When entering a new market, most companies face the struggle
of establishing their brand and service with respect to the
existing operators. In this context, M&A procedures provide
an efficient and successful method for quicker development and
market expansion. This is also the case for international
companies operating in Albania, many of which have chosen to
merge with already established Albanian companies for the
purpose of their prospective growth in the country.
There are various M&A legal instruments and procedures
available to commercial companies operating or wishing to
operate in the Albanian market.
The Albanian Company Law (9901/2008) provides for the rules to
be observed in case of mergers in which are involved limited
liability companies and joint-stock companies (provided they
have been established and registered with the Commercial
Register for conducting their activity for at least one year
before the merger).
Company mergers are not a common form of acquisition in
Albania given the long procedures for their realisation under
the Company Law. Therefore, the most common form of acquisition
is the share or stock purchase transaction.
Mergers may be implemented in the form of mergers by
acquisition or mergers by formation of a new company.
Merger by acquisition is the transfer of total of assets and
liabilities, in exchange for shares, from the acquired company
to the acquiring company. The merger must obtain approval of
the general assembly of shareholders of the concerned
companies. In case of parent-subsidiary mergers, if the parent
company holds at least 90% of the registered capital of the
subsidiary (being a joint
-stock company), the fusion can be completed without
approval of the general assembly of parent company, unless the
shareholders of the parent company that own at least 5% of the
registered capital or voting rights request the convocation of
the general assembly for the approval of the fusion.
Before performing the merger, the legal representatives of
the involved companies must prepare a draft written agreement,
which regulates and governs the most essential aspects of the
acquisition that is to take place. In addition, a detailed
report must be prepared, describing the stages and any
difficulties in assessment encountered during the process.
Independent experts should also assess the conditions of the
draft agreement and compile a written report illustrating their
findings. Upon approval of the merger and its registration with
the National Registration Centre (NRC) the assets and
liabilities of the acquired company are transferred to the
acquiring company, and the shareholders of the acquired company
become shareholders of the acquiring company. The acquired
company ceases to exist and is cancelled (deregistered from the
NRC), without having to go through a liquidation process.
As regards protection instruments of the creditors of the
acquired company, under the Company Law these creditors may
submit (within the time limits provided by the law) written
evidence of their claims, for which the company has a duty to
provide adequate guarantees. For such purpose, legal
representatives of the merging company must assert in writing
that the company assets will be managed separately until
settlement of each creditor claim. In lack of such
ascertainment, creditors may request the court to order the
issuance of adequate guarantees or otherwise to annul the
Merger by creation of a new company is the transfer of all
assets and liabilities of the merging companies, in exchange
for shares in the new company. This newly-formed company is
considered as the acquiring company and is subject to the
Company Law provisions on formation of a new company.
The other provisions regulating the merger by acquisition
are the same applicable to the merger by formation of a new
Different from mergers, acquisitions involve the purchase by a
legal entity of another legal entity shares or business
activity or part thereof. In the acquisition, there is no
exchange of stock/shares or creation of a new company.
The Company Law does not regulate the transactions on share
transfer, with a few exceptions as described below. For issues
not governed by the Company Law, the Albanian Civil Code rules
such transactions in compliance with its general provisions on
transfer of property/rights.
The Company Law establishes that an acquisition of shares
can be made (among other means such as donation, inheritance or
contribution in the share capital) through a share purchase
agreement, which must be obligatorily in written form.
In addition, observance of any pre-emption rights,
eventually inserted in the bylaws of the concerned company or
shareholders agreements, must be made.
Regarding business transfer, the Company Law provides for a
prior shareholders' assembly approval in case of proposed
transfer of company's assets consisting of more than 5% of the
company's share capital.
In acquisition of the business activity, all rights and
liabilities of such activity are binding on the acquirer
provided that the trade mark or the registered name of the
business activity is also acquired by the acquirer. Any
agreement on restriction or exclusion of such liability cannot
be opposed to third parties, even if disclosed to the public
upon filing with the Commercial Register, unless it is proved
that the third party was aware of the agreement or, under
evident circumstances, could not have been unaware of it.
In any case, the acquirer of stock and business assets may
be protected by contractual warranties and representations of
the seller, as well as contractual indemnities and penalties
binding on the seller. Such warranties and representations are
usually indicated in the agreement for acquisition of the
As mentioned above, a foreign purchaser may acquire an Albanian
company (the target company) by purchasing either its business
or its share capital.
A foreign company acquiring the (Albanian) business of the
target company for carrying on business in Albania will
normally be regarded as having a permanent establishment in
Albania and be taxable in Albania pursuant to Albanian fiscal
legislation and any double taxation treaty entered into with
the country of residence of the foreign company.
The foreign company may also purchase the assets by using an
existing company in Albania or by establishing a new one.
Most tangible and intangible assets may be depreciated
(except for land, securities and some other specific assets)
(i) on a decline basis (buildings are depreciated at 5%/year,
software at 25%/year, and all other assets at 20%/year); or
(ii) on a straight line basis (trade marks and other
intangibles are depreciated at 15%/year).
There are no immediate Albanian tax consequences for a
foreign company when it acquires the stock of an Albanian
company, under the Income Tax Law. The tax position of the
acquired Albanian company remains unchanged, except for the
carry-forward of losses (see below).
With regard to the tax liability of the purchaser toward the
shares or business activity purchased, differences result
because of the nature of the transaction and the impact of
other applicable legislation.
As a result of the acquisition of shares in a company, the
purchaser might be liable for latent tax liabilities affecting
the company. Under the Tax Procedures Law, even a shareholder
of a company where the legal form imposes limitation of its
liability up to its contribution into the company might be
liable for the tax obligations of the company.
The indemnities or warranties to the benefit of the buyer is
a matter for negotiation between the parties, given that it is
not possible to obtain assurances from tax authorities that a
potential target company has no tax liabilities.
At the moment of disposal, any income resulting from a
source in Albanian territory is taxable in Albania. Therefore,
capital gains earned by a foreign company at the moment of
disposal of the shares or business assets and liabilities will
be subject to Albanian income tax (10%), except when double tax
treaties providing otherwise are applicable.
If the acquisition of business assets is made by an Albanian
acquiring company, the permanent establishment issue mentioned
above will have no impact on the acquisition.
The only tax differences arise in terms of taxation of
dividends distributed by the target company, implying that if
stocks are purchased by the foreign acquiring company through a
local company, dividends distributed by the target company to
the local subsidiary of the foreign acquiring company are
exempt from taxation (provided that both target company and
local subsidiary are Albanian tax residents and subject to
corporate income tax).
Under the Income Tax Law, net operating losses (which are
strictly related to the taxpayer) do not survive if the direct
or indirect ownership of the share capital or voting rights of
the target company changes by more than 25% in number or
Under the VAT Law, both transactions (acquisition of shares
and acquisition of business) are exempt from Albanian VAT
(which stands at 20%).
The acquisition of shares benefits from such exemption
because of the nature of the transaction, while the acquisition
of business would benefit from the exemption after fulfilment
of certain economic and legal requirements/conditions.
Business acquisition transactions are exempted from VAT if
the transaction is considered as a "transfer of economic
activity", which means a transaction where the taxable person
transfers entirely or partially its activity to another person
(being already or becoming a taxable person by continuing to
conduct such activity) and when two economic and legal
requirements/conditions are fulfilled.
The first is that the transferred activity must be
economically autonomous/independent, that is, continue to be
conducted independently after the transfer. Economic autonomy
requires the existence of all conditions necessary for the
realisation of the activity (such as the premises, raw
materials, equipment, and so on). If the transfer consists of
only one of these elements, the transfer will be considered as
supply of goods and as such VAT-able.
The second condition (the legal requirement) consists of
execution of a written agreement before a notary public and
verification of the financial statements of the seller
(especially the identification of the assets object of the
transferred activity and income realised from the transfer) and
of the purchaser.
The acquisition of business assets (transfer of economic
activity) will trigger application of national and local taxes
depending on the nature of the assets acquired. If the assets
constitute immovable properties, a tax for transfer of
ownership title over the immoveable properties will apply (such
tax is applied at a rate of Lek2,000 ($18.9) per square metre
for commercial buildings located in the capital city; the tax
is lower in other districts); furthermore, the tax is 2% of the
sale price for all immovable properties other than buildings
The Government has proposed a draft law on VAT which will
substitute the current VAT law. This draft law is prepared in
line with EU VAT Directive and provides for some new rules
regarding taxation of transfer of shares of companies owning
real estate and transfer of business.
On December 2011 the Ministry of Economy, Trade and Energy
introduced for discussion a draft law on cross-border
The purpose of the draft law is the establishment of terms,
procedures and legal consequences of cross-border mergers
between Albanian and European companies, as well as to provide
adequate protection measures for creditors and employees of
The draft law refers to Directive 2005/56/EC on cross-border
mergers of limited liability companies, but differently from
the Directive it applies to both limited liability companies
and joint-stock companies (but not to Albanian companies that
carry out activity in the field of collective investment).
Cross-border mergers would be subject to regulatory
approvals of the Albanian Competition Authority as well as of
other Albanian regulatory bodies having regulatory powers under
The draft law has not been yet approved by the Albanian
Law 10236/2010 provides for the takeover of companies with
public offer. The law is applicable to public offers for the
purpose of acquiring securities, accepted for trade in the
Albanian security market, issued by a public company that has
its legal seat in Albania, as well as foreign public companies,
with legal seat in and outside Albania, that are listed in the
Albanian stock market. Offers related to securities issued by
companies dealing with capital collective investment, as well
as securities issued by the Bank of Albania, are not subject to
Takeover of a public company is a process initiated by the
party interested in obtaining control, and who makes the offer
for obtaining control. Before publication of the offer, the
interested party must obtain approval of the Financial
Supervisory Authority (FSA) and thereafter publicise the offer
through the NRC.
Under the law, control is defined as ownership of at least
30% of the shares in the company. If the envisaged control may
result in a concentration under the Competition Law, clearance
of the competition authority is needed to be obtained before
publication of the offer.
On the contrary, if no control occurs due to acquisition of
shares, the offering party must notify the FSA within 10 days,
with no obligation to make an offer and request approval of the
Financial Supervisory Authority.
Similar to the merger of companies, the administration body
of the target company drafts and publishes in the NRC a
document analysing the offer and its eventual consequences.
Pursuant to Albanian Competition Law, a concentration arises
when a change in control, on a lasting basis, occurs as a
result of: (i) a merger of two or more undertakings previously
independent or parts of undertakings; (ii) acquisition of the
direct or indirect control by one or more persons already
controlling at least another undertaking, or by one or more
undertakings, over one or more undertakings or part of these
undertakings, by means of purchase of securities or assets, by
contract or by any other legal means; or (iii) direct or
indirect control over one or more undertakings or part of these
Following the above, a concentration of undertakings must be
notified to the Competition Authority for obtaining approval if
in the last financial year before the concentration:
- the combined worldwide turnover of all participating
undertakings is more than Leke7 billion (approximately
€49.5 million) and the domestic turnover of at least one
participating undertaking is more than Leke200 million;
- the combined domestic turnover of all participating
undertakings is more than Leke400 million and the domestic
turnover of at least one participating undertaking is more
than Leke200 million.
Turnover includes the income of the participating
undertakings realised in the preceding financial year from the
sale of products falling within the undertakings' ordinary
activities, after deduction of taxes or fees directly related
to the undertakings' turnover.
When the merger consists of the acquisition of parts of one
or more undertakings, for calculation of the seller's turnover
only the turnover corresponding to the parts which are the
subject of the transaction will be taken into account.
When the participating undertaking is part of a group or is
a financial or credit institution or an insurance company, the
law provides another income base for the calculation of the
The notification should take place within 30 days from the
conclusion of the agreement resulting in a concentration.
When the companies operate in a regulated sector, such as
the banking and insurance sector, an approval will be needed
before making effective the acquisition.
The Bank of Albania has the power to approve or decline any
transfer or acquisition of shares of at least 10% of a bank's
share capital or such a percentage that enables a shareholder
to influence considerably in the management or policies of the
bank; in the insurance sector, the FSA has the power to approve
or decline any transfer or acquisition of shares of at least
10% of the share capital of an insurance company as well as any
further participation up to or exceeding 20, 33 or 50% of the
As for the audiovisual broadcasting sector, an entity or
person may not hold more than 40% of the share capital in a
national radio-television company. Moreover, an entity or
person holding shares in a national radio-television company is
prohibited to acquire directly or indirectly shares of another
national radio-television company.
joined Boga & Associates in 1999 and is a partner of
the firm. The focus of her practice covers broadly
concession and energy, where she manages energy
assignments on any regulatory, corporate and commercial
aspects, including in international arbitration
Her experience regularly includes tax advice to
commercial companies, for corporate tax, VAT,
employees’ taxation matters, involvement in
the management of several tax aspects of mergers and
acquisitions transactions, tax planning and
restructuring. She has performed a number of tax and
legal due diligence assignments and managed legal
consultancy to international clients. She also assisted
foreign clients during international arbitration
proceedings and is active as tax litigator in Albanian
courts. Uruçi is fluent in English and
Deshmoret e 4 Shkurtit Street
Green Park, Tower I
T: +355 4 225 1050
F: +355 4 225 1055
||Jonida Skendaj joined
Boga & Associates in 2004. She is a specialised
business lawyer and assists clients on any business law
aspects, including corporate, employment, taxation of
corporations, competition law implications, mergers and
acquisitions and intellectual property. She is also
involved with assistance of foreign investors in the
energy field from the prospective of compliance with
energy regulatory framework and concessions.
Skendaj graduated in Business Law (Maitrise en Droit des
Affaires) at the University of Paris X Nanterre,
Paris in 2002 and obtained a Masters in Business Law,
focused on EU Competition Law (Diplome d’Etudes
Approfondies en Droit des Affaires), in 2003 at
the same institution. She is fluent in French, English
Deshmoret e 4 Shkurtit Street
Green Park, Tower I
T: +355 4 225 1050
F: +355 4 225 1055