The economic system of Albania is unanimously considered by the International Monetary Fund and the United Nations as that of a developing country. In order to reach the standards of the European Union and become part of the European community, in fact, Albania has recently started the path of accession and is currently going through a difficult transition towards a modern and open market economy.
The most developed Albanian economic sectors after the post-communist period are those of industry, construction, energy and in particular that of services which are always growing, affecting GDP. The mining sector, financial intermediation and manufacturing production also had great importance, attracting many foreign investors. In addition, the tax system, the low cost of labor, the spread of the Italian language have led many Italian companies to invest in Albania.
Main sectors of industry
The main productive sectors in Albania currently are: the agricultural sector; industry (mainly the light industry led by the fashion sector); trade and services. Albania offers important opportunities in the agricultural sector, thanks to its favorable climate and low cost of the rural workforce. Thanks to the use of traditional methods, Albanian fruit, vegetables, meat and dairy products are grown and produced with very few artificial additives, chemicals or pesticides.
Albania is thus able to become one of the world’s leading producers and exporter of quality organic food, destined for regional and European markets. With the ratification in 2009 of the Stabilization and Association Agreement signed on 12 June 2006, Albania is now applying European rules and standards to the agricultural sector.
Textile production and clothing are the main source of employment in the manufacturing sector. Building on a strong tradition in garment manufacturing, many local companies have built up a solid reputation since the privatizations of the 1990s, while foreign companies have significantly increased their share of production in the sector, particularly in the manufacturing sector. ‘export.
Taxation for businesses in Albania
From 1 January 2021, small businesses with a turnover of up to 14 million lek will be exempt from the simplified tax on profits of 5%.
Until now, companies with an annual turnover between 0 and 5 million lek paid zero profit tax, while companies between 5 and 14 million lek had a simplified tax of 5%.
According to INSTAT data (Institute of Statistics of Albania), in 2018 there were 94 thousand companies operating in the country with up to 4 employees and almost 80% of them declare less than 5 million lek, and consequently they are currently exempt from profit tax. Therefore, this move is not expected to have material effects on the balance sheet.
The abolition of the profit tax was previously supported by the Chamber of Commerce and Industry, as the changes will help small businesses overcome the Covid-19 crisis.
Investing in Albania
In 2006 Albania signed an Association and Stabilization Agreement with the EU, then stipulating several free trade treaties with individual countries to allow reciprocal free access of products to the markets.
Foreign investments are regulated by legislation issued in 1993 and modified over the years to create an increasingly favorable and business friendly climate. The FDI Law offers guarantees to all foreigners (natural or legal persons) operating in Albania, without the need for prior or governmental authorization, in any sector.
The latest amendment, which dates back to 2015, established that it is possible to operate through two different Procedures (Assisted and Special) and outlined the rules and criteria for granting the status of “strategic investment”. This type of business involves the use of foreign capital to pursue a project of public interest, with certain dimensions, times, productivity and value.
The investment will have to create new jobs and effective economic, regional and local development. The law grants foreigners the ownership of 100% of the capital of a company under Albanian law, prohibiting expropriation and nationalization of a company, except in cases of danger to the safety of the state or violation of the protection of the public interest.
Some limitations concern the television sector, health and legal services, as well as the purchase of agricultural land. The repatriation of profits will always be allowed, with favorable treatment in accordance with international agreements.