Transparency of the Regulatory System
Albania’s legal, regulatory, and accounting systems have improved in recent years, but there are still many serious challenges. Endemic corruption, uneven enforcement of legislation, cumbersome bureaucracy, distortion of competition, and a lack of transparency all hinder the business community.
Albanian legislation includes rules on disclosure requirements, formation, maintenance, and alteration of firms’ capitalization structures, mergers and divisions, takeover bids, shareholders’ rights, and corporate governance principles. The Competition Authority ( http://caa.gov.al ) is an independent agency tasked with ensuring fair and efficient competition in the market. However, business groups have raised concerns about unfair competition and monopolies, rating the issue as one of the most concerning items damaging the business climate.
The Law on Accounting and Financial Statements includes reporting provisions related to international financial reporting standards (IFRS) for large companies, and national financial reporting standards for small and medium enterprises. Albania meets minimum standards on fiscal transparency, and debt obligations are published by the Ministry of Finance and Economy. Albania’s budgets are publicly available, substantially complete, and reliable.
The rulemaking process in Albania meets the minimum requirements of transparency.
In August 2020, Albania approved the law for the establishment of the register of the Ultimate Beneficiary Owners. The law aims to ensure transparency on the ultimate beneficiary owners, who directly and indirectly own more than 25% of shares, voting rights, or ownership interests in all entities registered to do business in Albania, and was adopted following the recommendations of MONEYVAL.
Ministries and regulatory agencies develop forward regulatory plans that include changes or proposals intended to be adopted within a set timeframe. The law on notification and public consultation requires the GoA to publish draft laws and regulations for public consultation or notification and sets clear timeframes for these processes. Such draft laws and regulations are published at the following page: http://www.konsultimipublik.gov.al/ . The business community frequently complains that final versions of laws and regulations fail to address their comments and concerns and that comment periods are frequently not respected.
All laws, by-laws, regulations, decisions by the Council of Ministers (the government), decrees, and any other regulatory acts are published at the National Publication Center at the following site: https://qbz.gov.al/.
Independent agencies and bodies, including but not limited to, the Energy Regulatory Entity (ERE), Agency for Electronic and Postal Communication (AKEP), Financial Supervising Authority (FSA), Competition Authority (CA), National Agency of Natural Resources (NARN), and Extractive Industries Transparency Initiative (EITI), oversee transparency and competition in specific sectors.
International Regulatory Considerations
Albania acceded to the WTO in 2000 and the country notifies the WTO Committee on Technical Barriers to Trade of all draft technical regulations.
Albania signed a Stabilization and Association Agreement (SAA) with the EU in 2006. The EU agreed to open accession talks on March 25, 2020 and the country is awaiting to hold the first Inter-Governmental Conference (IGC), which would mark the official opening of accession talks. Albania has long been involved in the gradual process of legislation approximation with the EU acquis. This process is expected to accelerate with the opening of accession negotiations.
Legal System and Judicial Independence
The Albanian legal system is a civil law system. The Albanian constitution provides for the separation of legislative, executive, and judicial branches, thereby supporting the independence of the judiciary. The Civil Procedure Code, enacted in 1996, governs civil procedures in Albania. The civil court system consists of district courts, appellate courts, and the High Court (the supreme court). The district courts are organized in specialized sections according to the subject of the claim, including civil, family, and commercial disputes.
The administrative courts of first instance, the Administrative Court of Appeal, and the Administrative College of the High Court adjudicate administrative disputes. The Constitutional Court, reviews cases related to the constitutionality of legislation and, in limited instances, protects and enforces the constitutional rights of citizens and legal entities.
Parties may appeal the judgment of the first-instance courts within 15 days of a decision, while appellate court judgments must be appealed to the High Court within 30 days. A lawsuit against an administrative action is submitted to the administrative court within 45 days from notification and the law stipulates short procedural timeframes, enabling faster adjudication of administrative disputes.
Investors in Albania are entitled to judicial protection of legal rights related to their investments. Foreign investors have the right to submit disputes to an Albanian court. In addition, parties to a dispute may agree to arbitration. Many foreign investors complain that endemic judicial corruption and inefficient court procedures undermine judicial protection in Albania and seek international arbitration to resolve disputes. It is beneficial to U.S. investors to include binding international arbitration clauses in any agreements with Albanian counterparts. Albania is a signatory to the New York Arbitration Convention and foreign arbitration awards are typically recognized by Albania. However, the government initially refused to recognize an injunction from a foreign arbitration court in one high-profile case in 2016. The Albanian Civil Procedure Code outlines provisions regarding domestic and international commercial arbitration.
Albania does not have a specific commercial code but has a series of relevant commercial laws, including the Entrepreneurs and Commercial Companies Law, Bankruptcy Law, Public Private Partnership and Concession Law, Competition Law, Foreign Investment Law, Environmental Law, Law on Corporate and Municipal Bonds, Transport Law, Maritime Code, Secured Transactions Law, Employment Law, Taxation Procedures Law, 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, and Value-Added Law.
Laws and Regulations on Foreign Direct Investment
There is no one-stop-shop that lists all legislation, rules, procedures, and reporting requirements for investors. However, foreign investors should visit the Albania Investment Development Agency webpage ( www.aida.gov.al ), which offers broad information for foreign investors.
Major laws pertaining to foreign investments include:
- Law on Foreign Investments
- Law on Strategic Investments: Defines procedures and rules to be observed by government authorities when reviewing, approving, and supporting strategic domestic and foreign investments in Albania
- Law on Foreigners
- Law on Concessions and Public Private Partnerships: Establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects
- Law on Entrepreneurs and Commercial Companies: Outlines general guidelines on the activities of companies and the legal structure under which they may operate
- Law on Cross-Border Mergers: Determines rules on mergers when one of the companies involved in the process is a foreign company
- Law on Protection of Competition: Stipulates provisions for the protection of competition, and the concentration of commercial companies; and
- Law on Collective Investment Undertakings: Regulates conditions and criteria for the establishment, constitution, and operation of collective investment undertakings and of management companies.
The Law on Foreign Investments seeks to create a hospitable legal climate for foreign investors and stipulates the following:
- No prior government authorization is needed for an initial investment.
- Foreign investments may not be expropriated or nationalized directly or indirectly, except for designated special cases, in the interest of public use and as defined by law.
- Foreign investors enjoy the right to expatriate all funds and contributions in kind from their investments.
- Foreign investors receive most favored nation treatment according to international agreements and Albanian law.
There are limited exceptions to this liberal investment regime, most of which apply to the purchase of real estate. Agricultural land cannot be purchased by foreigners and foreign entities but may be leased for up to 99 years. Investors can buy agricultural land if registered as a commercial entity in Albania. 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.
To boost investments in strategic sectors, the government approved a new law on strategic investments in May 2015. Under the new law, a “strategic investment” may benefit from either “assisted procedure” or “special procedure” assistance from the government to help navigate the permitting and regulatory process. To date, no major foreign investors have taken advantage of the law. Several projects proposed by domestic companies have been designated as strategic investments, mostly in the tourism sector.
Authorities responsible for mergers, change of control, and transfer of shares include the Albanian Competition Authority (ACA: http://www.caa.gov.al/laws/list/category/1/page/1 ), which monitors the implementation of the competition law and approves mergers and acquisitions when required by the law; and the Albanian Financial Supervisory Authority (FSA: http://www.amf.gov.al/ligje.asp ), which regulates and supervises the securities market and approves the transfer of shares and change of control of companies operating in this sector.
Albania’s tax system does not distinguish between foreign and domestic investors. Informality in the economy, which may be as large as 40 percent of the total economy, presents challenges for tax administration.
Visa requirements to obtain residence or work permits are straightforward and do not pose an undue burden on potential investors. The government amended the Law on Foreigners in February 2020. The amendments remove restrictions on foreign employees and streamline the visa and work permit processes for foreigners and foreign workers by introducing online visa application process, simplifying and accelerating the working permit process, and providing the same access to the labor market for citizens of Western Balkan countries as the United States, EU, and Schengen-country citizens have.
The Law on Entrepreneurs and Commercial Companies sets guidelines on the activities of companies and the legal structure under which they may operate. The government adopted the law in 2008 to conform Albanian legislation to the EU’s Acquis Communitaire. The most common type of organization for foreign investors is a limited liability company.
The Law on Public Private Partnerships and Concessions establishes the framework for promoting and facilitating the implementation of privately financed concessionary projects. According to the law, concession projects may be identified by central or local governments or through third party unsolicited proposals. To limit opportunities for corruption, the 2019 amendments prohibited unsolicited bids, beginning in July 2019, on all sectors except for works or services in ports, airports, generation and distribution of electricity, energy for heating, and production and distribution of natural gas. In addition, the 2019 amendments removed the zero to 10 percent bonus points for unsolicited proposals, which gave companies submitting unsolicited bids a competitive advantage over other contenders. Instead, if the party submitting the unsolicited proposal does not win the bid, it will be compensated by the winning company for the cost of the feasibility study, which in no case shall exceed 1 percent of the total cost of the project.
Competition and Antitrust Laws
The Albanian Competition Authority ( http://www.caa.gov.al/?lng=en ) is the agency that reviews transactions for competition-related concerns. The Law on Protection of Competition governs incoming foreign investment whether through mergers, acquisitions, takeovers, or green-field investments, irrespective of industry or sector. In the case of share transfers in insurance, banking and non-banking financial industries, the Financial Supervisory Authority ( http://amf.gov.al/ ) and the Bank of Albania ( https://www.bankofalbania.org/ ) may require additional regulatory approvals. Transactions between parties outside Albania, including foreign-to-foreign transactions, are covered by the competition law, which states that its provisions apply to all activities, domestic or foreign, that directly or indirectly affect the Albanian market. Parties can appeal the decision of the CA to the Tirana First Instance Court within 30 days of receiving the notification. The appeal does not suspend the enforcement of the decision that authorize concentrations and the temporary measures.
Expropriation and Compensation
The constitution guarantees the right of private property. According to Article 41, expropriation or limitation on the exercise of a property right can occur only if it serves the public interest and with fair compensation. During the post-communist period, expropriation has been limited to land for public interest, mainly infrastructure projects such as roads, energy infrastructure, water works, airports, and other facilities. Compensation has generally been reported as being below market value and owners have complained that the compensation process is slow, and unfair. Civil courts are responsible for resolving such complaints.
Changes in government can also affect foreign investments. Following the 2013 elections and peaceful transition of power, the new government revoked, or renegotiated numerous concession agreements, licenses, and contracts signed by the previous government with both domestic and international investors. This practice has occurred in other years as well.
There are many ongoing disputes regarding property confiscated during the communist regime. Identifying ownership is a longstanding problem in Albania that makes restitution for expropriated properties difficult. The restitution and compensation process started in 1993 but has been slow and marred by corruption. Many U.S. citizens of Albanian origin have been in engaged in long-running restitution disputes. Court cases go on for years without a final decision, causing many to refer their case to the European Court of Human Rights (ECHR) in Strasbourg, France. A significant number of applications are pending for consideration before the ECHR. Even after settlement in Strasbourg, enforcement remains slow.
To address the situation, the GoA approved new property compensation legislation in 2018 that aims to resolve pending claims for restitution and compensation. The 2018 law reduces the burden on the state budget by changing the cash compensation formula. The legislation presents three methods of compensation for confiscation claims: restitution; compensation of property with similarly valued land in a different location; or financial compensation. It also set a ten-year timeframe for completion of the process. In February 2020, the Albanian parliament approved a law “On the Finalization of the Transitory Process of Property Deeds in the Republic of Albania,” which aims to finalize land allocation and privatization processes contained in 14 various laws issued between 1991 and 2018.
The GoA has generally not engaged in expropriation actions against U.S. investments, companies, or representatives. There have been limited cases in which the government has revoked licenses, specifically in the mining and energy sectors, based on contract violation claims.
The Law on Strategic Investments, approved in 2015, empowers the government to expropriate private property for the development of private projects deemed special strategic projects. Despite the provision that the government would act when parties fail to reach an agreement, the clause is a source of controversy because it entitles the government to expropriate private property in the interest of another private party. The expropriation procedures are consistent with the law on the expropriation, and the cost for expropriation would be incurred by the strategic investor. The provision has yet to be exercised.
ICSID Convention and New York Convention
Albania is a member state to the International Centre for the Settlement of Investment Disputes (ICSID Convention) and is a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). In addition, Albania ratified the 1961 European Convention on International Commercial Arbitration (Geneva Convention).
Under the Albanian Constitution, ratified international agreements prevail over domestic legislation. The country has no specific domestic legislation providing for enforcement of foreign arbitral awards. Recognition and enforcement of foreign arbitral awards are regulated by provisions stipulated in the Code of Civil Procedure.
For an international arbitration award to be recognized locally, the claimant must bring the award before the Court of Appeals. The Appeals Court will not adjudicate the merits of the case and can strike down the award only for the reasons listed in Article V of the New York Convention.
The possibility of bringing an action before the local court to avoid arbitration proceedings is remote. According to provisions in the Albanian Code of Civil Procedure, if a party brings actions before local courts despite the parties’ agreement to arbitrate, the court would, upon motion of the other party, dismiss the case without entertaining its merits. The decision of the court to dismiss the case can be appealed to the Supreme Court, which has 30 days to consider the appeal. There is no legal precedent to date, of local courts refusing to recognize or enforce binding international arbitral awards.
The Albanian Code of Civil Procedure requires the courts to reach a judgment in a reasonable amount of time but does not provide a specific timeline for adjudicating commercial disputes. Reaching a final judgment in commercial litigation can take several years.
Investor-State Dispute Settlement
Albania signed a Bilateral Investment Treaty with United States in 1995, and it entered into force in 1998. Foreign investors opt to include international arbitration clauses in their contracts with Albanian parties because the court system is not responsive, and the judiciary is marked by endemic corruption.
Over the past ten years, there have been three investment disputes between the GoA and U.S. companies, two of which resulted in international arbitration. Despite the GoA’s stated desire to attract and support foreign investors, U.S. investors in disputes with the GoA reported a lack of productive dialogue with government officials, who frequently displayed a reluctance to settle the disputes before they were escalated to the level of international arbitration, or before the international community exerted pressure on the government to resolve the issue. U.S. investors in Albania should strongly consider including binding arbitration clauses in any agreements with Albanian counterparts.
International Commercial Arbitration and Foreign Courts
An alternative to dispute settlement via the courts is private arbitration or mediation. Parties can engage in arbitration when they have agreed to such a provision in the original agreement, when there is a separate arbitration agreement, or by agreement at any time when a dispute arises.
Albania does not have a separate law on domestic arbitration. In 2017, Albania repealed all domestic arbitration provisions of the Civil Procedure Code, leaving the country without provisions to govern domestic arbitration. In 2020, the GoA drafted a new law on arbitration that aims to regulate domestic and international arbitration. The draft is going through consultation process.
Parties may currently engage in domestic arbitration because the Code of Civil Procedure guarantees the enforcement of domestic arbitral awards. Mediation is also available for resolving all civil, commercial, and family disputes and is regulated by the law On Dispute Resolution through Mediation. Arbitral awards are final and enforceable and can be appealed only in cases foreseen in the Code of Civil Procedure. Mediation is final and enforceable in the same way.
The provisions for international arbitration procedures and the recognition and enforcement of foreign awards are stipulated in the Albanian Code of Civil Procedure. Albania does not have a separate law on international arbitration. The country is signatory to the 1958 New York Convention and therefore recognizes the validity of written arbitration agreements and arbitral awards in a contracting state.
Albania maintains adequate bankruptcy legislation, though corrupt and inefficient bankruptcy court proceedings make it difficult for companies to reorganize or discharge debts through bankruptcy.
A 2017 law on bankruptcy aimed to close loopholes in the insolvency regime, decrease unnecessary market exit procedures, reduce fraud, and ease collateral recovery procedures. The Bankruptcy Law governs 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 law establishes statutory time limits for insolvency procedures, professional qualifications for insolvency administrators, and an Agency of Insolvency Supervision to regulate the profession of insolvency administrators.
Debtors and creditors can initiate a bankruptcy procedure and can file for either liquidation or reorganization. Bankruptcy proceedings may be invoked when the debtor is unable to pay the obligations at the maturity date or the value of its liabilities exceeds the value of the assets.
According to the provisions of the Bankruptcy Law, the initiation of bankruptcy proceedings suspends the enforcement of claims by all creditors against the debtor subject to bankruptcy. Creditors of all categories must submit their claims to the bankruptcy administrator. The Bankruptcy Law provides specific treatment for different categories, including secured creditors, preferred creditors, unsecured creditors, and final creditors whose claims would be paid after all other creditors were satisfied. The claims of the secured creditors are to be satisfied by the assets of the debtor, which secure such claims under security agreements. The claims of the unsecured creditors are to be paid out of the bankruptcy estate, excluding the assets used for payment of the secured creditors, following the priority ranking as outlined in the Albanian Civil Code.
Pursuant to the provisions of the Bankruptcy Law, creditors have the right to establish a creditors committee. The creditors committee is appointed by the Commercial Section Courts before the first meeting of the creditor assembly. The creditors committee represents the secured creditors, preferred creditors, and the unsecured creditors. The committee has the right (a) to support and supervise the activities of the insolvency administrator; (b) to request and receive information about the insolvency proceedings; c) to inspect the books and records; and d) to order an examination of the revenues and cash balances.
If the creditors and administrator agree that reorganization is the company’s best option, the bankruptcy administrator prepares a reorganization plan and submits it to the court for authorizing implementation.
According to the insolvency procedures, only creditors whose rights are affected by the proposed reorganization plan enjoy the right to vote, and the dissenting creditors in reorganization receive at least as much as what they would have obtained in a liquidation. Creditors are divided into classes for the purposes of voting on the reorganization plan and each class votes separately. Creditors of the same class are treated equally. The insolvency framework allows for the continuation of contracts supplying essential goods and services to the debtor, the rejection by the debtor of overly burdensome contracts, the avoidance of preferential or undervalued transactions, and the possibility of the debtor obtaining credit after commencement of insolvency proceedings. No priority is assigned to post-commencement over secured creditors. Post-commencement credit is assigned over ordinary unsecured creditors.
The creditor has the right to object to decisions accepting or rejecting creditors’ claims and to request information from the insolvency representative. The selection and appointment of insolvency representative does not require the approval of the creditor. In addition, the sale of substantial assets of the debtor does not required the approval of the creditor. According to the law on bankruptcy, foreign creditors have the same rights as domestic creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. The claim is valued as of the date the insolvency proceeding is opened. Claims expressed in foreign currency are converted into Albanian currency according to the official exchange rate applicable to the place of payment at the time of the opening of the proceeding.
The Albanian Criminal Code contains several criminal offenses in bankruptcy, including (i) whether the bankruptcy was provoked intentionally; (ii) concealment of bankruptcy status; (iii) concealment of assets after bankruptcy; and (iv) failure to comply with the obligations arising under bankruptcy proceeding.
According to the World Bank’s 2020 Doing Business Report, Albania ranked 39th out of 190 countries in the insolvency index. A referenced analysis of resolving insolvency can be found at the following link: http://documents.worldbank.org/curated/en/255991574747242507/Doing-Business-2020-Comparing-Business-Regulation-in-190-Economies-Economy-Profile-of-Albania