Albania has a population of 2.8 million inhabitants (September 2011) which consists mainly of ethnic Albanians (97%).
The remainder are of Greek, Macedonian, Gypsy, Roma, and other descent.
Albania has a relatively young population; the average age is 35.3 years.
There are three principal religions in Albania, namely Islam (58% of the population, mostly
belonging to the Sunni sect), Orthodox (6%) and Roman Catholic (10%). Albania is known
for the tolerant and peaceful co-existence of its religious communities.
The official language is Albanian, which is written in Latin script and has 36 letters. Due to
Albania’s proximity to Italy, many Albanians speak Italian. English is becoming increasingly
Albania is a parliamentary republic. The parliament (Kuvendi Popullor), composed of 140
members, holds the legislative power. The executive power is held by the Council of
Ministers, which is chaired by the prime minister, who is appointed by the president of the
republic upon the approval of a parliamentary majority. Ministers are appointed and
removed by the president of the republic, upon the proposal of the prime minister. The
president of the republic is elected by the parliament for a five-year term and may be reelected
The Albanian currency is Lek (ALL), although US dollars (USD) and Euros (EUR) are
frequently used in business transactions. At 31 December 2014 closing exchange rates
EUR 1 = ALL 140.14
USD 1 = ALL 115.23
There is no specific law regulating the payments system in Albania. Payments between
private individuals and legal entities are considered to be part of a civil-law relationship
and are subject to the Albanian civil code. The use of foreign currency is allowed as a
means of payment. There are no constraints on trading with hard currency.
All commercial banks licensed by the Bank of Albania may carry out foreign payments. The
Bank of Albania, which is responsible for managing the foreign currency reserves, is also
active in performing international payments. Every local or foreign person may own an
unlimited number of accounts in any currency, in any bank in the country.
SOURCES OF LAW
The sources of law in Albania are the constitution, ratified international conventions, the
acts of parliament, and the normative acts of the Council of Ministers. The territorial
jurisdiction of the acts of local governments extends only within the territory where the
local government exercises its jurisdiction. The normative acts of ministers and other
government institutions apply only within their area of material jurisdiction.
The Albanian judicial system is composed of 29 courts of first instance, six courts of appeal,
one military court of appeal, the Supreme Court, and the constitutional court.
Albania is a member of the Council of Europe and a party to the European Convention on
Human Rights. Consequently the Albanian government may be held liable in front of the
European Court of Human Rights. As a member of the United Nations (UN), Albania is a
party to the Statute of the International Court of Justice. Albania has ratified the Rome
Statute of the International Criminal Court. Albania is also a party to the European
Convention on International Commercial Arbitration.
Albania is one of Europe’s developing countries. The government has been pursuing full
integration into the Euro-Atlantic community for several years. In June 2006, Albania
signed a Stabilization and Association Agreement with the European Union as the first step
toward EU membership, as well as a free trade agreement giving Albanians duty-free
access to key EU markets and opening the country to imports. In April 2009, Albania also
achieved full membership to NATO.
From 16 December 2010, Albanian citizens holding a biometric passport may freely travel
in the Schengen area without need of a visa.
With the global economic slowdown, Albania has been affected during recent years and
the economic growth for 2013 was only 0.44%, the lowest since 1997.
The negative effects of the global crisis could mainly be seen in the reduction of
remittances sent by emigrants to their families in Albania (remittances in 2014 totaled EUR 592 million against EUR 952 million in 2007 (the highest).
Albanian GDP growth saw a sharp slowdown in 2010 and 2011, but started picking up in
2012 and continues to rise (2.42 in 2014 and 3.18 estimated in 2015).
Albania’s financial sector has grown rapidly and credit is generally allocated on market
terms. Banking is increasingly dominated by foreign banks, which account for about 90% of
total assets. This has led to more competition and better availability of services.
Supervisory regulations have been strengthened to preserve financial stability. In response
to the global financial crisis, the Central Bank of Albania acted to increase liquidity and
maintain public confidence. With little or no direct exposure to recently troubled
international financial assets, Albania’s banking system has been able to withstand the
global financial shock with little disruption.
Economic zones – both free zones and industrial parks – encompass every kind of
economic activity which can be carried out under the main business laws (except when
activities may have bad impact on the environment or the Albanian national heritage).
The activities in the Economic zone may be carried out by Albanian or foreign persons
(physical and legal), subject to licenses released by the economic zone’s administration.
Administration of assets (concession) in economic zones, whether public or private
property, as well as services and/or activities of national or local interest, can be subject of
licenses. This is accomplished through an agreement by which the administration of the
economic zone (developer) transfers for a period of a maximum of 35 years to the
operator, the operation right and duty of the management of the assigned asset , in
exchange for an amount which will constitute income for the respective administration.
Users can be physical or legal persons or developers and operators must be legal persons.
Developers and operators, as well as users, can be Albanian or foreign persons; the law
treats them with no discrimination, giving them the same rights and same duties.
The Law on Economic Zones is highly favourable to investments and it gives palpable
incentives to business. Services, products and other goods which are introduced in the
economic zones or will be exported to other countries, benefit from custom duties
exemption as well as exemption from VAT payment. These exemptions apply only to
economic zones which do not have the status of an industrial park.
According to Law no. 9789/2007, the industrial park is defined as a precisely determined
area where industrial production and service activities are performed with special
incentives, for the purpose of optimising the human and material potential within an area.
The creation of an industrial park is based on a joint venture agreement between the
public authorities, economic agents and/or other interested partners. Industrial parks may
be managed by commercial companies, set up in accordance with Law no. 9789/2007.
According to Law 9789/2007, free zones are expressly delimitated, having a specific
customs regime which limits customs only to the borders of such areas. The setting up of
the territorial area of the free zones, customs offices and border police points is carried out
pursuant to a government decision granted upon each proposal.
Means of transportation, products and other goods are accepted within the free zones
with no restrictions concerning the country origin, or destination country. The import of
goods which are subject to prohibitions under Albanian laws or international agreements
to which Albania is a party, is nevertheless forbidden.
Since 1995, following the process of the opening and liberalization of the market, the
Albanian government, supported by the IMF, European Union, the Treasury Department of
the United States of America and other organisations, has adopted a series of tax laws.
Currently, the legal framework regulating the tax system in Albania is based on:
Law No. 9975 ‘On the national taxes’ dated 28 July 2008 and subsequent amendments
Law No. 9632 ‘On the local taxation system’ dated 30 October 2006 and subsequent
Law No. 8438 ‘On the income tax in the Republic of Albania’ dated 28 December 1998
and its subsequent amendments
Law No. 92/2014 “On the Value Added Tax” effective on 1 January 2015
Law No. 8976 ‘On the excise duty’ dated 12 December 2002 and subsequent
Law No. 9920 ‘On the tax procedures in the Republic of Albania’ dated 19 May 2008 and
Electronic declaration is obligatory from January 2011.
TAX ON PROFIT
The Law No. 8438 ‘On the income tax in the Republic of Albania’ (Law 8438), dated 28
December 1998 and subsequent amendments which came into force on 21 January 1999,
has substantially changed the tax system.
Law 8438 governs direct taxes on natural and legal persons.
Liable to the tax on profit are:
Companies, corporate groups, consortiums and institutions
Albanians and foreigners who conduct a business in Albania – all those that are subject
to value added tax payments (‘legal persons’).
Law No. 8438 establishes the criterion of territoriality i.e. all sources of income are taxable,
even if sourced abroad. Subject to income tax are legal persons having their headquarters
(residence) in Albania, as well as legal persons not resident in Albania, but still having
sources of income produced in Albania. A legal person/entity is considered as a resident
where they have a registered office or place which has the effective management of their
affairs in the country.
Since January 2014, small entrepreneurs (natural persons or legal entities) which have a
gross annual turnover up to ALL 2 million will pay tax on profit to the amount of an ALL
25,000 per year flat fee, payable by 30 June of the actual year.
For other small entrepreneurships, making a turnover between ALL 2–8 million per year,
the tax on profit is 7.5%.
For all other companies, the tax on profit is 15%.
DOING BUSINESS IN ALBANIA 41
Law 8438 introduced a list of non-deductible expenses. Items which cannot be deducted –
among others – are:
Costs inherent to the acquisition, improvement, renovation and reconstruction of
Payments for voluntary social security contributions
Interest on loans that exceed the average rate declared by the Bank of Albania
Sponsorships that exceed 3% of income before tax and book sponsorships that exceed
5% of untaxed income
Personal consumables, gifts or fines
Arrears and penalties
Pay and any other form of compensation related to employment, payment of which is
not made through the banking system etc.
Any other expense that is not documentable.
The tax on dividends distributed by companies, consortiums or groups of companies that
have their headquarters or that actually manage their economic activity in Albania is not
applied in respect of persons that:
Are subject to VAT
Own no less than 25% of the shares/quotas or of the right to vote and not less than 25%
of the initial share capital of the company, consortium or group.
Tax authorities have discretionary powers to redefine the tax to be paid (in advance) if they
believe the current year’s profits are higher by at least 10% over the period of reference.
Tax evasion and false accounting are punished with a fine equal to 100% of the difference
between the owed and the stated amounts.
Since January 2014, the tax on personal income from employment was shifted back to a
progressive taxation system (as it used to be before 2007).
Personal tax has the following brackets for a monthly gross salary:
Up to ALL 30,000 0%
From ALL 30,001–130,000 13%
Above ALL 130,000 23%
(ALL = National currency LEK)
The following are required to pay tax on their entire income:
People treated as residents.
Non-residents are subject to tax only on income earned in Albania.
On other income subject to taxation, for which there are no specific law provisions, a 10%
flat tax rate applies.
VALUE ADDED TAX (VAT)
The introduction of VAT was approved by the Albanian Parliament in April 1995 and
entered into force on 1 July 1996. This law was substituted by the current Law no. 92/2014
“On the Value Added Tax” effective on 1 January 2015.
Significant efforts were made to narrow down the differences of the previous law with the
European Laws in the new Law.
According to current requirements all legal and natural persons performing taxable
supplies that have an annual turnover exceeding ALL 5,000,000 are subject to pay VAT.
Taxpayers are required to register within the first 15 days of the start of their economic
activity. Natural persons and legal entities operating in the import/export industry are
required to register regardless of the amount of their annual turnover. A special office
dedicated to VAT registration operates in each district tax office.
According to the Decision of the Council of Ministers No. 18 dated 12 January 2011, natural
persons or legal entities which exercise liberal professions (as defined by law) such as
lawyers, accountants, architects, doctors etc, are always subject to VAT, no matter their
The VAT rate is 20%. The taxable amount is the value of provided goods and services
excluding VAT. The taxable amount of imported goods includes transportation costs and
insurance, import costs, taxes, duties or tariffs.
Law No. 92/2014 states that VAT is equal to 0% in some cases, including:
Exports of goods outside Albanian territory
Services performed outside the Republic of Albania by a person whose place of business
or place of residence (if individual) is located in Albania
Provision of goods or services relating to international carriage of persons or property
Provision of goods or provision of services relating to commercial or industrial shipping.
Under certain circumstances, the fiscal authorities make a discrete assessment of the VAT
payable amounts and give written notice to the taxpayer. A taxpayer wishing to contest the
amount of such obligations shall, in any case, first pay the disputed amount and only then,
within 30 days from the date of notice’s receipt, present their case in front of the Taxes
General Directorate. This body will inform the applicant, through a written reply, about
whether their application has been accepted or rejected.
Law No. 92/2014 grants to taxpayers who export goods, the right to request a VAT refund
in cases of a credit higher than ALL 400,000 (EUR 3,200) for three consecutive months. The tax credit will be repaid by authorities within 60 days of the taxpayer’s request.