Legal and tax toolbox

The Law no. 9901 “On Entrepreneurs and Commercial Companies” (Company Law) and the Law “On the National Business Centre” provide for the rules on the registration of such legal presence at the National Business Centre (NBC). 

Companies can exercise any activity that is not prohibited by law. The scope of activity does not have to be specified unless specification is required under special industry legislation such as banks, energy, telecoms, insurance, etc.

There are limitations regarding the nationality of shareholders or management of an Albanian incorporated entity.

Establishment of a commercial company

Regardless of the chosen commercial form, commercial companies must all have a determined name, object of activity, legal seat (registered address) pursuant to lease or ownership title, and management (composed by a sole or more managers). The rules on management and shareholders’ meetings rights and obligations should be set out in the Articles of Association of the company.

The business forms that are provided for under the Albanian Company Law are as follows:

• General Partnership;
• Limited Partnership;
• Limited Liability Company (LLC);
• Joint Stock Company (JSC).

General and Limited Partnerships are rarely used in practice, whereas limited liability companies (SHPK) and joint stock companies (SHA) are the most frequently used forms of businesses encountered in Albania.

Limited liability company

Limited Liability Companies (LLC) are the most commonly chosen legal form for conducting business in Albania. Its shareholders are not responsible for the company’s obligations, and they are personally liable for losses only to the extent of their unpaid capital contribution. The initial capital for incorporating this type of legal entity is 100 ALL (approximately EUR 1). The LLC may also have only one sole shareholder, in which case all the resolutions of the company must be registered in the register of resolutions of the company.

The governing bodies of a limited liability company are: (i) the Shareholders’ Assembly (or Sole Shareholder) and (ii) the Managing Directors. The latter are entrusted with the daily management of the company and are appointed by the shareholders’ meeting. There are no nationality restrictions for the managing directors, however directors of a parent company may not become the directors of its controlled subsidiary at the same time.

The appointment of an auditor is only obligatory in the case of a LLC if at the end/closing of the accounting period (financial year) the company exceeds certain turnover, employee and asset value thresholds.

Joint stock company

In a Joint Stock Company (JSC) the capital is divided into shares. The shareholders are not responsible for the company’s obligations and they are liable for losses only to the extent of their unpaid capital contribution. The required capital contribution is at least 3,500,000 ALL (approx. EUR 28,600), for companies with private offer, and 10,000,000 ALL (approx. EUR 81,800) for companies with public offer. JSC have a more complex organizational structure compared to other types of companies, and are typically a mandatory form of company for sectors such as insurance companies or banks.

The organizational structure of a JSC is as follows:

• the General Assembly; and
• either, (a) the Administration Council as a single management organ that comprises both supervisory and management functions (one tier system); or (b) the Supervisory Board and the Managing Directors (two tier system). In the latter mentioned type of structure the supervisory and the management functions are divided between these two organs. Also in the latter case the Managing Directors may be appointed either by the General Assembly or by the Supervisory Board.

The initial capital must be fully subscribed before the registration of the company with the NBC and at least one quarter of the nominal value of the shares must be paid and the remaining unpaid capital must be paid in one or more installments according to the decision of the management organs of the JSC. As for the shares contributed in kind they must be fully subscribed and paid in before the registration with the relevant authority (NBC) is carried out. Contributions in services are not permitted.

General partnership

General Partnership is a form of commercial company that is rarely used in practice. Its main distinguishing feature is the fact that the responsibility of partners for debts of the company is unlimited. The administration of a General Partnership is carried out by all partners, unless otherwise specified in the Articles of Association of the company. Each partner can also represent the company against third parties, unless otherwise decided in the Articles. The minimum capital of collective companies is not defined.

Limited partnership

This is another company form that does not see much of practical use. The company consists is one or more unlimited partners and one or more limited partners having their liability limited up their contribution in the initial capital. The Articles of Association of the company govern the relations between limited and unlimited partners. Unlimited partners in a limited partnership have the same rights and obligations as those of a General Partnership. They conduct the day to day management of the company whilst limited partners are not entitled to participate in the management but can resist actions of the management beyond the ordinary business of the company.

Sole entrepreneur

Every individual conducting a business activity independently by means normally used to organize a business activity is qualified under the Company Law as a sole entrepreneur. The sole entrepreneur is obliged to register with the National Business Registration same as any other commercial company form but is subject to less documents and procedures at the time of registration or dissolution.

Establishment of a branch

Branches of foreign companies pursuant to the Company Law are considered as an extension of the commercial activity of the foreign company, in Albania. They have the same legal personality with the foreign company and carry out their activity in the name of the foreign company. For fiscal purposes, they hold their own registration number and pay their own taxes as any other company in Albania.

The branch does not have an assembly or other governing body to adopt decisions on its behalf. It is the relevant organ of the foreign company which determines the business of the branch, though the day to day management of the branch is conducted by one or more administrators appointed by the foreign company.

As opposed to a subsidiary, the liability of the branch, being with no separate legal personality, can be extended to the founding parent company. 

Establishment of a representative office

Under the Company Law, Representative Offices are considered as “places of activity of a (foreign) commercial company having the same legal personality of that company”. Their purpose, according to the law is not to generate income but to promote the business of a company, in which respect they could also conclude agreement in the name and on behalf of the foreign company. The Rep Office can also employ local or foreign staff for the purpose of its activity, but it does all for and on behalf of the foreign company.

The Rep Office can have one or more legal representatives authorized to sign in the name of the Rep Office (and ultimately in the name and on behalf of the foreign company). The legal representative’s powers are usually limited to the daily management of the Representative Office’s business, hiring and firing of employees, operations with the bank accounts of the Representative Office.

A Rep Office, as opposed to other forms of business in Albania is not subject to corporate tax given that it is not allowed do generate any income; all the same they are obliged to withhold and pay the income tax on salaries of its employees, pay the social security and health contributions and, also certain annual local taxes.

Tax representative

A non-resident taxpayer may appoint a ‘tax representative’ in Albania without having to establish a legal entity for certain activities or projects regulated under the tax laws. The tax representative is limited to handling matters relating to tax liabilities of its principal in Albania, receive invoices from third parties and pay them accordingly. The tax procedures legislation provides that a tax representatives may be any individual, entrepreneur or legal entity as appointed by the principal. The tax representative may open a bank account in Albania, but it may not hire employees and/or conclude employment agreements for the principal.

Registration with the National Business Center

The registration of a branch, rep office or a commercial company (LLC or JSC) in Albania is made through the National Business Center (NBC) and by law, if all the documents filed will be complete, registration should take place within 24 hours as of the date of application. Registration with NBC constitutes registration with the tax authorities and equipment with the fiscal VAT certificate, i.e. the entity as of that moment can start to issue invoices.

The documents required for the registration of the branch/Rep Office or commercial company (LLC or JSC) are the following:

• Certified copy of the Articles of Association and Articles of Incorporation (if any) of the foreign parent company;
• The updated Extract of Commercial Registry of the foreign parent company;
• The Certificate of Good Standing of the foreign parent company;
• The Balance Sheet for the last year of activity, in case the foreign company has been active for more than 1 year (only for the establishment of a Branch or a Rep Office);
• The resolution of Board of Directors or of any other relevant decision-making authority of the parent company resolving on the establishment of the Albanian entity and its legal representatives;
• In the case of a LLC or JSC, the Articles of Association and Articles of Incorporation of the new company drafted in accordance with the law.

Notarized documents and those used from public offices must be apostilled or legalized, as applicable. Official documents must be updated and up to 90 days old and foreign language documents must be translated into Albanian (certified translation). 

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.

Insofar there is no active capital market in Albania, hence no listed companies, many powers of the AFSA remain passive for the time being and its activity is mostly focused in the insurance market, investment and pension funds.

The investment fund market is dominated by investment in Government bonds which are managed by investment funds established by second tier Albanian banks. The secondary legislation with respect to investment and pension funds is rich as opposed to secondary legislation regarding the securities market.

Insider trading, market manipulation and director dealings

Absent a stock exchange in Albania, concepts related to insider trading, market manipulation and director dealings do exist in the Law on Securities but are not applied in practice. As a rule, these types of actions are considered criminal activity and prosecuted by the prosecution authorities.

Notification requirements and foreign investment notification

Under the Law on Securities, any private or public offer related to the issuance of securities within the Republic of Albania must be accompanied with the preparation of a “prospect” which before publication or personal delivery to the potential investors must be submitted for approval to AFSA. AFSA in turn must approve the prospect within 15 days from the date of submission or within 15 days as of the date that the issuer has submitted additional information requested from AFSA following initial submission of the prospect and the issuer must publish the prospect or distribute it to potential investors within 30 days from the decision date.

Foreign issuers of securities are considered those who operate through a seat registered outside of Albania. They can issue public offer securities in Albania only through an authorized company licensed in Albania. The prospect for the public issue of shares must be filed with the AFSA through the Albanian authorized agent. The authority can approve the prospect even when the domestic legal requirements are not fully met in case:

1. the authorized company of the foreign issuer proves that the documents are not available in the jurisdiction of the foreign issuer;
2. the authorized company proves that according to EU member legislation where the foreign issuer is seated, these documents are not required;
3. the foreign issuer has made a public offer for securities both in Albania, a EU member state, or US and the IPO is approved by the relevant securities authorities of that country.

Takeovers

Takeovers of publicly listed companies is regulated by Law on Takeovers of Public Companies. The law applies to publicly traded companies with a registered seat in Albania with shares listed on a licensed stock exchange market in Albania, or foreign public companies listed on the stock exchange in Albania whenever the bidder acquires a controlling interest in a public company i.e. at least 30% of the voting rights in the target. However, as there is no functional stock exchange in Albania, the law has not been implemented in practice.

The Mandatory Takeover Bid is triggered when the bidder alone or with others, has obtained control of more than 30% of the voting shares of the target in which case the bidder can issue the mandatory bid within 7 days from acquisition of control. As an exception, a mandatory takeover bid does not have be made (i) in case there is another shareholder with an equal number of shares with voting rights in the target; (ii) in case when more than 30% of the shares are acquired through inheritance, donation or property division; (iii) in case the acquisition of shares results from restructuring of the target.

On the other hand, any natural or legal person can submit a Voluntary Takeover Bid when they aim to acquire more than 30% of voting rights shares of the target. The Voluntary Takeover Bid can be conditioned with a minimum or maximum shares numbers to be acquired which, if not achieved, the bidder may revoke the bid.

Both a voluntary and mandatory takeover offer should be valid for at least 3 weeks but not more than 10 weeks after the offer document is announced. It may be extended up to 8 days if the offer is amended prior to its expiry. A MTO/VTO must remain open for at least 3 weeks and not more than 10 weeks after the offer document has been published plus an extension of 8 days if the offer is amended 8 days prior to its expiry date.

The price offered must not be lower than the highest value of either (i) fair share practice established pursuant to widely accepted evaluation methods; (ii) the average weighted market price of the share in the previous 3 months (iii) the higher price paid by the bidder per shares in the previous 12 months prior to the offer publication date.

In turn, the price may alternatively be paid in cash or marketable shares with satisfactory liquidity or a combination of both.

Publication of the takeover offer requires the prior approval of AFSA. Whilst the intention of a mandatory takeover bid should be published within 7 days from the bidder becoming aware of the triggering event of the takeover offer (with the website of the bidder, the business registry in Albania and stock exchange, the approval from the AFSA must be filed within 10 days following such announcement along with the documents required under the law for the approval. AFSA should quickly respond within 10 days with their approval or refusal. Silent is content rule applies in this case. Binding offer should be published only upon AFSA approval. Top-up of the price may occur under certain circumstances.

Noteworthy, there are squeeze-out rules that apply both to bidder and minority shareholders if the bidders acquire control of at least of 90% of the voting rights shares of the target.

The Civil Code defines the agency agreement as: ‘…one where one party permanently undertakes, in return for remuneration, to promote the creation of and to conclude contracts on behalf of another person within a specified territory.’

 Exclusivity

According to the Civil Code the principal may not employ or engage more than two agents at the same time in the same area and in the same line of business; nor can the agent undertake to transact in the same area and in the same line of business on behalf of more than one enterprise in competition with each other. There is no further guidance or case law at to how concepts of ‘same area’, ‘same line of business’ are going to be determined beyond that of an objective understanding.

Obligations of the agent

In the performance of the duties an agent is obliged to comply with the instructions given by the principal. He is obliged to provide to the principal all information relating to the market conditions in the area subject to the agency agreement, and further provide any other information that is useful in appraising the advantages of the individual transactions. An agent shall also conform to the duties that are typically incumbent on commercial agents insofar as they are not excluded by the nature of the agency agreement.

In cases where an agent is not in a position to fulfill the task with which he is entrusted, he should notify the principal promptly, failing which the agent shall be liable to pay damages. The agent is prohibited by law from receipt of monetary or other considerations belonging to the principal in absence of an agreement thereof, and if this power has been granted to him by the principal, he cannot grant discounts or extensions of time for payments due without the specific authorization of the Principal.

Customers may address to the agent all declarations concerning the performance of the contract entered into through the agent, and all complaints relating to the non-performance of such contract. The agent can pursue precautionary measures in the interest of the principal and make submissions that are necessary to preserve the rights of the principal.

Obligations of the principal

The principal has certain obligations towards the agent as provided by the law. It must provide the agent with all necessary information and documents for the goods or services that are the object of the agreement, and all the necessary information for the execution of the agreement. The principal should in particular notify the agent within a reasonable time once he has knowledge that the volume of the commercial transactions is much lower than that which the agent could normally have expected. Furthermore, the principal should give the agent notice, within a reasonable time, of the acceptance, rejection or the non-execution of a commercial transaction that the agent has procured for the principal.

Non-Compete

The Civil Code allows for non-competition clauses to be used in agency agreements for the period after the termination of the agreement, but does it set some parameters. Such limitation on competition must be done so in writing, which is typically done as part of the main agreement. The limitation must relate to the geographical area or the group of customers and the geographical area entrusted to the agent and to the kind of goods, property or services covered by the agency agreement. Furthermore, the duration of the limitation must not be for a period longer than 2 years after the termination. Non-compete provisions in agency agreements are as a rule excluded from the antitrust law provisions on prohibited agreements.

Termination of the agency agreement

An agency agreement may be both for a specified fixed term, or an indefinite term. In the event that a fixed term agency agreement is continued and keeps running after its expiry date then it shall be deemed to be an indefinite term agreement. In the case of a fixed term agreement parties are free to determine the notice period required for its termination. However, in the case of an indefinite term agreement the Civil Code specifies minimum notice periods that should be adhered to which cannot be less than one (1) month during the first year of the contract, two (2) months during the second year, three (3) months during the third year, four (4) months during the fourth year, five (5) months during the fifth year, and six (6) months during the sixth and subsequent years. Both parties can agree on longer notice periods provided that the principal is not required to observe a shorter period than the agent.

Remuneration/Compensation

The law provides that the agent is entitled to receive commission only for the transactions that are validly completed, and if a transaction is only partially completed then the agent shall be entitled to a commission in proportion to the part of the transaction completed. Unless otherwise agreed, the agent shall also be paid commission for the transactions that have been brought about directly by the principal and which are to be performed in the area exclusively reserved to the agent. 

If a completed transaction is dissolved the agent shall still be entitled to commission, insofar as the completion of the transaction in the first place was as a result of the actions of the agent. The agent shall further be entitled to commission for those transactions that have not been completed as a result of causes imputed to the principal. Should the principal and the third party agree on full or partial non-performance of the transaction, the agent shall have the right to receive a reduced commission in accordance with the measure provided in the agency agreement, and if not provided there, in accordance with the market customs and practice or failing that the courts shall decide upon the amount.

The principal should provide the agent with an extract of the accounts in relation to his commission no later than the last day of the month, after the quarter period in which the commission was due. Such extract/statement should detail essential elements of the basis upon which the commission was calculated. Within that same term the liquidated commissions, in respect of the transactions for which there have been payments made by the third parties, must be effectively reimbursed to the agent. The agent has the right to be provided with all information and particularly an extract of the relevant account books for the verification of the amount of liquidated commission.

The agent is not, by law, entitled to be reimbursed for any expenses related to his duty as the agent.

Goodwill compensation

The Albanian Civil Code has elected to compensate an agent upon the termination of an agency agreement by way of indemnity as opposed to damages, thus the Agent shall be to goodwill compensation. An Agent will be entitled to goodwill compensation from the principal if, (i) the principal terminates or refuses to renew the agency agreement, and (ii) the agent has increased the principal’s business with existing customers or identified new customers for the supplier. The extent of the payments of this type should be considered in light of all the circumstances and, in particular, the commission the agent lost from the business transacted with those clients.

Goodwill compensation shall not be paid in the following instances:

• the principal terminates the contract due to non-execution attributed to the agent, and because of that even a temporary pursuance of the agreement is not possible;
• the agent withdraws from the contract, apart from the case when the withdrawal is justified in light of the position of the agent in the circumstances, e.g. age, temporary disability or any illness for which it would be reasonable not to expect the continuation of the activity;
• pursuant to the agency agreement, the agent transfers the rights and obligations deriving from that agreement to a third party.

This goodwill compensation cannot exceed the Agent’s average annual commission during the last five years of its relationship with the principal. If the agreement was for less than five years then the compensation shall be calculated as the average of the actual period of agreement. The award of this type of compensation does not preclude the Agent from its right to indemnity for damages. The Agent would lose its right to goodwill compensation if it has failed to request such compensation from the Principal within one year from the termination of the agency.

Distribution agreement

There is no specific definition nor are there legal provisions within Albanian law that specifically govern distribution agreements. These types of agreements are usually construed as contracts and shall be governed in accordance with the general contract law provisions in the Civil Code (particularly those relating to supply contracts). A supply contract is defined as one by which one party is bound to carry out an act for the other party in the form of continuous or periodical supply of goods, in return for a price.

Parties are free to negotiate and specify the scope of the terms of the distribution agreement. The Civil Code provides that if a supply contract contains an exclusivity clause in favor of the supplier, then the distributor cannot receive goods of the same kind from a third person. In turn, if an exclusivity clause is stipulated in favor of the distributor, the supplier cannot directly or indirectly provide any service of the same kind as that contemplated in the contract, within the territory for which the exclusive rights were granted and for the duration of the contract.

Parties in a distributor agreement are free to determine the circumstances that justify termination or about any related compensation. The Civil Code provides conditions upon which an agreement may be terminated in cases when the execution of obligations is rendered impossible and it is not due to the fault of the performing party, and not outside the time period for its performance. And then it can only be extinguished if it can be shown that the other party could not have equally performed the obligation if in its place. In the case of mutual obligations and where one party fails to perform the obligation, the other party can either seek to demand performance or dissolution of the agreement together with compensation for damages.

Dispute before the Local Courts

Any party can submit its dispute to the local courts. The Albanian Courts have exclusive jurisdiction if the dispute concerns:

• Administrative disputes;
• Property rights over immovable property;
• Legal status of legal entities incorporated in the Republic of Albania;
• Dispute over the industrial property i.e. patents, trademarks when registered in Albania;
• Claims regarding industrial property,
• Challenge of the executive titles;
• Insolvency;

Dispute before a foreign court or arbitration

Where the dispute is outside the exclusive jurisdiction of the Albanian courts, any such action may be submitted to a foreign court or arbitration by an agreement in writing between the parties.

Choice of law

Parties can choose the law applicable to the whole or to a part of the agreement and the Albanian courts will respect this choice. However, in some specific circumstances Albanian mandatory laws can apply in any case, for instance where the agreement concerned involves consumers or labor matters, as well as art and cultural heritage.

Enforcement issues

Enforcement of a local judgement

Before enforcing a local judgment over the debtor's assets, the Bailiff must serve on the debtor a formal request to pay the amount due in ten days.

If the debtor fails to process payment by the given deadline, the creditor can start enforcement by:

• Seizing the debtor's assets (movable as well as real estate assets), which are then auctioned in a proceeding surveyed by a Bailiff;
• Freezing the debtor's funds owned by a third party and redirecting them to the creditor.

Enforcement of a foreign judgement

A final judgment rendered by a foreign court would be enforceable (i) upon the completion of appropriate judicial proceedings in Albania against the counterparty or any of its properties located in Albania according to the procedure provided by the Albanian legislation in force, and (ii) if the Albanian Court of Appeal does not ascertain any of the conditions below rendering foreign judgement unenforceable as follows:

• according to the provisions in force in Albania, the dispute does not fall within the competence of the foreign court in question;
• the lawsuit and the writ of summons are not duly delivered to the absent defendant and in due time, thus refusing him the right of defense;
• a different judgement is rendered by an Albanian court involving the same parties, subject and dispute;
• an Albanian court is examining the same dispute before the foreign court judgment/award becomes final;
• (the judgment of the foreign court has become final in violation of its legislation;
• the foreign court judgment is not in compliance with the fundamental principles of Albanian legislation.

The Albanian Court of Appeal conducts a review of the foreign court judgment, but only from a procedural perspective and it does not enter into the merits of the case. 

Enforcement of a foreign arbitration award

Republic of Albania is a member of the New York Convention 1958 “On recognition and enforcement of foreign arbitral awards” which is ratified by Albanian Parliament in 2000. The procedure on the recognition of the arbitration award based on the New York Convention “On recognition and enforcement of arbitral awards” is largely tested before the Albanian Courts of Appeal. The process of recognition and enforcement of foreign arbitration awards in Albania is procedurally carried out through a two-layered regime made up by a) The imported provisions of and b) rules of procedure as provided for in Albania Code of Civil Procedure (Code).  However, the procedure of the recognition is quick and efficient. The enforcement process is similar to the enforcement of the local judgements.

Public procurement

Public procurement law applies to all contracts awarded by contracting authorities except of those specific exclusions provided in article 7 of the law, as arbitration and conciliation services or financial services, to mention a few.

The general principles governing the awarding procedure are transparency, equality and non-discrimination.

Each contracting authority (CA) is responsible/entitled for concluding public contracts with public funds at its disposal. It shall establish a procurement unit responsible for procurement procedures initiated by it. 

The bidding documents must be drafted according to the standard bidding documents for public works or services and only minor tailoring is permitted depending on the projects.

Procurement procedures are conducted electronically via the Albanian Public Procurement Agency (APP) at www.app.gov.al. These include the publication of contract notice and Request for Proposal documents, the classification of bidders and announcement of winning bidder.

The types of procedures to be used for awarding a public procurement contracts are:

1. open procedures;
2. restricted procedures (i.e. with prior qualification procedures);
3. negotiated procedures, with or without prior publication of a contract notice;
4. request for proposals;
5. design contests;
6. consultancy services.

For high monetary threshold projects, a security bid will be required which is equal to 2% of the fund limit set in the bidding documents.

The Agency of Public Procurement oversees and regulates the procurement field in Albania and performs various administrative and executive tasks. CA and APP are entitled to exclude economic operators participating in a bidding procedure in case of corruptive conducts; previous criminal activities performed or for submitting documents containing false information.

Decision of the CA on award of contract or the bidding documents may be challenged administratively first before the CA and thereafter with the Public Procurement Commission against an administrative consisting of not less than 0.5 % of the project limit fund (VAT excluded). During the review process, the Commission may order the suspension of the award procedures.

Decisions of the Public Procurement Commission may be further challenged with Tirana first instance administrative court, however this will no longer suspend the conclusion of the contract awarded by the CA.

Concessions and Public-Private Partnership

In 2013 the Albanian Parliament has approved the new PPP Law, which was further amended in 2014, and is partly approximated with the directive 2004/18/EC of the European Parliament and the Council dated 31 March 2004 (CELEX no. 32004L0018).

Preparatory actions

The procedure for granting a PPP begins with the preparatory actions, which include all the activities carried out with the purpose of granting the PPP and precede the procedure for the award of the contract. These include:

Identification of eventual projects of PPP;

Appointment of a commission for granting the PPP;

Preparation of the feasibility study of the PPP;

Calculation of the value of the PPP;

Preparation of the tender documents.

If based on the results of the pre-feasibility study the intended project would require “financial support” (i.e. monetary or non-monetary support and/or funding provided by the public sector, including but not limited to subsidies or other financial guaranties, capital contributions and transfer of ownership rights), the contracting authority has to notify the Ministry of Finance and request its approval before the tender is announced.

Drafting of the tender documents

The last step of all preparatory actions preceding the publication of a concession contract/PPP project is the drafting of the tender documents. The Contracting Authority (or the person authorized by him/her) is responsible for the establishment of the commission that will handle the process from the first steps until bids evaluation.

Publication of the contract notice

The PPP award procedure starts on the day of publication of the contract notice and terminates upon publication of the contract award notice or the decision on the termination of an award procedure. The contract notification that must include at least the following elements:

1. Name, address, telephone number, fax number and the address of electronic mail of the Contracting Authority;
2. Type, subject and scope of the PPP;
3. Location of PPP activity to be undertaken;
4. PPP contract duration;
5. Estimated value of the PPP contract;
6. Deadline for submitting the tenders;
7. Address to which the tenders must be sent;
8. Language/languages and writing/writings in which the tenders must be drafted;
9. Time and place of public opening of tenders;
10. Criteria for exclusion of bidders;
11. Criteria with regard to legal standing and suitability to pursue the professional activity, technical and professional ability as well as the evidence and data by which an economic operator proves the fulfilment of such requirements;
12. Type and value of tender guarantee that the bidders must submit;
13. Contract award criteria;
14. Name and address of the body responsible for review procedure as well as the data on deadlines for lodging the application for review.

The announcement of the PPP/concession contract is made through the public procurement electronic platform and in the Public Procurement Bulletin of the Public Procurement Agency using the standard form of documents approved by the Public Procurement Agency for the concession/PPP project.

Contract award procedures can be open, restricted or, negotiated with prior publication of notice, as those are defined in the Public Procurement Law. 

The open procedure this is the most preferable procedure applicable to all concessions/PPP projects except when circumstances dictate the use of other procedures. The restricted procedure is applicable to those contracts in which it is necessary to develop competition among a group of potential private partners, selected through a pre-qualification procedure. The procedure may be applied when it is economically more advantageous for the Contracting Authority first to examine the qualifications of interested economic operators and after invite them to submit the offers. In this procedure, the Contracting Authority must publish the contract notice containing a description of the object of the contract, an indication of the selection criteria and an invitation to express interest in participating in the procedure. The negotiated procedure with prior publication of a notice should be used in exceptional cases when the Contracting Authority aims to achieve the selection of the private partner through a process of consultation and direct negotiation of the contract terms.

The bid security requirements are identical to those of public procurement (i.e. 2% of contract value for significant value projects).

Evaluations of bids and conclusions of the contract

The evaluation of the received bids and/or RFPs is made by the commissions appointed by the Contracting Authority for this purpose. The selection of the winning bidder should be based either on (a) the most advantageous economic offer where various elements of the bid such as the quality, running costs, after-delivery service, delivery period etc. are assessed or, (b) the highest concession fee offered (with the exemption of health PPPs which are exempted).

Award and signing of the contract

Upon the completion of the selection process, the Contracting Authority must notify the winner and 5 days after it must also notify the Public Procurement Agency for the purpose of notifying the winner with the Public Procurement Bulletin. The concession/PPP contract may be signed only upon expiry of deadlines for filing a complaint or if a complaint is submitted, upon completion of the review process by the Public Procurement Commission. Complaint fee with the Public Procurement Commission is equal to 10% of the security bid (in case the authority has requested such a security) or 0.2% of the contract value set out in the bidding documents. The Public Procurement Commission may suspend the procedure until completion of the administrative review of the complaint. The decision of the Public Procurement Commission may be challenged with the court but no suspension will apply in this case.

Not later than 10 days from the expiry of this deadline, the Contracting Authority must invite the winning bidder to sign the contract which shall be governed by Albanian law.

The contract must have a fixed term (of no longer than 35 years) and should be drafted in accordance with the tender documents, the information provided in the contract notice, and the contract award notice.

Unsolicited proposals

Private entities are also entitled to submit an unsolicited PPP proposal to the relevant contracting Authority (i.e. ministry, municipality). If the CA decides to proceed with the proposed PPP project, a bonus of 10% may be awarded to the proposing party in the bidding procedures. 

Privatizations

Most large scale privatizations in Albania have been completed. However, the Government is looking to privatize the state companies considered of strategic interest, such as oil national company Albpetrol, and it also aims to privatize its assets in nonstrategic sectors which are estimated to reach a value of EUR 5 million. 

Simple Partnership (Contractual Unincorporated Joint Venture)

The Simple Partnership (contractual joint venture) Is a contractual agreement between 2 or more parties the creation and operation of which is governed by the Albanian Civil Code.

The object of a Simple Partnership is the conduct of a joint economic activity with the aim of sharing profits out of it. Such Simple Partnership does not have a separate legal personality and it operates for the purpose of contractual relationship with third parties under the legal personality of its members (parties) through the representative appointed by the members (such as for example to conclude insurance agreements, to operate bank accounts, to enter into other service agreements).

The members who act in the name and on behalf of the Simple Partnership are jointly and/or severally liable for the liabilities vis-à-vis third parties. New members who join the Simple Partnership are also liable for the liabilities assumed by the partnership before their membership. 

The Simple Partnership must be registered with the Albanian commercial register (i.e. National Business Centre) by filing the contract of parties and some other relevant data; such registration is merely for declarative effects i.e. it does not give to the association own legal identity and mainly for vesting the contractual joint venture with a single identity vis a vis the tax authorities. Hence, the Simple Partnership for tax purposes is treated as an incorporated entity (i.e. non-transparent).

Incorporated joint venture

As opposed to the Simple Association, parties to the consortia must agree on the establishment of an Albanian commercial company in the form of a limited liability or joint stock company which are most commonly used which will be subject in terms of capital contribution, management, shareholders rights, dividend distribution etc. to the Albanian Law on Entrepreneurs and Commercial Companies.

The parties to the incorporated joint venture in addition to the company’s Articles of Association and other constitutional documents may have a private shareholders’ agreements. Shareholders agreements are not specifically regulated by the Albanian company law, but shareholders are free to conclude an agreement to govern the relationship between them, election of management, voting rights, etc.

Temporary union of operators

Both public procurement and PPP law condition participation of consortia in a bidding process with the conclusion of notarial agreement between the consortia members where the interest of each member in the consortium, its roles in the project and their representative is defined. The so called ‘temporary union of operators’ is established only for the purpose of the bidding process. In case the consortia is awarded with the public contract, it is a rule required to establish a special purpose vehicle (SPV) in one of the forms permitted by the commercial companies law for the purpose of implementing the project. Replacement of consortia members after bid submission, as a rule, is not permitted. After contract signature, members of the consortia can exit the consortium or SPV subject to the specific conditions in the public private partnership agreement or the contract for the delivery of goods or services awarded through public procurement procedures.

Tax liabilities (related to Income Tax, VAT, etc.), applicable to a foreign business in Albania depends on the legal form of the PE in Albania, the main tax liabilities applicable in Albania are as follows:

Corporate Income tax: The corporation tax (the tax on income) is at the rate of 15 %, and is applied to taxpayers with an annual turnover exceeding 8.000.000 ALL. This is applicable to the taxable profit of the subsidiary and of the branch of the foreign parent company (note that according to Albanian tax legislation the branch of a foreign company is considered as a taxpayer in Albania for the taxable profit of such branch). 

As an exception, hotel there is no corporate tax (i.e. the tax is 0%) for a 10- year period for 4-star and 5-star accommodation facilities being granted with ‘special Status”, and that benefit such status until December 2024. The effects of the exemption shall begin at the commencement of the economic activity, but not later than 3 years after obtaining the special status, in accordance with the applicable law.

Also for entities operating as software developers, the profit tax shall be reduced from 15% to 5%. The Council of Ministers will define the activities involved in software production/development and the procedures for the implementation of this provision.

The 5% profit tax rate will apply for a 10- year period also to subjects which are certified as “subjects offering agritourism services” by the Government, up until December 2021.

VAT Regime: The new Law on VAT is aligned with the Directive of the European Parliament and Council 2006/112/CE dated 28 November2006 on the “Common system on the value added tax” and it aims to provide more clarity to the VAT regime in Albania.  VAT applies to:

• the supply of goods and services by a person which carries out business activities in the territory of the Republic of Albania; and
• the imports of goods into the territory of the Republic of Albania.

All legal and natural persons carrying out taxable supplies having an annual turnover exceeding ALL 5,000,000 (equal to approximately EUR 36.765) are subject to VAT too. However, as of 1 January 2018, the turnover threshold for determining VAT subjects will be defined by Council of Ministers, from time to time. In addition, the Council of Ministers has the right to establish a different VAT threshold for specific categories of taxpayers.

Natural persons and legal entities operating in the import/export industry are required to register regardless of the amount of their annual turnover.

The VAT rate in Albania is 20%. Exceptionally the VAT in tourism industry, for accommodation services only is 6%. As of 1 January 2018, a reduced rate of VAT in the amount of 6% will be applied for all services offered within 4-star and 5-star accommodation facilities defined under the tourism law provisions.

Further, VAT is 0% in certain specific cases whereas an exempted VAT regime applies in the following specific cases:

• the supply of medicines, implantable medical devices and active implantable medical devices;
• the supply of medical services by dentists and dental technicians in their professional capacity;
• the supply of services by independent groups of persons, who are carrying out an activity which is exempt from VAT or in relation to which they are not taxable persons, for the purpose of rendering their members the services directly necessary for the exercise of that activity, where those groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to cause distortion of competition;
• insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;
• the granting and the negotiation of credit and the management of credit by the person granting it.

Taxation on dividend (Branch and Subsidiary): Any dividend/distribution of profit distributed by the Albanian subsidiary is subject to tax on dividend at the rate of 15%. In the case that the dividend or distribution of profit will be transferred to a foreign parent company and an effective Double Taxation Treaty (DTT) is applicable, the provisions of the relevant DTT must apply. The repatriation profits generated by a branch, after profit tax, is not subject to withholding tax as opposed to a subsidiary.

Excise duty. Excise duties are considered indirect taxes which applies on the sale or use of specific products. They are usually applied as an amount per quantity of the product. Excise duties apply to a limited number of products for mass consumption, i.e. tobacco and its derivatives, petroleum and its derivatives, alcoholic beverages, soft drinks and coffee, as well as perfumes and deodorants.

Personal income tax: Under Albanian law, all individuals are liable to income tax. Albanian tax residents are: (i) Individuals who have a permanent residence in Albania, or (ii) Albanian citizens and citizens who act as a consul, diplomat, or other officer outside Albania (iii) Individuals who are present in Albania for more than 183 days within a 365-day period.

Albanian resident individuals are subject to personal income tax on their worldwide income, whereas non-resident individuals are subject to tax only on income derived from an Albanian source, unless a Double Tax Treaty (DTT) provides otherwise.

Personal income tax is levied on the following categories of income:

• Salaries and other compensation related to the employment relationship;
• Dividends and profit shares;
• Income from royalties;
• Income from borrowings and leasing;
• Interest from bank deposits and other interest-bearing securities;
• Capital gain from the sale of shares/quotas.

Gross salaries and compensation for employees are taxed on a monthly basis according to a progressive taxation scheme that ranges from 0 – 23%. Personal income such as income from dividends, income from rent, capital gains, income from bank interest, gains from lottery or games of chance and any other income specified as personal income of individuals are subject to personal income tax at a 15% rate.

Withholding tax: This tax is applicable on gross payments related to some types of service agreements and on the lease agreements (if the service provider or the lessor is not a tax resident in Albania); withholding tax is a tax liability for the service provider and the lessor, but the service receiver and/or tenant have the obligation to withhold, declare and transfer the withholding tax to the corresponding Tax Office in Albania. The withholding tax rate is 15%.

Local taxes: Local tax authorities determine and collect local taxes from entities carrying on business in their municipalities. 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.

Double Tax Treaties (DTT)

Since 1992, Albania has entered agreements to avoid double taxation with respect to taxes on income and on capital with various countries. The agreements cover the taxation of income from business profits, international transport, dividends, interest, royalties, dependent and independent personal services, as well as income from real estate and apply to individuals and legal entities that are resident in one or both contracting states. The agreements specify the rules that apply to taxation of the above-mentioned types of income in the attempt to avoid double taxation. In addition, for certain types of income like dividends and interest the Agreements specify the maximum rate applicable in both contracting states.

For a list of the DTTs in force and those ratified by the Albanian Parliament but not currently in force the website of the tax authorities www.tatime.gov.al may be consulted.

Capital gains

The regime of the capital gain tax is applied in the following transactions:

1. Sale of shares or quotas where the tax rate of 15% applies on the capital gain;
2. Sale of immovable properties where the tax rate of 15/% applies on the capital gain;

Tax structures and risks for contracts with public customers and private sector (including tax exemption for “important projects”

There is no specific tax structure when it comes to the public contracts. However, based on the State Aid Law certain tax or other investment incentives may be granted to both domestic and foreign investors.

Stability clauses in PPP or other important contract with the government are common and important to protect the investor from changes to tax legislation that may adversely affect its business.

The 2005 ‘Law on State Aid’ regulates Albanian investment incentives for both foreign and domestic investors. The law governs all sectors of manufacturing and services, excluding agriculture and fisheries, and applies to both the central and local governments as well as other entities acting on behalf of the state that confer benefits to enterprises. Some of the major incentives are listed below:

• 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;
• The government may lease or provide a concession for public property of more than 500 square meters for the symbolic price of one euro if the investor will use the property for manufacturing activities with an investment exceeding 10 million euros or for active processing activities;
• The government may lease or provide a concession for public property for the symbolic price of one euro for investments of more than two million euros for 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 case by case basis through a decision of Council of Ministers;
• Machinery and equipment purchases for investments worth more than $500,000 are value added tax exempt. Machinery and equipment imported exclusively to meet investment contracts related to the active processing or agribusiness sectors also are VAT exempt.
• Apparel and footwear producers are exempt from VAT and customs tariffs on raw materials as long as the finished product is exported.
• Albanian-registered entities that import certain machinery and equipment (as defined by law) for use in their business activity are exempt from customs duties.

A 2018 amendment of the Law on State Aid added as grounds for excluding an economic operator from gaining state their previous conviction for crimes, such as partaking in organized crime, corruption, money laundering, terrorism, narcotics trafficking, falsification of documents, exploitation of work by minors and other forms of human trafficking.  

Work permit

Non-Albanian citizens, excluding European Union countries, US citizens and Schengen Zone, who wish to work in Albania need a work permit issued by the Ministry of Social Welfare to work in Albania. The request is made before starting the work. The response to this request takes no longer than 10 days after submission of documents. There are different types of work permits which mainly differ from their validity period:

1. Type A which includes work permit for employees, seasonal, work permit for family members,
2. Type B which includes work permit for independent economic activity, investors, self-employed,

The duration of the work permit usually depends of the type of work.

The EU, Schengen Zone and US citizens are exempted from the obligation to obtain a work permit to work in Albania. However, they must obtain a written confirmation from the competent authority confirming this status.

Visa and residence permits for employees and foreign investors

Some countries whose citizens are holders of ordinary passports (EU, USA but also other countries) can enter Albania without a visa. The list of countries whose citizens can enter Albania is approved by the Council of Ministers of Albania. Presentation of valid passport or other valid travelling document at border checkpoint will suffice and the traveler will be granted with a stay permit of 90 days in Albania.

The type of visas granted are:

Type A: Airport transit visa with one entry which allows the holder to remain in the international zone of the airport until the departure of their flight to their final destination. 

Type C: Short term residence visa which allows the holder to remain in the Albanian territory for up to 90 days of a 180 day period.

Type D: Long term residence visa, valid for one year, which allows the holder to stay in Albania for up to 90 days of a 180 day period and to apply for the issuance of a residence permit. 

Foreign citizens that reside in Albania for more than 90 days (cumulative) during a period of 180 days should apply and obtain a residence permit from the competent authority. There are different types of residence permits, which differ depending on the type of activity that the foreigner will perform in Albania. The most common type of residence permit granted for employment purposes is residence permit for employment purposes which is granted in compliance with the conditions of the work permit and Residence permit for the self-employed which is granted to self-employed persons in compliance with the conditions of a work permit. Other types of residence permit granted are:

• Residence permit type A, not renewable, which entitles its holder to stay in Albania within the period for which it is issued
• Residence permit type B, renewable, issued for a defined period and entitles its holder to enter, stay and exit in/from the Republic of Albania within the period defined therein
• Residence permit type C which is issued for an undefined period and entitles its holder to enter, stay and exit in/from the Republic of Albania
• Residence permit type S renewable after a 6 month interruption period, which is issued for seasonal works and entitles its holder to enter, stay, and exit in/from the Republic of Albania within the period defined therein
• Residence permit Blue Card AL, renewable, which is issued for a defined period for highly qualified employees and entitles its holder to enter, stay and exit in/from the Republic of Albania within the period defined therein
• Residence permit Blue Card AL-C, which is issued for an undefined period only for highly qualified employees and entitles its holder to enter, stay and exit in/from the Republic of Albania.

Citizens of the USA have a more favorable regime, according to which they can stay in Albania for at least one year without a residence permit. US citizens are entitled to obtain the first residence permit for a period of five years.

Visa and residence for contracts with the government

As a rule, there are no special visa, working and residence rules for foreigners that travel and stay in Albania and work under a contract with the Albanian Government. If the contract is approved by the Albanian parliament, certain facilities may be provided in the contract such as undertaking of the government to procure working and residence permits on behalf of the private party’s employees.

Employment agreements can be entered into for a fixed or indefinite term. Fixed term agreement should be justified by the nature of work as indefinite term agreements are agreements that should be used by the employer as a rule.

The employment contract must be in writing and should include, among other elements, the identity of the parties, the place of work, the general description of work, employment start date, terms of employment, the paid leaves, the salary composition elements and payment date, the weekly working time, the probationary period, termination notice terms, disciplinary measures, etc.

The daily duration of work is no longer than 8 hours. For employees under 18 years of age, the daily duration of work cannot be longer than 6 hours. Further, the normal weekly working time is 40 hours. An employee may perform overtime work but it must not exceed 200 hours per year. An employee cannot have more working hours in cases where he has already worked 48 hours in a week.

Type of employment contracts

The Albania Labor Code recognizes different types of employment contracts:

Full-time employment agreement: under this agreement the employee agrees to work for the employer for a maximum of 40 weekly hours of works, with a maximum of 8 hours per day. This is the most common employment agreement.

Part-time employment agreement: under this agreement the employee agrees to work for the employer for a certain number of hours or days, but in any case, less than the normal working time of full time employees with the employee enjoying the same rights and obligations as the full-time employee.

The temporary employment Agency: this is a novelty of the Labor Code amendments entering into force in 2016. According to this type of employment, the Agency hires an employee, who works, for a temporary period of up to two years for a hosting company. The written agreement between the Agency and the hosting company should contain terms on the duration of employment, workplace, job description and salary.

Work from home agreement: the employee agrees to work from home or from another place as agreed between employer and employee. The conditions must be not less favorable than the ones provided to other employees offering same or comparable services.

Commercial agent employment agreements: the commercial agent (employee) has the obligation to negotiate or conclude an agreement outside of the company premises on behalf and according to the instructions of the employer.

Professional training employment agreements: according to such agreements a master helps an apprentice to qualify according to professional rules and the employee compensates him by giving him his services.

Telework: Is a new form of remote employment that is performed through information technology from home or any other place as agreed between employer and employee. The work conditions must be not less favorable those of employees offering the same services.

Termination

Indefinite term contracts may be usually terminated by the employer in case of restructuring of the company’s organization or due to the employee’s skills and behavior, subject to strict termination procedure that consists in the following steps: (a) the employer invites the employee in writing for a meeting at least 72 hours before the meeting date to discuss termination of the employment relationship b) the employer and employee meet to discuss the termination and position of employee on termination – a written protocol of the meeting is kept during the meeting (c) if the employee does not agree with the termination, a written notice of termination is submitted to the employee within at least 48 hours to one week after the meeting has taken place which should set out the reasons of termination.

Depending on the length of employment, the following notice terms must be observed: (i) at least two weeks in advance during the first six months of employment, (ii) 1 month in advance if the employment has lasted between 6 months and 2 years, (iii) 2 months if the employment has lasted from 2 to 5 years, or (iv) 3 months in advance if the employment has lasted for more than 5 years.

The notice periods shall not apply in all serious circumstances in breach of the good faith principle, under which the employer cannot be expected to continue the employment relations. The following are set out in the Labor Code and considered to be reasons ‘with cause’ for the immediate termination (without a notice period), thus enabling the employer to avoid following the termination procedure noted above, and potentially any related potential damages for non-adherence to this procedure:

• When the employee carries out a serious breach of his/her contractual obligations;
• When the employee carries out a minor breach of his/her contractual obligations repeatedly, despite the employer have provided written warnings to the employee.

In case the termination procedure is not followed, the employee can claim damages with Albanian courts.

Should the employer fail to comply with the procedure, the employee must be indemnified with two monthly salaries. In addition, in case of termination without reasonable cause, the employee can be indemnified with up to one year of salary, the salary that the employee should have received during the notice period, plus the accrued annual leave, and the relevant seniority bonus (if applicable).

The Albanian Labor Code sets out a list of reasons that shall be determined to be ‘without cause’ thus resulting in potential increase in compensation for the employee (e.g. potential 12 months’ salary). The employer will be deemed to have terminated the contract without reasonable cause if made:

• As a reaction against employee’s complaints: Employer uses termination as a means of revenge against employee who claims a breach of his rights under contract and law;
• As a reaction against employee whilst fulfilling a legal obligation: This is the case when the employer terminates the contract because the employee has had to fulfil a mandatory legal obligation during the employment (e.g. appeared in court as witness thus unable to attend work);
• For discriminatory reasons: Employer terminates the contract due to employee’s personal features (inter alia race, colour, sex, age, civil status, family obligations, pregnancy, religious or political beliefs, nationality, social status);
• As a reaction against employee exercising constitutional rights: Employer terminate the contract due to reasons relating to the employee exercising constitution rights; and
• As a reaction against employee who is involved in labour organizations: Employer terminates the contract because employee’s trade unions activity.
• Without communicating in writing the reasons for termination to the employee: Employer does not set out in the notification for termination any of the statutory reasons for the purpose of termination such as: (i) capability of employee (ii) behavior of employee or (iii) operational needs of the employer.

In case of a fixed term employment, the agreement terminates at the end of its term, without a prior termination procedure unless immediate termination with cause is warranted. If at the end of term the employment relation continues in silence, the agreement is considered extended for an indefinite term.

Restrictive covenants: Non-Compete

The employee may be bound by a post-termination non-compete provision in the employment agreement that can be justified only if the employee has been in contact with business secrets of the employer the dissemination or use of which may seriously damage the employer.

The employment agreement must clearly state the non-compete provision, the place, time and type of activity, in order not to harm the economic future of the employee. The ban cannot exceed one year during which period the employee must be paid with at least 75% of the salary that he/she would have received if still employed by the same employer.

Trademarks in Albania are protected by means of their registration with the General Directorate of Patents and Trademarks (hereinafter GDPT). The owner of a trademark in Albania is guaranteed by European-alike legislation, registration in the GDPT register and by administrative and judicial means of challenge.

A mark can be registered only if it can be presented graphically and has a distinctive nature. It may consist in words, signs, colors and shades, forms or various combinations of what mentioned herein. In order to obtain their validity trademarks shall be used. In case the owner fails to do so, within 5 years from the registration date, the mark will no longer be protected.

All rights granted to an owner of a registered mark are also granted to the owner of a non-registered well- known mark in Albania. What makes a well-known mark is still expected to be defined in an upcoming decision of the Council of Ministers.

Application for the registration of the trademark can be made by the owner of the mark or agents licensed by GDPT. Applications are examined by the GDPT within three months from the date of receiving the application. When GDPT considers the mark in conformity with legal requirements (formal evaluation), publishes the mark in the official GDPT gazette. An opposition to a published mark can be filed within three months beginning the day of publication. The registration of a mark lasts for 10 years, starting from the day in which the application is filed.

GDPT may refuse the registration of a trademark on absolute basis if the mark does not have a distinguishing nature or if it consists of forms that give fundamental value to the goods. A mark shall not be registered on relative basis either, when it is similar to an earlier mark protected for similar goods or products. In case of refusal of an application, the applicant has the right to appeal such decision to the appeal board. The board decision may be appealed in the first instance administrative court.

The owner of a registered mark has the exclusive right to use the marks and impede third parties from using it without an authorization. The owner can transfer the ownership of a registered trademark and can even conclude exclusive or non-exclusive license agreements that give third parties the right to use the trademark which are better protected in Albania if registered with the GDPT.

Albanian citizens are free to acquire and owe immovable property without limitations.

Foreign individuals or entities are not allowed to acquire land for development if the investment in the land exceeds three times the value of the land. Until the value investment threshold is reached, the foreign individual/entity may use the land under a lease contract. However, foreign individuals/entities may acquire land by incorporating a company in Albania.

Registration

After – and only after – verification of title, a sale-purchase agreement can be drafted (it is advisable to use a lawyer from a local firm for this), which must be executed as a notarial deed before a Notary Public. Further to this, the agreement must be registered with the Real Estate Registration Office within 30 days of the date of execution of the contract; failure to so do will result in a penalty which will be applied for every day of delay. After the registration of the conveyance agreement (i.e. sale-purchase agreement) with the registry, a new certificate of title will be issued in favour of the purchaser. The register of immovable property includes all information related to the immovable property: identity of its owner, the boundaries of the property, the date of registration, maps showing the location of property. In addition, any mortgage, wright of way, lease, usufruct, right to use or any other right connected to or deriving from the immovable property that is transferred to any third party, should be recorded in the register.

Lease of immovable property

The period of lease of immovable properties may not be longer than 30 years, except as otherwise provided by specific law, e.g. in various cases the state leases its territories for a period of 99 years under an emphyteusis contract. 

The period of a lease for dwellings may not be longer than five years. 

Any lease contract for a period of longer than one year should be made in a written form. Further, any lease agreement executed for a period longer than nine years should be registered with the Real Estate Registration Office and a lease contract for agricultural land longer than nine years should be executed before a notary public.

Foreign individuals or entities owning real estate in Albania may freely lease out their property, and of course the incomes generated shall be subject to income tax.  

Permits for development

Albania has yet to complete the urban master planning. The current government is however making this issue a priority and efforts are being made to approve the master plan for the whole of the Albanian territory, in particular of coastal areas.

According to the Law “On Planning and Territory Development” (No. 107/2014), construction is only permitted upon the issue of a construction site permit and construction permit, granted by the relevant authorities, which are:

• the Local Planning Council; and
• the National Territory Council.

Upon completion of the construction in compliance with the construction permit, a permit to utilize the building will be issued by the relevant authorities. Upon the issue of this permit, the building may be registered with the Immovable Property Registration Office. There are many steps involved in acquiring the various permits/permissions required in order to pursue the construction of a building, which are not detailed here, and advice should be sought before proceeding with any construction.

Noteworthy, application for the construction permits is now made electronically and authorities are under obligation to respond timely, otherwise the permits shall be deemed to have been tacitly granted.

Financing, Banking

The acquisition of immovable property can be financed fully or partially by the second-tier banks operating in Albania. If the bank so decides, a due diligence report must be prepared by the bank. The financing of the acquisition price by the bank would require the bank to obtain security interest over the assets of the purchaser i.e. mortgage over the newly purchased property. 

The bank can also finance the development of an immovable property i.e. construction. In this case, the bank can obtain security interest to guarantee the repayment of the loan. The mortgage over an immovable property can also be extended over the developed property.

Below is a summary of rules abiding to management of commercial companies in Albania.

Directors’ rights and obligations

Administrators of commercial companies (mainly JSCs and LLCs) have the following rights and obligations in respect of the company:

• Manage the company’s business by implementing the policies defined by the shareholders meeting;
• Represent the company;
• Ensure the accurate and regular maintenance of accounting books and documents of the company;
• Provide for and sign the annual statement of accounts and consolidated accounts and the performance report and present it to the general annual meeting of the shareholder/s for approval along with the proposals for the distribution of profits;
• Create an early warning system with respect to developments threatening the existence of the company;
• Submit filings and registrations of the company that ought to me made with the National Business Centre where applicable;
• Convening the shareholders’ meeting: the shareholders’ meeting must be convened annually to approve financial statements and auditors’ reports and in certain other cases provided in the law e.g. when the company’s statements indicate material losses or when the company will dispose material assets.

In respect of LLCs, when approval of dividend distribution is concerned, the company’s directors are required to issue a ‘solvency certificate’ which explicitly confirms that the proposed distribution meets certain liquidity requirements set out in the law. Issue of the “solvency certificate” is also required when the company proposes to make payments to the shareholders based on an agreement which is not in arm’s length. The director is responsible to the company for the accuracy of the solvency certificate and in case of negligence, it is personally liable to the company for the return of the dividends.

Fiduciary duties

Directors of a JSC or LLC in Albania must perform their duties established by law or the company’s Articles in good faith and in the best interest of the company as whole, exercise their powers granted to them by law only for the purpose laid down in the law or company’s Articles, give adequate consideration to the matters to be decided, prevent and avoid actual and potential conflicts between personal interests and those of the company and exercise due diligence and care in the performance of their functions. In addition, they should provide any information regarding business and other data requested by any of the shareholders of the company within reasonable time and in any case not later than 7 days.

Directors can be held personally liable to the company breach of fiduciary duties unless, pursuant to an inquiry and evaluation of the relevant information, the act or omission has been committed in good faith.

Don’ts

Personal liability of directors - The principle of personal liability of directors is set out in Article 16 of the Law on Entrepreneurs and Commercial Companies and shall apply in cases when the directors treat the assets of the company in a manner as if they were their own and most importantly when they fail to ensure that the company has sufficient capital at a time when they know or ought to have known that the company would not be able to meet its obligations towards third parties.

Non-competition – A director may not work in another company of the same profile during his/her tenure in the company unless the restriction is waived by shareholders of the company. Breach of this principle, triggers the company’s right to seek for damages from the director.

Insider Information - Directors are personally liable for disclosure of business secrets to which they become aware a result of their role and duties in the company. 

Conflict of Interest – Directors of a company may not enter into contracts or into other relationships with the company unless, after disclosure of the terms of the transaction and the nature and scope of the interests of the person, they are approved by the shareholders’ meeting or supervisory organs of the company. Approval is required also for agreements with persons who have a personal or financial relationship with the director of the company.

Criminal liability of legal entities and directors

Under the Albanian Criminal Code, persons exercising management functions in a company may be also exposed to criminal liability, including but not limited to the following main cases:

• Corruption and bribery (both active and passive corruption);
• Insolvency i.e. willful leading of a legal entity in the status of insolvency; entering into a commercial relationship with third parties, with the intent of hiding the insolvent status of the legal entity; hiding assets upon opening of insolvency procedures; failing to file for insolvency, etc.
• Drafting of false statements about the increase of capital of a company, distribution of shares of initial capital to the shareholders or its repayment;
• Abuse of Power: Abuse of powers by members of the executive board or by managers of the company with the intent of embezzlement or favoring another company where they have interests;
• Falsifying signatures and deposits or false statement of deposits of the company’s funds, or publication of signatures and deposits of fictitious people, or wrongful evaluation of assets on purpose;
• Irregularly issue shares: before registration of the company, or when registration is made illegally, or when the documents of the company have not yet been formally completed, etc;
• Illegal employment: Employment without registration with the competent authorities or without guaranteeing employee’s social and health insurance according the law;
• Tax evasion or other criminal acts in the sphere of tax and customs non-compliance, etc.

Further, legal entities are also exposed to criminal liability for the conduct of individuals who act on their behalf and to their benefit.

Two types of penalty are imposed on legal entities: principal penalties and supplementary penalties, which are applicable to the offender in addition to the principal penalties. The principal penalties consist of pecuniary fines or compulsory dissolution of the legal entity, while the supplementary penalties may lead to for example, the cessation of one or more of the offending company's activities, prohibition on participating in public procurement procedures, etc. The fines on the other hand may range from 300,000 ALL (approx. EUR 2,400) to 50,000,000 ALL (approx. EUR 409,000).

The court may also order the compulsory dissolution of the company in more serious circumstances such as when the sole purpose of establishing the entity was to commit the criminal offense. 

• Introduction

The principal source of legislation regulating import and export in Albania is the new Albanian Customs Code Law no.102/2014 and the Decision of the Council of Ministers “On the Implementing Provisions of the Law no. 102/2014 “The Customs Code of the Republic of Albania” “. The new Customs Code is harmonized with Regulation No. 952/2013 of the European Parliament and of the European Council dated 9 October 2013 and it has brought several changes to customs procedures, decrease of customs costs due to reduction of time during customs clearance, harmonization of procedures amongst customs administrations, paperless procedures with the aim of avoiding added bureaucracy and possible corruption and to instill increase in trust on the implementation of legal provisions.

The Customs Code provides for different regimes for the circulation of goods within Albanian territory. 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.

• Main Customs Regimes

Free circulation regime: it 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 (VAT) on import is paid at the time the goods enter the Albanian customs territory.

Temporary permit regime: Imported goods remain for a certain period within the territory and thereafter exported or can remain in the Albanian custom territory completely or partially exempt from import duties, provided that the goods have not been altered (except for depreciation in value).

Processing under customs control: this regime allows goods to be imported from outside Albanian territory for processing operations, changing the nature or status of the goods, without them 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 and intended for free circulation.

Active processing: this regime covers mainly non-Albanian and Albanian goods which are subject to amendment, transformation within Albanian custom 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.

Passive processing: this allows Albanian products to be temporarily exported for further processing outside the country and to be brought back into Albania, subject to total or partial exclusion 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.

Transit: this regime covers the movement of non-Albanian goods passing through the territory of Albania on their way to another destination. These goods transiting the territory of Albania are exempt from customs duty, VAT and excise taxes and even Albanian goods for export outside Albanian territory. Evidence must be shown to the customs authorities that the goods do not originate from Albania and are only passing through the country.

Export: it applies to all Albanian products destined to be exported outside the Albanian custom territory. Exports are exempt from VAT.

Customs warehouse: the temporary customs warehouse it is a status received for goods from the moment of entering a customs office until the moment of deciding a customs destination. Those goods are accompanied with a summary declaration to be deposited within certain deadlines. This regime allows non-Albanian goods to be conserved without being subject to import taxes or other trade policy measures and to Albanian goods for which the legislation normally imposes the same rules as for goods due for export. The authorization for this regime is given by the customs authority under fulfillment of some conditions.

Free zones and free warehouses: Free zones and free warehouses are part of the Albanian Customs territory, where non-Albanian goods, are considered as non-existent in the Albanian Customs territory, on the condition of not being released into free circulation or being placed under a different customs regime or neither being used or consumed in any way that is not foreseen in the Albanian legislation. It also refers to Albanian goods, which because of their status in free zones of warehouses, profit from measures normally applying for exported goods. The Minister of Finance is the authority allowing the activity of free warehouses.

• Types of Customs Declarations due for Business on Import and other Certificates

The following are the main customs declaration and certificates required for businesses on import of goods:

• Summery Customs Declaration (before departure, before arrival);
• Declaration for temporary storage;
• Incomplete Declaration/ simplified declaration (documents, data)
• Centralized Declaration;
• Entrance Declaration at registers of pleader;
• Certificate of origin Type A (generalized system of preferences)
• Movement Certificate (EUR 1);
• Warranty Certificate.

• Benefits and Exemptions under the new Customs Code

Authorized Economic Operator: this is a novelty of the New Customs Code which is applicable to the so called “trustworthy businesses”. Authorized Economic operators benefit special treatment regarding customs control and procedures. The status can be partial or full i.e. a business can be granted relief in customs control or procedures or both.

Local Clearance: is a simplified procedure allowing Authorized Economic Operators to conduct custom clearance procedures in their warehouse or in another authorized area, without the need of customs clearance formalities. Further, the Centralized Customs Clearance it is a practice through which economic operators can choose a customs office as a sole contact point, while goods can be customs cleared at any chosen customs office in the Albanian territory.

Preferential Tariff: Preferential tariffs are applied to goods which are used for a defined purpose or posses a special nature of use under fulfillment of some specific criteria and conditions. Goods to which preferential tariffs are applied are grouped as follows: (i) pure breed animals intended for reproduction, fattening and reproductive eggs; (ii) Seeds for sowing; (iii) goods for industrial use and oil for electric isolation. The application for preferential tariffs can be obtained at any customs office or at the General Directorate of Customs.

VAT Exemption on Import: There are certain products categories which profit from VAT exemption on import such as (i) machinery and equipment for certain categories of taxpayers (i.e. taxpayers that import the machineries and place those under the active processing regime, taxpayers operating in the agro-business sector, small business taxpayers, etc.) (ii) animals for fattening.

Other exemptions are applied on import of goods for (i) diplomatic and consular missions and accredited missions allocated in Albania; (ii) quadriplegic and paraplegic individuals’ (iii) humanitarian aid (iv) the promotion of trade, samples of negligible value, printed promotional materials, materials and goods used in fairs or similar events.

• Customs Procedures for Specific Business Operations

Noteworthy, in addition to the Customs Code, different pieces of legislation related to oil and its sub-products, narcotic medicines and psychotropic substances, food, mining, pharmaceuticals, military products, etc, are subject to specific and additional customs procedures and control such as conformity certificates, quality certificates, special licenses, etc.

Accounting regulation bodies: Ministry of Finance

Accounting report currency and language: Accounting reports must be in Albanian and figures must be in Leks (ALL). The report must include the balance of payments, the assets and liabilities of the company, and an annex describing general accounting recommendations.

Reporting periods: The reporting period is calendar year. Accounting periods begin on the 1 January and end on the 31 December. Exceptions or exemptions with the proposal of the National Accounting Council for specific activities, or in particular cases, shall be approved by of the Council of Ministers

Timeline of submission: The financial statements of an entity, with exception to those of the second paragraph of this article are registered with the registrar of the relevant courts no later than one month after the date of their approval by a general meeting of their members or other equivalent governing body.  Public Not-for-profit entities register their financial statements within the time limits and with the authorities specified by the Government Decree.

Professional accountancy bodies: IEKA , Instituti i Ekspertëve Kontabël të Autorizuar të Shqipërisë (Albanian Institute of chartered accountants and auditors), IKM , Instituti i Kontabilisteve te Miratuar

Certification and auditing: The audit of the annual financial statements by chartered individual auditors or auditing companies is mandatory for:

1. Companies that apply the IFRS, irrespective of their legal form;
2. Joint stock companies that apply the National Accounting Standards for financial reporting;
3. Limited liability companies that apply the NAS at certain conditions.

Related party definition: Physical or legal persons are considered to be related parties if either one of them participates directly or indirectly in the management, control or capital of the other, or the same person(s) participate(s) directly or indirectly in the management, control or capital of the two parties. A person shall be considered to participate directly or indirectly in the management, control or capital of another person, if that person directly or indirectly owns 50% or more of the share capital of that other person, or effectively controls the business decisions of that other person.

Transfer pricing methods: The recognized methods of calculation of such prices are:

• Comparable Uncontrolled Price (CUP) method
• Cost plus method (method of cost plus gross margin)
• Resale Price Method (RPM)
• Transactional Net Margin Method (TNMM)
• Profit Split Method (PSM)
• Any other method by which is possible to determine the transaction price, based on the "arm's length".

No above method is preferred over another. This implies that the taxpayers are allowed to choose methods to be used in determination of “arm’s length” prices and preparation of transfer pricing study. The method is chosen on the level of each type of transaction. Combining two or more methods is also allowed. However, the one that has been chosen must be practically applicable and should result eventually in reasonable estimate of effects in accordance with the “arm’s length” principle.

Transfer pricing study: The following steps should be taken into consideration when evaluation comparability. (adapted from OECD TPG 2010). Anyhow, these steps are not obligatory as important is to have the right result not to follow the whole process:

• Determination of the period of the study
• Business activity analysis
• Functional analysis – Understanding of the controlled transactions nature.
• Checking of internal non-controlled transactions (if any) for comparability reason.
• Determining available information resources on comparable external transactions.
• Selection of transfer pricing method used in determination of transfer prices
• Identification of comparable potential transactions, the determination of the main characteristics to be met by any uncontrolled transaction in order to be considered potentially comparable
• Conclusion – is it required to amend taxable base for related party transactions
• Appendices – review of data used by the taxpayer in determination of “arm’s length” prices.

Who is obliged to prepare: Albanian Law on Income Tax requires from the taxpayers who have transactions with related parties above a limit of ALL 50,000,000 to prepare transfer pricing documentation as mandatory. The purpose of this documentation is to prove whether the transactions with related parties are carried at the arm’s length (i.e. market) prices and whether any adjustment of revenues/expenses realized in these transactions have to be made in the corporate income tax return.

Submission dates: The deadline for submission of transfer pricing study to the Tax Authorities is 30 days after the formal request from the Tax Authorities for the taxpayers that are performing cross-border transactions with related parties. The taxpayers with the related-party transactions above ALL 50 million are obliged to submit an ‘Annual controlled transactions notice’ not later than date 31st March of the following closed fiscal year.

Advance transfer Pricing Agreements (APA): Possible if the value of the related-party transactions within the period covered by APA is above EUR 30,000,000 or is of strategic importance/very complex in nature.

Thin capitalization: The threshold for tax recognized net interest expense is 30% of EBITDA, starting from 1 January 2018. Any excess interest can be carried forward and deducted in subsequent period, without expiry date, until 50% or more of voting rights have been transferred to the new company-members.

BEPS Actions – Implementation timeline

The exact timeline has not been defined. Albanian legislation on transfer pricing refers to the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (TPG 2010). No automatic application of the revisions to the OECD Transfer Pricing Guidelines made by the final reports on BEPS Actions 8 to 10 is possible. In order for the new rules to be applicable, Albanian law must be amended accordingly.

The key authorities in this sector are:

• The Government of the Republic of Albania
• The Ministry of Infrastructure and Energy
• The Natural Agency for Natural Resources (NANR), the governmental agency in charge of the supervision of the rational use of natural resources, according to the government policy, the monitoring of their post-exploitation in mining, petroleum and energy and also specialised in dealing with the negotiations of the Production Sharing Agreement.
• The Energy Regulatory Entity (ERE), an independent public entity in charge of licenses, tariff methodologies and setting regulated tariffs.

In accordance with the obligations of the Energy Community, Albania has transposed the relevant legislation from the EU Third Energy Package (Directive 2009/73/EC and Regulation (EC) No. 715/2009). The transposition of the Third Energy Package is currently followed by adopting necessary by-laws in the gas sector. On 9 October 2018 the Council of Ministers has approved the Natural Gas Market Model and there is an ongoing process for the preparation of the Transmission Grid Code, Distribution Grid Code, Capacity Allocation and Congestion Management Rules, Quality of Service Rules, etc.

ERE is the public body vested with the authority to license as DSO any legal entity that satisfies the technical and financial capacities required by law. So far there are only two certified TSOs. Albgas, a state-owned company is a combined operator that functions both as a TSO and a DSO. On the other hand, TAP AG is also certified as an independent TSO.

The Ministry of Infrastructure and Energy is the only authority that creates policies for the development of the natural gas sector, in accordance with the requirements laid down by the Treaty of the Energy Community, the principal directions state policy and specific strategies, such as the Gas Masterplan for Albania and the objectives set in the National Plan on Implementation of the Stabilisation and Association Agreement. This Ministry plays a crucial role in harmonising the interoperability of the Albanian natural gas systems with the standards and regulations of the EU gas sector. The gas distribution utilities (DSOs) are subject to public service obligations. The DSOs are obliged to connect any customer to their system, if economically feasible.

The Trans Adriatic Pipeline (TAP) will transport natural gas from the Shah Deniz II deposit in the Caspian Sea (Azerbaijan) to the European markets. It will pass through Greece, Albania, and the Adriatic Sea, and come ashore in the south of Italy. TAP is considered important for Albania because it will connect Albania to the Southern Gas Corridor, providing an option for natural gas supply to the Albanian market.

Oil & Gas Upstream Regulatory Regime

Exploration and Production of oil and gas are regulated by Law No. 7746, dated 28 July 1993, ‘On Hydrocarbons’. The fiscal regime for natural gas (Exploration and Production) is regulated by the Decree No. 782, dated 22 February 1994 ‘On the fiscal regime in the hydrocarbons sector’.

Natural resources in Albania are owned and controlled by the state, through the Ministry of Infrastructure and Energy. In addition, as mentioned above the National Agency of Natural Resources which is in charge of the supervision of the rational use of natural resources is also a governmental agency.

The Ministry of Infrastructure and Energy, the National Agency of Natural Resources or Albpetrol sh.a. (the state-owned company that administers the gas fields) may enter into concession agreements or hydrocarbons contracts (exploration and production) and allow third parties that meet the technical and financial capacities to explore and produce oil & gas from the existing or new gas fields. The concession or hydrocarbon contract has to be approved by the Council of Ministers.

Finally, changes made in recent years to legislation regulating hydrocarbon exploration and production activity have aligned it with the relevant EU Directive 94/22/EC of 30 May 1994, in particular as regards the conclusion of Hydrocarbon Agreements, making them more transparent and competitive. The significant investments SHELL is making in the oil exploration and production sector are also encouraging for the Albanian energy sector and the economy in general.

The Government has adopted several bylaws for the implementation of the RES Law, including: (i) DCM No. 580/2019 “On National Consolidated Action Plan on RES for 2019-2020”; (ii) DCM No. 349/2018 “On Incentive Measures for Promotion of RES” and (iii) DCM No. 369/2017 “On Methodology for Determining the Purchase Price of Electricity Produced by Small RES of Solar and Wind Power”. Furthermore, the Board of Energy Regulatory Authority (ERE) has approved the Power Purchase Agreement template.

The above legal package on RES significantly relaxed the environment for investments in RES projects in Albania. The main incentive supporting mechanism is the mandatory off-take by the company FTL sh.a for a period of up to 15 years of the entire quantities of electricity generated by the privileged producers, under guaranteed preferential prices – Feed-in-tariffs/Feed-in-premium-tariffs (FIT/FIP). FTL sh.a is a joint-stock company licensed for trading of power in the Albanian market, which acts as the guaranteed supplier of electricity. Under the local laws, privileged producers represent power producers from RES and in the case of hydropower, the ones with an installed capacity of up to 15 MW. The amount of the FIT/FIP differs depending on the installed capacity of the power plants and the type of energy source.

The preferential price for the energy produced by privileged power producers with an installed capacity up to 2 MW, and in case of wind power up to 3 MW, is defined by a decision of the Board of ERE, in accordance with the methodology adopted by Government (Feed-in tariff). In the case of hydropower plants, the price shall not be lower than the price defined by the Board of ERE in 2016. On the other hand, the preferential price for energy produced by privileged power producers with an installed capacity greater than 2 MW and for the wind power greater than 3 MW, is defined through an auction process held by the Ministry of Energy (Feed-in premium tariff).

Notably, the RES Law provides a distinctive regime for the price of the energy produced by existing privileged hydropower producers. Subject to obtaining a certificate of acceptance of the project from the Ministry of Energy until 31 December 2020, the privileged producer may alternatively choose support either in form of Contracts for Difference (CfD) or the in the form of FIT preferential prices calculated by ERE in accordance with the methodology adopted by the Government. In any case, the price shall not be lower than the price defined by the Board of ERE in 2016.

Other main incentives for the promotion of RES are:

• assistance by the Ministry of Energy regarding the procedures for obtaining the necessary licenses and authorizations required for implementation and utilization of the RES project;
• assistance by the Ministry of Energy in providing the required real estate for the implementation and utilization of the project and making it available to the project company for the entire duration of the project;
• assistance through CfD;
• priorities on access to the transmission/distribution network.

The main authorities competent for the renewables sector are:

• the Government;
• the Ministry of Energy, which is responsible for implementing the legal framework governing energy and deciding about individual rights to use incentives;
• the ERE, an independent regulatory authority responsible for issuing licenses in the energy sector;
• the Electricity Power Distribution Operator sh.a (OSHEE), who acts as a temporary Operator of RES until the establishment of a new operator through a decision of Government; and
• the Agency for RES, whose establishment is pending to a decision of the Government.

Market Overview

Albania has a considerable potential of RES. As RES represents an important energy source in Albania, promotion and diversification of RES have been an important pillar of the recent legislative actions in the energy sector. Albania is almost entirely dependent on hydropower (almost 98 % of net production), meaning that there is considerable risk of supply insecurity, due to changes in the hydrological conditions. For this reason, the Government has recently been focused on the diversification of its energy supply by promoting other RES, such as biomass, solar energy, and wind energy.

From a preliminary view of the progress of RES during 2018 - 2020, we note that the incentive schemes introduced by the RES Law significantly promote the operation of RES projects in Albania. During 2017 - 2018, 71 concession agreements for 78 SHPP were concluded. In the meantime, more than 75 applications for PV incentive schemes were submitted, out of which 11 have been finally approved by the Ministry of Energy. The RES power production objectives set out by the National Action Plan for RES 2018-2020 have been reached to an extent of 78.6 %, taking into account the RES power plants under construction which are expected to finish in 2020. Until 2018, a total capacity of 622 MW RES power plants have been installed, out of which 507 MW SHPP, 41 MW wind plants, and 74 MW PV plants.

Running the Numbers

Table 1: Capacities planned to be installed until 2020 and situation until 31 December 2018

Table 2: Feed-in tariffs

Table 3: Feed-in Premium tariffs

The Competition Authority is an independent public authority composed of the Competition Commission and the Secretariat. The Commission is the decision-making organ of the Competition Authority which has five members appointed by the Albanian Parliament, while the Secretariat is vested with technical and investigative authority.

Merger Control Thresholds

Merger filings are currently mandatory in Albania if any of the following thresholds are met:

· the combined turnover of all the parties to the concentration exceeded ALL 7 billion (approx. EUR 57 million) in the global market in the previous financial year and the turnover of at least one of the parties to the concentration in Albania in the previous financial year exceeds ALL 200 million (approx. EUR 1.6 million), or

· the combined turnover of all the parties to the concentration exceeded ALL 400 million (approx. EUR 3.2 million) in Albania in the previous financial year and the turnover of at least one party in Albania exceeds ALL 200 million (approx. EUR 1.6 million).

Inter-group turnover is not considered. Foreign-to-foreign mergers are reviewed under the Albanian competition rules if the parties meet the jurisdictional thresholds, which are not different for such transactions.

Filing Deadline

A merger notification must be filed with the Competition Authority within 30 calendar days following the date of the conclusion of the agreement, the announcement of the public offer or the acquisition of controlling shares, creation of a joint venture or submission of a public bid for acquisition or exchange, whichever takes place first.

Length of Review

The length of review depends on whether the concentration at hand raises competition concerns. If no competition issues arise from the transaction for the local market, the Competition Authority would clear the transaction within two months as of the receipt of a complete merger notification (Phase I). The period of two months begins on the first working day following the confirmation of the Competition Authority for receipt of a complete notification. The Competition Authority may, however, extend this deadline with an additional two weeks if the parties to the concentration commit to undertake remedies, no later than one month after acknowledgment. If the transaction raises competition concerns in Albania, the Competition Authority may decide to commence an in-depth investigation (Phase II) within two months of the receipt of a complete notification. The Competition Authority has three additional months from the date of the decision to commence a further investigation in order to decide whether to clear the concentration (unconditionally or conditionally) or prohibit the concentration. Where the parties propose commitments for remedying any adverse effects on competition- within two months from the date of commencement of the in-depth investigation procedure – the three months period is extended by a period of up to two months.

For non-issue transactions that meet certain criteria, the Competition Authority may apply a simplified procedure according to which the review period is 25 days from the confirmation of receipt of a complete notification.

Fees

There are two fees in Albania applicable to merger filings: (i) a filing fee and (ii) a clearance fee. The initial fee for filing a merger notification amounts ALL 15,000 (approx. EUR 130), while the clearance fee is:

· ALL 300,000 (approx. EUR 2,450) in case of a temporary clearance (granted upon request of the parties if there are serious risks if the concentration does not happen, in particular, to prevent serious and non-repairable damages to participating undertakings or to a third party), and

· ALL 500,000 (approx. EUR 4,000) in case of a final clearance.

Penalties

Implementing a concentration contrary to the Competition Law is considered a serious infringement of competition and can yield a fine of up to 10% of an undertaking’s annual turnover in the previous financial year. Furthermore, failure to notify a concentration, or submitting false or inaccurate data during the proceedings can yield a fine of up to 1% of an undertaking’s annual turnover in the previous financial year.

The Competition Authority can cancel an already implemented concentration (de-merger), which can be affected by way of a split-off, sale of shares, cancellation of the agreement or any other action that would lead to restitution of the status prior to the implementation of the concentration. As far as we are aware, the Competition Authority has not implemented any de-merger to date.

The Competition Agency may also impose both behavioural and structural measures on merging entities in order to alleviate antitrust concerns.