Category: Albania

As one of the next wave candidates for membership in the European Union, Albania went a long distance in the harmonization of its legal framework with the acquis communautaire in recent years. The most recent country progress report of the European Commission, issued as part of the 2020 Enlargement Package for the Western Balkans, recognized the legislative efforts of the country to align its legal framework to EU requirements and to enhance the country’s ability to assume the obligations of membership.Albania first ventured into the legal regulation of antitrust in 1995 by introducing a law On Competition, which dealt with antitrust, as well as with unfair competition and consumer protection matters. As a first attempt, it raised a lot of questions, but it also opened the topic of competition law in the country and served as a starting point in developing the relevant legal framework.

The now effective Law on Protection of Competition (LPC) was adopted in 2003, already with a clear direction at harmonization with EU antitrust rules. It was revisited in 2010 to follow up on this trend, whereas the more notable amendments included the introduction of a possibility of exemption of potentially restrictive agreements, application of the de minimis rule, further aligning the prohibition of abuse of dominant position, amendment of the merger control notification criteria and the merger control test, development of some procedural rules, etc.

The current legal framework includes, besides the LPC, a stack of secondary legislation – regulations and guidelines, dealing with block exemptions, treatment of agreement of minor importance, investigative and merger review procedures, leniency program, etc. What we see in this body of rules is familiar to the EU-trained lawyer in terms of regulation of prohibited agreements, abuse of dominant position, and merger control, along with a detailed procedural framework. The rules are overall in line with Articles 101 and 102 TFEU and the EU merger regulation, although along with the literal repetition of certain EU texts, some specifics show up occasionally both in the way of structuring of the law and in the essence of interpretation. As a matter of example: the LPC prohibits explicitly agreements which have as their object or effect the prevention, restriction, or distortion of competition, but makes no mention of concerted practices and decisions by associations of undertakings – these, however, are submitted as elements of a definition of “agreement.” Also, different agreements which do not fall within the categories of block exemption are required to be notified to the competition authority and the definition of “undertaking” is limited to legal and natural persons leaving out non-personified entities.

Worth noting is the vast power of the competition authority in dawn raids. Investigators can enter and search business premises and vehicles of the investigated undertaking, but also the domicile of administrators, managers, directors, and other staff members, as well as at the domicile and business premises of individuals and legal persons, whether external or internal, in charge of commercial, accounting, administrative, tax, and financial management. They can also access other premises, “equivalent to domicile,”  if there are reasons to believe, given the facts and concrete circumstances of the case, that in such premises there are books or other professional documents to be found which are deemed necessary to prove a serious infringement. The dawn raid of the business premises and vehicles of the investigated undertaking does not need court permission as a pre-requisite.

A point of focus is also competition advocacy. As part of the efforts of the European Bank of Reconstruction and Development to promote competitive economies in the countries it invests in, and, in particular, in the Balkans, a project for capacity building for the Albanian Competition Authority funded by the bank has been ongoing for the last couple of years.

It resulted in developing a Competition Advocacy and Communication Strategy, which was recently published on the authority’s website. The document lays out a five-year plan to strengthen future advocacy efforts to be carried out by the authority and to improve the effectiveness of its communication strategy in this direction.

With this at hand, the European Commission assessed the country as being “moderately prepared” in competition policy. “Serious concerns” were raised in the State Aid area, but antitrust framework and enforcement seem to be on the right track in the accession process.

By Svetlin Adrianov, EY Law Leader for Bulgaria, Albania, and North Macedonia

This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In Albania, similarly to other Balkan countries, politics influence the administration of justice and business, according to Kalo & Associates Executive Partner Aigest Milo.

“Generally speaking, in Albania, business-related activities slow down during the election period,” Milo says. “This year’s general parliamentary elections, held in April, created some degree of uncertainty, lasting until the election results were published in May. However, the election atmosphere this year was atypical as, even during this period, there were some developments from the economic point of view.” According to him, since the parliamentary majority was reconfirmed for a third mandate, there was a sense of continuity and, therefore, no drastic changes have occurred.

Milo notes that the ongoing judicial vetting process remains one of Albania’s major challenges. “Many judges have been dismissed from office, as they did not pass the vetting procedure,” he explains. “Until very recently, Albania’s Supreme Court was in crisis, as only three seats out of 19 were filled. Similar developments have been witnessed in the Tirana Court of Appeal and lower courts, where a substantial majority of judicial seats remains vacant.” According to him, this has resulted in delays in reviewing cases. “In fact, at this moment, around 35,000 cases are awaiting decisions in the Supreme Court. Excessively long proceedings have a significant impact on business. In particular, it has been considered a major obstacle for foreign investors, who are more sensitive to judicial delays and the malfunction of justice.” Milo notes that various chambers of commerce representing foreign investors have raised objections to this issue.

In addition, Milo highlights that one of the major recent legislative reforms in Albania is related to the convergence of banking legislation towards the EU legal framework. “An interesting development has been the enactment of legislation regulating crypto assets. In Albania a comprehensive law was adopted, regulating different aspects of cryptocurrencies and crypto-assets, which will come into force next year. The law is a novelty not only for the region but globally, and it will have considerable implications for this sphere,” he notes.

Milo points out that the economy has largely recovered and reached pre-pandemic levels. “We are witnessing many M&A and finance-related transactions, involving local banks and international financial institutions. Unfortunately, deals involving local and regional business entities account for the majority of these transactions, as the number of foreign investments remains rather low,” he says.

Milo explains that the financial industry and manufacturing sectors remain very active, along with construction. “As a matter of fact, a major industry that has not been affected at all has been construction. To give a perspective, while last year, the overall economy shrank by 4%, the construction industry grew by almost 10%. The boom in construction can be witnessed not only in the capital but primarily in the southern touristic part of the country.” In addition, Milo highlights that the government has been promoting major infrastructure projects, such as ports, airports, and highways. “While the majority of these projects are still in the preparation phase, we expect their implementation to start shortly as well,” he says.

As for transactions, Milo mentions two major ongoing deals in the banking and extraction sectors – the sale of Alpha Bank’s subsidiary in Albania and the rumored sale of one of the biggest companies in the extraction sector. “Considering these developments, we hope that the growth trend in transactions continues not only in the following couple of months but for the next year as well,” Milo concludes.

The fiscal regime of companies and contractors operating onshore in the exploration & production segment of the oil and gas industry in Albania was fundamentally changed by Law no. 153/2020 On the Fiscal Regime in the Hydrocarbon Sector (the Hydrocarbon Fiscal Law or HFL), that came into effect on February 2, 2021.

According to the accompanying report of the HFL, one of the main purposes of the law is to mitigate tax avoidance and evasion in the sector, by subjecting to the fiscal regime (e.g. the application of a specific profit tax rate of 50%) certain sub-contractors, which directly or indirectly perform hydrocarbon-related operations and fall under one of the following circumstances: (a) the sub-contractor is an associated party with the operating company; (b) the sub-contractor performs essential activities for the hydrocarbon-related operations, constituting at least 25% of the contractor’s operation costs; and (c) the sub-contractor has entered into an agreement with the contractor, the main purpose of which is to avoid the application of the HFL’s specific tax rate.

Whereas the HFL provides the foundational principles and rules, the clarification and implementation of this measure has been recently detailed by a normative act of the Council of Ministers, namely Decision no. 397 dated 30.06.2021 On the approval of detailed rules for the subcontracted legal persons that perform hydrocarbon-related operations (the Decision), published with the Official Gazette no. 108, dated 07.06.2021.

Regarding the first criterion, the Decision does not actually provide further details, but merely reiterates the reference to the definition of the associated parties in the Law no. 8438/1998 On the income tax, as amended (the Income Tax Law). Although the definition of the Income Tax Law provides certain illustrative cases, such as a 50% threshold of ownership/voting rights, it still remains quite broad and open to interpretation case-by-case.

As regards the second criterion, the Decision provides that the assessment of whether the activities constitute essential activities will be carried out on a quantitative basis, by considering the total amount in all invoices (excluding VAT) issued by the sub-contractor to the contractor. In other words, if the total amount of the invoices account for at least 25% of the total costs of the hydrocarbon-related operations performed by the contractor, then the sub-contractor’s profits for this part of their activity will be subject to the 50% tax rate established by the Hydrocarbon Fiscal Law. It should be noted that there is no specification of the period for which such assessments will be made. It can be implied that, since the profit tax is declared and paid annually, the assessment and classification will happen on an annual basis as well.

Regarding the third criterion, on the improper use of agreements, the tax administration in collaboration with the National Agency of Natural Resources will investigate and scrutinize the compliance of the agreements and arrangements between contractor and sub-contractor with the HFL and the Income Tax Law, looking for any potential case of tax avoidance or evasion.

Where evidence is found of transactions or actions carried out by the contractor and the sub-contractor with the aim to evade or reduce the tax rate, the tax administration is entitled to adjust and re-assess the tax liability of the sub-contractor, in accordance with current legislation and procedures. The final decision on the applicable profit tax rate for the offending sub-contractor will be taken by the General Tax Director.

Albeit with a certain delay from the 3-month deadline provided in the HFL, the recently enacted rules on the regime of sub-contractors clarify the law’s implementation and constitute a milestone that will considerably affect the actors in the industry. Nevertheless, the Decision still falls short from being an exhaustive rulebook and requires further clarification with time, through the practice and interpretation of the authorities.

By Sabina Lalaj, Local Legal Partner, and Erlind Kodhelaj, Senior Legal Manager, Deloitte Legal

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

With oil reserves constantly estimated between 150 and 200 million barrels, Albania has been widely regarded as one of the richest in hydrocarbons European countries, whereas Patos-Marinza oil area is recognized as the largest onshore oil field in continental Europe. Therefore, it was only normal for the industry to be quickly regulated upon the transition of Albania towards democracy in the early 1990s, by adopting industry specific legislation. Law 7746/1993 and Law 7811/1994, dealing with the granting of exploration and exploitation rights and the taxation of the activities, respectively.

The Ministry of Infrastructure and Energy is the competent authority for concluding petroleum agreements with the investors for an initial term of up to 5 (extendable to 8) years for exploration, and up to 25 (extendable to 30) years for production and exploitation of the hydrocarbon reserves. With regard to areas that, by virtue of an agreement entered with the Ministry, are under the operation or administration of the state-owned company Albpetrol, it is the latter that is entitled to sub-grant the respective exploration and production rights to investors interested in the research and production of oil and gas. Production sharing agreements are the most common instrument used so far, whereby the contractor assumes the financial and technical risk in exchange for recovering its costs from revenues from sale of oil and gas produced.

Despite the abundance of natural resources, however, the production and the economic benefits from the sector have been lagging. On one hand, only a few agreements have moved into production phase. On the other, the companies that invested in exploration and production are yet to reach a point of recovery of their exploration and production costs. For the purpose of determining the taxable profit, contractors are entitled to deduct any investment made against petroleum revenues. As a result, the upstream oil & gas sector had hardly generated any taxable profit so far and, despite the significant tax rate on the profits from petroleum operations (50%), the positive impact of the exploitation of hydrocarbon resources on Albanian economy had been marginal.

While undertaking various attempts to promote the business opportunities in the sector, the state initiated a public consultation process for the introduction of fiscal measures aiming to improve the revenues of the State from petroleum operations, including but not limited to the extraction, production and sale of oil and gas. As a result of this process, on December 17, 2020, the Albanian Parliament passed Law 153/2020 “On the fiscal regime in the petroleum sector”, effective as of February 2, 2021. This act introduced some significant changes forming a substantially different fiscal ecosystem compared to the previous one. 

First, the new law introduced a limitation on the amount of annual expenses and carry forward tax losses which can be deducted against the annual revenues.  By setting forth that the deductible amounts cannot exceed 85% of the income, the new law is seeking to ensure a minimum of 15% of taxable income of all petroleum related operations and therefore aims to secure a tax revenue of effectively at least 7.5% of the total income of such operations.

Another novelty is that the new regime shall apply not only to legal entities that are licensed to carry out onshore petroleum exploration and production activities, but also to their subcontractors carrying out, directly or indirectly, petroleum operations. The expansion of the material scope of the Law in that direction is expected to result in the increase of the rate of the profit tax from 15%, to which the subcontractors were subject prior to the entry into force of the Petroleum Fiscal Law, to 50% with regard to the taxable profit deriving from petroleum operations carried out by the subcontractors.

Not surprisingly, the change was not welcome by the key industry players who already raised concerns during the consultation phase. It remains to be seen how it shall actually impact both the existing operations and the appetite of the future investors for the Albanian petroleum sector. However, it would certainly stir the status quo, and would be expected to trigger transformations in the oil and gas sector in Albania.

By Svetlin Adrianov, Associate Partner, and Krisela Qirushi, Senior Attorney at Law, EY Law

The global pandemic has impacted all markets, with subsequent ramifications for M&A. Investors are now seeking greater protection against general lock-downs and supply-chain disruptions, while governments aim to protect critical supplies and services by imposing new regulations on foreign investment in crucial or strategic industries.

The following overview is an extract from the Foreign Direct Investment in Central Europe publication, which gives insight into the regulations on foreign investment in strategic industries in the region.

Have FDI screening rules been implemented (or will they be implemented) in the country?

No. Regulation 2019/452 has not been adopted under Albanian legislation. The main applicable piece of legislation in Albania with regard to foreign investments is law no. 7764 dated 02.11.1993 “On foreign investors” as amended. Pursuant to Article 2 of such law, foreign investments in the Republic of Albania are not conditioned by a prior authorization. They are allowed and treated on the basis of conditions no less favourable than those recognized to domestic investments under similar conditions, with the exception of ownership of land, which is regulated by a special law.

Definition of FDI

Pursuant to Article 1 of law no. 7764 dated 02.11.1993 “On foreign investors” as amended: “Foreign investment” means any type of investment in the territory of the Republic of Albania, owned directly or indirectly by a foreign investor, which consists of:

1. movable and immovable property, tangible and intangible, or any type other property rights;

2. a company, rights deriving from any form of participation in a company, with shares,

3. loans, monetary liabilities or liabilities in an activity that has economic value and are related to an investment;

4. intellectual property, including literary and artistic works, technical-scientific, sound recordings, inventions, industrial projects, integrated circuit schemes, know-how, trademarks, trademark designs and trade names;

5. any right recognized by law or contract, and any license or permit granted in accordance with the law

Definition of foreign investor

Pursuant to Article 1 of law no. 7764 dated 02.11.1993 “On foreign investors” as amended: “Foreign investor” means:

1. any natural person who is a national of a foreign country; or

2. any natural person who is a citizen of the Republic of Albania, but with permanent residence abroad; or

3. any legal person established under the law of a foreign country;

4. any “community company”, within the meaning of Article 49 of the Stabilization and Association Agreement, approved by law no. 9590, dated 7.2006 “On the ratification of the Stabilization and Association Agreement between the Republic of Albania and the European Communities and their member states, which directly or indirectly seeks to make or is making an investment in the territory of the Republic of Albania in accordance with its laws, or has made an investment in accordance with the laws pertaining to the period from 31.7.1990 onwards

Do the following scenarios trigger the screening?

1. Acquisition of 10% or more of voting rights in the company: N.A

2. Establishment of a new branch: N.A

3. The production of new products: N.A

4. Establishment of a new company in which foreign investor will have more than 10% voting rights: N.A

5. The transfer of use or operational rights in infrastructure or assets that are indispensable for the operation of strategic companies: N.A

6. Other screening triggers: N.A

By Sabina Lalaj, Local Partner, Deloitte Legal

Albanian lawyer Elona Ganaj has joined CentralNic as Group General Counsel.

She began her career at Osce in 2003. From 2005 to 2008 she was a consultant at the International Finance Corporation. In February 2008 Ganaj joined Vodafone, where she was Senior Lawyer until 2012 and then Head of Legal until 2018. Parallel to that role, she was also Acting Head of Legal at Vodafone M-Pesa between May 2013 and December 2017 and Board Trustee of the Vodafone Albania Foundation between March 2017 and January 2018. Finally, she spent over three years as General Counsel and Company Secretary at Play, from 2018 until joining CentralNic in March 2021.

Originally reported by CEE In-House Matters.

“Today, what we are doing, is modernizing the financial services industry, tearing down those antiquated laws, and granting banks significant new authority.” President Clinton’s quote is quite relevant nowadays in Albania, where a major overhaul of the financial system’s legal architecture is being implemented. Indeed, in just three weeks, the Albanian Parliament enacted four very important pieces of legislation: the Law on Payment Services, the Law on Capital Markets, the Law on Collective Investment Undertakings, and the Law on Financial Markets Based on Distributed Ledgers Technology.

Three of these laws are a direct – although partial – transposition of EU Directives regulating the industry, including the Second Payment Services Directive, the Markets in Financial Instruments Directive, and the Undertakings for Collective Investment in Transferable Securities Directive. The Payments Account Directive, which is next in line for transposition, is expected to be enacted in the near future.

The Law on Payment Services, which is the first and most important pillar of this revolution, is designed to increase the financial inclusion of the population by implementing the “open banking” principle. In a country where only 45% of the population has a bank account, the entry into the market of non-bank actors will contribute to better consumer protection, increase transparency and competition, and of course provide new products with lower costs.

Implementing the Law on Payment Services, on the other hand, will impose additional challenges and obligations on the banks (such as addressing consumer complaints, updating technological systems, and so on), from a procedural and technology – and thus budgetary – point of view. The efficacity of the Law on Payment Services will be further boosted by the transposition of the Payments Account Directive

The Law on Capital Markets is designed to facilitate the development of the capital markets in Albania, which today are limited to state-issued bonds. The main objective of the Law on Capital Markets, which transposes MIFID II into Albanian law, is to protect investors by tightly tying the development of the capital markets to their transparency. While the law provides special requirements for the banks providing investment services to make the process less bureaucratic, it sets high standards for their corporate governance, as well as new requirements regarding the brokers’ organization, thus increasing the costs for actors operating in the market.

The Law on Capital Markets is complemented by the Law on Collective Investment Undertakings, which lays down uniform rules for investment funds and undertakings for collective investments in transferable securities, and sets out the framework for the authorization, supervision, and oversight of alternative investment funds.

The law designates a pivotal role for the Financial Supervisory Authority, which is responsible for the licensing and supervision process, by, among others things, expanding its ability to to conduct investigations (as opposed to just inspections, under the previous regime). In addition, it divides investors into “professional” and “nonprofessional” categories, and provides specific rules for the cross-border management and marketing of collective investment undertakings.

Last but not least, the Law on Financial Markets Based on the Technology of Distributed Ledgers, which has been described as “Europe’s most comprehensive crypto law yet,” applies to all regulated activities based on distributed ledgers technology and is designed to regulate, among other things, the issuance of digital tokens and virtual coins through Initial Coin Offerings and Security Token Offerings, the licensing of activities related to DLT, and the trading and storage of such digital or virtual tokens.

Even though the enactment of these laws is a giant leap forward for the development of the financial system in Albania, their correct implementation will largely depend on the numerous supplemental acts expected to be issued. In a country where established practices are as important as the letter of the law, it will be crucial for the authorities to use the best experiences from the EU countries as a model, otherwise this revolution will remain on paper.

By Aigest Milo, Executive Partner, Kalo & Associates

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Kalo & Associates has provided assistance to Albania’s Ministry of Finance and Economy in the drafting of the recently-enacted Law on the Central Register of Bank Accounts.

According to Kalo & Associates, the law, which was recently approved by Albania’s Parliament, “constitutes an additional tool in the fight against money laundering and financing of terrorism.” The firm assisted with the drafting “of this very important piece of legislation while also ensuring compliance with domestic and EU legal requirements.”

The control of merger transactions was first introduced in Albania in 1995. This law, however, provided only rudimentary guidance, and merger control really took off only after 2003, following the approval of Law no. 9121, “On Competition Protection” (the “Competition Law”), which established an independent competition authority – the Albanian Competition Authority (the ACA) – and provided for procedures that were aligned with EU standards. The Competition Law has been amended a number of times to further approximate its provisions with the EU acquis. The ACA has also issued regulations and instructions for the implementation of the merger control regime.

Notifiable Concentrations: Under the Competition Law, a concentration is deemed to include all transactions which, on a lasting basis, cause a change a control in undertakings or parts thereof, by way of (a) a merger of two or more independent undertakings (or parts of undertakings); (b) a direct or indirect acquisition of control over one or more undertakings through the purchase of shares or assets, or by contract or any other legal means, or (c) the establishment of direct or indirect control of one or more undertakings or parts of such undertakings (e.g., the creation of a “full-function” joint venture).

Merger control applies to concentrations which are relevant in size for the market. For this purpose, the Competition Law requires that the ACA be notified of the concentrations if, during the proceeding business year, (a) the aggregate worldwide turnover of all participating undertakings exceeded ALL 7 billion (approximately USD 67 million), and the turnover in Albania of at least one participating undertaking exceeded ALL 200 million (approximately USD 1.9 million); or (b) the aggregate turnover in Albania of all participating undertakings exceeded ALL 400 million (approximately USD 3.8 million), and the turnover of at least one participating undertaking in Albania exceeded ALL 200 million (about USD 1.9 million).

If a concentration meets the turnover thresholds, the general term for the notification of the transaction is 30 days following the execution of the relevant documents, and the transaction cannot be closed unless it receives clearance by the ACA. Applicable fines range from 1%-10% of the turnover for the preceding business year.

Foreign to Foreign Transactions: Merger control applies not only to concentrations involving Albanian undertakings, but also to “foreign-to-foreign” transactions, where none of the participating undertakings have a presence in Albania (e.g., through a subsidiary, a branch, or other assets), if their activity has an impact in the Albanian market. Based on ACA practice, “foreign-to-foreign” transactions require notification in Albania if any of the participating undertakings generate revenues in Albania (e.g., through agents or resellers) in excess of the relevant turnover thresholds provided under the Competition Law.

Merger Control Clearance: The responsibility to notify the ACA of the merger transaction falls on: (a) each of the undertakings participating in the merger, in case of a merger, or (b) the undertaking or undertakings acquiring control, in the case of an acquisition of control, or (c) each of the undertakings acquiring control over the joint venture.

The vast majority of merger notifications are dealt with by the ACA through simplified investigation procedures. Under these procedures, unless there are particular concerns that the transaction is likely to significantly restrict competition on the relevant market (or part of it), particularly through the establishment or strengthening of a dominant position, the ACA will clear the transaction, generally without remedies. If there are concerns that the merger will create or strengthen a dominant position, the ACA may start an in-depth investigation procedure and refuse the clearance, or grant the approval with specific conditions and obligations. In practice, foreign-to-foreign transactions notified to the ACA have been cleared without conditions and obligations within a period of 2-3 months.

The ACA fees for a merger control procedure are quite low, compared to other jurisdictions in the region. The ACA fees for a merger control procedure cleared through the simplified procedure will amount to approximately USD 5,000, while the authorization of a concentration with in-depth investigation procedures would cost up to 0.03% of the aggregate turnover of all participating undertakings during the preceding business year, but not more than approximately USD 19,000.

By Shpati Hoxha, Partner, and Selena Ymeri, Associate, Hoxha, Memi & Hoxha

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On July 07, 2020, the Albanian Parliament approved Law no. 112/2020, dated 29.07.2020 “On the register of beneficial owners.”

This law is designed to ensure transparency in the business environment and put additional fences on illicit activities. In fact, the preparation and approval of this law was highly recommended by the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism near the Council of Europe, and the law is partially approximated with the 4th EU AML Directive.

The law establishes the first-ever register for ultimate beneficial owners. The register will be a sort of two-layer document, with data such as name and surname, nationality, ownership nature over the entity, and so on accessible to the public, with other data accessible only by persons authorized by the reporting entities and state authorities during the performance of their functions.

The state institution in charge for administering the register is the National Business Center, the same authority in charge of managing the commercial register of companies in the country, although the two registers will be kept separate.

The Albanian legislator has provided an all-encompassing definition for reporting entities, as the following entities registered in the Republic of Albania are obliged to register their beneficial owners: (a) Commercial companies (including branches/representative offices of foreign companies), saving and credit companies and unions, mutual collaboration entities, cooperative entities, and any other legal entity that is obliged to register in Albania’s Commercial register; (b) Non-for-profit organizations; and (c) Legal entities and companies with shareholders including, in addition to local institutions of the Republic of Albania, other Albanian or foreign natural/legal entities.

Another central point of the law is the definition of a beneficial owner as an individual who ultimately owns or controls the legal entity, and/or an individual on whose behalf a transaction is being conducted.

The definition includes (a) an individual who ultimately owns or controls a legal entity, through direct or indirect ownership of 25% of the shares or voting rights or ownership interest in that entity, or through control via other means, or who benefits from a transaction performed by the legal entity on his or her account; (b) the founder or the legal representative or an individual who exerts ultimate effective control over the administration and supervision of a non-for-profit organization; (c) for trusts and other legal agreements, the settlor, the trustee, the protector if any, the beneficiary, or – where the individuals benefiting from a legal arrangement or entity have yet to be determined – the class of persons in whose main interest the legal arrangement or entity operates); or (d) any other individual exercising ultimate control over the trust by means of direct or indirect ownership or by other means.

The reporting entities have the obligation to maintain adequate, accurate, and up-to-date data and documents of their beneficial owners and the nature of the ownership.

The law empowers tax authorities to verify compliance of the entities with their obligations, as well as to confirm the accuracy and conformity of records with the information provided to the register during the course of usual tax audits.

On the other side the head of the National Business Center is entitled to impose fines both to the reporting entity and their legal representatives for failure to comply with the law. The monetary fines can vary from ALL 250,000 (approximately EUR 2000) up to ALL 500,000 (approximately EUR 4000).

The grace period in the law for reporting entities to identify their beneficial owners and collect the relevant documentation will elapse on December 31, 2020, and the register is to be established no later than January 31, 2021. Reporting entities are required to register their beneficial owners within 60 days of its establishment.

By Sabina Lalaj, Local Legal Partner, and Ened Topi, Senior Managing Associate, Deloitte Legal Albania & Kosovo

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.