Legal and tax toolbox

The Constitution guarantees fundamental rights such as private ownership, freedom of economic activity, a free market economy, anti-monopolistic protection, free repatriation of capital and profits, and equal treatment of foreign and domestic investments and investors.

Under the Foreign Investment Law a foreign investment includes, inter alia, any investment in the territory of Albania, performed directly or indirectly by a foreign investor, involving ownership of property, movable or immovable, tangible or intangible, ownership of a company (in whole or in part) and related rights, loans and other monetary obligations, IPR, legally recognized rights deriving from contracts and licenses, and other permits granted by law. Foreign funds related to a foreign investment include: (a) revenues; (b) compensation; (c) payments deriving from an investment dispute; (d) payments made pursuant to a contract, including loan and interest payments made according to a loan agreement; (e) revenues deriving from the sale or the partial or complete liquidation of an investment; and (f) revenues deriving from reduction of the company's capital.

Guarantees of equal treatment to foreign and domestic, physical and legal entities are provided in the law, out of which the following are the most important:

1. There is no sector which is closed to foreign investment and no prior special authorizations are needed for foreign investment;
2. Foreign investors can fully own companies or funds established in Albania and there is no minimum mandatory participation of nationals;
3. The rights to transfer funds related to the foreign investment;
4. Expropriation and nationalization can be made only in special cases, for public interest, same as for domestic investment.
5. The most favorable treatment according to international agreements is also provided. Further, protection of reciprocal investments by way of bilateral agreements and double taxation treaties is common.

With the exception of land ownership where restrictions apply for the purchase of agricultural land and commercial property land), foreign investments are therefore treated according to no less favorable conditions than domestic investment. 

Naturally, for certain commercial activities regulated by special laws, there may be permitting or licensing requirements (banking, insurance, energy, etc.) but these equally apply to both domestic and foreign investment.

The Republic of Albania is a party to many bilateral agreements for mutual protection and encouragement of foreign investment.

Foreign investment incentives

Tax incentives for tourism sector

As of 1 January 2018, the following fiscal incentives in the tourism sector entered into force:

• VAT decreased from 20% to 6% in the hotels tourism sector including accommodation and all other services offered within ‘5-star hotel facilities’ awarded with the ‘special status’ and that are holders of a registered and well-known trademark i.e. brand name. For all other tourism hotel facilities, the reduced VAT of 6% will be applicable only for accommodation services;
• Exemption from profit tax (of 15%) for a 10-year period for 4-star and 5-star accommodation facilities awarded with the “special status” until the year 2024. The exemption shall become effective at the commencement of the economic activity, but in any case, not later than 3 years from the award of the “special status”;
• Exemption from tax on new constructions for 5-star hotel facilities awarded with the “special status” and that are holders of a registered and well-known trademark i.e. brand name.

According to the Tourism Law amendments effective as of 12 January 2018, beneficiaries of the new fiscal incentives are those investments in 4-star or 5-star hotel facilities that are realized as follows:

• through establishment of accommodation facilities from well-known hotel groups that invest and manage the facilities;
• through a well-known hotel group that cooperates with a local or foreign investor for the management of the facility constructed by the local or foreign investor.

The special status for 4-star or 5-star accommodation facilities can only be granted by the Council of Ministers upon application, if the following main conditions are met:

• the applicant is the investor of a 4-star or 5-star accommodation facility, certified as such by a competent agency appointed by the Council of Ministers, upon proposal of the Minister of Tourism;
• the investment has a value of no less than EUR 8 million for the construction of 4-star accommodation facility and EUR 15 million for the construction of 5-star accommodation facility.

Further details on the procedures and documentation that should be submitted by the applicant are defined by the Council of Ministers.

Tax incentives for IT sector

As of January 2018, for entities operating as software developers, the profit tax is reduced from 15% to 5%. The Council of Ministers  has further defined the activities involved in software production/development and the procedures for the implementation of this provision.

Special protection for property disputes

In 2010 certain amendments were made to the Law on Foreign Investments aiming to encourage potential investments that were particularly skeptical to Albania’s land ownership issues that have accompanied economic development since the fall of Communism. For this reason, the law was amended so that by special decision of the Government, foreign investors involved in a land dispute with a private party claiming title over the land where the investment will be developed, can be granted with special protection that consists in the replacement of the foreign investor with the state in the court dispute with the private party and undertaking of the government to compensate the private party should the court decide in its favor regarding the title claim:

The investment should concern the infrastructure, tourism, agriculture or energy sector and the foreign investor must acquire the disputed land rights either on the basis of a concession agreement, or on real estate awarded to the investor based on lease, usufruct or other real rights or on the bases of public and valid legal acts and documents (e.g. expropriation) where the investment value is above 10 million EUR.

In 2017, the parliament passed a law that limits the availability of special protection mechanism up until 31 December 2019 and further, enables all ‘strategic investments’ of a ‘special procedure’ status (see below Law on Strategic Investments) to benefit from this mechanism.

Law on Strategic Investments and AIDA

On 1 October 2015, a new Law on Strategic Investments was approved by the Albanian Parliament, the aim of the law being to promote and attract strategic investments both domestic and foreign, in those sectors of economy qualified as such, by laying down favorable administrative procedures and setting up support for accelerating and easing services to investors.

According to this law ‘strategic investments’ shall be deemed private, public and public-private investments in those sectors identified strategic and having a major impact in the economy of Albania such as energy.

The law aims to offer support to ‘strategic investors’ either through: (i) assisted procedures, in which the public administration coordinates, assists, supervises, and inter alia makes available to the investor state owned property for the purpose of its investment and/or (ii) special procedures, in which support includes also expropriation and approval of investment agreements by the Albanian Parliament. 

The law establishes the Committee of Strategic Investments (‘CSI’), a collegial body next to the Council of Ministers that ultimately approves the status of ‘assisted’ or ‘special’ strategic investment and monitors the functioning of the “unique window” system for services offered investors, the performance and the impact of strategic investments.

The law also establishes the Fund of Real Estates for the Support of Strategic Investments the purpose of which will be coordinate the making available of state owned property to strategic investments.

The Albanian Agency of Investment Development (‘AIDA’) on the other hand oversees the delivering of services to investors via a “unique window”. It has, according the law, the role of ‘assisting agent’ that will follow all the administrative procedures in relation to a strategic investment from the moment of application to that of obtaining of the status of “Strategic Investment through Assisted/Special Procedure” until the completion of investment.

Further information on AIDA can be found at the following link: http://aida.gov.al/home.

Free trade zones

The legislation to create free economic zones, is currently in place and the Law on the Establishment and Operation of Technical and Economic Development Areas has been in place since 2007. However, only in 2015 the Albanian parliament passed certain amendments which established a clearer legal framework for the creation and development of TEDAs, defining incentives for investors interested to invest in the development of TEDAs and investors operating within these free trade zones. TEDAs according to the law, consist in a specified surface of land, construction or other real estate that is developed according to a general plan and is furnished with the necessary infrastructure for manufacture, industrial development, services and commerce and which although is part of the Albanian’s custom’s territory is distinct due to its special tax and customs regime.

The government or private entities and create and develop TEDAs; Development of TEDAs to private entities can be granted pursuant to a competitive procedure organized by the MEDTTE. To date, the government has announced 3 opportunities looking for private sector developers to develop, and operate three TEDAs located in Koplik (61 ha), Spitalla (501.9 ha), and, Vlora (230 ha.).

But what are the incentives?

• Developers of TEDAs and companies operating in a TEDA shall benefit a 50% reduction of the profit tax for the first 5 years;
• Developers and users benefit recognition as deductible expenses in the level of 20% of annual capital expenses regardless depreciation amounts under tax law, for the first 2 years;
• Supply of Albanian goods destined for placement in the TEDA shall be deemed as zero VAT export under the customs and VAT laws;
• Development project is exempted from infrastructure tax (applicable to new constructions);
• New constructions are exempted from property tax for a five years period;
• Developers and users are exempted from property transfer tax;
• Expenses for salaries and social and health contributions paid by the employer are recognized for 150% of their value during the first fiscal year;
• Costs of training of employees employed within the TEDA and R&D expenses are recognized as deductible expenses for the twice value of the amount for a 10-year period;
• There will be a single window until for custom and tax procedures for the TEDA.