Business law in Albania
Business Law in Albania
Albania has undergone significant legal and economic reforms since transitioning from a centralized economy to a more market-oriented one. Its legal system is based on civil law, and business law in Albania is largely influenced by European Union (EU) standards as Albania aspires to join the EU. The country has made progress in improving its business environment, focusing on transparency, deregulation, and enhancing corporate governance practices.
Key Aspects of Business Law in Albania:
1. Legal Framework for Business
The Albanian Constitution guarantees the freedom of entrepreneurship, private property, and the free market. Alongside the Constitution, Albania's business laws are aligned with EU regulations, and the country has made substantial progress in harmonizing its legal framework with international standards. Some of the most important laws governing business in Albania are:
Civil Code: The Albanian Civil Code outlines the general principles of commercial transactions and contracts. It serves as the basis for civil law, including contracts, obligations, and corporate governance.
Law on Entrepreneurs and Commercial Companies: This law governs the formation and operation of business entities, including limited liability companies, joint-stock companies, partnerships, and sole proprietorships.
Law on Foreign Investments: This law is designed to encourage and regulate foreign investment in Albania. It guarantees national treatment for foreign investors, which means they are subject to the same regulations as domestic businesses and provides certain protections against expropriation.
Commercial Code: The Albanian Commercial Code regulates various business transactions, including sales contracts, agency agreements, and commercial disputes. It sets the framework for businesses and provides important guidance on commercial transactions.
Tax Law: Albania's Tax Code provides the rules for taxation of businesses, including corporate income tax, VAT, and other forms of taxes and duties.
Competition Law: The Law on Protection of Competition governs anti-competitive practices, including monopolies, cartels, and unfair competition, ensuring a competitive market economy.
2. Types of Business Entities
Albania provides a range of business structures suitable for various types of businesses. These include:
Sole Proprietorship (Biznes i Vetëm): A sole proprietorship is a business owned and managed by a single individual. It is the simplest and most common form of business entity in Albania. The owner has unlimited liability for business debts.
Limited Liability Company (Shoqëri me Përgjegjësi të Kufizuar, SHPK): The limited liability company (LLC) is the most popular corporate structure in Albania. It limits the liability of shareholders to their contributions. An LLC can be founded by one or more individuals, and the minimum share capital required is ALL 100,000 (approx. €800).
Joint-Stock Company (Shoqëri Aksionare, SHA): The joint-stock company (JSC) is used for larger enterprises. It requires a minimum share capital of ALL 2,000,000 (approx. €16,000). It can issue shares and raise capital by offering them to the public.
Limited Partnership (Shoqëri Komandite, SK): A limited partnership consists of at least one general partner who is fully liable and one limited partner whose liability is restricted to their investment.
General Partnership (Shoqëri e Përgjithshme, SHP): A general partnership requires at least two partners who share equal liability for the debts and obligations of the business.
Branch of a Foreign Company: Foreign businesses can establish a branch in Albania, but the branch is not considered a separate legal entity. The parent company is responsible for the branch’s liabilities.
3. Corporate Governance
Corporate governance in Albania is regulated by the Law on Entrepreneurs and Commercial Companies and international best practices. Key aspects include:
Board of Directors: Both limited liability companies (LLCs) and joint-stock companies (JSCs) are required to have a board of directors. In a JSC, there must be at least three directors.
Annual General Meetings (AGM): Shareholders of companies are required to hold annual general meetings to discuss and vote on critical decisions, such as approving financial statements and electing board members.
Accounting and Auditing: Companies are required to maintain proper accounting records, and larger companies (e.g., public companies) are subject to external auditing. The National Accounting Standards in Albania are based on the International Financial Reporting Standards (IFRS).
4. Contract Law
Albanian contract law is based on principles of the Civil Code, and businesses are allowed freedom of contract with some exceptions. The main principles of contract law include:
Freedom of Contract: Parties are free to negotiate and enter into contracts as long as the terms are not illegal or violate public policy.
Contract Form: Contracts in Albania can generally be oral or written. However, certain types of contracts (e.g., real estate transactions, long-term agreements) must be in writing.
Contract Performance: The Civil Code outlines remedies for breach of contract, including damages, specific performance, and contract rescission.
Consumer Protection: Albanian law includes significant protections for consumers, including provisions for fair trade, transparent advertising, and warranties for goods and services.
5. Taxation
Albania has a relatively straightforward tax system that applies to businesses:
Corporate Income Tax: The corporate income tax rate is 15%, which is relatively low compared to other European countries.
Value Added Tax (VAT): Albania has a VAT rate of 20%, which applies to most goods and services. Certain goods and services are subject to reduced VAT rates (e.g., 6% for certain books and food).
Withholding Taxes: There are withholding taxes on various payments to non-residents, such as dividends, interest, and royalties. The rates vary depending on the nature of the payment and applicable tax treaties.
Personal Income Tax: Albania has a progressive personal income tax system, with rates ranging from 0% to 23%, depending on income levels.
Social Security Contributions: Employers are required to contribute to the social security system for employees, including pension and health insurance contributions.
6. Labor and Employment Law
Labor law in Albania provides significant protections for employees, while also balancing the needs of employers:
Employment Contracts: An employment contract must be in writing and should outline terms such as job description, salary, working hours, and benefits. These contracts must comply with Albanian labor laws.
Working Hours: The standard working week in Albania is 40 hours, typically consisting of eight-hour days from Monday to Friday.
Minimum Wage: Albania has a statutory minimum wage, which is set by the government and adjusted periodically. As of 2023, the minimum wage is approximately ALL 34,000 (around €280) per month.
Employee Rights: Employees in Albania have the right to join trade unions, engage in collective bargaining, and receive protections against unfair dismissal. They are also entitled to paid annual leave, sick leave, and maternity leave.
7. Intellectual Property Law
Albania has laws to protect intellectual property, including patents, trademarks, copyrights, and industrial designs:
Patents: Patents in Albania are granted for inventions that are novel, inventive, and industrially applicable. The State Patent Office handles patent registration.
Trademarks: Trademarks can be registered with the Albanian Patent and Trademark Office and are valid for 10 years, renewable indefinitely.
Copyrights: Copyright law in Albania protects literary, artistic, and musical works. The protection lasts for the lifetime of the author plus 70 years.
Industrial Designs: Albania recognizes industrial designs and provides legal protection for unique, novel designs that have aesthetic value.
8. Dispute Resolution
Business disputes in Albania can be resolved through:
Courts: The Albanian court system consists of district courts, appellate courts, and the High Court. Business disputes are generally handled by the Commercial Court, which has jurisdiction over commercial matters.
Arbitration: Albania is a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has adopted laws that promote the use of arbitration to resolve disputes, particularly in international commercial matters.
Mediation: Mediation is also a recognized form of alternative dispute resolution (ADR) in Albania, though it is less commonly used than arbitration.
Conclusion
Albania offers a favorable legal environment for business, especially for foreign investors, through its stable regulatory framework, low corporate taxes, and relatively simple procedures for establishing companies. However, businesses must be diligent in complying with local laws, including tax regulations, labor laws, and intellectual property protections. As Albania continues to align its legal system with EU standards, it is becoming an increasingly attractive destination for both domestic and international investments.
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