Tax System and Investment Climate in Albania, 2016

Law. Tax.
Transparency
Tax System and Investment

Climate in Albania, 2016
Tax System and Investment Climate in Albania, 2016

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Law. Tax. Transparency
AL Tax Center
Fiscal Papers,
Nr. 2016/01/01
www.al-tax.org
altax@constultant.com
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 altax@consultant.com

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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
Albanias 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. Albanias 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
NLCs 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.
Albanias 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.
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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, agroprocessing, 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). Albanias
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 welleducated 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.
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 Shareholders 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 Albanias 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 (approximately US$ 11 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 IASBs 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.
Accounting Law (2004) in Albanian: 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 investors 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.
See 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 Courts 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;
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
Albanias 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 million5 in a calendar year.
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.
For detailed explanation email to altax@consultant.com

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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 Albaniansource 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 residents 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
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,
reduced tax rates (special scheme for farmers),
tax exemptions sectors (research and drilling of hydrocarbons),
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.
Profit and capital repatriation 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/ m per year and a maximum of 1.000 lek/ m. The minimum tax for
commercial building it is 300 Leks/ m per year and a maximum of 2.000 lek/ m. 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.
Real property tax
Municipalities levy taxes based on the occupation of real property. The tax base is the area of the
building measured in square meters for each floor of the building owned. The tax is levied on
each square meter and varies depending on the district where the building is located.
The tax on property it is between 5 to 400 Leks per m, 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 m,
while the tax on buildings owned by businesses varies from ALL 200 to ALL 400 per m. 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.
4.3.1. The local 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.

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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 m.
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.
4.3.2. 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.
4.3.3. The local tax on construction 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. 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.
4.5. 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, consular
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 cm 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 arms 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.
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

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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 avoided
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.

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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 its your solution!
Director
Aurela GJOKUTAJ
altax@consultant.com
www.al-tax.org

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ANNEX
Tax base for VAT and special schemes in the law
Taxable base (supplies)
Special schemes
Tax rate
Commercial
companies
Small
business
Individuals
NGO
Public institutions
For goods exported from the territory of the Republic of Albania
0%
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.
20%
For international transport of goods or passengers and supply of

goods and services related to it
For the supply of goods and services related to commercial or
industrial activity at sea
Exempted base (supplies)

Commercial
Small business
companies
Individuals
NGO
Supply of buildings, except construction process

Renting buildings for a period longer than two months
Supply of financial services
Supply of goods inside the country
Supply of gold from the Bank of Albania and second-level

banks
Supply of services inside the country
Supply of banknotes and coins from the Bank of Albania
Mixed supply inside the country
Supply of mail stamps for use in mail services or similar stamps
Accommodation in hotels and resorts
Supply of goods and services for NGOs with public status

according to authorization from the Minister of Finances
Renting buildings for a period than two months
Supply of services from religious or philosophical organizations

for purposes of spiritual wellbeing
Supply of educational services from public and private
educational institutions
Supplies for diplomatic and consular missions and their
personnel on the basis of reciprocity
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.
Supplies for international organizations based on international

agreements
Supply of services provided by contractors or their
subcontractors confirmed as such by National Agency for
Natural Resources to conduct hydro carbon research
Supply of medications and packaging of materials used for
production and packaging of medications
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"
Supply of services for processing non-Albanian goods by
subcontractors, designed for re-export by authorized taxable
persons
Supply of services for gambling, casinos and hippodromes
Supply of ID cards
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
Supply of import of devices, including adapted cars, which help
integration of physically disabled, paraplegics and
quadriplegics
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 import of live breed animals donated by different
donors
Source: Parliament of Albania

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Non-recognized expenditures for businesses completing financial statement

Non-recognized expenditures
No.
1
2
3
Name
Cost of purchase and improvement of land and terrain;

Cost of purchase, improvement renovation and reconstruction of active assets depreciated
according to law
Value of in-kind remuneration
Paid interests exceeding the 12-month average interest rate on loans for the bank market
5 Penalties, arrears and other penal conditions
6 Creation or increase of contingencies and other special funds
7 Personal income tax and tax on business income
8 Personal income tax, excise, profit tax and deductible VAT
Expenditures for representation and receptions exceeding the amount of 0,3 % of annual
9
turnover
10 Expenditures for personal consumption
11 Sub legal
12 Expenditures for gifts
13
14
15
16
17
18
19
20
Any expenditures the amount of which is not confirmed with documents by taxpayers
Expenditures for technical, consultancy and bookkeeping services by third parties that
taxpayers have not liquidated within the tax period
Losses, damages, expected losses during production, transit and storage beyond norms
established in special legal and sub-legal acts
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
Amounts paid in cash , above 300 thousand ALL
Interest 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***
Bad debt if the three conditions established in article 24 of the law are not fulfilled
For taxpayers of
For commercial
Entry in force
Entry in force
local
tax on small
companies *
business **
1999
2010
1999
2010
1999
2010
2004
2010
1999
1999
2010
2010
2010
1999
2001
2010
1999
2007
2003
2010
2010
2010
1999
2010
2003
2010
2004
2010
2007
2010
2007
2010
2007
2010
2010
2010
Expenditures for travel, food, accommodation and movement beyond established norms
21
Increase of the company's own capital or that of each individual in a partnership

Declared dividends and profit shares for shareholders of commercial companies as well as
22
profits in the case of partnerships
1999
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

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Accepted depreciation norms for active assets for businesses completing financial statement
Depreciation norms
Exempted Entry
Form of
For
Entry
Entry
For taxpayers of
from
in
depreciation* commercial in
in
local tax on small
depreciation force
companies force
force
business **
Name
Land, terrain, works of art, antiquaries, jewelry, precious stones and metals
1999
With remaining
value
5%
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
value
25%
1999
25%
2010
Any other active asset used in the business activity
With remaining
value
20%
1999
20%
2010
Costs for purchase, construction, improvement, renovation or reconstruction of buildings,

machinery and equipment with long-term service

* When depreciation base does not exceed 5,000 ALL, all depreciation base should be deductible activity cost
Personal income tax and withheld tax

Tax base
Transfer of property on longTax rate
term material assets
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
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.
Residents - For income earned from:

Dividends
Bank interests and similar
Author's right
Emphyteusis loan, rent
Property transfer
Gambling
15%
Exemptions from tax base

Residents - For income
earned from:
Benefits from social and
health insurances schemes
Scholarships for students
Remuneration for sickness
and misfortune
Expropriations
Compensation for former
political prisoners
Non-residents* - For
incomes earned from:
Different services
Employer's contribution for

life and health insurance
International agreements
Sale of shares
Increase of capital from sources external to the company
exchange of property right on

land with the property right
on buildings constructed on
that land
Salaries and remuneration
below 10 thousand ALL

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List of national taxes and tariffs for services

Type of tax
No.
1 Port tax
2 Circulation tax on gasoline
Tax rate
1 Euro
5 ALL/liter
Entry in
force
2008
2009
Exemptions
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 ;
3 Tax on used transport vehicles
See List 1
2010
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 machinery
4 Tax on mining rent
See List 2
2008
5 Tax on stamp and acts
See List 3
2008
6 Tax on carbon and gasoline

1 Circulation Tax on carbon and gasoline
7 Tax on exercising fishing activity
See List 4
See List 4
See List 5
2008
2009
2009
2008
8 Tariff for crossing air borders of Republic of Albania

9 Tariff for use of TV devices and Albanian Public Television
10
Tariff for consular services from the Ministry of Foreign Affairs or

Albanian embassies abroad
11 Tariff for provision of sailing passport from port authorities

12 Tariff for provision of driving license from GDRTS
2008
2009
2008
Formal actions required by foreign authorities based on reciprocity

Registration of birth and death and services in the civil registry
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 *
2008
Service Tariff for circulation of foreign passenger transport vehicles

13 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
Tariff for actions or services from the judicial administration in the
15 Ministry of Justice, prosecution office, notary and real estate
2008
registration office
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

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List 1
Age coefficient for annual tax on used vehicles
Motor vehicles, cars, vehicles
for mixed transport
All other types
Buses
Age of
vehicle
Coefficient for years

used
Age of
vehicle

used
Age of
vehicle

used
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,18
0,19
0,20
0,21
0,22
0,23
0,24
0,28
0,32
0,36
0,40
0,44
0,48
0,52
0,56
0,60
0,64
0,68
0,70
0,72
0,74
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,20
0,22
0,24
0,26
0,28
0,30
0,32
0,34
0,36
0,38
0,40
0,42
0,44
0,46
0,48
0,50
0,52
0,54
0,56
0,58
0,60
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,07
0,08
0,09
0,10
0,11
0,12
0,13
0,14
0,15
0,16
0,17
0,20
0,23
0,26
0,29
0,32
0,35
0,38
0,40
0,42
0,44

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

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51
List 1
Age coefficient for annual tax on used vehicles
Motor vehicles, cars, vehicles
for mixed transport
All other types
Buses
Age of
vehicle

used
Age of
vehicle

used
Age of
vehicle

used
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,18
0,19
0,20
0,21
0,22
0,23
0,24
0,28
0,32
0,36
0,40
0,44
0,48
0,52
0,56
0,60
0,64
0,68
0,70
0,72
0,74
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,20
0,22
0,24
0,26
0,28
0,30
0,32
0,34
0,36
0,38
0,40
0,42
0,44
0,46
0,48
0,50
0,52
0,54
0,56
0,58
0,60
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
0,00
0,00
0,00
0,07
0,08
0,09
0,10
0,11
0,12
0,13
0,14
0,15
0,16
0,17
0,20
0,23
0,26
0,29
0,32
0,35
0,38
0,40
0,42
0,44

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

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52
List 2
Nr.
Royalty taxes according to classification
First Group (I) METALLIC MINERALS

1
Silver
2
Gold
3
Copper
4
Chrome
5
Nickel - silicat
6
Iron - Nickel
7
Lead
8
Zinc
9
All other types of metallic minerals
Second Group (II) NON METALLIC MINERALS
10
All types of non metallic minerals
Third Group (III) COALS AND BITUMEN
11
Coals
12
Bitumen
13
Bitumen sands
14
Oil schist
15
Pyro bitumen
16
Stone coal
Fourth Group (IV) CONSTRUCTION AND MINERAL MATERIALS
17
Granite
18
Limestones
19
Gabbro
20
Basalt
21
Conglomerates
22
Marble
23
Construction tiles
23.1
Stone tiles
23.2
Sands tiles
23.3
Granite tiles
23.4
Marble tiles
23.5
Other types of tiles
24
Plagiogranite
25
Sands
26
Serpentines
27
Travertine
28
Tractolite
29
Gypsum
30
Alabastra
31
Clay (production of concrete, roof tiles, bricks)
32
Clay (production for dams)
33
Clay (procudtion of ceramic)
34
River sand
35
Inert river
36
All the minerals of group four
Fifth Group (V) PRECIOUS STONES
37
All the minerals of group V
Sixth Group (VI) SEMI PRECIOUS STONES AND OPAL
38
All the minerals of group VI
Seventh Group (VI) OIL AND GAS
39
Oil and Gas
Percentage
of
royalty
10 % of selling price
19,940 lek/ton
2,371 lek/ton
117 lek/m3
117 lek/m3
2,371 lek/ton
200 lek/ton
5,850 lek/m3
47 lek/m3
47 lek/m3
73 lek/ton
4,095 lek/m3
228 lek/m3
1,456 lek/m3
6,825 lek/m3
4,550 lek/m3
6,000 lek/ton
5%
491 lek/m3
47 lek/m3
2,925 lek/m3
2,925 lek/m3
21 lek /ton
423 lek/m3
15 lek/ton
104 lek/m3
23 lek/ton
98 lek/m3
42 lek/m3
104 lek/m3
Source: Parliament of Albania, 2015

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List 3
ACT AND STAMP TAXES
in Leks
No.
1
2
3
4
5
6
Name of document
Tax value
Certificate issued for use from foreign authorities
50
Certificate issued for use inside country
200
Certificate for registration of foreign citizens after they are granted the Albanian citizenship
2.000
Certificate for the change of Name or Surname
1.000
Certificate for the registration of marriage act
1.000
Certificate for the procedure of separation or union of citizens with the family
1.000
Source: Parliament of Albania, 2015
List 4
Carbon tax on petrol
No.
Name of fuel
Measurement unit
Tax rate
Petrol
ALL/Liter
1,5
Gasoline
ALL/Liter
Coal
ALL/Liter
Solar
ALL/Liter
Coal Tar
ALL/Liter
Oil coke
ALL/Kg
Circulation tax on petrol and gasoline

No.
Name of fuel
Measurement unit
Tax rate
Petrol
ALL/Liter
27
Gasoline
ALL/Liter
27

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List 5
ANNUAL TAX ON EXERCISING FISHING ACTIVITY
ALL/year
I. Sea fishing (for 1 ship)

1. Terminal Sea fishing:
ship 160-200 HP
ship 201-410 HP
ship above 410 HP
40.000
50.000
80.000
ship 160-200 HP
ship 201-410 HP
ship above 410 HP
20.000
30.000
40.000
ship 80-200 HP
ship 201-410 HP
ship above 410 HP
10.000
20.000
30.000
ship 160-200 HP
ship 201-410 HP
ship above 410 HP
40.000
60.000
90.000
ship 40 - 80 HP
ship 81-160 HP
ship161-200 HP
ship 201-410 HP
Box 2
15.000
25.000
40.000
50.000
80.000
2. Pelagic fishing with travolants:
3. Pelagic fishing with enclosures:
4. Terminal pelagic fishing:
5. Fishing with selective vehicles and terminal trawlers
6. Fishing bivalve cockles (authorized)
60.000
II. Handicraft fishing with light vehicles

1. Coastal fishing (for motor boats up to 40HP)
2. Fishing in coastal lagoons:
7.000
in lagoons (1 boat)
in embouchures (1 fisherman)
10.000
12.000
active (1 boat)
in embouchures (1 fisherman)
5.000
8.000
with light boats for 1 (one) fisherman
20.000
3. Fishing in inland waters:
4. Gathering bivalve cockles
III. Sport fishing at sea with sailing boats (for 1 boat)

IV. Aquaculture
40.000
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

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

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55
PAYROLL TAX IN ALBANIA, 2016

LEK
PERSONAL TAXABLE INCOME
PAYROLL TAX
FROM
TO
0
30.000
130.000
30.000
130.000
NO LIMIT
NO TAX
13% for the surplus over 30.000
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.

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56

Tax System and Investment Climate in Albania, 2016

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