GLOBAL MARKET BRIEFINGS Albania’s Business Environment ConsultantEditor: AlicaHenson ii Publishers’note Every possible effort has been made to ensure that the informationcontainedinthis publicationisaccurateatthetimeofgoingtopressandneitherthepublishersnorany oftheauthors,editors,contributorsorsponsorscanacceptresponsibilityforanyerrors or omissions, however caused. No responsibility forlossor damage occasionedtoany personacting,orrefrainingfromaction,asaresultofthematerialinthispublication canbeacceptedbytheeditors,theauthors,thepublisheroranyofthecontributorsor sponsors. GMB Publishing Ltd and its authors, editors, contributors, partners, sponsors or endorsing bodies make no warranty, express or implied, concerning the information, andexpresslydisclaimallwarranties. 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HerefordHouse 525South4thStreet,#241 23-24SmithfieldStreet Philadelphia,PA19147 LondonEC1A9LF UnitedStatesofAmerica UnitedKingdom www.globalmarketbriefings.com Firstpublishedin2009byGMBPublishingLtd. GMBPublishingLtd.andcontributors ISBN-13978-1-84673-084-9 E-ISBN-13978-1-84673-085-6 BritishLibraryCataloguinginPublicationData ACIPrecordforthisbookisavailablefromtheBritishLibrary LibraryofCongressCataloguing-inPublicationData TypesetbyDavidLewisXMLAssociatesLtd. iii Contents Publishers’note ii Foreword v ZefMazi,AmbassadorofAlbaniatotheUnitedKingdomofGreatBritain andNorthernIrelandandtotheRepublicofIreland Foreword vii Pe¨rparimKalo,FoundingandManagingPartner,Kalo&Associates AbouttheContributors ix PartOne:BackgroundtotheMarket 1 1.1 PoliticalBackground 3 ArdKelmendi 1.2 EconomicBackground 9 ArdKelmendi 1.3 BusinessEnvironment 15 ArdKelmendi PartTwo:LegalandRegulatoryFramework 19 2.1 BusinessStructures 21 Kalo&Associates 2.2 CorporateGovernance 31 AnisaRrumbullaku,HeadofCorporate/Infrastructure,Kalo& Associates 2.3 AgencyandDistribution 43 SophiaDarling,Partner,Kalo&Associates 2.4 EmploymentLaw 53 EmelHaxhillari,Associate,Kalo&Associates 2.5 ForeignInvestmentPromotion 67 AlessandroBoscaino,Associate,Kalo&Associates 2.6 InsolvencyLaw 75 ArdjanaShehi,HeadofTaxandEmploymentDepartment, Kalo&Associates 2.7 DisputeResolution 81 FlorianPiperi,SeniorAssociate,Kalo&Associates 2.8 BankingLaw 89 EniKalo,Associate,Kalo&Associates iv Contents 2.9 PreventionofMoneyLaundering 101 JonaBica,HeadofBankingandFinanceDepartment,Kalo& Associates 2.10 CompetitionLaw 105 JonaBica,HeadofBankingandFinanceDepartment,Kalo& Associate 2.11 Import-ExportRegulations 117 Kalo&Associates 2.12 PrivatizationLaw 125 Pe¨rparimKalo,ManagingPartner,Kalo&Associates 2.13 IntellectualPropertyLaw 135 ShirliGorenca,Associate,Kalo&Associates 2.14 RealEstateLaw 145 ZamiraXhaferri,HeadofCommercialPropertyDepartment, Kalo&Associates 2.15 InsuranceLaw 153 Kalo&Associates 2.16 EnvironmentalLaw 159 Kalo&Associates PartThree:FinanceIssues 171 3.1 DirectCorporateTaxation 173 Deloitte,Albania 3.2 IndirectCorporateTaxation 183 Deloitte,Albania 3.3 IncomeTaxandSocialContributions 189 Deloitte,Albania 3.4 AccountingandAudit 195 Deloitte,Albania 3.5 BankingSector 199 RaiffeisenBank,Albania 3.6 InsuranceMarket 203 RaiffeisenBank,Albania 3.7 CapitalMarkets 207 RaiffeisenBank,Albania Appendix 211 Appendix1:Contributors’ContactDetails 213 Index 215 Foreword ItisnotinfrequenttomeetpeoplewhohavelittleknowledgeofAlbaniaand what Albania looks like today. I wouldn’t be surprised if many have an outdated perception of the situation and of the things we in Albania have achieved, how Albania looks today, and what it wants to achieve in the future.Atatimewhenwearetryingourbesttopromoteandattractinward investment to Albania, I am particularly delighted to see ever increasing interestbeinggeneratedrightnowinAlbania’sreality.Itisbecomingmore and more visible in the Western media that Albania is today a very interesting and attractive destination. Opportunities do exist there and conditionsarerightandripetoseriouslyconsidermovinginwithinvestment. Albania, its institutions, its business community and the Albanian people arepreparedandreadytoworkwiththerestoftheworld. This publication is another excellent opportunity to show that Albania hascome a long wayin itstransformation.Itprovidesarealisticvisionfor its future, in particular with regard to how to include international businesses,andtheAlbaniandiaspora,inthatvision. We are glad to note an ever greater appreciation of our general efforts, progress and commitment in moving ahead with reforms, change and developmentinthecountry.TheWorldBank’sDoingBusiness2008Report, whichranksAlbania86thoutof181countries(upfrom135th),alsoplaces itasthesecondtopreformergloballywithregardtobusinessenvironment reformsimplementedoverthepastyear. TheAlbanianauthorities’commitmenttosoundmacroeconomicandwell- anchored structural reforms has been highlighted by the International Monetary Fund: “Thanks to generally prudent policies, Albania’s economy largelypassedademandingtestin2007,despitechallengesfromadifficult external environment. Growth improved and inflation expectations re- mained low, notwithstanding a drought and rising food and energy prices. Prudentfiscalandmonetarypolicieswerekeyinthisregard,whileongoing structuralreformisreapingrewardsfromimprovedcompetitiveness.” TheWorldBankfurthercommented:“Albania’srecordsinceitembarked on its transition in the early 1990s has been impressive. The country has successfully built the foundations of market-based economy, created democratic institutionsandgradually builtcapacityin thepublic adminis- tration to cope with political and economic transformation. These efforts have resulted in a track record of macroeconomic stability, as well as achievementofthefastestratesofGDPgrowthinSouthEasternEurope.” Our objectives are clear, our plans are clear, our determination is there. In these efforts we are not asking for any commitment. We are actually vi Foreword sharing our commitment to the targets we have set ourselves and to our resolve. Ingenuity will be displayed and imagination evoked from a large numberofcompetentpeople,diligentcompaniesandverybusiness-minded individuals in Albania to ensure that we will make it. We are aware also that international cooperation, in particular from developed countries, strong economies and international financial institutions, will be required aswemoveahead. We are hopeful that, given the highly improved, secure, normal and attractive environment, this cooperation will not be lacking and foreign investorswillberewardedbycomingtoinvestinAlbania. ZefMazi Ambassador of Albania to the United Kingdom of Great Britain and NorthernIrelandandtotheRepublicofIreland Foreword Albania is situated in the south-western coast of the South East Europe region with a population of 3.8 million. The country began its transitional phase from 1991, the year that marked the opening of the country to the outside world and the lifting of the ban on foreign capital and private initiative. Since that time, the country has made significant progress in completing the legislative framework by introducing modern and sophisti- catedlaws,withaparticularfocusonlawsandregulationsthatimprovethe businessclimate.Albaniaisworkinghardonreformsthatareaimedatthe strengtheningoflawenforcement.Suchattitudehasbeenseenasaguaranty for the safety and fairness in doing business in Albania—so much so that thecountrywasrecentlygivenaratingof“B1”byMoody’s,whichismoreor lesssimilartothatofCroatia,Bulgaria,Ukraine,IndonesiaandJamaica. Albania is a member of the International Bank for Reconstruction and Development(IBRD),EuropeanBankforReconstructionandDevelopment (EBRD),WorldTradeOrganization(WTO),etc.,andissignatoryofseveral regional and bilateral treaties on investment protection and economic cooperation and some 30 double tax treaties. Albania has preferential regimes with the United States, Australia, New Zealand, Switzerland, Norway, Russia, Japan and Canada and has also signed a Free Trade AgreementwithTurkey. Some factors that have made the country attractive are the steady GDP growth rate, stable currency, a strong banking sector, and the notable foreignlanguageproficiencyoftheyoungworkforce,manyofwhomarewell educated, are accustomed to international best practices and possess excellentlanguageskills. The fantastic location in the Balkans has made Albania increasingly be seenasaspringboardforexpandinginvestmentopportunitiestothewider regionalmarket.Ithasalsobecomeincreasinglyattractivefortourism,with its impressive coast being referred to as the last untouched frontier of Europe. Key sectors include tourism, real estate, oil, energy, cement, agriculture and the food processing industry, mining, infrastructure and information andcommunicationtechnology. The country is fully committed to modernizing the economy and the information society, as these are conditions necessary to move ahead with the process of European Union (EU) integration, which has already been initiated by the signing of the Stabilization and Association Agreement (SAA)in2006.Inaddition,Albaniaisputtingtremendouseffortsintojoining viii Foreword NATO,andthecountryreceivedaformalinvitationtoenterintoaccession negotiationsfollowingthelatestsummitinBucharestinApril2008. Within this ambit, Albania is improving the business climate by introducing anti-corruption programmes in the business registration and licensing process and also by implementing a profound legal and judicial reform and by increasing transparency in the public procurement and concessionbiddingprocedures.Thegovernmentismakingstepsforwardto introducinge-commerceande-procurementandhasambitiousprogrammes forinternetservices,withaviewtointroducingtheminallschools. The governmentrecentlyintroduceda flattaxrateof10percenton any incomeasofJanuary2008andalsoabolishedcustomsdutiesonalmostall itscarimportsinlinewithWTOcommitments; dutiesoncarimportsfrom the EU have also abolished under the SAA, but some environmental taxes onoldcarshavebeenincreased. Investors continue to show an increased interest in the country’s energy sector through the building and operation of hydropower plants on a concession basis. Recently, important regional energy players have been contractedforfoursignificanthydropowerplantsworthintotal€1.5billion. Other recent significant investments are the construction of two cement plants in the vicinity of Tirana, valued at €170 million and €250 million, respectively. Toconclude,Albaniansareveryfriendlyandwelcomeallforeigners,beit forpleasureorbusiness. Pe¨rparimKalo FoundingandManagingPartner,Kalo&Associates About the Contributors DeloittewasestablishedinAlbaniain1996andisregardedastheleading professional servicesfirm inthe country.DeloitteAlbaniaemploysover40 peopleandiscontinuouslyexpandinganddeveloping.Thefirmhasachieved remarkable results within the short period of its presence in Albania, providing Audit and Advisory, Tax, Legal, Consulting, Accounting and FinancialAdvisoryServicestomanyofAlbania’sleadingcompanies. Dawn Connolly, Senior Manager – International Tax Services, joined Deloitte Albania in June 2008, with over five years’ experience advising multinationalclientsoninternationaltaxplanningmattersinSiliconValley aswellastwoyearsinLuxembourg.DawnisaCPAintheStateofMaryland andanattorney-at-law(StateofCalifornia),havingearnedaJurisDoctorate fromtheUniversityofCalifornia–HastingsCollegeoftheLaw,aswellas BaccalaureatesinBusinessandEconomicsfromtheUniversityofMaryland. Ms Connolly has also studied European tax law with the LLM program at Maastricht University (Netherlands) as well as US tax law with Golden GateUniversity’sLLMprograminSanFrancisco. Nuriona Sokoli is a manager in the Audit Department of Deloitte Albania.MsSokoliisagraduateofTiranaUniversitywithaBAinFinance andBankingandsheisalsoanACCAmember.Sheisacertifiedaccountant inKosovaandisregisteredasanindependentaccountintheIEKAlist.She isanactivememberofFinancialServicesGroupofDeloitteCentralEurope. MsSokolihasthreeyears’extensiveexperiencewiththeauditdepartment, involved mainly in audit of financial institutions, manufacturing sector, publicsector,andotherprojectfinancedfromotherinternationalorganiza- tions.Shejoinedtheauditpracticeafteranextensiveexperienceinthetax departmentofDeloitteAlbaniaandshehasgainedsignificantexperiencein tax advice and limited tax audit. She has a very good understanding of Albanian fiscal law and local accounting standards. She speaks fluent English,ItalianandFrench. Dorina Tila, Consultant – International Tax Services, joined Deloitte AlbaniainSeptember2008,withovertwoyears’experiencewithconsulting in efficient economic systems design. She has earned a B.S. in Economics from University of La Verne and a PhD in Experimental Economics and IndustrialOrganizationfromGeorgeMasonUniversity,Virginia. The largest law firm in Albania with over 30 lawyers, Kalo & Associates wasoriginallyestablishedandfoundedbyPe¨rparimKaloin1994.Thefirm