INVESTMENT CLIMATE REPORT: PART ONE

UNCLAS SECTION 01 OF 09 TIRANA 000053

SIPDIS

STATE FOR EEB/IFD/OMA
STATE FOR EUR/SCE

E.O. 12958: N/A
TAGS: EINV EFIN ETRD ELAB KTDB PGOV USTR OPIC


SUBJECT: INVESTMENT CLIMATE REPORT: PART ONE

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A. OPENESS TO FOREIGN INVESTMENT

Overview
--------------

Albania is open to foreign investment and increasing FDI is a top
priority for the Albanian government. Albania has put in place a
liberal foreign investment regime, including a 10 percent flat
corporate and income tax and has taken measures to improve the
business climate by streamlining business procedures through
e-government reforms. These improvements along with NATO membership
and progress toward EU integration have contributed to the increase
in investor interest during the last couple of years. Promising
sectors for foreign investors and include: energy (including
alternative energies),mining, transportation, telecommunications,
and tourism. The country's geographic position places it at the
crossroads of western and eastern Europe. A stable U.S. ally,
Albania is a member of NATO, the WTO and is in the process of
applying for candidate status in the European Union.

Although FDI has increased during the last couple of years, it still
remains among the lowest in the region with a significant part of it
coming from privatizations. Despite progress in reforms the major
factors hindering FDI seem to remain the same: widespread
corruption, weak law enforcement, insufficiently defined property
rights, lack of developed infrastructure, a sluggish government
bureaucracy and frequent changes in the legal framework. Foreign
companies continue to face significant challenges in entering the
market, particularly in areas that touch on property rights. Despite
advancements government bureaucracy and inefficiency greatly hampers
the ability to hold successful, open and transparent government
tenders.

Legal Framework
--------------

The legal framework to encourage investment is already in place.
Law 7764 "On Foreign Investment," dated November 2, 1993, 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.

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 new law of 2008 "On Entrepreneurs and
Commercial Companies," that replaced 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 the Civil Code, the Law on National Business Registration
Center, Labor Law, Law on Securities and other important laws. The
most common type of organization for foreign investors is a limited
liability company. Other forms of business entities allowed under
the current law are joint stock companies, joint ventures, unlimited
partnership, limited partnership and sole entrepreneur enterprises.

Administrative and Judicial Overview
--------------

The National Business Registration Center, functional since
September 2007, serves as a one-stop-shop for business registration.
Starting a business became easier with online publishing of forms
and procedures, reduction of the registration cost, and the
consolidation of tax, health insurance, and labor registration into
a single application. Licensing for businesses has been streamlined

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with the opening of the Business Licensing Center in July 2009. As a
result, many licenses were abolished and a broad simplification of
licensing procedures has been completed in many sectors including,
mining, hydrocarbons, public works, health, agriculture and the
environment.

Albania's tax system does not discriminate against foreign investors
and no distinction is made between foreign and domestic investors.
The on-going reform in the sector aims at increasing the efficiency
of the tax administration and reducing corruption.

Albania has improved public procurement by approving a new law and
introducing e-procurement. 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 and criteria to identify
abnormally low bids have been introduced. 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. Despite progress, its
application is hampered by technical problems, the insufficient IT
capacity of many contracting authorities and corruption in drafting
tender documents. Companies continue to experience issues with
transparency in specifications and communication in competing for
public tenders. Overall, the improvements in the public procurement
legislation are advancing while the proper enforcement of the law is
still a work in progress.


Privatizations & Concessions Overview
--------------

The 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:

a) transport (railway system, rail transport, ports, airports,
roads, tunnels, bridges,parking facilities, public transport);
b) generation and distribution of electricity and heating;
c) production and distribution of water, treatment, collection
distribution and administration of waste water, irrigation,
drainage, cleaning of canals, dams;
d) collection, transfer, processing and administration of solid
waste;
e) telecommunication;
f) education and sport;
g) health;
h) tourism and culture;
i) prison infrastructure;
j) recycling projects, rehabilitation of land and forests, in
industrial parks, housing,governmental buildings, service of
maintenance of IT and data base infrastructure;
k) natural gas distribution;
l) management contracts or provision of public services including
those related tosectors specified above.

In order to promote investments in priority sectors 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 concessions that
require a separate operating license unless that is included in the
framework of the concession agreement.

The privatization process of the past 19 years has almost come to an
end with only a few large privatizations remaining. Privatization
forms include public auctions and public tenders.

Following some large privatizations which were finalized in 2009,
the GOA will most likely start the procedures for the privatization
of 100 percent of the state-owned insurer INSIG (following the
failure of negotiations with the winner in early 2009 for the sale
of 61 percent of the shares, EBRD and IFC exercised the put option
for their 39 percent and GOA became the owner of 100 percent of the
INSIG shares.) In addition, the GOA has announced its intention to
fully privatize Albpetrol, the state-owned company that manages and
administers all the existing gas and oil fields in Albania. The

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company also has the right to sign petroleum agreements with
interested parties for the existing gas and oil fields. In
addition, the GOA will also privatize through an auction the 16
percent of state owned shares of the fixed line monopoly
Albtelecom.

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
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
[www.albinvest.gov.al]

International Indicators
--------------

"Doing Business 2010," 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 183
economies. Albania has continuously moved up in their rankings as
highlight below. Albania has also improved its ranking on its MCC
scorecard and for the first time passed the median score for control
of corruption for its class. However, there has been a slight
decrease in Transparency International's corruption index for
Albania.

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
was considered as a recognized benchmark for international financial
institutions that Albania could be judged by internationally
accepted standards. In December 2009, despite the global financial
crises, Moody maintained its rating of GOA debt at B1 and forecasted
a stable outlook for the future.

TI Corruption Index:2009=3.20, 2008=3.40, 2007=2.90
Heritage Economic Freedom:2009=63.70, 2008=63.30, 2007=61.38
World Bank - Ease of Doing Business(rank):2010=82.00, 2009=86.0,
2008=135.00, 2007=120.00

(All MCC are ranked as above/below median of zero and are for fiscal
year noted)
MCC Government Effectiveness: 2010= 0.08, 2009=0.00, 2008=-0.15,
2007=-0.33
MCC Rule of Law: 2010=-0.24, 2009=-0.22, 2008=-0.20,2007=-0.47
MCC Control of Corruption: 2010=0.09, 2009=-0.12, 2008=-0.30,
2007=-0.34
MCC Fiscal Policy: 2010=-4.20, 2009=-3.60, 2008=-3.98, 2007=-4.41
MCC Trade Policy: 2010=85.80, 2009=75.80, 2008=63.20, 2007=57.40
MCC Regulatory Quality: 2010=0.60, 2009=0.24, 2008=0.01, 2007=-0.01

MCC Business Start Up: 2010=0.98, 2009=0.97, 2008=0.97, 2007=0.39
MCC Lands Rights Access: 2010=0.87, 2009=0.81, 2008=0.73, 2007=n/a
MCC Natural Resource Management: 2010= 97.29, 2009=79.65, 2008=79.43
2007=n/a


B. 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 No. 8269 dating 1997 amended in July 2002, the
Banking Law No. 9662 dating December 206 which regulates the
operation of commercial banks, and the Regulation on Foreign
Exchange Activities (FX Regulation).

Currency
--------------

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 follows a floating free regime. After
remaining quite stable versus the Euro and appreciating against the
US dollar, in 2009 it lost ground on both. It has depreciated almost

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13% against the Euro from January to the end of 2009 and to a lesser
degree against the US dollar due to the U.S. currency fluctuations
in the international market. The average exchange rate for the U.S.
dollar in 2008 was $1= 90.1 while in 2009 it was $1= 95.1. For the
euro the average exchange rate in 2008 was 1=122.5 lek and in 2009
1=131.4.

Foreign Exchange Regulations
--------------

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. In 2009, BOA
tightened supervision rules over liquidity transfers by domestic
banks to their foreign mother banks due to the financial global
crisis, the widespread lack of liquidity in the international
banking sector and its negative effects over the domestic market.

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.

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 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, Parliament passed a new law "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 Lek 1, 000,000 (approx
USD 10,000) in hard currency and/or precious items. Failure to
declare such assets is considered a criminal act and punishable by
confiscation of the assets and detention.



C. EXPROPRIATION AND COMPENSATION
In the post-communist period, expropriation has been limited to land
needed for infrastructure projects, such as roads and airports.
However, compensation has generally been below market value and some
owners have complained publically about the slow compensation
process and low payments.

The restitution process of properties confiscated during the
communist regime started in 1993 and is heading towards its
completion after multiple postponements. Critics charge that the
process and several cases have been mishandled due to corruption and
the process has been stalled due to 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 aimed to give a new
impetus to the process that was stalled for some time and to resolve
any competing land ownership claims resulting from communist-era
expropriation of land. Since 2006, GOA has twice extended the

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deadline for filing property claims. The final deadline was July
2009 and currently the only way to file a claim is through a court
decision. In December 2009, Parliament approved a new law which
extended the deadline for claims review from the National Agency for
Restitution and Compensation to December 2011. This should mark the
end of the restitution process for the entire process but is not
expected to be fully over to 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. In 2007 and 2008, the GOA
distributed a total of $10 million in financial compensation. In
2009, the amount increased to $13 million but it is still considered
inadequate given the large number of compensation requests. The
Restitution and Compensation Agency has completed the property
valuation mapping for the entire country in order to move forward
with the compensation process. Physical compensation has not
started yet despite GOA claims that it has identified public assets
to be used for this purpose.



D. DISPUTE SETTLEMENT

The Government of Albania has made efforts to handle investment
disputes in an appropriate manner but issues continue to hamper
effective resolution of disputes. The judicial system is viewed by
the business community to be slow and inefficient in its handling of
investment disputes. Albania has signed major arbitration
agreements and is legally obligated to enforce international and
domestic arbitration agreements.

Legal System
--------------

Albania has a civil law system similar to that of most other
European countries. The Albanian Constitution provides for a clear
separation of legislative, executive and judicial branches, thus
sanctioning the independence of the judiciary. Civil Procedure in
Albania is governed by the Civil Procedure Code enacted in 1996. The
civil court system consists of District Courts as the first instance
courts, appellate courts as the second instance courts, and the
Supreme Court, as the third instance court. Outside of the court
system, there is another special court, namely the Constitutional
Court which, upon request, reviews whether laws or subsidiary
legislation are in compliance with the Constitution and also
protects and enforces constitutional rights of citizens and legal
entities. The District Courts are organized in special sections for
adjudication; family disputes, commercial disputes and the section
for administrative disputes. Parties may appeal the judgment of the
first instance courts within 15 days while the Appellate Court
judgments might be appealed within 30 days to the Supreme Court.

Albania does not have a commercial code, legislation is encapsulated
in a series of commercial laws. Relevant laws include; Foreign
Investment Act, Commercial Companies Law, Bankruptcy Law,
Environmental Law, Corporate and Municipal Bonds, Transport Law,
Maritime Law, Secured Transactions Law, Employment Law, Taxation
Procedures Law, and of specific industries Banking Law, Insurance
and Reinsurance Law, Concessions Law, Mining Law, Energy Law, Water
Resources Law, Waste Management Law, Excise Law, Oil and Gas Law,
Gambling Law, Telecommunications Law, Value Added Law, Sports Law,
etc

Albanian have enacted and introduced laws and subsidiary legislation
in respect to property rights and contract rights. The courts and
the court bailiffs are the authorities empowered by law to (i) issue
the writ of execution and (ii) enforce in practice the claims of
parties described in the writ of execution. According to the
Albanian Civil Procedure Code foreign court judgments are recognized
and enforced by the Court of Appeal in a summary proceeding.

Bankruptcy
--------------

Bankruptcy is governed by Law 8901, dated May 23, 2002, "On
Bankruptcy" amended in May 2008. It is similar in organization to
German bankruptcy law. The Bankruptcy Law, as amended, aims at
finding a proper solution through the reorganization or liquidation
of insolvent businesses. It sets out non-discriminatory and
mandatory rules for the repayment of the obligations by a debtor in
a bankruptcy procedure. The new insolvency law established time
limits during insolvency, professional qualifications for insolvency
administrators, and an Agency of Insolvency Supervision to regulate
insolvency administrators. A simplified insolvency procedure for
small businesses was introduced as well. In reality, the law on the
bankruptcy has reportedly never been utilized and there have been no

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bankruptcy procedures so far. Generally, there exists only a
voluntary liquidation procedure.

Arbitration
--------------
The Government of Albania accepts binding international arbitration
clauses in specific investment agreements, and in many cases it has
been a party to arbitration disputes in foreign or international
arbitration tribunals, as agreed in the investment agreements.

Albanian has signed and ratified the New York Convention. In order
to have a settlement recognized a case must be brought before the
Court of Appeals in order to have the order to enforce directed to
the court bailiffs. This is necessary because winning parties cannot
directly communicate with bailiffs to enforce settlements/awards.


A new law on commercial arbitration is still in draft form and aims
at regulating all domestic and international arbitration procedures
and transposes the provisions of UNCITRAL Model law, which in its
turn incorporates comprehensively the New York Convention
provisions. This means that to date international proceedings
arbitration can be conducted based on the aforementioned ratified
international conventions. Domestic arbitration continues to be
governed by the provisions on the Civil Code Procedure which is more
or less in line with UNCITRAL arbitration. There is a private
arbitration centre (MEDART),a service center established under a
World Bank funded legal and judicial reform project in 2001.

An alternative to the dispute settlement via the courts in Albania
is private arbitration or mediation. Parties can engage in
arbitration when they have agreed to arbitrate according to a
Dispute Resolution clause integrated in the original agreement, or
through a separate Arbitration Agreement or by mutual agreement at
any time when the dispute is evidenced. 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. Under the Albanian Constitution, ratified international
agreements prevail over the domestic legislation. Albania has signed
and ratified the 1966 Convention "On the Settlement of Investment
Disputes" between States and Nationals of Other States (Washington
Convention) as well as the Convention of 1958 "On the Recognition
and Enforcement of Foreign Arbitral Awards" (New York Convention).
It has also ratified the 1927 Convention and the European Convention
on Arbitration (Geneva Convention).


E. Performance Requirements and Incentives

Albanian law generally does not establish performance requirements
or detailed incentives for foreign investors. 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.
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


In order to attract FDI, the GOA has applied a set of liberal fiscal
policies and has developed incentives for investors 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 percent to 15 percent as of May 2009
- Tax exemption of dividends designated for investments.
- Importers of machinery and equipment are eligible for VAT
deferral 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

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"On the leasing of state enterprises and institution's property."
- 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.

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."

The law on concessions 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.

There are not excessively onerous visa, residence, or work permit
requirements, or any similar requirements inhibiting foreign
investors' mobility. There are no discriminatory or preferential
export policies and import policies affecting foreign investors.
There are no requirements in Albania for foreign investors to
purchase from local sources or to export a certain percentage of the
output. One of the non-tariff barriers which reportedly is one of
the major concerns of the business community are the reference
prices (alternately called market p `Q Qermits p may be purchased, but onlyie land. There are no restrictions
on the purchase of private residential property. Both foreign and
domestic investors continue to experience significant issues in
resolving property disputes arising from unclear or incomplete
documentation.

Foreigners can acquire concession rights on natural resources and on
resources of the common interest, as defined by the law on
concessions. For some business operations licenses are needed. The
National Licensing Center (NLC) became functional on July 2009 and
the center serves as a one stop shop for business licenses. More
information on the types of licenses and application procedures can
be found at www.qkl.gov.al

Based on the Law No. 9723, dated 03.05.2007 "National Registration
Center" and following the opening of the National Registration
Center for Businesses (NRC) on September 2007, business entities can
be registered in a single place and in one day for one euro. More
information on NCR can be found at www.qkr.gov.al . Both NLC and
NRC were established with assistance from the Millennium Challenge
Corporation Albania Threshold Program, as e-government initiatives,
and save investors valuable time in establishing and carrying out
business operations, while also increasing transparency and reducing

tunities for corruption.

Business Types
--------------

The foreign and domestic investors have numerous options available
for organizing business operations in Albania. According to the new
Law No. 9901, dated April 14, 2008 "On Entrepreneurs and Commercial

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Companies" ("Commercial Law") and Law No. 9723, dated 03.05.2007 "On
National Registration Center", the legal types of business entities
that can be registered with NRC are as follows:

Entrepreneur

The Sole Entrepreneur trades under his own name and such trade must
be registered as a business name. Individuals interested in
establishing this type of business should file an application and an
identification document with the NRC in the district where the
business will be conducted. The application form includes the
identification data, address, type of business and exemplar of the
sole proprietor's signature.

Unlimited Partnership

All partners are unlimitedly and jointly liable for the debts of the
entity. Creditors can claim against a partner for the debts of the
partnership, only if they have failed in their claims against the
partnership as a whole. In unlimited partnerships, the partners are
all considered administrators of the partnership, unless the
contrary is stipulated in the bylaws. Each partner represents the
partnership with third parties. An unlimited partnership should
issue annual financial reports. The rights, duties and obligations
of partners are governed by written bylaws, which should be filed
with the National Registration Center

Limited Partnership

A limited partnership, which is seldom used in practice, consists of
one or more general partners (unlimited) with unlimited liability
and one or more limited partners whose liability is limited to the
amount of their agreed contributions of the initial capital. A
limited partner may not take part in the management of the
partnership even if he is given a proxy, otherwise he incurs
unlimited liability. The Articles of Incorporation of the limited
partnership should contain:
- The total amount or value of the contributions of all partners;
- The amount or value of the contribution made by each general or
unlimited partner;
- The percentage of the participation of all general partners and of
each limited partner in the partnership's profits and in the
remaining value after its dissolution.
- All decisions are made in conformity with the Articles of
Incorporation.

Limited Liability Company (Shpk)

This is the most common legal form of conducting business in
Albania. Its members enjoy limited liability and, unless the
articles of the bylaws provide otherwise, members have the right to
transfer their shares to other persons, upon decision of three
fourths of the shareholders. It can be established by one or more
partners, legal or natural persons, who are responsible for losses
only to the extent of their contribution to the capital of the
company. The minimum required capital for this form of company is
approximately $1 USD. The capital is divided into shares and there
are no mandatory requirements for their nominal value. The
contributions to capital can be in cash or in any asset, tangible or
intangible. The law does not permit contributions in services.
Administrators nominated through the General Assembly of the
shareholders manage the limited liability company. Extraordinary
decisions, increases or decreases in the share capital, mergers and
acquisitions are to be approved by at least three quarters of the
capital shareholders. The law requires annual financial statements
to be prepared by the company. The transformation of this form of
business into unlimited and limited partnership is subject to
decision of general assembly of the shareholders that takes valid
decisions upon majority vote of 3/4 of shareholders and after
approval of financial statements for the last two years.

Joint Stock Company

Its capital is divided into shares, with shareholders held
responsible for losses only to the extent of their contribution to
the capital. The minimum initial capital required is ALL 2 million
for companies with no public offering, and ALL 10 million for public
offerings. The Commercial Law provides for the adoption by joint
stock companies of a flexible administration system. This type of
companies may choose to adopt either the "monistic" system (with a
board of directors/administrators conducting both management and
supervising functions) or the "dualistic" system (with board of
directors/administrators and supervisory board conducting
supervising functions). The supervisory council exercises control
over the board of director's performance. This council should have
not less than 3 and not more than 21 members. The capital is fully
subscribed when the partners have promised to bring assets to the

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company in cash or in kind for an amount equaling the capital. In
the moment of the subscription, at least one quarter of the nominal
value of the shares representing contributions in cash must be paid
in. Payment of the remaining value shall be made in installments
upon the decision of the management bodies of the company. Shares of
contributions in kind must be fully paid in at the moment of
subscribing. The law does not permit contributions in services. The
shares of a joint stock company may be ordinary or privileged

Branches and Representative Offices

Under the Commercial Law, a foreign investor can also operate in
Albania through a branch or representative office. The branch or
representative office should be registered in the National
Registration Center and should have a legal representative empowered
by the head office to administer the office. For tax purposes, the
branch is treated in the same manner as an Albanian entity.

Joint Ventures

Albanian legislation recognizes the joint ventures under the term of
simple company, since it is based on an agreement only and no legal
personality is granted to this partnership. Joint ventures are
foreseen by the provisions of the Civil Code (articles 1074 -1112)
and may be concluded by two or more persons, whether individuals or
legal entities, foreign or national, agreeing to engage in an
economic activity in order to share profits deriving there from.
There is no minimum capital requirement. Partners are liable to
perform the contributions provided in the contract. Unless otherwise
agreed, every partner may take part in the management of the
partnership and has full power to carry out any acts which are
within the scope of the partnership. Every partner is entitled to
receive its share of the profits after the accounts have been
approved, unless otherwise agreed. Partners are jointly responsible
for fulfilling the obligations imposed upon them by law and by the
partnership agreement; unless they prove they were not at fault.

PLEASE SEE FOLLOW-ON CABLE FOR PART 2


WITHERS