Albania announces free zones with reduced tax on profits. Will investors be encouraged?

Albania announces free zones with reduced tax on profits. Will investors be encouraged?

Tirana, 25 May 2015/Independent Balkan News Agency

The Albanian government has announced free economic zones with a zero tax on profit for the first years and then applying 7% to 15% tax rate, the same rate which is currently applied.

The Minister of Economic Development has announced the tender which is held next month, starting with the area of Spitalla, near the coast of Durres. This is an area of 200 hectares.

Minister of Economic Development, Arben Ahmetaj, talks about the fiscal relieves and the criteria that will be applied in these free economic zones.

“In the first five years, enterprises operating inside the economic zone will not be taxed. In the second five year period, the tax will be half of what is applied now, which is a true relief. Another interesting element which has recently been incorporated is that for every expense incurred as a result of the training of staff, it will be recognized as a double expense for tax purposes, thus lowering the tax on profit and the expenses of the company”, says the minister. Minister Ahmetaj is optimistic for the functioning of the free economic zones. “We’re convinced that these instruments and this offer will enable us to create one of the best free economic zones in Europe”.

Apart from this, every non Albanian product which is traded or processed in these facilities, will be excluded from VAT and other indirect taxes.

The second category, that of business development areas, formerly known as industrial parks, will not benefit these concessions, because in contrast to the free economic zones, they are built by the state.

But, this category will have other benefits, such as the exclusion from VAT for raw materials, the lifting of the infrastructure tax, but also tax on real estate for the first five years.

“Berisha” launched the free economic zones

The right wing government of former PM Berisha was the first one to announce the launch of free economic zones in the country. The Agency of the Development of Investments says that the government approved in 2008, 9 economic zones, out of which 8 industrial parks and one free zone.

But, a number of problems, from ownership of land to infrastructure, made it impossible for any of those to be built.

Where are the 9 free economic zones approved since 2008

Koplik: The Industrial Park in Koplik, Shkoder, approved on January 4, 2008. It has an area of 61 hectares. The permit was given for industrial production activities, agri-processing, trade, etc. So far, no investment has been made.

Shengjin: Industrial Park with an area of 3,2 hectares.

Elbasan: Industrial Park with an area of 254,7 hectares in the region of the former Metallurgic Plant.

Durres: Industrial Park in Spitalle, Durres, with an area of 850 hectares, state and privately owned and the Industrial Park in Rrashbull.

Vlora: Industrial Park in Vlora. The government signed the concessionary agreement on 26 November 2008 with a company for the projection, funding, construction, operation, maintenance and transfer of the industrial park in Vlora. The investment on this area of 125 hectares should have amounted to 21 million Euros and create 18,586 jobs.

Shkoder: The Industrial Park includes the former industrial center with an area of 137 hectares.

Lezha: Industrial Park of Lezha, proposed by the municipality of Lezha and approved on 27 January 2009.

Tirana: Industrial Park of Tirana approved on 22 July 2009. There is no information on the destination.

Vlora: Free Economic Zone in a territory in Vlora, approved by the government on 11 June 2009 with decree no. 628.

Opposition is skeptic

Former Minister of Finance and current democrat MP, Ridvan Bode says that such law has existed before, but it hasn’t encouraged investors to come to Albania.

Bode says that the government is using free economic zones as a way to attract investors, because the country is applying the highest taxes in the Balkan. “Last year we saw that the number of investors fell to almost zero. Around 60% less than 2013, which also was not a good year. The country has the highest tax rates in the region. 50% higher than the other countries of the region. VAT and dividend are also the highest in the region. In an environment where the general level of taxation is the highest, some concessions granted to a limited number of clients cannot convince foreign investors to come and invest”, Mr. Bode says.

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Albania remains one of the few countries in the Balkan which has not privileged business areas, which are otherwise known as free economic zones.

Montenegro, FYR Macedonia, Slovenia, Croatia, Turkey, etc, have several free zones. They have been operational and development is evident.

So far, in Albania, efforts have been futile. But where is the problem?

It’s very simple. In Albania, the majority of state owned lands are occupied. Those who use them do not have the necessary documents.

Even privately owned lands have problems relating to the title.

These are key elements for the exploitation of the free zones and for the arrival of investors.

On the other hand, lack of infrastructure also serves as a deterrent for foreign investments in Albania.

If these two problems are not solved, these economic free zones run the danger of remaining on paper. /ibna/