DOING BUSINESS IN ALBANIA

INTRODUCTION

Albania, often known as the pearl of the Balkans, is undergoing a dynamic phase of entrepreneurial and innovative growth. The national currency is the Albanian leke, but in recent years, a significant portion of domestic trade transactions has been conducted in Euros and U.S. Dollars. Foreign businesses looking to establish a presence in Albania have the option of setting up a branch or a representative office, which can be managed by either Albanian nationals or foreign individuals.

ECONOMIC OUTLOOK

The International Monetary Fund (“IMF”) projects that Albania, as part of the emerging markets and developing economies group, will maintain a growth rate of 4.1% in 2024, with an increase to 4.2% in 2025. This steady growth rate reflects Albania’s impressive economic resilience, particularly highlighted by a strong rebound in tourism, which contributed to nearly 5% growth in 2022. By 2023, Albania’s Gross Domestic Product (“GDP”) reached USD 23 billion, a substantial rise from USD 12.3 billion in 2012. This journey underscores Albania’s ability to turn challenges into opportunities, making it a favourable destination for economic expansion.

INVESTMENT OUTLOOK

Albania has positioned itself as a compelling market for foreign investors. Although Foreign Direct Investment (“FDI”) flows across sectors dropped by 12% in 2022, largely due to decreased financial transactions in developed nations, preliminary data for 2023 suggests a modest 3% rise in global FDI flows compared to the previous year. Over the last five years, Albania has consistently attracted FDI at levels that exceed its ten-year average. The Albanian Investment Development Agency (“AIDA”), founded under Law 10303 in 2010 and overseen by the Ministry of Economy, Culture, and Innovation, plays a crucial role in this growth by promoting investment, enhancing private sector competitiveness, strengthening export potential, and supporting both domestic and foreign investments.

TAX OUTLOOK

Albania has implemented tax reforms to create a favourable environment for investors while ensuring stable government revenue. The tax system includes targeted incentives to foster growth in key sectors such as tourism, energy, and technology.

1. Corporate Income Tax
   Albania’s corporate income tax rate is set at 15%, making it one of the more competitive rates in the Balkans. Small businesses, especially those with annual revenue under ALL 14 million (approximately USD 135,000). The government is considering additional tax reductions for high-growth industries, such as renewable energy, Information and Communication Technology, to stimulate investment in these emerging areas.
   
   
2. Value-Added Tax (“VAT”)
   The standard VAT rate in Albania is 20%, applied to most goods and services. However, certain industries benefit from preferential rates, such as a 6% VAT for tourism, which aims to further support the sector’s growth. In the future, additional sectors may become eligible for VAT exemptions, reflecting Albania’s efforts to diversify its economic base.
   
   
3. Personal Income Tax
   Albania applies a progressive personal income tax structure, with rates ranging from 0% to 23%, depending on income level. The top rate of 23% applies to earnings exceeding ALL 150,000 (around USD 1,450) per month. To attract skilled foreign professionals and expatriates, the government offers reduced tax rates and tax holidays for those working in certain high-demand sectors.
   
   
4. Incentives for Foreign Direct Investment (“FDI”)
   To promote FDI, Albania offers several tax incentives, including:

• Exemptions and Reduced Rates: For instance, profits from hotels that meet five-star standards and have international branding may be exempt from corporate income tax for up to 10 years.
• Customs and Excise Tax Exemptions: Investors in strategic industries, like renewable energy and tourism, may benefit from reduced or zero customs duties on machinery and equipment imports.
• Tax Holidays: Companies that invest in specific development zones or sectors may qualify for tax holidays, allowing for considerable cost savings in their initial stages.

CONCLUSION

Albania offers a compelling environment for doing business. As the country strengthens its appeal to foreign investors through favourable tax policies, support for emerging sectors, and active promotion by agencies like AIDA. Foreign investors and entrepreneurs will find a welcoming business climate, while also benefiting from Albania’s advantageous tax structures and an evolving regulatory framework aimed at sustainable development. Overall, Albania’s forward-thinking approach, economic stability, and pro-investment reforms make it an increasingly attractive destination for global businesses looking to establish a foothold in Southeastern Europe.