TIRANA, June 14 – Frequently changing tax policies, almost on an annual basis, and unclear land ownership titles and lack of a cadastral map are the key barriers current and potential foreign investors face in Albania, says the American Chamber of Commerce in Albania.
Mark Crawford, the AmCham Albania president, says lack of cadastral map with clearly defined properties which investors can refer to for their investment plans is the key challenge for Albania and its efforts to attract foreign direct investment.
“I believe Americans can come and do business and cooperate with Albanians when Albanians become land owners. How can we build a hotel in Albania when we don’t know who the land owner is,” Crawford has told a local newspaper in an interview.
The Albanian government has recently offered tax incentives for luxury hotels and resorts for investment between €8 million to €15 million in new accommodation units to handle rising demand by foreign tourists and develop elite tourism in addition to rapidly growing mass tourism.
Despite the government offering land in return for investment, unclear property titles remain a serious concern due to some investors having previously abandoned their Albania investments following legal battles, protests by local residents claiming to be the rightful land owners and even assaults against investors.
“If something has to be done, there is only one thing. Start with a map, even if it is an incomplete map with little information at least start with what you have so that we know who the owners of that land are. To date, it is very difficult to invest in Albania,” Crawford has told Albania’s daily Telegraf in an interview.
“Until now, it is very difficult to invest in Albania. I have heard this from the Albanian Diaspora in America. The Albanian Diaspora has its links to Albania and is interested in investing in Albania, but they told me there was no land ownership here and they don’t know who to address and it’s very difficult for them to invest. Land ownership is the foundation for every loan with banks and that’s why this issue should be provided a final solution if you really want to have foreign investment,” he adds.
Some 200,000 Americans of Albanian descent live in the U.S. while the number of Albanian-Americans who permanently live in Albania is estimated at 20,000.
Thousands of families in Albania were expropriated by the communists when they took power following the end of World War II and efforts of many post-communist governments to definitively resolve the property restitution and compensation issue have so far failed. The unresolved property issue has had serious financial consequences as well as social effects in Albania. Not only it holds back foreign investment due to ownership disputes, but it has also resulted in an extra financial bill because of several rulings by the European Court of Human Rights in Strasbourg in favour of families who have been expropriated.
The property situation was further complicated in 1991 just as the country’s communist regime and its planned economy collapsed under the much-rumored ‘7,501’ law, portioning agriculture land on a per capita basis and not taking into account compensation of owners expropriated under the 1946 agrarian reform soon after the communists came to power.
Complicated tax system
The frequently changing and complicated tax system that Albania applies is another key concern for the American Chamber of Commerce in Albania.
“Tax changes in Albania can happen each year. How can a company plan an investment of several decades when the fiscal package changes every year and without prior notice. They don’t know what can happen tomorrow…and are advised that it is very difficult to predict what could happen to their business,” says Crawford.
“If the fiscal package changes so many times either for better or worse, it is very difficult to attract people to come and invest in Albania. That’s why the government should apply a fiscal package as simple and stable as possible in order to promote investor interest. In America, these tax changes can happen every 30 years,” he adds.
In the new 2019 fiscal package, the ruling Socialists say Albanian businesses will benefit lower corporate income tax as well lower value added tax rates on agritourism and exemptions from 20 percent VAT on imports of equipment to build solar power plants in tax incentives that come ahead of the upcoming mid-2018 local elections.
“The simpler the fiscal policy, the better it is for foreign investors because foreigners don’t want to waste time in learning Albanian, and don’t waste time to invest in a small country such as Albania if it is not simple enough and if Albanians are not ready to help them,” he adds.
The AmCham president says businesses in Albania, especially small ones face a lot of taxes, inspections and bureaucracy which significantly complicates their everyday business running. He suggests small businesses could pay an annual all-inclusive fee instead of the current complicated tax system.
“For Albania, I would suggest a tax system that could be different from that of France or Greece and which meets the culture of Albanians. There should be as little violence and stick as possible in enforcing the law. For me, it’s simpler to pay an annual quota. It could be $300 and no other report if it’s a small business,” says Crawford.
Albanian and foreign companies operating in the country expect the country’s business climate to continue remaining unfavorable in 2018 as the high tax burden, government bureaucracy and monopoly and unfair competition have emerged as the main barriers for several years in a row now, according to an annual survey conducted by the American Chamber of Commerce representing some of the key foreign and local investors in the country.
In a survey conducted in early 2018, about half of respondents, some 49 percent, perceived the 2017 business as very unfavorable or unfavorable. A third of senior executive described the business climate as neutral and it was only about one out of six companies saying the business environment is favorable (17 percent) or very favorable (0.7 percent).
The high levels of taxes has emerged as the top doing business barrier for Albania in the past three AmCham business climate surveys, with investors worried that Albania is losing its competitiveness compared to regional countries applying flat tax regimes of about 10 percent.
Since 2014, when Albania abandoned its 10 percent flat tax regime, the corporate income tax and the withholding tax on dividends, rents and capital gains have increased by 5 percent to 15 percent, making the tax burden in the country one of the region’s highest and a top concerns for businesses operating in the country.
Albania applies a 15 percent corporate rate, but AmCham president Mark Crawford says the real tax burden is up to 40 percent of profit if some 30 other taxes and tariffs are taken into account.
