NOTES PART 9

TAXATION
LEGAL FRAMEWORK Since 1995, following the process of opening and liberalization of the market, the Albanian Government, supported by the !", #uropean $nion, the %reasury &epartment $nited States of America and other organizations, has adopted a series of ta' laws( )urrently, the legal framework regulating the ta' system in Albania is based on* +aw ,o( 99-5, dated ./(0-(.00/ On the national taxes, and subse1uent amendments2 +aw ,o( 934., dated 40(10(.003 On the local taxation system and subse1uent amendments2 +aw ,o( /54/, dated ./(1.(199/ On the income tax in the Republic of Albania and its subse1uent amendments2 +aw ,o( -9./, dated .-(05(1995 On the value added and subse1uent amendments2 +aw ,o( /9-3, dated 1.(1.(.00. On the excise duty and subse1uent amendments2 +aw ,o( 99.0, dated 19(05(.00/ On the tax procedures in the Republic of Albania( &ecision of the )ouncil of !inisters ,o( 55, dated 04(0.(.010 67n obligatory electronic declarations of the ta' documents and other documents related to ta'es8, as per its name, states on the obligation of ta' electronic declaration( 1. INCOME TAX %he +aw ,o( /54/, dated ./(1.(199/ On the income tax in the Republic of Albania 96+aw /54/8: and subse1uent amendments, which came into force on the .1(01(1999, has substantially changed the ta' system( +aw /54/ governs direct ta'es on natural and legal persons( ;+iable to the income ta' are* companies, corporate groups, consortiums and institutions2 Albanians and foreigners who conduct a business in Albania < all those that are sub=ect to value added ta' payment 96legal persons8:( ;+aw ,o( /54/ establishes a criteria of territoriality* all sources of income are ta'able, even if perceived abroad( ;Sub=ect to income ta' are legal persons having their head1uarters 9residence: in Albania, as well as legal persons not resident in Albania but still having sources of income produced in Albania( A legal person is considered as resident in the case it has a registered office or place in Albania where it has the effective management of its affairs( From 1 January 200 !"# !a$ ra!# on %n&om# %' 10( ( %he ta' base is determined by the annual e'ercise balance and accounting records < in accordance with accounting rules 1

in force( %he fiscal year of reference starts on the 1st of >anuary and ends on the 41st of &ecember of each year( +aw /54/ introduced an analytical list of non deductible e'penses( )an not be deducted < among others ? the costs inherent to the ac1uisition, improvement, renovation and reconstruction of depreciable assets2 the payments for voluntary social security contributions2 the capital increase2 corporate dividends2 interest on loans that e'ceed the average rate declared by the @ank of Albania2 sponsorships that e'ceed 4A of income before ta', and books sponsorships that e'ceed 5A of unta'ed income2 personal consume, gifts, fines B fines2 arrears and penalties, pay and any other form of compensation related to employment, payment of which is not made through the banking system2 etc(2 as well as any other e'pense that is not documentable( Are not sub=ect to ta' on dividends distributed by companies, consortiums or groups of companies that have their head1uarters or that actually manage their economic activity in Albania, in the event that 9i: they are sub=ect to CA% and 9ii: the person benefiting, in what regards companies, is in possession of no less than .5A of the sharesB1uotas or of the right to vote and not less than .5A of the initial share capital of the consortium(

%a' authorities have discretionary powers to redefine the ta' to be paid 9in advance: if they believe the current yearDs profits are higher by at least 10A over the period of reference( %a' evasion and false accounting are punished with a fine e1ual to 100A of the difference between the owed and the stated amounts(

II. SMALL ENTREPRENE)RS*IP TAXATION Since >anuary .003, small entrepreneurs 9natural persons or legal entities: which have a gross annual turnover up to A++ 5(000(000 9appro'imately euro 43,000: are sub=ect to local ta' on small businesses, regulated by +aw ,o( 934., dated 40(10(.003 6+ocal ta'es system8, as amended 96+aw 934.8:( %hese ta'es are collected by the %a'es and &uties !unicipality 7ffices and flow into the municipal budget( According to the +aw 934., every ta'payer shall register with the register of local ta'es before starting their business( %he amount of local ta' on small business is determined by the turnover during the fiscal year and also varies by the type of activity( &espite the declaration by the ta'payer, the ta' office has the right to conduct inspections and remove the company from the register of ta'payers, giving notice to the )entral "iscal Authority( %he local ta' must be paid in four rates* 91: "irst rate < the time of registration or renewal of certificate of registration, within April .0, .

9.: Second rate < within >uly .0, 94: %hird rate < within 7ctober .0, 95: "ourth rate ? within .0 >anuary of the following year( III. IN+I,I+)ALS- TAXATION %he new rules dictated by +aw /54/ substantially modified the regime applicable to personal income( Ee1uired to pay ta' on all their incomes are* residents, people as the latter treated and non<residents( ,onresidents are sub=ect to ta' only on income produced in Albania( According to +aw /54/ the ta' is calculated separately for each category of income( +aw ,o( 9-33, dated 09(0-(.00- provides on a progressive ta'ation on the basis of the following rates for wages, salaries and other benefits resulting from annual reports of work* 7n the other income sub=ect to ta'ation, for which there are no specific law provisions, is applied the 10A fi'ed rate( I,. ,AL)E A++E+ TAX .,AT/ %he introduction of CA% was approved by the Albanian Farliament in April 1995 and entered into force on 01(0-(1993 under +aw ,o( -9./, dated .-(05(1995 67n value added ta'8( t was amended by subse1uent regulations 9about twenty of which in recent years* two in .00-, two in .00/ and one in .009: 96+aw -9./8:( +aw -9./ establishes two fundamental spatial criteria for the payment of value added ta'* such ta' shall apply to* 9i: the supply of goods and services supplied by the person who carries on business activities in the territory of the Eepublic of Albania 9ii: imports of goods into the territory of the Eepublic of Albania( All legal and natural persons performing ta'able supplies that have an annual turnover e'ceeding A++ 5,000,000 9appro'imately $S& 59,500 and #uro 45,/00: are sub=ect to pay CA%( @ut, according to a very recent +aw pro=ect, starting from >anuary 1, .011, the minimum annual turnover from which CA% is applicable will be A++ .,000,000 9appro'imately $S& 1/,000 and #uro 15,400:( %a'payers are re1uired to register within the first 15 days of the start of the economic activity( ,atural persons and legal entities operating in the importBe'port industry are re1uired to register regardless of the amount of their annual turnover( A special office dedicated to CA% registration operates in each &istrict %a' 7ffice( n this hypothesis, ta'payers are re1uired to register within the first 15 days of the start of the economic activity( "or natural persons and legal entities operating in importBe'port, is mandatory to be registered, regardless of the amount of annual turnover(

%he CA% rate is .0A( %he ta'able amount is the value of provided goods and services e'cluding CA%( %he ta'able amount of imported goods includes transportation costs and insurance, import costs, ta'es, duties or tariffs( +aw ,o( -9./ states that CA% is e1ual to 0A in some cases, including* 9i: e'ports of goods outside Albanian territory2 9ii: services performed outside the Eepublic of Albania by a person whose place of business or place of residence 9if individual: is located in Albania2 9iii: provision of goods or services relating to international carriage of persons or property2 9iv: provision of goods or provision of services relating to commercial or industrial shipping( ,. EXCISE TAX +egislation on e'cise duties was also entirely repealed and replaced by a new regulatory measure* +aw ,o( /9-3, dated 1.(1.(199/ On excise duty, as supplemented by +aw ,o( 9051, dated .-(4(.004 and, more recently, as amended by +aw ,o( 9143, dated .-(1.(.0042 +aw ,o( 94./ dated 03(1.(.0052 +aw 959/, dated .-(0-(.0032 +aw ,o( 9-15, 9-35, 9/55 of .00-2 +aw ,o( 9955, dated .3(03(.00/2 +aw ,o( 1003-, dated 0.(0.(.009 and +aw ,o( 1015- dated ./(09(.009( #'cise duties apply to a limited number of products for mass consumption, in particular, tobacco and its derivatives, petroleum, alcoholic beverages, soft drinks and coffee, as well as perfumes and deodorants( "or tobacco and tobacco products, the applicable rate goes from 50 to .500 A++Bkg2 for alcoholic beverages and li1ueurs applies an e'cise duty which goes from .0 A++Bliter to 500 A++Bliter2 while for non<alcoholic beverages e'cise rate is e1ual to . A++Bliter2 #'cise duty applicable to coffee goes from 50 to .50 A++Bkg2 and for petroleum products from 0 A++Bliter to 50 A++Bliter( f goods are imported, the ta' is calculated on the customs value plus customs duties( ,I. OT*ER TAXES n the Albanian ta' system, because of economic policy choices and distribution of revenues which come from the collection of ta'es and charges to be allocated to both the Government budget and local government bodies, there is a division between ta'es applicable in the national and local level( %hese recent times, the fiscal policy has been characterized by a particular focus on decentralization, inter alia, taking a particular strategic importance for the development of local economy( ,I. 1 NATIONAL TAXES

%he recent +aw ,o( 99-5, dated ./(0-(.00/ On national taxes determines the ta'es applicable at national level and regulates their collection( ,ational ta'es are* 9i: port ta'es2 9ii: the annual fee movement of vehicles2 9iii: the environmental ta', which consists of* 9a: import duty vehicles used2 9b: carbon ta' gasoline, benzene and diesel2 9c: rates of plastic bags for li1uids produced locally or imported2 9iv: ta'es and mining royalties2 9v: ta' on the transactions and stamp duty2 9vi: fees for registration of gambling, national lotteries, sports betting, casino and e1uestrian events2 9vii: All ta'es on fishing( 2. LOCAL TAXES AN+ FEES +aw ,o( 934., On the local tax system, as recently amended by +aw ,o( 10 153 of ./ September .009, regulates the ta' payable to the local ta' authorities( According to this law, are considered as local ta'es* ta' on small businesses, ta' on real property 9buildings and agricultural land:, hotels ta' 95A on the price paid by the customer overnight:, ta' on infrastructure for new constructions 91A to 5A of the investment:, ta' on transfer of ownership, registration fees for vehicles, fee for public spaces use 9monthly fee calculated on the basis of area occupied:, the charge of advertising and sanitation, temporary ta'es( #'* %a' on buildings* is calculated based on the surface of buildings and is annual( t varies depending on the district where the building is situated( "or e'ample, for the districts of %irana and &urres apply the following ta'es* 9i: buildings for commercial use .00 A++ B m, 9ii: housing 15 to 40 A++Bm. and 9iii: other 50 A++Bm.( %he ta' on agricultural land* is calculated based on the land held by the owner, is annual and varies depending on the category of land and location of the land itself( "or the districts of %irana and &urres applies a fee which goes from 1,/00 A++ B etc( to 5,300 A++ B etc( "or the ta' on transfers of real property* the ta' levied is payable by the seller of the property and is a necessary condition for proceeding with the registration of the property with Eeal #state Eegistration 7ffice( %ransfer of real estate property ta' is generally e1ual to .A < calculated on the selling price( ,II. SOCIAL SEC)RIT0 CONTRI1)TIONS According to +aw ,o( --04, dated 11(05(1994 On social security of the Republic of Albania and +aw ,o( -/-0, dated 14(11(1995 On the health insurance in the Republic of Albania, as amended, as well as their respective amendments, employers and 5

employees are re1uired to pay mandatory contributions to social security and health care( !andatory contributions cover the following risks andBor the following situations where the employee may be* temporary inability to work due to illness, maternity leave, old age, accidents at work and occupational diseases, unemployment( %he basis of the contribution is constituted by the minimum and ma'imum monthly salary established by decision of the )ouncil of !inisters( "or the purposes of calculating social security contributions, the minimum monthly wage is set at 13,110 A++ 9appro'imately #uro 11-: and the ma'imum monthly salary is set at /0,300 A++ 9appro'imately #uro 5//:( $nder the legislation in force, the employer must pay each month for each employee 9e'cept for small firms which pay every trimester: at the nstitute of Social Security, a total contribution e1ual to 4.(9A of the salary income received by the employee( %he overall rate of contribution* .1(-A is borne by the employer and 11(.A is borne by the employee( %he amount of contributions for which employee is ta'ed are deducted from his salary and paid by the employer( ,III. ACCO)NTING2 1)+GET AN+ A)+IT CONTROL +aw ,o( 9../, dated .5(05(.005 On the accounting and budget, as amended 93La4 922 5:, by repealing +aw ,o( -331, dated 19(01(1994, is currently the legislative framework on the matter( According to +aw 9../ all economic and non economic entities 9e'( ,G7: established in Albania, ,including institutions of creditBfinance and subsidiaries, regardless of their legal form, are re1uired to keep accounts in accordance with the principles and methods set by the Accounting ,ational )ouncil( !icro enterprises are e'plicitly e'cluded( Accounting records are written in Albanian and the applicable currency is A++ < in paper or electronic < and must be =ustified by supporting documentation, which will be preserved along with the a&&oun!%n6 r#&or7' 8or !"# n#$! 10 y#ar' after the closure of the financial year( +aw 9../ also provides the obligation to conduct an inventory of assets, liabilities and own capital, a! 9#a'! on&# a y#ar. %he business year lasts 1. months, starting from >anuary 1st and ending in &ecember 41st of each year( According to +aw ,o( 9901, dated 15(05(.00/ On entrepreneurs and commercial companies, it is solely the burden of companies to submit their accounting records and related documentation to audit(

PRO+)CT LIA1ILIT0
3

Froduct liability in Albania is mostly regulated by the Albanian )ivil )ode 96A))8:(

Ar!%&9# :2 o8 !"# ACC ;ro<%7#' !"a! 3 producers5 ar# 9%a=9# o8 a99 7ama6#' .!o ;#r'on' or ;ro;#r!y/ r#'u9!%n6 8rom 7#8#&!%<# ;ro7u&!' .4%!" !"# #$&9u'%on o8 a6r%&u9!ura9 ;ro7u&!' an7 ;ro7u&!' r#'u9!%n6 8rom "un!%n6/. Pro7u&! 9%a=%9%!y %' non>&on!ra&!ua9. As a matter of fact, it is the producer that is liable for damages caused by its products and the contractual relation between the damaged person and the producer is not a condition to the liability( Gho bears responsibility for the faultBdefectH %he manufacturer, the importer, the distributor, the 6retail8 supplier or all of theseH

$nder Article 341 of the A)), those considered as a 6 producer8 are the manufacturer of a final product, raw material or a part of the final product, as well as any person that presents himself as a producer by putting his name, trademark or other distinctive sign on the product( Additionally, any person who imports products for reselling, leasing or distributing as a business activity are considered to be a producer( "urther, Article 344 of the A)) provides that when the producer cannot be identified, any supplier of the product shall be considered as producer, unless such supplier, within a reasonable term, indicates the producer to the damaged person(

Fursuant to Article 1. of the Albanian )ivil Frocedure )ode, the party which claims a right has the burden to prove, in conformity with the law, the facts on which it supports its claim( $nder +aw no( 990., the obligation of the producer to inform the consumers with regard to a product is e'pressly provided(

nformation on the use and specifics of the product must be clear( 7n the other hand, Article 3 of +aw no( 9--9 provides that the producer shall give to the consumer all respective data and information in order to provide him with the possibility to evaluate the possible eventual risks that the product may cause( Iereupon, the consumer shall be aware of the danger the product may causeBhold( f the above informationBwarning is absent, the producer is liable and he might be sub=ect to a fine amounting to A++ 3,000,000(

%he manufacturer has several defenses at his disposal(

According to Article 3./ of the A)), the manufacturer is not liable in the following cases* -

a: the producer has not supplied the product2 b: the faultBdefect was not present at the time when the product has been supplied2 c: the product has not been manufactured for sale or any other form of distribution, with the intent of generating profits for the manufacturer, nor has it been manufactured or supplied in the framework of company or professional activity2 d: the defect is a result of compliance with regulations imposed by public authorities2 e: the defect was not discoverable given the state of scientific and technical knowledge at the time of supply2 f: it concerns raw materials or components of another product and the defect manifests during the formation of that product, or as a result of the incorrect instructions from the manufacturer of that product( $nder the Albanian legislation the in=ured party can recover monetary damages constituted by the damage suffered and profit lost( %he damage suffered can be represented by the damages to the product itself, damage to health or damage to property 9Article 350 and following of the A)):(