Investment Climate

Investment Climate With its developing market economy, Albania offers many opportunities for investors - property and labor costs are low, the young and educated population is ready to work, and tariffs and other legal restrictions are low in many cases and being eliminated in others. Albania’s location offers a notable trade potential, especially with EU markets - it shares a border with Greece and is just across the Adriatic Sea from Italy. Albania has also entered into free trade agreements with all Balkan countries creating the opportunity for trade throughout the region.

Albania’s economy remains one of the fastest growing in Europe (averaging 6% growth each year for the last five years), inflation has been under control for over seven years (currently ranging between two and three percent), and the local currency has appreciated significantly in value over the past years. The local financial sector has been gaining strength (with 17 commercial banks currently operating) and has brought greater certainty to economic transactions.

Albania offers a considerable amount of natural resources including oil, gas, coal, iron, copper, chrome, water, and hydroelectric potential. In Albania there are more than 1,000 foreign owned companies from Italy, Greece, Germany, Austria, Turkey, Bulgaria, UK, USA, etc…

Major Foreign Investors (2000-2004) The Albanian Government has signed agreements on FDI promotion and protection with several countries of the region and others worldwide such as: Ukraine, Macedonia, Slovenia, U.S.A, Turkey, Austria, Bulgaria, Denmark, Egypt, Germany, Russia, Sweden, England, Czech Republic, Netherlands, Malaysia, Romania, Croatia, Poland, Tunisia, and Switzerland.

Source: Ministry of Economy, Trade and Energy (METE)

Business Climate Improvement  Taxes and fiscal burden The Albanian government has applied a set of liberal fiscal policies during the last two years. These policy measures consist of: • • • • •

Reduction of corporate taxes from 23% to 20% Unification of the simplified profit tax and the tax on small business as defined in the new law “On local taxes in the Republic of Albania” No.9632, dated 30.10.2006. According to this law, local authorities are now responsible for collection of the new tax.

Reduction of fiscal burden on social securities to be paid by the employer from 29% to 20%.

Reduction of electricity rates for businesses by 30%.

Tax exemption of dividends designated for investments.

Fact Sheet No.1

Last updated: February 2007

Investment Climate

 Business registering procedures • In the framework of Regulatory Reform, businesses in Albania are only required to register once with the country’s tax authorities.

• Based on law no. 9536, dated 15.05.2006 “On trade register and formalities to be completed by commercial companies”, the legal time frame of business registration with the Court has been reduced from 30 days to 8 days. 

Business Licensing • At the moment, Albania’s entire legal system of licensing procedures is under revision. The purpose of this process is to adjust licensing legislation to the “Acquis Communitaire” as well to reduce administrative barriers for businesses operating in Albania. The Albanian Parliament has already ratified the revised licensing legislation on mining and public works while those of other sectors are still in process.

 Concession Law The new law “On concessions” no.9663, dated 18.12.2006, approved by the Albanian Parliament aims at establishing the necessary framework for promotion and facilitation of concessionary projects implementation, increasing in the same time transparency, efficiency and long term sustainability of such projects. The law applies to several public sector services including: transport, power production and distribution, telecommunication, etc.

FDI Situation Foreign direct investments play and important role in covering current and fiscal deficit. These investments promote technology transfer, improve employment opportunities, as well as help domestic businesses further expand their activity in foreign markets.

The total amount of FDI for the period 2000 – 2005 was approximately 1.17 trillion Euros. FDI inflow in 2005 reached 213 million Euros accounting for 20% of GDP.

Fact Sheet No.1

Last updated: February 2007

Investment Climate

FDI by sector 2004 – 2006 (in million USD)

Source: Ministry of Economy, Trade and Energy 2006 - 2004: factual - 2005: estimation (METE) - 2006: forecast (METE)

FDI Legal Provisions In 1994, Albania enacted law no.7764, dated 02.11.1994 “On Foreign Investments” which creates a favorable investment climate for foreign investors. The law offers guaranties to all foreigners (either physical or judicial persons) willing to make business investments in Albania. The provisions include: • No prior government authorization is needed and no sector is closed to foreign investment.

• There is no limitation on the percentage share of foreign participation in companies - 100 percent foreign ownership is possible.

• Foreign investment may not be expropriated or nationalized directly or indirectly, except in special cases, in the interest of the public, defined by law.

• Foreign investors have the right to expatriate all investments in the form of funds and contributions in kind.

• The most favorable treatment according to international agreements.

No distinction is made between foreign and domestic investors in law no.7638 dated 19.11.1992, “On Commercial Companies” which regulates the activities of companies and establishes the type of legal structure under which companies may form.

Albania’s tax system also does not discriminate against foreign investors. Legislation concerning the public procurement process makes little distinction between foreign and domestic firms.

Dispute Resolution

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

Should there be a dispute, parties may submit claims to an arbitration institution for consideration.

Foreign investors also have the right to submit disputes to an Albanian court or to the Arbitration Court in Tirana. Provisions on domestic and international commercial arbitration can be found in the Code of Civil Procedure.

Protection of Property Rights

Albanian law on intellectual property rights protects copyrights, patents, trademarks, stamps, marks of origin, and industrial designs (Law no.9380, dated 28.04.2005). In 2000, Albania ratified the Marrakesh Agreement and became signatory to the World Trade Organization’s Trade Related Intellectual Property Rights (TRIPS) agreement.

Fact Sheet No.1

Last updated: February 2007

Investment Climate

Privatization Opportunities

An on-going privatization process presents opportunities in strategic sectors; mining, energy generation, oil and gas, telecommunications, and finance. This has attracted several major foreign investors.

The privatization strategy for sectors of primary importance explicitly seeks qualified foreign firms as strategic investors for these key sectors.

Several opportunities for strategic privatization are available including some major assets such as ALBTELECOM (Albanian Telecommunication Company), ARMO A.C, INSIG (Albanian Insurance Company) and KESH (Albanian Power Corporation).

ALBTELECOM A.C. privatization is foreseen to be concluded within 2007. The revenues in the state budget are expected to be 10 – 15 billion ALL. ARMO A.C. It is expected to be given in concession by the end of 2007 or beginning of 2008. Its value is calculated to be 10.7 billion ALL. KESH A.C. (Albanian Power Corporation). In the framework of the KESH A.C. restructuring and privatization program, privatization process of this company will first include the power distribution division. Its privatization will occur within 2008 but the amount of revenues cannot be foreseen as long as this division is still part of KESH A.C.

Investment Incentives

Incentives are regulated by the law “On State Aid” approved by Albanian government and parliament with the primary aims of promoting the implementation of important projects, facilitating the development of certain economic activities, and promoting culture and the heritage conservation.

Law no.9374, dated 21.04.2005 “On State Aid” applies to all sectors of manufacturing and services and all measures undertaken by central and local governments, as well as other entities acting on behalf of the State, that confer benefits to particular enterprises, except those acting in the sectors of agriculture and fisheries.

The State Aid may take the form of subsidies or grants; exemptions, reductions, deferrals or tax credit and other fiscal contributions; writing off of overdue fees and penalties; debts write offs or offsetting of losses; loan guarantees or loans at reduced rates; reduction in the price of goods supplied and services provided, including sales/leases of public property below market price or buying products or services at higher than the market price; increase of state–owned equity at enterprises or increase of its value.

The law “On State Aid” also provides Regional Aid and Aid for Enterprises in Difficulties. The Ministry of Economy, Trade and Energy is establishing regulations regarding conditions and procedures for granting this assitance.

The most significant incentives for investors in Albania are: - According to the Instruction of the Minister of Finances No.3, dated 30.01.2006, importers of machinery and equipment can take advantage of VAT credit at the rate of 100%, if the machinery and equipments will serve entirely to his/her taxable economic activity.

- Fason producers are not subject to VAT for services provided to their contractors.

- Leasing of the state-owned property (buildings, lands) with rents below market rates and, for production activities, with rate reductions according to investment and employment levels (Decision of the Council of Ministers - DCM no.315, dated 24.04.2006 “On the leasing of state enterprises and institution’s property”). (Please see Fact Sheet No.9 “Property, Sites and Buildings”).

Fact Sheet No.1

Last updated: February 2007

Investment Climate

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Status of “Promoted Persons” – in tourism activities: Since 1993, the law “For development of tourism zones” has introduced several incentives for investors in the tourism sector.

These incentives are related with the status of “Promoted Persons” which the investor can get from the Ministry of Tourism, Culture, Youth and Sports.

• Main “promoted activities” are: Construction, reconstruction, improvements, extension as well as operating processes of hotels, motels and tourist villages.

• Complementary “promoted activities” are: Construction, reconstruction, improvements, extension of complementary structures of the tourist complex such as restaurants, shops, thermal baths, sport equipments etc.

A “Promoted Person” investing in tourism development is entitled to: • Exemption from the customs duties and excise taxes on imported goods for the sole purpose of investment and functioning of the “promoted activity” •

Exemption from the profit tax for 5 (five) fiscal years from the time of development completion of the investment. For the 5 following years he/she will pay only 50% of the profit tax. (10 years tax incentive)

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Profit from a reduction of the profit tax up to 40%, if the profit is reinvested in Albania

The criteria to receive the status of the “Promoted Person” are elaborated in article 7 of the law no.7665, dated 21.01.1993 “For development of tourism zones”.

- Encouragement of power production benefiting from several fiscal incentives. Investors who establish new production plants with an installed power over 5 MW, using liquid or solid combustibles, as well as the investors who rehabilitate the existing plants, would be entitled to profit from a customs duties exemption on imported machineries and equipment used for capital investment. Such investors would also be reimbursed for the customs and excise duties that they have paid during the import of liquid or solid combustibles, used for the production of power (Law no.8987, dated 24.12.2002 “For the creation of facilitated conditions, concerning the establishment of new plants for the production of power”).

“Albania 1 Euro” Initiative

“Albania 1 Euro” is a project which aims at the promotion of investments, foreign or domestic, in strategic sectors of the economy. In the framework of this project it is expected that public property (assets, natural resources, economic activities, tariffs for public services) will be provided to the investors at a cost of only 1 Euro. Institutional and legislative reforms are strongly required for successful implementation of such an initiative. The Albanian Government is currently working on designing the Action Plan for the promotion of investments in the infrastructure and production sectors while efforts are mainly focused on the leasing of public property at very low costs, speeding up the process of immovable property registration, restitution, and compensation.

Fact Sheet No.1

Last updated: February 2007

Investment Climate

Fact Sheet No.1

Last updated: February 2007