selling price

Chrome 6 % of selling price

Nickel - silicat 6 % of selling price

Iron - Nickel 5 % of selling price

Lead 5 % of selling price

Zinc 7 % of selling price

All other types of metallic minerals 4 % of selling price

Second Group (II) NON METALLIC MINERALS

All types of non metallic minerals 4 % of selling price

Third Group (III) COALS AND BITUMEN

Coals 19,940 lekë/ton

Bitumen 2,371 lekë/ton

Bitumen sands 117 lekë/m3

Oil schist 117 lekë/m3

Gabbro 47 lekë/m3

Basalt 73 lekë/ton

Pyro bitumen 2,371 lekë/ton

Fourth Group (IV) CONSTRUCTION AND MINERAL MATERIALS

Granite 5,850 lekë/m3

Limestones 47 lekë/m3

200 lekë/ton

Construction tiles

Stone tiles 228 lekë/m3

Conglomerates

Marble 4,095 lekë/m3

Marble tiles 4,550 lekë/m3

Other types of tiles 6,000 lekë/ton

Sands tiles 1,456 lekë/m3

Granite tiles 6,825 lekë/m3

Serpentines 47 lekë/m3

Travertine 2,925 lekë/m3

Plagiogranite 5%

Sands 491 lekë/m3

Alabastra 423 lek/m3

Clay (production of concrete, roof tiles, bricks) 15 lek/ton

Tractolite 2,925 lekë/m3

Gypsum 21 lekë /ton

River sand 98 lekë/m3

Inert river 42 lekë/m3

Clay (production for dams) 104 lekë/m3

Clay (procudtion of ceramic) 23 lekë/ton

Seventh Group (VI) OIL AND GAS

All the minerals of group VI

Sixth Group (VI) SEMI PRECIOUS STONES AND OPAL

All the minerals of group four 104 lekë/m3

All the minerals of group V

Fifth Group (V) PRECIOUS STONES





www.al-t ax.org 54

List 3

ACT AND STAMP TAXESin Leks

No. Name of document Tax value

1 Certificate issued for use from foreign authorities 50

2 Certificate issued for use inside country 200

3 Certificate for registration of foreign citizens after they are granted the Albanian citizenship 2.000

4 Certificate for the change of Name or Surname 1.000

5 Certificate for the registration of marriage act 1.000

6 Certificate for the procedure of separation or union of citizens with the family 1.000Source: Parliament of Albania, 2015

List 4

No. Name of fuel Measurement unit Tax rate

1 Petrol ALL/Liter 1,5

2 Gasoline ALL/Liter 3

3 Coal ALL/Liter 3

4 Solar ALL/Liter 3

5 Coal Tar ALL/Liter 3

6 Oil coke ALL/Kg 3

No. Name of fuel Measurement unit Tax rate

1 Petrol ALL/Liter 27

2 Gasoline ALL/Liter 27


Carbon tax on petrol

Circulation tax on petrol and gasoline



www.al-t ax.org 55

List 5

ALL/year

I. Sea fishing (for 1 ship)

1. Terminal Sea fishing:

ship 160-200 HP 40.000

ship 201-410 HP 50.000

ship above 410 HP 80.000

2. Pelagic fishing with travolants:

ship 160-200 HP 20.000

ship 201-410 HP 30.000


3. Pelagic fishing with enclosures:

ship 80-200 HP 10.000

ship 201-410 HP 20.000


4. Terminal pelagic fishing:

ship 160-200 HP 40.000

ship 201-410 HP 60.000


5. Fishing with selective vehicles and terminal trawlers

ship 40 - 80 HP 15.000

ship 81-160 HP 25.000

ship161-200 HP 40.000

ship 201-410 HP 50.000

Box 2 80.000

6. Fishing bivalve cockles (authorized) 60.000

II. Handicraft fishing with light vehicles

1. Coastal fishing (for motor boats up to 40HP) 7.000

2. Fishing in coastal lagoons:

in lagoons (1 boat) 10.000

in embouchures (1 fisherman) 12.000

3. Fishing in inland waters:

active (1 boat) 5.000

in embouchures (1 fisherman) 8.000

4. Gathering bivalve cockles

with light boats for 1 (one) fisherman 20.000

III. Sport fishing at sea with sailing boats (for 1 boat) 40.000

IV. Aquaculture

1. Cultivation of cockles in one plant 10.000

2. Cultivation of fish with plants at sea, in lakes and reservoirs 1.000

3. Aquaculture with plants on land 10.000


Exempt from this tax are ships authorized by the Ministry of Agriculture and Food (Fishing Directorate) to fish for scientific research purposes.

Note: For foreign ships licensed to fish in our territorial waters, tax on permit to exercise this activity will be twice the tax applied for Albanian ships.

ANNUAL TAX ON EXERCISING FISHING ACTIVITY



www.al-t ax.org 56

PAYROLL TAX IN ALBANIA, 2016LEK

PERSONAL TAXABLE INCOME PAYROLL TAX

FROM TO

0 30.000 NO TAX

30.000 130.000 13% for the surplus over 30.000

130.000 NO LIMIT ALL 13.000 + 23% for the surplus over 130.000


Indirect taxes are not generated by the person paying the tax, but they move from one taxable person to another

until they are paid by the end buyer, who consumes the commodity or service. Tax movement is realized through

pricing goods or services until all added values on goods and services from one buyer to another are purchased

by the end consumer who has purchased goods or services with value added and indirect tax included in the

price. VAT is the most popular tax in the group of indirect taxes.

Direct taxes are what we pay in person, or when our employer pays for our account in the tax administration.

These taxes are a percentage of liability on our incomes or assets, but they can not be transferred to others.

When paid, direct taxes are carried by the one who pays them. Payroll tax is the most comprehensive

representative for this group of direct taxes.

tax system and investment climate in albania, 2016

Economy & Finance