2009 Investment Climate Statement - Albania

2009 Investment Climate Statement
Bureau of Economic, Energy, and Business Affairs
February 2009

Openness to Foreign Investment
Despite the global economic slowdown, Albania has been able to preserve a stable macroeconomic situation with growth for 2008 estimated to reach 6% with 3% inflation. Although FDI has increased over the last few years, it still remains among the lowest in the region with a large part of it coming from privatizations.

To increase FDI, the GOA intensified its efforts to implement a number of fiscal and legislative reforms to improve the business climate. Those reforms, plus the signing of the Stabilization and Association Agreement with the EU in June 2006, and the invitation to join NATO could help Albania improve its FDI significantly. 2007-2008 witnessed an increase in investor interest in a wide range of sectors, with energy generation, cement production, mining, oil, and industrial parks heading the list. However, the major factors hindering FDI seem to remain the same: pervasive corruption, weak law enforcement, poor rule of law, lack of developed infrastructure, lack of a reliable energy supply, and insufficiently defined property rights.

The legal framework to encourage investment is already in place. Law 7764 "On Foreign Investment,” dated November 2, 1994, was designed to create a favorable investment climate for foreign investors in the country. The law offers considerable guarantees to all foreigners (either physical persons or legal entities) willing to invest in Albania. Such 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 for designated special cases, in the interest of public use and defined by law.
  • Foreign investors have the right to expatriate all funds and contributions in kind of their investments.
  • Most favorable treatment for investors according to international agreements is also provided under Albanian law.

There are limited exceptions to this liberal investment regime, most of which apply to broadcasting, health services and legal services. Restrictions on the purchase of real estate are also notable: agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years; commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property.

Investors in Albania are entitled to judicial protection of legal rights related to their investments. Parties to a dispute may agree to arbitration. Foreign investors also have the right to submit disputes to an Albanian court. Provisions regarding domestic and international commercial arbitration are incorporated into the Albanian Code of Civil Procedure. As a practical matter, however, corruption remains a problem in the judicial system, and some foreign investors have experienced delays and losses as a result.

The key piece of legislation that addresses the activities of companies and establishes the type of legal structure under which companies may operate is the Company Law. On April 14, 2008 the Albanian Parliament approved the new law No. 9901 “On Entrepreneurs and Commercial Companies,” replacing the law of 1992. The new law brings Albanian legislation in line with the EU's acquis communitaire and reflects amendments of other Albanian legislation like Civil Code, the Law on National Business Registration Center, Labor Law, Law on Securities, and other important laws. The new law introduces the definitions of the branches and representative offices of foreign companies and provisions on group companies. Implementing legislation has been drafted, laying down models for the four different types of commercial companies (general partnerships, limited partnerships, limited liability companies , and joint-stock companies). However, the new Company Law falls short of addressing the issues of cross-border mergers and takeover bids. Preparations in this area are advancing.

Albania's tax system does not discriminate against foreign investors and no distinction is made between foreign and domestic investors. The e-taxes reform is progressing and as of January 2008, corporate income tax was reduced from 20% to 10%, one of the lowest in the region. In addition, as of May 2009, the social insurance contribution payable by employers will be reduced again from 20% to 15%, down from 29% in 2006. Businesses can file their tax returns and social insurance declarations electronically in 12 cities including Tirana and electronic payment of taxes is also possible through certain banks.

However, the reimbursement of VAT and pre-paid corporate tax remains an issue of concern. Businesses claim that neither VAT nor income tax refunds are reimbursed in a timely fashion. Corruption continues to remain an issue of concern in the tax administration and much needs to be done to properly implement the tax laws.

The law on tax procedures was approved with the aim of reducing the informal economy and improving the business environment. Following harsh criticism by the business community, the provision requiring payment of the full tax assessed plus a 15% fine before being allowed to appeal decisions of the tax inspectors was abolished. Work is in progress to establish an administrative court that will handle business claims.

Albania has taken steps towards bringing its legislation into line with the EU standards by approving a new public procurement law. The new law takes into account the principles of non-discrimination and equal treatment, transparency, and legal protection of interests of bidders on public contracts. Direct tendering has been abolished except in cases of extreme urgency and for the purchase of electricity, and criteria to identify abnormally low bids have been introduced. The new e-procurement regulations approved by the GOA in October 2007 paved the way to the e-procurement system implementation at the central and local government level. Contracting authorities are required to publish procurement notices and tender dossiers on the Public Procurement Agency (PPA) website, which can be accessed electronically by the public. However, its application is hampered by technical problems and the insufficient IT capacity of many contracting authorities. The Public Procurement Advocate was established as an independent institution reporting to parliament. However, it has no particular executive powers and its functions duplicate the monitoring tasks of the PPA. Decisions on appeals are taken by the same unit of the PPA that is responsible for interpreting the law and giving advice to contracting authorities. Current procedures for handling complaints still do not meet recognized international standards. Overall, the improvements in the public procurement legislation are advancing while the proper enforcement of the law is still a work in progress.

Another important law approved during 2008 was the law “On Electronic Signature”, which became a necessity considering the e-government reforms introduced during 2007-2008 like e-taxes, e-procurement and on-line business registration.

A new law on the National Business Registration Center approved in 2007 changed business registration from a court-administered judicial procedure requiring several days and numerous administrative steps to complete, to a new streamlined administrative process. Starting a business became easier with online publication, reduction of the registration cost, and the consolidation of tax, health insurance, and labor registration into a single application. The Center, which became operational in September 2009, has 19 branches in different municipalities and there are plans to open 12 additional branches and to enhance co-operation between the NRC and the chambers of commerce and industry. However, further efforts are required to strengthen the capacity in the NRC branches of the municipalities.

The reform and modernization of the tax administration, public procurement and business registration procedures through IT solutions and legislative enhancements were supported by the Stage I - Millennium Challenge Threshold Agreement between the GOA and the Millennium Challenge Corporation (MCC) and implemented by USAID Albania.

In October 2008, Albania signed the second MCC threshold program worth over $15.7 million. The Stage II program builds upon the significant successes of MCC’s first threshold program with Albania and focuses on institutionalizing key reforms in public administration and judicial capacity building and to support anticorruption activities. USAID will oversee implementation of the program.

Many activities in Albania required cumbersome licensing procedures and permits. In 2007, the GOA approved the Action Plan for Regulatory Reform which provided for a full review of Albania’s entire legal licensing system to harmonize the licensing legislation to EU standards and reduce administrative barriers for businesses operating in Albania. As a result, many licenses were removed while a broad simplification of licensing procedures has been completed in many sectors including, mining, hydrocarbons, public works, health, agriculture and the environment. By October 2008, 64 out of 151 licenses identified in 18 sectors of the economy were removed and another 21 licenses were changed into self-declaration. Work is in progress to identify other licenses that could be removed. For the remaining licenses the government plans to start a "One-Stop-Shop" for licensing within the first quarter of 2009. However, licensing and post-registration processes require further simplification and the removal of licenses needs to be accompanied by a strengthening of the supervision capacities of public agencies. The procedures for getting a license are the same for national and foreign companies.

In addition, the new law “On Concessions,” No. 9663, dated December 18, 2006, established the necessary framework for promoting and facilitating the implementation of privately financed concessionary projects enhancing transparency, fairness, efficiency and long-term sustainability in the development of infrastructure and public service projects. One of its major amendments includes a better regulation for unsolicited proposals and of public-private partnerships in general. The law applies to a wide range of sectors, including:

  1. transport (railway system, rail transport, ports, airports, roads, tunnels, bridges, parking facilities, public transport);
  2. generation and distribution of electricity and heating;
  3. production and distribution of water, treatment, collection distribution and administration of waste water, irrigation, drainage, cleaning of canals, dams;
  4. collection, transfer, processing and administration of solid waste;
  5. telecommunication;
  6. education and sport;
  7. health;
  8. tourism and culture;
  9. prison infrastructure;
  10. recycling projects, rehabilitation of land and forests, in industrial parks, housing, governmental buildings, service of maintenance of IT and data base infrastructure;
  11. natural gas distribution;
  12. management contract or provision of public services including those related to sectors specified above.

In order to promote investments in priority sectors for the economic development of the country, in line with the government’s strategic objectives, the GOA may offer concessions to local or international investors for the symbolic price of one euro. The GOA, with the approval of the Minister of Economy, authorizes concessions in other sectors besides the ones listed above. The law does not apply to grant licenses where needed, except to the extent that a license is issued within the framework of a concession contract.

“Doing Business 2009,” a report of the World Bank and IFC that evaluates the regulations affecting ten areas of everyday business and assesses ease and equal opportunity for businesses in 181 economies, moved Albania from 135th place to 86th and ranked Albania among the top ten countries with respect to reforms for protecting investors. Albania also established a public credit registry allowing financial institutions to share credit information covering 8.3 percent of the adult population. This reform allows banks to better evaluate the creditworthiness of potential borrowers, facilitating access to credit for firms and individuals. Albania also strengthened investor protection. A new company law requires that disinterested shareholders approve transactions between interested parties and obligates those parties to disclose all information on the transaction to the public. The law also reinforces directors’ duties and requires directors, when found liable, to pay damages and return profits to the company. A new bankruptcy law approved during 2008 provides a more efficient framework for closing a business. Despite good progress in those areas, Albania needs to do more to improve its ranking in other indicators. In addition, much remains to be done because the report doesn’t measure other important indicators that have significant impact on the business climate like corruption, infrastructure and the efficiency of the public administration.

In June 2007, Moody’s Investors Service assigned Albania its first-ever sovereign rating of 'Ba1' for foreign-currency bonds and an issuer rating of 'B1' for debt obligations of the government. Despite the fact that Albania was rated below its neighbors Macedonia and Montenegro, an international sovereign credit rating is a recognized benchmark for international financial institutions that Albania can be judged by internationally accepted standards.

The privatization process of the past 18 years is coming to an end with some large privatizations finalized in 2008 and some others in process or scheduled to complete in early 2009. Following the privatization of Albtelecom in 2007, the GoA completed some major privatizations during 2008:

  • 85 percent of state-owned oil refiner ARMO was purchased by an Albanian-Swiss-U.S. consortium.
  • 61 percent of insurance company INSIG was purchased by American Reserve Life Insurance
  • Negotiations with the winner of the tender for the privatization of 76 percent of the shares of the Distribution Arm of the Albanian Power Corporation are expected to conclude in January 2009.
  • The privatization of 12.5 percent of the shares of the mobile operator AMC is scheduled to finalize early 2009

Major events in the Albanian economy during 2008
Energy Sector:

- In October 2008, the GOA finalized a 35 year concession contract for 150 million Euro with Verbund and EVN to build Ashta power plant on Drin river with total installed capacity of 48MW.

- In December 2008, the GOA finalized the concession contract for 950 million euro with EVN, an Austrian Company, and Statkraft (Norway) to build three large HPPs on the Devolli River with a total installed capacity of 319 MW.

- In December 2008, six companies from Italy, Austria, Norway, and Germany filed bids for a concessionary agreement to build and operate the Skavica HPP, considered the most important hydro project in Albania, with an installed capacity between 300 and 350 MW. The winner is expected to be announced in January, 2009 and total investment is expected to reach 850 million euro.

- During 2008 the government granted licenses for the generation of wind energy to:

  • HERA Shpk to build a wind farm with installed capacity of 150 MW in Bilisht;
  • Alb Wind Energy Shpk to build a wind farm with installed capacity of 225 MW in Terpan;
  • Enpower Albania Shpk to build a wind farm with installed capacity 500 MW on the Karaburun peninsula;
  • Ers-08 Shpk to build a wind farm with installed capacity 40 MW near Kavaja;
  • BioPower Green Energy Shpk to build a wind farm with installed capacity 230 MW in Lezhe;
  • Unione Eolika Albania Shpk to build a wind farm with installed capacity of 150 MW in Kavaja and E-Vento Albania Shpk to build a wind farm with installed capacity of 72 MW in Butrint.

All of these wind farms are scheduled to complete within 2011 expect for Bilisht (2012) and Karaburun Peninsula (2014). The company that will build the wind farm in Karaburun peninsula has received also a license to build an undersea interconnection line with Italy. The investment is expected to reach one billion euro.

The GOA also granted a license to Albanian Green Energy to build a Thermo Power Plant using biomass with an installed capacity of 150 MW scheduled to complete in 2010.

During 2008 the GOA approved an energy park to be located in Spitalle Durres near Porto Romano and there are discussions with Italian companies to build several coal-fired TPPs with installed capacity of 800 MW.

Another important event in the energy sector is the signing of the first agreement with Trans European Energy BV for the project for the construction of the regasification of liquid natural gas in Seman Fier and an undersea gas pipeline linking Albania with Italy.

The GOA is also promoting the TransAdriatik Pipeline (TAP) and Ionian Adriatik Pipeline and their inclusion in the West Balkan pipeline project (part of the Energy Community Ring.)

In addition to those large projects, the GOA has approved several concession contracts for small scale HPPs. By September 2008, the GOA had approved 27 concession contracts to build small HPPs with a total installed capacity of 125 MW. In total, the GOA received 120 unsolicited proposals to develop small HPPs.

The World Bank is also sponsoring the feasibility study for HPPs on the Vjosa and Osumi rivers and the GOA plans to solicit proposals for the exploitation of those rivers.

All of these projects in the energy sector are expected to boost foreign direct investments in the near future and may possibly resolve Albania's chronic electricity problems.

Hydrocarbon Sector: Besides three agreements signed in 2007 for oil and gas exploration with oil companies Medoil, Streamoil, Gas Limited and Swiss-based Manas Petroleum, during 2008 the GOA signed two other exploration contacts, one with IEC VISOKA the other with DWM Petroleum AG.

The Vlora Oil Terminal being built by “La Petrolifera Italo Albanese” and the oil terminal in Porto Romano Durres should be completed in 2009.

Mining Sector: Besides the Austrian-Russian consortium Deco-Terwinco that operates the largest copper mine in Albania, Tirex-Canada, Balkan resources-Canada, Sino Steel-China and Adriatik Nickel-U.K. began operations during 2008. Cement companies “ANTEA CEMENT ” TITAN Group, “CEMENTOS AGUILA” ARICAM Group , “GENER 2” , “FASSA BERBERI” Balldre - Lezhe, “COLACEM”, “GENERAL CEMENT” Balldre-Lezhe, and “ALBACEM” Mes-Shkoder, have either started operation or are in final negotiations. Total investment in cement production is estimated to reach 1.5 billion Euro.

Banking: Intesa Sanpaolo Group, the leading banking group in Italy and one of the top banking groups in Europe, purchased 80 percent of the shares of American Bank of Albania, turning it into the second largest financial institution in the country. In addition, the French bank Societe Generale acquired 75 percent of the Banka Popullore’s stakes and Credit Agricole S.A. owns the Emporiki Bank.

Insurance: Insurance sector is witnessing an increase in investor interest due to the fact that the sector is considered underdeveloped and represents growth opportunities. From January to November, the insurance sector grew 21 percent compared with the same period last year. Following the entrance of several international companies in the insurance sector during 2007 (Uniqa Group Austria purchased part of the shares of SIGAL, Vienna Insurance Group purchased part of Sigma and Aspis Group purchased part of InterAlbania) the sector experienced another positive development with the privatization of 61% of INSIG by American Reserve Life Insurance.

Infrastructure: Another positive development is the construction of the Durres-Kukes road, linking Albania and Kosovo. The road is scheduled to complete by June 2009 and will significantly shorten the traveling time to Kosovo, linking the Kosovo market to the port of Durres. In addition, a very ambitious 2009 agenda with large capital investments in infrastructure (mainly for roads) will contribute toward creating a modern road infrastructure which will help attract foreign investors.

The GOA does not screen foreign investments and the United States enjoys a popular image in Albania. Both the business community and public generally welcome American firms and their products. Companies interested in entering the Albanian market should contact Albanian Business and Investment Agency Albinvest. Albinvest was restructured in 2006 and provides direct assistance to investors, promotes SMEs, Albanian exports and FDI.

Albanian Business and Investment Agency (ALBINVEST)
Blv. “Gjergj Fishta”, Pall. Shallvareve, Tirana, Albania
tel: +355 4 252 886; fax: +355 4 222 341
e-mail: info@albinvest.gov.al

Conversion and Transfer Policies
The Bank of Albania (BOA) formulates, adopts and implements the foreign exchange policy of Albania and maintains a supervisory role in foreign exchange activities in accordance with the Law On the Bank of Albania, the Banking Law which regulates the operation of commercial banks, and the Regulation on Foreign Exchange Activities (FX Regulation).

As a general rule, the Banking Law does not impose any restrictions on the purchase, sale, holding, or transfer of monetary foreign exchanges. However, the Law on the BOA authorizes it to temporarily restrict the purchase, sale, holding, or transfer of foreign exchanges if the BOA so decides, in order to preserve the foreign exchange rate or its official reserves. In practice, the BOA has not used such measures in an overly restrictive manner and aims to achieve European standards for banking systems. Recently, the BOA has tightened supervision rules over liquidity transfers by domestic banks to their foreign mother bank due to the financial global crisis and the widespread lack of liquidity in the international banking sector.

The Albanian currency, the lek, is freely convertible at banks and exchange bureaus. The Albanian foreign investment law guarantees the right to transfer and repatriate profits from Albania into freely usable currency and at a market-clearing rate. Foreign exchange is easily found at a legal market-clearing rate. Most transactions are carried out in cash and both the dollar and euro are legally and commonly used. The lek floats freely and has remained stable against the euro despite some brief and seasonal fluctuations, but has appreciated significantly against the dollar, mainly due to the U.S. currency fluctuations in the international market. The average exchange rate for the U.S. dollar in 2007 was $1= 90.4 while in 2008 it was $1= 90.1. The exchange rate for the euro in 2007 was 1€=123.6 lek and in 2008 it was 1€=122.5

Under the FX Regulation, foreign exchange transactions are those involving the exchange, purchase or sale of foreign currency in cash through a personal account or that of a third party, including the repayment of a loan in a currency different from the one in which the loan was granted or accepted.

The FX Regulation defines a current account transaction as one between residents and non-residents that is recorded in the current account of the balance of payments. These include, among others, payments and transfers for settlements resulting from international trade (for example, payments for services provided within specific fields such as consulting, publishing, industry, construction, mining, transportation, insurance, and payments for any banking and exchange operations), and payments of loan principal and interest.

The FX Regulation defines a capital account transaction as one performed between residents and non-residents that is recorded in the capital account of the balance of payments (for example, direct investments, securities transactions, credit transactions, deposit transactions, and insurance transactions).

Foreign exchange transfers abroad can only be carried out by licensed entities (domestic banks, foreign bank branches and foreign exchange offices) that are required to report their foreign exchange activities to the BOA regularly. These entities are also obliged to complete and keep all documentation required for the transfers abroad

Although the FX Regulation provides that residents and non-residents may transfer capital within and into Albania without any restrictions, capital transfers out of the territory of Albania are subject to certain documentation requirements. Physical persons must submit a request indicating the reasons for the capital transfer, the amount of capital transferred outside the territory of Albania, and the address to which the capital is to be transferred. Such persons must also submit a declaration on the source of the funds to be transferred. Legal entities must submit a request setting forth the reason for the capital transfer, the source of the funds, the amount to be transferred, and the address to which the capital is to be transferred; a document from the foreign entity explaining this transfer (if such a document exists); the decision by the legal entities' relevant decision-making body on carrying out the capital transfer; the legal entities' registration decision; and, a certificate issued by the tax office certifying that the legal entities has settled its tax obligations toward the tax authorities.

In May 2008, the Albanian Parliament passed Law 9917 “On Money Laundering and Terror Financing,” which lowers the threshold for reporting financial transactions to the FIU from the current $20,000 to $15,000 for cash transactions thereby ensuring compliance with EU standards. Both Albanian and foreign citizens entering or leaving the country must declare assets in excess of €10,000 in hard currency and/or precious items. Failure to declare such assets is considered a criminal deed and punishable by confiscation of the assets and detention.

Expropriation and Compensation
In the post-communist period, expropriation has been limited to land needed for infrastructure projects, such as roads and airports. Compensation has generally been below market value and some owners have complained about the slow compensation process and low payments. The restitution process of properties confiscated during the communist regime started in 1993 but is still far from complete. The process is tainted with corruption and lack of political will. Several U.S. citizens and residents have long-running disputes with the government regarding restitution for property. Many property cases end up in the courts and drag on for years without a final decision.

In 2006 the Albanian Parliament amended the July 2004 law on property compensation and restitution. The law aims to resolve competing land ownership claims resulting from communist-era expropriation of land. There are no significant changes other than transferring the authority responsible for the implementation of the entire legal process to a newly established agency. Also, the amount of land qualifying for restitution increased from 60 to 100 hectares. Another important change was the extension of the deadline for filing property compensation and restitution requests, which was December 31, 2008. No requests will be accepted after the deadline. However the entire set of restitution compensation claims is not expected to be resolved before 2014. The GOA has presented three methods of compensation for expropriation claims: 1) restitution, 2) compensation of property with similarly valued land in a different location, and 3) cash settlement/financial compensation. The successful implementation of the restitution process is an important challenge for the government and is key to future economic development. In 2007 and 2008, the GOA distributed a total of $10 million for financial compensation. In 2009 $6.5 million has been budgeted, which is still considered inadequate given the large number of compensation requests. Physical compensation has not started yet despite GOA claims that it has identified public assets to be used for this purpose.

The property registration process has been completed in approximately 86% of the country and almost entirely in rural areas. However, more lucrative land in high value urban and coastal areas has still not been registered. Many of the unregistered properties are in the south coastal area, which is more valuable for its tourism potential, and where disputes are more frequent. The main institutions dealing with property restitution and registration are the Agency for Restitution and Compensation and the Office for the Registration of Immovable Properties.

Dispute Settlement
Albania has a civil law system similar to that of most other European countries. Legislation distinguishes arbitration of international disputes from arbitration of domestic disputes in that the parties involved in an international dispute may agree to settle through either a domestic or foreign arbitration tribunal. In Albania, ratified international agreements have legal superiority over domestic legislation. Albania is a member of the International Court for Settlement of Investment Disputes (ICSID) and of the United Nations Commission on International Trade Law (UNCITRAL). There are 10 ongoing cases involving Albania - two at UNCITRAL and eight at ICSID. Albania is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and of the European Convention on International Commercial Arbitration. Under government regulations, international arbitration is recognized and accepted as legally valid.

The Government accepts binding international arbitration on investment disputes and has over 40 internationally accredited arbiters on the country arbitration list. The arbitrators will use the appropriate law based on issues determined by the parties. If the parties cannot agree on the issues involved in the case, the arbitrators will make the appropriate assessment. The judicial system continues to suffer from corruption and unreliability. The GOA has established the High Council of Justice to investigate claims of judicial misconduct, but the results are still lacking. Although the situation is improving, investors cannot yet fully rely on the enforceability of contracts. Foreign firms and institutions have also been subject to nuisance lawsuits aimed at receiving cash settlements. Recent investment disputes have focused on the ownership of land considered ideal for tourism, mostly along the southern coast.

The Albanian Government has established a Credit Guarantee Fund for Small and Medium Enterprises with the assistance of the Italian Government. The $3.5 million Fund is used as collateral for companies applying for commercial loans. ALBInvest, the business promotion agency, has also established an annual fund of $300,000 to assist exporting companies.

The Albanian tax system consists of a package of laws, decisions and instructions, amongst which the most significant ones are: Law no. 9920, dated May 19, 2008 on Tax Procedures in the Republic of Albania, which serves as a comprehensive law for the entire sector; Law no. 8438, dated December 28, 1998 “On Income Tax”; Law 7928, dated April 27, 1995 “On Value Added Tax”; Law 8977, dated December 12, 2002 “On the tax system in the Republic of Albania;” and Law 9632, dated October 30, 2006 “On the local tax system.” The law “On Tax Procedures” establishes the structure and the functions of the tax administration, as well as the procedures that it must follow in the collection of national and local taxes and fees (tax audit, procedures of collection, sanctions.)

As part of the deep fiscal legislation reform, the GOA with the assistance of the Millennium Challenge Albania Threshold Agreement has completed the first program and has launched the second phase which will deal with reducing corruption and improving rule of law in administrative court proceedings through the establishment of the Administrative Courts. This component of the Program will help to create these specialized courts to handle cases such as tax and customs cases and procurement appeals. In February 2008, a new law on judicial powers was enacted, providing for the creation of administrative courts as part of a larger judicial reform.

The fiscal administration is composed of (i) General Directorate of Taxes; (ii) District Tax Branches; (iii) Tax Appeal Commission; and (iv) Tax Offices of Local Authority.

The General Directorate of Taxes directs the activity of the administration and provides for the collection of taxes and fees. The Tax Appeal Commission is vested with the authority to review the claims of tax violations. The Commission quantifies the violation and proposes the appropriate tax penalty to the General Tax Director. The decisions of the Commission are also subject to judicial review.

Bankruptcy is governed by Law 8901, dated May 23, 2002, "On Bankruptcy" amended in May 2008. According to the law, a creditor has the right to request the opening of an insolvency proceeding in order to resolve debts. If the Court denies this request, the creditor has the right to appeal.

The Bankruptcy Law distinguishes the right of creditors as follows: a) Insolvency Creditors have an unsecured claim that is provable against the debtor at the date the proceedings are opened; b) Subordinated Insolvency Creditors are creditors whose claims are satisfied only after the claims of regular insolvency creditors' claims are satisfied; c) Estate Creditors are creditors who have given credit to the insolvency administrator. They are paid out of the estate in priority to insolvency creditors. They need not file claims in order to obtain payment; d) Creditors with a right of set-off can obtain satisfaction to the extent of the set-off; and e) Creditors with a right of separate satisfaction are secured creditors, who have a legal right to rely on specific items or kinds of property (collateral) of the debtor to obtain payment of part or all of an obligation owed to them by the debtor. The Bankruptcy Law does not contain provisions regarding bank transfers.

In reality, the law on the bankruptcy has never been implemented in Albania and according to the official statistics there have been no bankruptcy procedures so far. The recent amendments aim to facilitate the implementation of the law. The main amendments include reducing the time frame of a business reporting loss to two years, are insolvent since two years and have a passive status in the NRC. Also the courts will act more promptly in dealing with bankruptcy cases as they will have to consider the case within 30 days.

Performance Requirements and Incentives
Albanian law generally does not establish performance requirements or detailed incentives for foreign investors. Legal incentives include:

  • Equal treatment of foreign and domestic investors
  • Full profit and dividend repatriation (after taxation)
  • Funds from the liquidation of a company may be repatriated
  • Bilateral agreements on the promotion and protection of reciprocal investments
  • Double taxation treaties

One important exception concerning performance requirements is the investment requirement relating to the purchase of commercial property by foreigners. Such a purchase can be made only if the investor plans to improve the value of the property by three times the purchase price. Some foreign firms operating in Albania have also complained that capital goods and raw materials, on occasion, have been subjected to the same taxes as consumer goods. The GOA has said that it is not official policy to subject capital investments to consumer taxes. To the extent there have been problems concerning this issue, they appear to result largely from corruption or misunderstandings by officials.

There are no requirements in Albania for foreign investors to purchase from local sources or to export a certain percentage of the output.

Incentives are regulated by Law 9374, dated April 21, 2005, “On State Aid,” for the implementation of important projects, to facilitate the development of specific economic activities, and to promote national culture and heritage conservation. “On State Aid” applies to all sectors of manufacturing and services and all measures undertaken by central and local government, as well as other entities acting on behalf of the state, that confer benefits to particular enterprises, except those acting in the agriculture and fisheries sectors.

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; debt 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. This law also has a provision entitled "Aid for Enterprises in Difficulties." The Ministry of Economy, Trade and Energy is currently establishing regulations regarding conditions and procedures for granting this assistance. The Government has initiated several initiatives to assist the development of local SMEs, specifically their marketing and exporting capabilities. Albinvest manages the export guarantee fund established in 2007 by the government. The 1.6 million Euro fund aims to facilitate funding of exports through loans from local and foreign commercial banks to enterprises, combined with commercial risk sharing. Albinvest also manages a competitiveness fund established by the GOA to promote the development of the SMEs. The 200,000 Euro competitiveness fund functions as a cost-sharing grant scheme to help develop businesses (finance SMEs).

In order to attract FDI, the GOA has developed incentives for investors and has applied a set of liberal fiscal policies that include:

  • Reduction of corporate tax from 20 to 10 percent as of January 2008;
  • Reduction of the fiscal burden of social security contributions payable by employers from 20 percent to 15 percent as of May 2009;
  • Tax exemption of dividends designated for investments.
  • Importers of machinery and equipment are exempt from VAT if the machinery and equipment will solely serve its taxable economic activity (Instruction of the Minister of Finances No.3, dated 30.01.2006.)
  • Apparel producers are exempt from VAT on raw materials as long as the finished product is exported. This is based on Law 7928, dated April 27, 1995, "On Value Added Tax," Article 25/6.
  • Subsidized leases of state-owned premises: Investors are eligible to lease state-owned property such as land or buildings at rents below market rates. In the case of production activities, the level of rent reduction will be made according to the level of investment made and the number of new jobs created. This is based on the decree of the Council of Ministers, No. 315, dated April 24, 2006 “On the leasing of state enterprises and institution’s property.”

Energy Sector Incentives: Investors establishing new, or rehabilitating existing power generation plants with an installed power capacity of more than 5 MW using liquid or solid combustibles, are entitled to an exemption of custom duties on imported machinery and equipment used in the capital investment. They can also be reimbursed for the customs and excise duties paid on the import of liquid or solid combustibles used in the production of electric energy. This is based on Law 8987, dated December 24, 2002, “For the creation of facilitated conditions, concerning the establishment of new plants for the production of electric energy.”

In 2006, the GOA launched wide-ranging incentives for investors known as the ‘Albania One Euro’ initiative. The initiative is aimed at encouraging new investments in manufacturing and in strategic sectors to encourage foreign and local investment in the economy. This project focuses on offering state-owned property (assets, natural resources, economic activities, fees for public services, etc.) for a one euro sale price to qualified investors. However, it is still unclear how the proposal functions and it appears that the incentives are offered on a case-by-case basis, depending on the scale of investment and number of jobs created.

The impact and effectiveness of this initiative in boosting investments remains to be confirmed.

The new law on concessions No. 9663, dated December 18, 2006, established the necessary framework for promoting and facilitating the implementation of privately financed concessionary projects enhancing transparency, fairness, efficiency and long-term sustainability in the development of infrastructure and public service projects. It aims to better regulate unsolicited proposals and the public-private partnership in general. The law applies to a wide-range of sectors.

Right to Private Ownership and Establishment
Albanian law permits private ownership and establishment of enterprises and property. Foreign investors do not need additional permission or authorization to do so over and above that required of domestic investors.

Albania applies restrictions on the purchase of real estate: agricultural land cannot be purchased by foreigners, but may be rented for up to 99 years; commercial property may be purchased, but only if the proposed investment is worth three times the price of the land. There are no restrictions on the purchase of private residential property. Foreigners can acquire concession rights on natural resources and on resources of the common interest, as defined by the law on concessions.

The National Registration Centre For Businesses has made it possible for a business to register in a single place and day with the price of one euro. The licensing procedures have also been simplified with many licenses and for the remainder of licenses the GOA intents to establish the National Licensing Center in early 2009.

Protection of Property Rights

Intellectual Property Rights

Law No. 9380, dated April 28, 2005, covers intellectual property rights and protects copyrights, patents, trademarks, stamps, marks of origin, and industrial designs. In 2003, the GOA passed anti-piracy law number 9124, dated July 29.2003, which required television stations to broadcast only those shows and movies that they had legally licensed for broadcast. The law was successful in forbidding the broadcasting of pirated movies and programs, but it did not cover satellite or cable television programming. In order to close the loophole in the legislation and regulate adequately digital broadcasting, in May 28, 2007 the Parliament approved the Law No. 9742 "On Digital Broadcasting.”

A new industrial property law was approved in July 2008. The new law brings Albanian legislation for the protection of industrial property into harmony with EU legislation, directives of the European Commission, the European Convention on patents, the TRIPS agreement (commercial aspects of industrial property rights) as well as other international agreements ratified by Albania in the field of industrial property.

In addition, amendments to the provisions implementing the Customs Code relating to intellectual property rights and brand controls were adopted in order to allow products to be classified as “fake”, “pirated”, or “liable to infringe the rights of patent or certificate owners”.

Implementation of the copyright law

There has been limited progress on proper implementation of intellectual property rights. The Copyright Office, whose activities are regulated under the 2005 law on copyright and related rights, signed a memoranda of understanding with the Competition Authority, the National Council of Radio and Television, the National Cinematography Centre and the tax and customs administrations, with the aim of fighting piracy and enforcing the copyright law. In addition, new provisions were introduced on the role of customs in protecting intellectual property rights. Nonetheless, no progress can be reported on effective control of intellectual property rights by the Copyright Office, customs authorities or other entities. The number of cases of violation of copyright law brought to court remains low.

The Directorate General for Patents and Trademarks (GDPT) was restructured, and registration and administration of patents, trademarks and industrial designs has been computerized. This has improved the processing of applications and the supply of information. A Board of Appeal was established in the Directorate for Patents and Trademarks and the Directorate completed the reorganization of its computer system. A bulletin of industrial property rights containing records of registrations and changes of intellectual property rights titles is published and an online version is available on the GDPT website. The Administrative Council of the EPO approved Albania’s request for accession to the European Patent Convention. Preparations for its ratification are underway.

Further capacity strengthening and additional human resources of both the Copyright Office and the GDPT are still required. The general level of knowledge about IPR and infringements remains poor and the main factors that hamper the enforcement of IPR laws are the lack of appropriate experience and qualifications of judges, prosecutors, customs administration and staff, and low level of fines under the current law. Further efforts are needed to improve inter-institutional cooperation and the ability of customs authorities to detect counterfeit products.

Overall, the protection of intellectual and industrial property rights is weak.

International Agreements

Albania is a signatory to the following international agreements on Intellectual Property Rights:

  • Convention implementing World Intellectual Property Organization
  • Paris Convention on Protection of Industrial Property
  • Bern Convention on Literary and Artistic Works
  • Patent Cooperation Treaty
  • Madrid Agreement on International Registration of Marks
  • European Patent Convention
  • Budapest Treaty on Biodiversity
  • Nice Agreement concerning the International Classification of Goods and Services for the purposes of the Registration of Marks.

In 2000, Albania ratified the Marrakesh Agreement and became a signatory to the World Trade Organization's Trade Related Intellectual Property Rights (TRIPS) agreement. Albania also ratified the Hague Agreement of 1960 and the 1999 Geneva Act on the international registration of industrial designs.

Overall, Albanian law protects copyrights, patents, trademarks, stamps, marks of origin, and industrial designs. However, enforcement of these laws remains incomplete and violations of copyright, trademark, and other intellectual property rights are common. Pirated copies of DVDs and CDs, imported from other countries, are easily purchased in shops all over the country.

Immovable Property Rights

Enforcement of property rights in Albania remains an evolving issue. Immovable property rights (land rights) are still far from well defined, especially in the coastal areas where there is potential for tourism development. Property restitution, corruption, illegal buildings and enforcement of court decisions are the most serious problems that have afflicted Albanian society during the post-communist transition period. Large-scale property confiscation during communist rule and the subsequent nationalization of the economy completely altered Albania’s economic landscape.

Currently, enforcement of property rights is left to the claimant in the civil court system. Almost 70 percent of all civil cases in the Albanian courts involve property disputes; most of these cases linger for years before reaching a final ruling. To date, almost 200 Albanian citizens have filed suit with the European Court for Human Rights in Strasbourg against the GOA over property claims. To address this issue, and relieve an increasingly burdened court system, the GOA, with USG and other donor assistance, is finalizing an immovable properties registration system to establish proper title to private claims to land ownership.

The Real Estate Property Registration Office has continued first registration in different parts of the country. The government has adopted a strategy which links the processes of first registration of real estate, restitution and compensation and legalization of informally constructed buildings. Each district office handles land registration information requests, but they are considered susceptible to bribery.

The Restitution and Compensation Agency has started to register restitution and compensation claims in an electronic database. So far, the Agency has completed the property valuation mapping for six regions. Valuation mapping, however, does not yet include industrial and tourist zones for lack of data. A complete valuation map covering every region would facilitate assessment of property restitution and compensation issues.

State-owned property that may be used to compensate in kind is being identified and mapped but an inventory of land earmarked for compensation is still not available. While the restitution process might finalize in the near term, compensation for property owners seems to be a far off dream due to the estimated cost of some five billion dollars to settle all outstanding claims. Cash compensation totaling $5.5 million had been paid as of the end of 2007 and the same amount was budgeted for 2008.

The GOA restarted the privatization process for small and medium size state-owned companies, that was put on hold in order to comply with the restitution and compensation program. The Ministry of the Economy is in the process of identifying all the companies and working closely with the Property Restitution and Compensation Agency in order to secure the right for land owners to be the first to purchase any disputed property.

The Agency for the Legalization, Urbanization, and Integration of Informal Areas (ALUIZNI) is in charge of implementing the legalization process of informal buildings. The number of informal buildings is estimated to be 350,000 and the surface occupied is estimated to be 320,000 hectares. The first stage of submissions of self-declaration requests for legalization is completed. The government approved 127 informal areas and in 2008, 80,000 illegally built or informal constructions have been identified and approved for legalization.

Overall there has been some progress on strengthening property rights, but proper coordination and further acceleration of restitution and compensation are needed. A clear strategy and action plan to solve the numerous problems in the property sector are needed. Unresolved property issues have undermined efforts to develop a functional land market and kept foreign investment below potential.

Transparency of Regulatory System
Albania’s regulatory system is not transparent. Businesses have difficulty obtaining copies of laws and regulations. Laws and regulations are also sometimes inconsistent, leading to unreliability in their interpretation. Proposed laws and regulations are sometimes not published in draft form for public comment. There has been modest improvement in this area recently as several state agencies operate resourceful websites which are updated regularly. Some agencies have undertaken steps to consult with business, civil society and affected groups about issues in proposed laws and regulations. Although Albania has taken some steps forward to improve business advocacy by reforming the legislation on Chambers of Commerce and by establishing the Business Advisory Council, business participation in the legislative processes remains limited.

Efficient Capital Markets and Portfolio Investment
The financial sector in Albania has been spared from the global financial turmoil primarily due to the low amount of loans in relation to total deposits. Also the lack of a housing/construction bubble has minimized pressure on the banks. The BOA has done a good job in monitoring the situation maintaining enough liquidity in the banking sector.

The financial sector is dominated by commercial banks funded with private capital. Currently, 16 banks are operating in the country – two domestically owned banks and 14 foreign or joint ventures. The degree of market concentration remains fairly high as the five largest banks dominate the market with about 75 percent of total assets. The performance of the financial sector in channeling savings towards productive investment has substantially improved, but still remains weak in comparison to Western standards. Banks in Albania offer standard banking services such as deposit accounts, foreign transfers, trade finance and, increasingly, mortgages.

Market competition has greatly strengthened and the quality of banking services provided to the public significantly improved as major Western banks, such as the Italian Intesa SanPaolo Group and the French Societe Generale, entered the market through the purchase of domestic banks. The banking network has extended to most parts of Albania and developments in this respect are promising. In September 2008, there were 467 branches, up from 392 at the end of 2007 and 127 in 2005. Several banks offer ATM and Point-of-Sales terminals and their number is growing rapidly. In November 2008 there were 571 ATMs up from 335 at the end of 2006 and 2940 Point-of-Sale terminals up from 1183 at the end of 2006. Since 2005, most state employees receive their salaries through electronic transfers and have been offered debit cards for all their transactions. In 2008 the private sector also switched to paying salaries through electronic transfer. By September 2008 banks had issued 735,400 electronic payments cards (97.6 percent debit cards and 2.4 percent credit cards) up from 353,465 at the end of 2006. The banking system continues to represent a profitable investment sector and profit for the first 11 months in 2008 was almost $100 million. In 2007 profit was $115 million compared to $75 million in 2006.

Credit growth rate was 74 % in 2005, 56 % in 2006 and 50% in 2007. Even in 2008, despite the ongoing crisis, loans are expected to grow by 34%. In November 2008 loans constituted 47% of total banking assets compared to 25% at the end of 2005. Credit to businesses made up 65% of banks' credit portfolios. The fast growth of credit increases the risk of higher non-performing loans. The share of non-performing loans to total credit increased to 4.3% by July 2008, compared with 2.3% at the end of 2005. Although there was a small decline of deposits in October and November bank deposits still enjoy a healthy growth rate, coming in at $7.23 billion in November, 8% more than a year ago.

In order to keep credit growth at sustainable levels, supervision was strengthened during the last two years. The Law on Regulation on credit risk management was amended, establishing higher capital requirements for banks that record credit growth exceeding set benchmarks. The credit information bureau opened in January 2008 is contributing to increase the information and transparency in the banking sector. Its main responsibility is to track consumers’ credit histories. The regulatory framework for banking supervision is, following its recent comprehensive overhaul, well developed and continuing the process of adapting standard international practices.

In addition to banks, lending through micro finance institutions and savings and credit associations is effective in serving those segments of the population that do not have easy access to bank financing.

The service of e-banking transactions as a banking product appeared after 2004, but remains underutilized by the public. Four banks offer this service for certain clients (mainly businesses for carrying out transfers and other specialized payments). The rest of the sector is likely to follow as e-banking transactions gain popularity.

The low level of financial intermediation remains an impediment to the development of the private sector, particularly to small and medium enterprises (SMEs). According to the banks and many SMEs, the following issues affect access to credit in Albania:

  • A low level of domestic savings
  • High interest rates
  • Distrust of the banking system
  • High operating costs of banks
  • Poor business/project proposals

Credit lines can be obtained on the local market, but interest rates can be high under some circumstances, often between 10 and 15 percent. To obtain credit, applicants usually need to fulfill the following criteria, which varies from bank to bank:

  • Satisfactory business plan
  • Credit security (usually by mortgage)
  • Applicant's own contribution in the investment project (about 40 percent of the value)
  • The entity requesting credit needs to be at least 51 percent privatized.

The insurance industry has also experienced high rates of growth over the last seven years but, relative to neighboring countries, the market for insurance in Albania remains largely untapped, especially for life insurance. The insurance market experienced an increase of 20.82 % for the period January – November 2008 compared with the same period of the previous year. Gross insurance premiums amounted to $72 million for the same period. The sector is expanding and has attracted foreign investors. American Reserve Life Insurance became the most recent company to enter the domestic market through its privatization of INSIG. Previously, three other companies, two Austrian and one Greek, have purchased controlling shares from domestic companies. There are ten companies present in the insurance market, eight in the general non life insurance and two offering only life insurance.

Political Stability
Albania achieved a peaceful rotation of power after parliamentary elections on July 3, 2005. The new government, led by the Democratic Party and Prime Minister Sali Berisha, took office in September 2005. The two-month interim period was marked by legal challenges to voting results, but political violence was avoided. Elections for local government took place on February 18, 2007 and, in spite of some technical, procedural, and related political problems, those elections were considered generally peaceful and democratic. In July 2007, the Albanian Parliament, after a protracted political struggle, elected a new President of the Republic, thus taking another step towards Albania’s European and Euro-Atlantic ambitions.

Small crime, specifically incidents of extortion, theft and robbery, continue to be of some concern to the business community. Nonetheless, the domestic climate has been steadily improving and the violent crime rate has substantially decreased.

Albania is a steady source of stability in the region and relations with neighboring countries are friendly. The U.S. enjoys a particularly amicable bilateral relationship with Albania, which is a staunch American ally in the fight against international terrorism and has contributed several hundred troops to the war efforts in Iraq and Afghanistan. In April, 2008 Albania was officially invited to become a member of the North Atlantic Treaty Organization at the 2008 NATO Summit in Bucharest, Romania.

Parliamentary elections are scheduled for June 2009. The GOA has been working to build credible electronic voter registration lists which will provide data for new ID cards and passports. The new biometric documents will be produced beginning in January 2009.

Elected in 2005 on a campaign pledge to govern with “clean hands,” Prime Minister Sali Berisha declared the fight against corruption a top priority for his government. During the last few years, efforts have been undertaken in the fight against corruption and the perception of corruption has somewhat improved. Nevertheless, corruption remains a serious problem in Albania, with 92 percent of Albanians surveyed believing that corruption remains pervasive. The institutions most affected are the health, judiciary, police, property registration and permit services, utilities, tax agency, political parties, and Parliament.

Bribery is illegal in Albania. Under the Albanian Penal Code (Law 7895, dated January 27, 1995, articles 245 and 260), giving or accepting a bribe constitute criminal acts. These provisions were amended in September 2004 in accordance with the civil and criminal conventions of the European Union. Giving a bribe is punished by fine or imprisonment up to five years, while public officials accepting a bribe can be punished by imprisonment from three to ten years. A code of ethics for public administration, designed to counter bribery, was also passed in September 2004.

To combat corruption, in 2004 the GOA established the High Inspectorate for Asset Disclosure which was charged with collecting declaration of asset information from 5,000 state employees, including all high-ranking officials. In 2007, the High Inspectorate received additional responsibilities from the newly adopted law on conflicts of interest which expanded the list of public officials who need to file financial information as well as some of their family members. In its 2007 annual report to parliament, the High Inspectorate for Asset Disclosure identified 110 cases of conflicts of interest. Since its inception in 2004 the Agency has made slow but steady steps to improve its enforcement capabilities.

The GOA has restructured the agencies responsible for combating corruption. The highest authority is the Fight Against Corruption Task Force, an inter-ministerial group bringing together the highest officials of the Albanian government. On the technical level there is the Department for Internal Audit and Anti-Corruption, which operates in the framework of the Council of Ministers. Police authorities and the Prosecutor General’s Office are in charge of criminal investigations and law enforcement while the State Audit Commission and internal auditing units within different state institutions inspect, assess, and report alleged cases of corruption.

A task force on financial crimes that operates within the premises of the Tirana District Prosecutor’s Office has successfully prosecuted a number of corruption cases that have involved various local government and central government officials. Plans are underway to open new Financial Crimes Task Forces in other major districts in the country.

With the assistance of the Millennium Challenge Account Threshold Program, the GOA undertook reforms in tax administration, procurement and business registration which have reduced opportunities for extortion. In addition, the reform in the licensing area is expected to reduce opportunities for corruption. However, the long term impact of these reforms in tackling corruption and the gray economy remains to be assessed. Much work is still needed on changing behavior and procedures in the public administration.

A cross-cutting anti-corruption strategy for 2007-2013, with an action plan, was adopted in October 2008. However, implementation needs to start and monitoring mechanisms remain to be established.

On December 18, 2003, Albania signed the UN Anti-Corruption Convention, which was ratified by the Albanian Parliament in 2006. Although Albania is not a signatory country of the OECD Convention on Combating Bribery, the country does participate in two different regional anti-corruption initiatives. The first is the GRECO (Group of States Against Corruption), an initiative of the Council of Europe which seeks to improve its members' capacity to fight corruption through the monitoring of compliance of specific anti-corruption undertakings. In December 2007, GRECO adopted its report on Albania. Eleven of GRECO's thirteen recommendations have been adopted, including the criminalization and seizure of assets stemming from corruption. Recommendations regarding the rules on financing of political parties have yet to be addressed. The second is SPAI (Stability Pact Anti-corruption Initiative), an initiative of the Stability Pact for South Eastern Europe.

The scope of the immunity from criminal investigation and prosecution of a number of State officials and members of parliament and the procedures established to lift their immunity still need to be addressed. The Law on financing of political parties remains to be adopted. Judicial accountability and transparency in funding of political parties remain to be improved.

According to the Transparency International Corruption Perception Index released on September 2008, Albania’s global rank jumped from 105 to 85. The report noted that Albania’s score moved from 2.9 (scores range from 0 = highly corrupt to 10 = mostly clean) to 3.4 due to the work of a Government Corruption and Organized Crime Task Force and the MCC Threshold Program-sponsored reforms in tax administration, procurement, and business registration.

Bilateral Investment Agreements
A bilateral investment treaty between the United States and Albania was signed in 1995 and entered into force on January 3, 1998. This treaty, inter alia, ensures that U.S. investors receive national or most-favored-nation treatment and provides for dispute settlement. Albania also has concluded bilateral investment protection agreements with the following countries, in chronological order: Greece, Turkey, Romania, Bulgaria, Macedonia, Germany, Italy, France, Austria, Switzerland, Finland, Denmark, Sweden, the Netherlands, Great Britain, Slovenia, Croatia, Hungary, the Czech Republic, Poland, Russia, USA, Israel, Tunisia, Egypt, China, Malaysia, Portugal, Belgium, Ukraine, Serbia, Montenegro, Spain, Korea, Kosovo (UNMIK), Moldavia, OPEC Fund for International Development, and the last one with Lithuania in March 2007.

Albania has signed conventions for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital with many countries, which have priority over Albanian domestic law. Tax treaties are in force with the following countries: Hungary, Czech Republic, Italy, Sweden, Greece, Malta, Belgium, France, Norway, Switzerland, Rumania, Bulgaria, Macedonia (FYROM), Croatia, Moldova, Serbia and Montenegro, Kosovo, Turkey, Russia, China, Egypt, Austria, Poland, Malaysia, and Netherlands.

OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC), a USG sponsored entity, can make insurance and project finance resources available to U.S. investors in Albania. OPIC's three main activities are risk insurance, project finance and investment funds. Albania has also signed the MIGA Convention, which established the Multilateral Investment Guarantees Agency (MIGA). MIGA provides investment guarantees against certain non-commercial risks (i.e., political risk insurance) to eligible foreign investors for qualified investments in developing member countries. MIGA's coverage is against the following risks: currency transfer restriction, expropriation, breach of contract, and war and civil disturbance. It provides insurance against risks similar to that offered by OPIC; MIGA and OPIC can work together on projects. MIGA offers long-term (up to 20 years) political risk insurance coverage to eligible investors for qualified investments.

The OPIC-supported $200 million Southeast Europe Equity Investment Fund II managed by Bedminster Capital Management invested in the Albanian health sector by purchasing the majority shares of a private hospital now known as the American Hospital. In addition, the Fund purchased one of the largest Internet Providers in Albania ABCOM.
For more information on OPIC please visit http://www.opic.gov/

Overseas Private Investment Corporation
1100 New York Ave., NW Washington, DC 20527
Tel: 202-336-8400
Email for general business inquiries to: info@opic.gov

Labor relations between employee and employer are regulated by individual employment contracts pursuant to Law 8549, dated January 11, 1999 ("On The Status Of The Civil Employee And The Labor Code") updated in 2003. The GOA has established the National Council of Labor, composed of government officials, trade unions and employers associations. Its major goal is to improve social dialogue between the government, management, and employees. The institutions that deal with the labor market are: Ministry of Labor and Social Affairs, National Employment Service, social partners and other private actors like Private Employment Agency, and Private Vocational Training Centers.

Employers and employees have the right to form trade unions (Labor Code, article 176). Trade unions are organized at the national level (according to industrial sector) and at the company level. The right to strike is sanctioned by Law no. 7458 (January 12, 1991) and by the Labor Code. Trade unions have the right to negotiate wages, working conditions, etc., and the employment contracts are applicable both to union and to non-union workers. Two main national-level trade unions, both affiliated to ITUC (International Trade Union Confederation) are the Confederation of Trade Unions (KSSH) and The Union of the Independent Trade Unions of Albania (BSPSH). Employment contracts can be for a limited or an unlimited period, but as a general rule employment contracts are signed for an unlimited period if the duration is not specified properly in the contract.

The labor force is about two million, of which almost 1.2 million workers live abroad, mostly in Greece and Italy. In June 2008, the official unemployment rate was 12.7 percent, while private estimates go as high as 30 percent due to the lack of reliable statistics. A high proportion of Albanians under 40 speak two languages. Albanian youth generally speak Italian and Greek and English is common among the younger generation. English has become the dominant foreign language taught in the Albanian education system, followed by French and German.

Albania has a tradition of strong secondary education offering advanced skills that prepare students to enter the labor market. Elementary education is compulsory and 80 percent of those who finish elementary school continue to high school. 62 percent of high school graduates go on to college. The GOA has in the last years opened new universities in Albania which along with the new private universities opened over the last three year increases everyone's chance to attend university. In addition, the number of students who receive graduate degrees abroad has increased significantly, establishing a generation of skilled professionals which the government is trying to lure back to Albania through the Brain Gain Project (a UNDP program offering financial incentives to Albanians educated abroad to return to Albania to work). While some members of the labor force are highly skilled, many work in inefficient industries with outdated technology. However, Albanians are rapidly learning modern market practices and often display impressive entrepreneurship.

In July 2008, the GOA increased the minimum monthly wage to 17,000 leke (about $190), among the lowest in the region. However, in 2007, to counter informality in the labor sector due to under reporting of revenue by businesses, the government approved minimum reference salaries (MRS) for the private sector. The MRS establishes a standard wage depending on job code for all employees and is used to calculate both the personal income tax and the rate of contributions for social and health insurance. It is not necessarily the actual salary an employee receives. The GOA has reduced the social insurance from 29 percent of gross salary to 20 percent and announced a further reduction to 15 percent in May 2009.

Albania adheres to all basic international labor organization conventions protecting worker rights. However, given the desperation of many Albanians for work and the weakness of government institutions, compliance cannot be assured.

Foreign-Trade Zones/Free Ports
The GOA approved Law 9789, dated July 19. 2007 “On the Establishment and Functioning of Economic Zones,” abolishing Law 8636, dated July 6, 2000, "On Free Zones." The current legislation regulates the establishment of economic zones and related matters and makes the establishment and the functioning of such zones more efficient. It anticipates the establishment of free trade zones and industrial parks near ports, airports or at the crossroads of international transport. Economic zones are proposed by the Ministry of Economy and approved by the Council of Ministers on a case-by-case basis. The later has the power to define the status of the zone (either a free zone or an industrial park), areas and boundaries, the economic activities to be performed within the zones, the period of the zone functioning, the method of granting the permission (lease, concession, etc.) and the procedures for the selection of the “developer.” The selection of the "developer" of the economic zones is based on the criteria defined in the law 9663, dated December 18, 2006 “On Concessions.” Law 9121, dated 7 July, 2003 “On the Protection of the Competition” is applicable on the economic zones.

During 2007-2008, the GOA approved the construction of five industrial parks: Shengjin, Koplik, Vlore, Elbasan, and Shkoder and one industrial and energy park in Spitalle, Durres (the largest, with 850 hectares). Three out of the six parks are located near the main ports of Albania - Durres, Vlore, and Shengjin. The developers for the Shengjin, Vlora, and Koplik/Shkoder have been selected while selection of other developers is still in process as of January 2009.

Industrial zones may be used for production, manufacturing, agro-processing, trade, export-import, and supporting activities. Albinvest will serve as a “one- stop-shop” for the licensing tenants.

The development of economic zones will promote economic growth and increase employment and the competitiveness of the Albanian economy.

Foreign Direct Investment Statistics
The FDI over the last few years has increased although cumulative FDI still remains among the lowest in the region. The Bank of Albania and INSTAT reported the following figures for foreign direct investment in Albania.


Years 2000 2001 2002 2003 2004 2005 2006 2007 2008*
FDI in million Euro 155 231 143 158 278 224 260 463 500

*2008 projection

FDI during the first nine months of 2008 is estimated to have reached 380 million euro. According to Ministry of Economy (METE) estimates, 64 percent comes from investments in the financial sector while 16 percent comes from investments in oil exploration projects. METE’s projection for 2008 is 500 million euro. The most recent and largest FDI was the 125 million euro privatization of oil refiner ARMO.

METE’s projection for 2009 is optimistic and is fueled mainly by planned privatizations and strong investor interest witnessed during 2007-2008. The later was boosted by Albania’s invitation to join NATO as well as fiscal and legal reforms undertaken by the GOA. During 2007-2008, the GOA received a record number of unsolicited investment proposals in strategic sectors like energy generation, oil, cement production, mining, industrial parks, and infrastructure. This was encouraged by the new concession law which paved the way for interested parties to submit unsolicited proposals.

The three privatizations expected to boost FDI in 2009 are: the privatization of 61 percent of INSIG shares; 12.57 percent of mobile operator AMC; and 76 percent of the shares of Albanian Power Corporation’s Distribution Arm (DSSO). The privatization of INSIG was finalized in December 2008 but that will be accounted for as FDI in 2009. The negotiations with the winner of 76 percent of the Distribution Arm’s shares are on-going and expected to finalize in January 2009. The sale of 12.5 percent of AMC shares should also be completed in early 2009. In addition to privatizations, the GOA plans to issue the fourth mobile license in early 2009.

Leading investor nations in Albania include: Italy, Greece, Austria, Turkey, Germany, Canada, Spain, and the U.S. Foreign investment focuses on oil and gas production, mining, telecommunications, metallurgy, banking, manufacturing, insurance, and cement production.

U.S. Foreign Direct Investment: 2008 witnessed the first investments by U.S. companies. Refinery Associate of Texas, a 20 percent partner in the consortium that privatized 85 percent of oil refiner company ARMO for 125 million euro, became the first significant U.S. investor. American Reserve Life Insurance bought 61 percent of insurer INSIG in December for 25 million euro, although the privatization has not yet been concluded. The OPIC-supported Albanian American Enterprise Fund has made investments in many sectors of the Albanian economy, but is now beginning its planned exit phase. The new Bedminster Capital Fund has invested over $20 million in the American Hospital and Internet provider ABCom, and expects to increase its investments in 2009.