Telephone Numbers
Telephone Numbers
Q&A Guide to Doing Business in Albania
For detailed information +90 542 381 3868 'Call.
The Albanian economy was affected by the financial instability in the Eurozone. Greece and Italy are two of the largest investors in Albania, so the volatility in these countries also had an impact.
The increase in tax rates in 2013 affected the level of new projects and merger and acquisition transactions in 2014/2015. During this period, there was an increase in dispute resolution procedures, bankruptcies, restructuring, and debt collection cases.
However, the first two quarters of 2016 and then 2017 showed increased investor interest in new projects and mergers and acquisitions, especially in the oil and mining sectors. These sectors, along with electric energy and infrastructure projects, are the main targets of foreign investment.
Are there any restrictions on foreign investment (including permissions required by central or local government)?
Albania has a welcoming legal framework for foreign investments and provides a good level of investor protection.
There are no general permissions required to invest or to establish a business or business vehicle in Albania. Any foreign entity or individual is free to establish a business or a business vehicle as a sole investor or as part of a joint venture. It is not necessary for a joint venture to include Albanian nationals, and there is no obligation to appoint a citizen as a company director.
In 1993, Albania adopted a foreign investment protection law that allows for investor disputes to be resolved by the International Centre for Settlement of Investment Disputes (ICSID).
Additionally, Albania has signed a number of bilateral investment treaties with different countries. As a member of certain treaties (for example, the energy charter treaty), direct foreign investments are protected under the provisions of these treaties.
Although Albania adheres to internationally recognized sanctions at the diplomatic level (such as the recent EU measures against Russia due to the Ukraine crisis), no limitations have been introduced in the national legislation.
There are no currency controls or currency regulations, but anti-money laundering reporting and disclosure requirements apply.
The Albanian Lek (ALL) is the legal tender for accounting and local tax purposes, but it is quite common for local and international businesses to trade in foreign currencies (mainly the Euro).
It is also common for local banks to offer their products (such as current accounts, deposits, and loans) in Euros and US dollars, in addition to the local currency.
The main incentive for investing is tax-related. If an investment exceeds ALL 50 million, the business can apply for an exemption from VAT on the import list for equipment and machinery to be used in the project.
In addition, the Albanian parliament passed a law on strategic investments in 2015. An investment between 5 and 50 million Euros, or higher, and made in certain key economic sectors such as energy, transport, or agriculture is considered strategic. The law provides for preferential government assistance and support:
In addition, in 2017 the Albanian parliament adopted a series of tax incentives for investments in the tourism and software development sectors, including:
A domestic or foreign investor can do the following business:
The most used vehicle by domestic and foreign investors is the limited liability company (LLC). LLCs are the most common choice of business vehicle because this legal structure allows for the possibility of a sole proprietorship, a flexible corporate structure, and the limitation of personal liability.
LLCs cannot issue securities, but this is not seen as a problem given that the Albanian capital markets are considered underdeveloped.
Limited liability companies (LLCs) must be registered in the commercial register maintained by the National Business Center (NBC). A standard LLC incorporation is usually completed within a few days from the date of application.
Official incorporation fees are currently ALL100. There are no other material costs unless an investor requires professional advice.
The articles of association template is provided by the NBC in Albanian and English, and the application process can be viewed through the NBC's website, which also provides other information related to company registration.
The NBC restricts certain company names, for example:
It is possible to do a pre-check to see if a name is restricted and to reserve the company name before incorporation. Companies are required to publish their annual accounts in the commercial register following their incorporation. Additionally, any changes in the company's registered data (including change of name, address, members, capital (among other things)) and certain important business-related events (appointment of auditors, pledge of shares, and termination) must be registered.
LLCs are required to publish their annual accounts in the commercial register within 30 days of their approval by the general meeting.
The deadline for publishing the annual accounts is the end of July each year. Companies will be fined for not publishing their annual accounts within the required deadline.
Additionally, the NBC will suspend other applications until the fine is paid and the annual accounts are published.
The official fee for publishing the annual accounts is ALL100 (less than one Euro). There are no other material costs unless an investor requires professional advice.
Restrictions on rights attached to shares. A company cannot restrict the rights attached to the shares of individual shareholders without the consent of the respective shareholder.
A shareholder's claim against any action of the company that restricts the rights attached to its shares must be filed within three years from the denial of the right.
The rights of shareholders holding at least 5% of the company's shares to request a special investigation and to file a lawsuit for the annulment of unlawful management decisions cannot be restricted or waived (otherwise, it would be void).
Automatic rights attached to shares. The main rights automatically attached to shares in an LLC include:
Shareholders holding at least 5% of the company's shares have the right to request a special investigation and to file a derivative lawsuit for the annulment of unlawful management decisions.
The typical management structure for a limited liability company (LLC) is to have an individual general manager (although more than one can be appointed). If more than one managing member is appointed, they manage the company jointly. The articles of association or by-laws created in the general meeting may provide otherwise.
There are no restrictions on a foreign national managing a company.
The general manager of an LLC's parent cannot be appointed as the general manager of the subsidiary (or it will be null and void).
A person convicted of certain offenses under the Albanian Criminal Code cannot be appointed as a general manager.
The general managers of an LLC are personally liable to the company for breaching their fiduciary duties under the company law. General managers must:
A general manager will be liable for any act or omission unless the act or omission was made in good faith, based on reasonable investigation and information, and was rationally related to the company's purposes.
In the event of a breach of fiduciary duties, the general manager must compensate the company for any damages incurred due to the breach. Additionally, they must disclaim any personal gains obtained by breaching their duties to the company.
The general manager has the burden of proving compliance with any duties and standards. If the breach is committed by more than one managing member, all directors are jointly and severally liable.
A three-year time limit applies to compensation claims against general managers.
LLCs offer limited liability for their shareholders, and a parent company is generally liable only to the extent of its unpaid contributions in the subsidiary.
In some cases, extra liability applies if a parent company abuses its subsidiary and there is:
If the courts find that a control group exists, the parent company loses the privilege of limited liability and must compensate for the subsidiary's annual losses.
If a capital group exists, the fiduciary duties of the subsidiary's managing members also apply to the parent company's decisions if they affect the subsidiary and are taken at the group level. Specifically, the parent's management must make decisions considering:
If none of the independent board members of the subsidiary would have reached the decision made, the parent company's management has acted contrary to its duty.
The parent company's management is responsible for complying with its fiduciary duties towards the subsidiary, including acting in its best interests.
If a loss is incurred contrary to the duty of the parent company's management, the parent company for which its representative acted will be liable for its actions. In these cases, the management members of the parent company will be jointly and severally liable.
Along with the parent company's management, joint and several liability applies to the management members of the subsidiary for breaching their duties towards the subsidiary.
The main legal provisions regulating employment relationships are contained in the Labour Code. Most of its provisions are mandatory and cannot be excluded by agreement.
The Labour Code applies if the main place of work is within the borders of the Republic of Albania. These provisions also apply to foreign employees working in Albania and to Albanians temporarily working abroad.
A written employment contract is required according to the Labour Code. A written employment contract must contain at least:
Unless the Labour Code allows for exceptions, its provisions are implied in the employment relationship.
The provisions of any applicable collective agreement are also implied in the employment relationship.
Foreign employees are required to obtain a type D visa from the relevant Albanian embassy. The type D visa allows for a 90-day stay within a 180-day period and gives the holder the right to apply for a work-related residence permit.
Citizens of certain countries (such as the EU, US, Canada, and Australia) benefit from a visa-free regime and are exempt from the D visa requirement. They can legally enter and stay in Albania for 90 days within a 180-day period.
Foreign employees need a work permit. Some short-term employees, not exceeding 60 days in a one-year period, can obtain a work registration certificate instead of a work permit. Foreigners working for a period not exceeding 30 days in a one-year period are exempt from the work permit/work registration certificate requirement.
Additionally, citizens of the following are exempt from the work permit/work registration certificate requirement:
Only foreign employees who have a valid type D visa or benefit from the visa-free regime can apply for a work permit/work registration certificate.
A foreign employee working in Albania for more than 90 days within a 180-day period must apply for a residence permit.
Under Albanian company law, employee participation at the board level is not mandatory, but employees can form an Employee Council. The council is mandatory in companies with more than 50 employees. In a company with more than 20 but less than 50 employees, the functions of the employee council will be met by one representative for every ten employees. The Employee Council Representative has the following rights:
Dismissals and collective redundancies are regulated. A collective dismissal occurs when the following number of employees are terminated within a 90-day period:
Under the Labour Code, collective dismissals have longer procedures and require consultation/negotiation with unions and Ministry of Labour officials.
A foreign employee working in Albania is, as a rule, always taxed in Albania.
If a foreign employee is a citizen of a country with which Albania has a double taxation avoidance agreement, the employee will be exempt from employment tax if:
The employment tax rates are as follows:
The employment contribution rates to be paid by the employee are as follows:
Social security contributions are calculated on the actual gross salary if it falls within the following thresholds (adjusted annually):
Health insurance contributions are calculated on the actual gross salary if it is higher than the minimum social security threshold. The maximum threshold does not apply.
An employer is obliged to withhold employment taxes and contributions from the salary and pay them to the authorities on a monthly basis.
The employment tax rates and filing procedures are the same as for tax-resident employees (unless the foreign employee can avoid Albanian taxes under a double taxation treaty).
Social security and health contribution rates and filing procedures are also the same as for tax-resident employees. In limited cases, subject to the provisions of the applicable agreements, a non-tax-resident employee may be exempt from social security contributions if they are already covered by social security in their home country.
The employment contribution rates to be paid by employers are:
The same calculation rules described above for resident employees also apply to employers.
An employer must pay monthly:
The Albanian tax law is based on residency. A business vehicle created in Albania is always considered an Albanian tax resident and is subject to Albanian tax on its worldwide income.
A non-tax-resident business is one established outside of Albania. Non-tax-resident businesses are, in principle, subject to local tax laws only for income sourced in Albania.
If a non-tax-resident business does not have a permanent establishment or branch in Albania, a 15% withholding tax is payable on the gross amount of its Albanian income. If the non-tax-resident business vehicle is established in a country with which Albania has a double taxation agreement, it can benefit from that treaty.
If a non-resident business has a permanent establishment or branch in Albania, then in principle, its Albanian income will be subject to corporate income tax in the same way as resident businesses.
The main taxes applicable to business vehicles are corporate income tax and VAT.
The corporate income tax rate is currently 15% of taxable profit. Recently, the corporate income tax rate for entities conducting software development activities was reduced to 5%. The corporate tax liability is calculated on the tax-adjusted profit for the period.
Corporate income tax is paid in advance in monthly or quarterly installments and is adjusted at the end of the year with the submission of the profit and loss statement. Advance payments are deducted from the total corporate tax determined by the period's profit and loss statement. Excess advance payments can be carried forward to future periods.
The VAT rate is currently 20%. It applies to all goods and services that are not eligible for exempt or zero-rated supplies. Commercial vehicles in Albania must register and apply for VAT if their total annual turnover is equal to or higher than ALL5 million, to be reduced to ALL2 million from April 1, 2018. Certain professional consultancy businesses (lawyers, financial advisors, architects, and engineers) must register for VAT regardless of their turnover. Additionally, the turnover threshold for VAT registration for agricultural products benefiting from the special compensation scheme for agricultural products is ALL5 million.
The standard VAT period is one calendar month. As a general rule, the amount of VAT payable is calculated as the difference between the VAT applied to sales (output VAT) and the VAT applied to purchases (input VAT).
Dividends paid to foreign corporate shareholders are taxed at a rate of 15% (and withheld by the paying Albanian entity).
If a foreign corporate shareholder is a tax resident in a country with which Albania has a double taxation agreement, the divided tax rate payable in Albania can be fully reduced or exempted.
Interest paid to foreign corporate shareholders is taxed at a rate of 15% (and withheld by the paying Albanian entity).
If the foreign corporate shareholder is a tax resident in a country with which Albania has a double taxation agreement, the interest tax rate payable in Albania can be fully reduced or exempted.
Royalties paid to foreign corporate shareholders are taxed in Albania at a rate of 15% (and withheld by the paying Albanian entity).
If a foreign corporate shareholder is a tax resident in a country with which Albania has a double taxation agreement, royalty taxes are exempted in the country of origin and paid there.
Exports are tax-exempt. Imports are taxed on customs duties and import VAT (at the standard 20% rate). Exceptions to customs duties are available under free trade agreements (for example, the interim agreement on trade and commercial cooperation between Albania and the EU).
Certain goods are exempt from VAT or are zero-rated.
The double taxation treaties signed by Albania generally follow the OECD Model Tax Convention on Income and on Capital closely.
The double taxation treaties with Spain and the Netherlands are beneficial, and in some cases, there is a zero-rate tax on dividends and capital gains.
The Competition Law applies to all enterprises and associations of enterprises operating in Albania, and to those operating abroad, provided their activities have an effect on the Albanian market.
Liability arising from violations of the Competition Law can be both administrative and civil. There are no criminal sanctions for violations of competition rules.
Restrictive agreements and practices are regulated in the Competition Law, which is harmonized with EU competition law standards and principles.
Definition and legal requirements. Under Industrial Property Law No. 9947, a patent protects inventions that are new, involve an inventive step, and are industrially applicable.
Registration. The competent registration authority for patents is the General Directorate of Patents and Trademarks (www.dppm.gov.al). The Directorate's website provides guidance on the application procedure.
Enforcement and remedies. Rights arising from a patent are enforced through the court system. The court can:
Intentional infringements are punishable by criminal prosecution as well as administrative fines.
Length of protection. A patent is protected for 20 years from the date of application.
Definition and legal requirements. A trademark (or service mark) is a graphically represented sign that serves to distinguish the goods or services of one enterprise from those of other enterprises. Signs can include words, shapes, colors, or sounds or light signals represented graphically, or any combination thereof. Trademarks are registered with the General Directorate of Patents and Trademarks. The registration of a trademark may be refused for reasons such as lack of distinctive character, use of reserved names/signs, and conflict with earlier trademarks.
Length of protection and renewability. A trademark is protected for ten years from the date of application. This is renewable for additional ten-year periods.
Agency agreements are regulated in the Civil Code.
In an agency agreement, one of the parties (the agent) permanently undertakes (for a fee) to promote the conclusion of contracts on behalf of another person (the principal) within a specific territory.
The principal cannot employ more than one agent at the same time in the same area and in the same line of business. Similarly, the agent cannot undertake to do business on behalf of different enterprises that are in competition with each other in the same area and in the same line of business.
In the absence of a specific regulation, the agent is entitled to a fee equal to the fees of other agents with similar agency scope operating in the same area. If this practice does not exist, the agent is entitled to fair compensation, taking into account all the circumstances of the contract (for example, including the number and value of finalized contracts).
An agent is also entitled to a fee for contracts concluded within a reasonable time after the termination of the agency by the agent, or if the client's order was placed before the termination of the agency agreement.
Franchising agreements are regulated in the Civil Code.
In a franchising agreement, a series of continuous obligations are imposed on independent enterprises to jointly promote and develop a trade or provide services.
A franchisor must provide a set of standard terms and material rights and models at the disposal of the franchisee for the development of the trade or the provision of services. A franchisee must protect the program from third-party infringements and develop it in accordance with the franchisor's guidance and instructions.
The Civil Code provides for certain pre-contractual disclosure requirements as well as non-compete undertakings of the franchisee for up to one year following the termination of the franchise agreement.
Electronic signatures are subject to Law No. 9880 on electronic signatures. Distance selling contracts are subject to Law No. 10128 on electronic commerce. Both of these laws follow the principles of EU law on the same subjects.
There are different rules and laws related to advertising applicable to various methods of communication, including special rules under the consumer protection law. There is no single legal regulation governing all advertising in different sectors.
However, different laws state that an advertisement must be a fair representation of the product or service and must not be misleading.
Cross-sector advertising limitations (to varying degrees) generally apply to the following products:
The following programs are prohibited under Law No. 97/2013 on audiovisual media:
The legal protection of personal data is regulated in Law No. 9887 on the Protection of Personal Data.
Product Liability is subject to the Civil Code.
Product safety is subject to the following laws:
In addition to the administrative fines applied to producers or importers of unsafe products under the above laws, there are also strict civil law product liability provisions contained in the Civil Code.
W www.bankofalbania.org
Main activities. The Bank of Albania is responsible for organizing, supporting, and developing monetary policy and local payment systems. It also licenses and supervises the banking and non-banking financial sector. It has the exclusive right to issue banknotes and coins.
Main activities. The Albanian Financial Supervisory Authority is responsible for the licensing/supervision of financial markets, investment and pension funds, insurance companies, and other financial operators that are not under the supervision of the Bank of Albania.
This Q&A provides an introduction to the legal system as well as important recent developments affecting doing business in Albania; foreign investment, including restrictions, monetary regulations and incentives; and business instruments and the restrictions and obligations relating thereto. The article also summarises the laws governing employment relations, including dismissals and collective redundancies, and provides brief information on competition law; data protection; and product liability and safety. There are also comprehensive summaries on taxation and tax residency; and intellectual property rights over patents, trademarks, registered and unregistered designs.
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