National treatment is extended to foreign investors in Albania. Under the Albanian law, the investment conditions for foreigners are no less favourable than for the local investors. Guarantees for foreign investment

The Albanian Law on Foreign Investments provides guarantees to the foreign investors in Albania: l Foreign persons intending to invest in Albania do not need any permission or authorisation to this effect. Foreign investments and ownership are permitted in all sectors;

l There are no limitations on the percentage share of foreign participation in companies; even 100% foreign ownership is possible;

l Foreign investment may not be expropriated, nationalised or be subjected to any other equivalent measure, except for cases in public interest and against compensation; l Foreign investors have the right to expatriate profits and any article related to investment; l Several laws have been passed to protect industrial and intellectual property; l The Republic of Albania has signed agreements with a number of countries on avoidance of double taxation and having provisions on mutual protection of investments. Ownership rights over real estate The Albanian Constitution guarantees the right of private ownership. According to the Law "On the Acquisition of Land" No. 7980 (27.07.1995), foreign investors are entitled to lease land in state-owned areas. They may buy state-owned non-agricultural land provided that the value of investment is at least three times higher than the value of land. The Council of Ministers determines the value of such land. There are no restrictions on the acquisition or leasing of privately owned land.

Investment insurance programs

To provide security and protection against losses arising from political risks, thereby providing confidence to potential exporters and investors in Albania, the International Development Association (the World Bank) has approved a credit of USD 10 million to the Albanian Government under its Private Sector Recovery Project to support a Political Risks Guarantee Facility, to be administered by the Albanian Guarantee Agency, a statutory corporation owned by the Government of Albania. It is a program that provides guarantees to private sector entities that are financially exposed in Albania for the purpose of production. Thus, for an activity to be eligible for support under the guarantee facility, it must be able to encourage or contribute to a production.

3.3. Legislative framework of concessions and private sector participation in the public services and infrastructure

The legislative framework in the field of concessions is set out in the Law No. 7973/26 July 1995, "On concessions and private sector participation in the public services and infrastructure". According to this law, the projects related to public services and infrastructure are regulated by contracts, which may have one of the following structures:

l Concessions;

l Rent;

l Management Contract;

l BOO/BOT/ROT/BLT/BOOT;

l Service Contract. The contract may be for a duration of up to 30 years, and can be applied to the following sectors: 1. Transport, including roads and highways, engineering structures, railways, channels, ports, airports, bridges, and tunnels;

2. Production, transmission, and distribution of electrical energy, according to the existing legislation; 3. Telecommunications;

4. Water supply, including production, management, purification, and distribution; 5. Management, collection, transport, processing and elimination of solid and/or dangerous waste; 6. Industrial zones, free zones, and export zones.

The projects from 1 to 3 are approved by the Council of Ministers and ratified by the Parliament. The projects from 4 to 6 are approved by the local government. Disputes are resolved in a court in Albania or by an arbitrage court previewed in the contract.

3.4. Legislative framework of public procurement

The legislative framework in the field of public procurement is set out in the Law No. 7971/26 July 1995, "On public procurement". The law aims to promote efficiency in the use of public funds while ensuring that public procurement procedures are fair, transparent and non-discriminatory. The Public Procurement Agency is the state agency in charge of the co-ordination of the public procurement process. The method of procurement is public tendering. The tenders may be open, restricted, in two phases, or direct. Foreigners are subject to the same legal provisions as domestic tenderers. An "international open tender" may be launched to encourage foreign participation.

3.5. Dispute resolution mechanisms

Investors in Albania are entitled to judicial protection of the rights related to their investment. It is up to the parties to the dispute to agree on the procedures for the resolution of the dispute that implies an arbitration clause. In the event of failure of this provision, foreign investors have the right to submit the matter to an Albanian court or to an Arbitration Court in Tirana. Provisions on internal and international trade arbitration are incorporated in the Code of Civil Procedure.

In the event of a dispute involving discrimination, transfer of assets, or indirect expropriation of foreign investment by the Albanian Government, the investor may submit the dispute to the International Centre for the Settlement of Investment Disputes.

Albania is preparing to accede to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards and the European Convention on International Commercial Arbitration. IV. Taxation

/Excise tax/ Value Added Tax/ Small business tax/ Custom tariffs/

In the progress towards a market economy, Albania has recently adopted a number of fiscal laws, with the assistance of the International Monetary Fund, the European Union, the US Treasury Department, and other organisations. A reform of the fiscal system is being implemented in order to adapt the Albanian legislation to the market economy principles.

The tax regime in Albania is applied at national and regional (municipal) level. National level is by far the most important one while the regional level application is restricted to hotels, restaurants, advertising, cleaning, and ambulatory trade. The national tax regime in Albania is divided into direct taxes and indirect taxes. National Tax Regime Breakdown

A new law on income (personal and corporate) tax, which reformed the treatment of foreign legal entities that conduct business in Albania, was issued in January 1999. This Law repealed the principal tax benefits provided to foreign productive enterprises (four years tax exemption and further reduction of up to 60 percent for reinvestment of profits), but the exemption is still valid for those enterprises, which already enjoyed such benefits.

4.1. Personal Income Tax

This tax is calculated on the basis of personal income of local residents and of foreign individuals who are residents in Albania for longer than 183 days of a tax period, which starts on 1 January and ends on 31 December. Dividend payments to shareholders or partners having 25% or more of the stake are not liable to personal income tax in Albania.

The employer is obliged to hold the tax on personal income from the monthly wage of the employee, and to deliver it to the tax authorities, within 15 days of the next month. The amount held is progressive. Tax Rates Applicable on Personal Income

4.2. Corporate Income Tax

Taxpayers

Income tax is imposed on Albanian and foreign legal entities, partnerships, or other groups of persons that conduct business in Albania, and on any other person who is subject to Value Added Tax. Resident taxpayers are subject to income tax for taxable income derived from all sources, within or outside the territory of the Republic of Albania, while non-resident taxpayers are subject to income tax for all income derived from sources within the Republic of Albania.

Tax rate and the basis applied

The actual corporate income tax rate is 30%, calculated on the basis of the annual income. Tax Applicable Income

Tax Applicable Incomes are those resulting from the P&L account of the legal entity, dividends distributed to the shareholders, banking interests paid on deposits and securities, income from rent, leasing, emphyteusis (a form of leasing), and sale of immovable property.

Non-deductible expenses

The Tax Law 8438 contains an analytic indication of non-deductible expenses, as follows:

l the cost of acquisition, improvement, renovation and reconstruction of depreciable assets of business;

l voluntary pension contributions;

l dividends;

l interests paid which extend the maximum loan interest as determined by the Bank of Albania;

l deductible personal income tax and excise tax;

l representation expenses;

l expenses for gifts and donations;

l interests paid on loans to the extent that the loan, for which the interest is paid, exceeds four times the amount of capital stock and, in general, any expenses that are not documented by the taxpayer. Depreciation of assets is calculated on the basis of a pooling system that is different according to the category of assets. In general, buildings and machinery incorporated in the building may be depreciated linearly over 20 years, computers and software products in 4 years, and all other business assets in 5 years. Non-performing loans may be deducted under specific conditions.

Time and method of payment - advanced payment of Corporate Income Tax The income tax should be paid in advance, no later than day 15 of the current month. For each of the first four months of the year (January - April), the advance monthly payment is calculated as the total payment of the previous two years divided by 12. For the remaining eight months, the advance monthly payment is calculated as the previous year income tax minus the actual advance payments (January - April), divided by eight. The sum of monthly tax payments is matched with the annual taxable income declaration, which has to be submitted by 31 March of the following year, together with the financial statements and annual accounting annexes. Any shortage of the advance payments must be paid within 15 days. The required amount of money is paid by the taxpayer at a specific account of the Tax Authorities.

Reimbursements

Any surplus of the advance payments over the actual payments due shall be used by the tax administration to pay taxpayers' current or future tax liabilities, or shall be reimbursed to the taxpayers, upon their request, within 15 days of the day of submitting the annual taxable income declaration.

Other

Residents of the Republic of Albania are required to withhold tax at the rate of 15% from the payment of dividends distributed to non-residents, interest, copyright and royalties deriving from intellectual properties, technical services and management, construction, installment, assembling, or respecting supervising work. A resident person who distributes dividends or profits, or pays interest to resident individuals, is required to withhold tax from such dividends, profits, or interest, at the rate of 10%. In both cases, the amount withhold is delivered to the tax office within day 15 of the next month.

4.3. Property tax

Property tax is applied on agricultural land and buildings, equally to both local and foreign owners (where it applies - buildings). Tax on buildings is calculated on a Lek/m2 of the building area, and applies to all types of buildings. The tax is paid on a monthly basis, through the electrical energy bills.

Property tax on buildings

4.4. Excise tax

Excise Tax is applied on a number of products designed for local consumption, either locally produced or imported.

Excise rate and the basis applied

There are two ways of setting the excise rate: Excise Percentage Rate and Excise Stamps. Excise Tax - Percentage Rates & Stamps

For all goods produced locally, excise rate is calculated on the basis of the average price of the specific good, defined by the Institution of Statistics (INSTAT) every quarter, according to the methodology provided by the Ministry of Finance. For oil-by-products, the excise rate is calculated on the basis of the domestic prices, defined by the government. For imported goods, excise is calculated on the basis of the custom value + custom rate.

Exceptions

l Exports of all these products;
l Liquid gas for general use.

Time and method of payment
For goods (both produced locally and imported) subject to excise stamps, excise tax is paid at the moment of buying the stamps by the interested subjects. For goods produced locally, subject to excise rates, excise tax is paid within 5 days from the moment of issuing a receipt to the buyer by the producer. The producer has to include the value of the excise in the receipt, to withhold it from the buyer, and to pay it at the State budget (at a specific account, which belongs to the Tax Authorities). For the imported goods, subject to excise rates, excise tax is paid at the custom.

5.1. Accounting regulations Albanian accounting standards are based on Law No. 7661, dated 19/01/1993, "On the Accounting". This law regulates the general conditions of bookkeeping principles, timing and procedures relating to inventories, asset and liability valuation, profit and loss calculation, financial statement formats and auditing requirements. All individuals or entities carrying out business or economic activities are subject to this law. Furthermore, all entities must adopt an accounting system in compliance with the accounting plans issued and approved by the Council of Ministers. Currently, there are three accounting plans:< l general Accounting Plan, which covers most of the entities subject to accounting law; l accounting Plan for Banks, covering commercial banks; l public Accounting Plan, which covers central and local governmental institutions. The Ministry of Finance can approve supplements to these plans, depending on the specific characteristics of each entity. The fiscal year, which has to be consistent with the tax year, consists of twelve consecutive months and should commence with the calendar year. Variations from this rule have to be authorized by the Ministry of Finance.

Accounting records must be kept and maintained in Albanian Lek and in Albanian language. Transactions in foreign currencies are allowed to be carried out through special accounts in the respective currencies. However, at least every month and at the end of the fiscal year, they must be converted in Albanian Lek. All accounting books, source documents, and financial reports should be retained for a period of 10 years. Normally, accounting books and records could also be maintained by third parties, with exception of cases specified by law.

Albanian bookkeeping rules are similar to those commonly applied worldwide. Entries have to be documented on a double-entry basis, arranged chronologically and on a historic cost basis. Accounting is done on an accrual basis. However, non joint-stock companies could use cash accounting if they meet the following requirements:
l amount of yearly sales does not exceed Lek 50 million for goods and Lek 15 million for services; l the yearly average number of permanent employees does not exceed 10. When one of these limits is not met for two subsequent years, this exemption does not apply. Companies should physically verify tangible assets as follows:
l immovable property once in three years; l other tangible assets once a year, preferably at the end of the fiscal year; l cash, investment and work in progress at the end of the year. Depreciation of fixed assets and amortization of intangible assets is calculated according to the methods and rates determined in the tax law. Alternative rates for accounting purposes are not allowed. The following principles, common to international accounting practice, apply in the preparation of financial statements:
l assumption of the going concern basis;
l consistency between accounting periods;
l use of accrual accounting and matching concepts;
l comparative information should be disclosed in respect of the previous period for all numerical information in the financial statements;
l each material item should be presented separately in the financial statements; l assets and liabilities, as well as items of income and expense should not be offset; l all transactions and accounts should be valued and presented fairly, prudently, and transparently; l fixed assets are valued at acquisition or production cost net of depreciation or amortization; l raw materials supplies, finished products and work in progress, are valued at purchasing or production costs. The cost of inventories could be established using methods in the General Accounting Plan, such as FIFO, weighted average price, etc.

/Agriculture and food industry/ Tourism/ Transport/ Telecommunications/
/Energy/ Major municipal infrastructure projects/ Sectors with great potential for development: tourism, agriculture, construction, manufacturing (textile, footwear, etc.), wood processing, energy and transport.
6.1. Sector overview
6.1.1. Agriculture and food industry
About one-fifth of the countryÆs land is arable. Major drainage and reclamation projects since the 1950s have added greatly to the total farmland. The major crops include wheat, vegetables and melons, corn, sugar beets, potatoes, etc. In stock breeding, cattle, sheep, goats, pigs, and fish are the main animals bred. Timberlands are an important natural resource and yield wood for fuel, lumber, and veneer.

Significant amounts of international and bilateral donors' contributions have been provided for the improvement and rehabilitation of agricultural infrastructure. Most developed are meat processing, milling, brewing, fishing, wood processing and dairy sectors. The country has considerable potential for the production of olive oil, honey, fruits and vegetables.

6.1.2. Tourism
Albania's nature and ecology allow for the possible development of all kinds of tourism, and particularly for the development of medium, high and elite tourism and facilities. There are two broad areas for tourism development:
l Coastal zones, primarily the Adriatic coast starting from Velipoja to Vlora bay and the Ionian coast from Llogara to the Greek border;
l Interior zones, primarily lakes and mountain areas.
Certain areas have already been designated as Priority Tourism Zones, where all other economic activities shall be subordinated to tourism.

Investment ideas
Tourism resorts, hotels, tourist villages and conference facilities; Cultural centres for music and folklore festivals; Rural tourism sustained by special tourism activities, based on existing villages, lodges, mountain refuges and camping sites in rural and mountain areas; Tours to archaeological sites and scenic areas; Cruises and private yachting facilities; Hunting and fishing tourism; Golf and tennis centres. Opportunities for tourism projects

The refurbishment of hotels and restaurants currently owned and operated by state and private entrepreneurs; The development of beach resorts, hotels, tourist villages and attractions on the principal coastlines - the Adriatic and the Ionioan coasts; Yachting marinas along the coast; The creation of lake and mountain resorts particularly in the western and southern parts of the country; High quality coach and minibus tours using good quality bed and breakfast accommodation; Joint ventures in ground handling, travel agencies, car rental and other travel business. The Albanian coast has the potential to become the yachting centre of the Mediterranean, with first class facilities and back-up resources.

Being one of the main priorities of the Albanian Government, tourism is expected to bring in half of the country's income in the near future. Foreign investors in the Priority Tourism Zones shall enjoy rights (The Law on Priority Tourism Development Zones), tax exemptions and holidays.
6.2. Infrastructure
6.2.1. Transport
Rehabilitation of the road network is a major area for new investment. External financing is needed to complete the remaining segments of the main North-South and East-West road corridors, rehabilitation of rural road networks, and for the establishment of an efficient and adequately funded road maintenance system. Upgrading of the Durres-Kukes-Morin road will also be initiated providing improved access to Kosovo. A programme for the rehabilitation of port infrastructure is under way at Durres and Vlore, which are major entry points for the Pan-European Corridor No. VIII. Initiating the development of secondary ports at Sarande and Shengjin is also a priority.
In civil aviation, a programme for the rehabilitation of airside facilities at Rinas International Airport has recently been completed. The Government is seeking a private investor for the construction of a new passenger terminal. The development of local airports within the basic national civil aviation infrastructure is also planned.
In the rail sub-sector, new investments are envisaged in the context of the general master plan for the harmonisation of the different transport modes linked to the development of the Pan-European Corridor No. VIII.

6.2.2. Telecommunications
Albania's two telecommunication companies Albanian Telecom and Albanian Mobile Communications were slated for privatisation till the end of 2000 (Albanian Mobile Communications has already been privatised). They would need investments for the extension and modernisation of their networks.

6.2.3. Energy
Albania has a wide variety of energy resources ranging from oil and gas, coal and other fuels, to hydropower, natural forest biomass and other renewable energy. The electricity sector is the most important energy sub-sector, where about 90% of the produced electricity comes from hydropower plants (at present, only 30% of the hydro sources are exploited). The two big state companies are Albanian Electroenergetic Corporation (KESH) and Albanian Petroleum Corporation (APC). The contribution of the energy sector to the overall GDP is around 10%.

Recently, a draft "National Strategy of Energy" was developed. Its immediate objectives are the rehabilitation of the main power plants and the upgrade of the power transmission and distribution networks. Also, to increase the output from the existing oil fields and to secure exploration in the adjacent areas inside Albpetrol's delineated territories. Another objective is the resolution of the management issues in the sector.

Recognising the need of foreign and local private capital involvement for the implementation of the Energy Strategy, the Albanian government has expressed its willingness to improve the investment climate by restructuring the energy sector; introducing a new tariff and pricing policy; strengthening the sector regulation and supervision by independent and competent authorities; and increasing the efficiency of public and administrative services.