ON PRIORITY TOURISM DEVELOPMENT ZONES LAW

On the basis of the Article 16 of the Law Nr. 7491 dated 29.04.1991

"On the fundamental Constitutional Provisions", upon the proposal of the Council of Ministers,

DECIDED :

GENERAL PROVISIONS

In this law, the underneath terms will have the following meaning:

"Promoted Activity" is considered any initiative aiming at generating monetary earnings from tourist

accomadation and related activities and services through a well balanced relationship between environment and

tourism industry.

"Promoted Person" is considered any physical and juridical, local or foreign person authorised to carry on a

promoted activity.

"Promoted Zone" is considered any area of territory of the Republic of Albania, which in compliance with the

provisions of this law, shall be defined as preferable for priority tourism development and the exercise of

Promoted Activity.

"Development Period" is the period ending in that date when the Promoted Activity will start producing

commercial revenues.

"Improved Property" means a property directly connected to the necessary infrastructure.

"Committee" implies the Tourism Development Committee which is created and operates according to

definitions of the Article 4 of this law.

DEFINITION OF PRIORITY TOURISM DEVELOPMENT ZONES

Article 2

Promoted Zones are defined and promulgated by Decision of the Council of Ministers upon the proposal made

by the Minister of Tourism. The Ministry drafts the Strategy on Tourism Development, which is approved by the

Council of Ministers. On its basis there are designed and approved Urban Planning Studies, which shall

guarantee a sound and well balanced relationship between environment and economic opportunities of the

zone.

The Council of Ministers, on the basis of the proposal made by the Minister of Tourism, shall exclude or restrict

in these zones the carrying out of activities which are inconsistent with the goal for which these zones have

been established.

TOURISM PROMOTED ACTIVITIES

Article 3

Main Promoted Activities are: Construction, re-construction, improvement, expansion, as well as the operation

of hotels, motels, holiday villages and holiday houses.

Ancillary Promoted Activities are: Construction, re-construction, improvement, expansion, operation of facilities

to complete the offer of tourist accomadation, such as restaurants, shops, baths, sports facilities, cultural

activities, marinas, activities of production, storage and distribution of foodstuff and handicraft, services of

tourist transport and travel agencies.

As main and ancillary Promoted Activities, in addition to those mentioned in the above paragraphs, may be

defined also others by decision of the Council of Ministers, according to the proposal of the Minister of

Tourism.

ADMINISTRATION

Article 4

Tourism Development Committee is created as an international body made up of: the Vice-Minister of the

Ministry of Tourism, Chairman; the Vice-Minister of the Ministry of Finance, member; the Vice-Minister of the

Ministry of Construction, Housing and Territory Adjustment, member; the Vice-Minister of the Ministry of

Industry and Trade, member; the Vice-Governor of the Bank of Albania, member.

The Minister of Tourism approves the regulations of this committee, while the operations of the Technical

Secretary are realised by the Ministry of Tourism.

The Tourism Development Committee has these main rights and duties:

a - Approves or refuses the application of the physical or juridical person for the granting of permit for Promoted

Activity or for its continuation. The Committee reviews the applications for the granting of construction sites for

the carrying out of Promoted Activity and approves or refuses them. These construction sites are put at the

disposal of the committee according to the ways defined by law together with the Urban Planning Studies

approved in conformity with the provisions in power. The approval of the applications for construction sites on

the part of the committee shall be based on the selection of the most profitable offer.

The committee organises the work with regard to the control of the implementation of the Urban Planning

criteria in the project and , receives the construction permit from the authorities defined by law.

b - Reviews any building permit of authorisation to carry on business, etc. granted or to be granted by any local

or central authority for non-tourist activity in the Promoted Zone, to check up the consistency of these activities

with the goals pursued through the Promoted Zone. The committee takes its final decision with regard to the

commencement, refusal or prohibition of activation of the said permit or authorisation, after the identified cases

have been submitted to the Council of Ministers, which estimate them as correct.

The committee makes public a preliminary decision upon the matters mentioned in 'a' of this article and, the

interested party has the right to submit to the committee, within 90 days, proposals and objections concerning

this decision. The committee has to take its final decision within 60 days from the date of the submission of

proposals and objections. The decision of the committee is promulgated by the Minister of Tourism, who has

the right to submit it for re-examination if he finds it not correct and appropriate.

PROMOTED PERSON FOR TOURISM ACTIVITY

Any physical or juridical person, wishing to carry on a Promoted Activity, has to address a formal application to

that effect to the Ministry of Tourism.

The Promoted person has, through the Ministry of Tourism, to comply with the requirements necessary to

carry on business or to make investments in Albania.

When the Promoted Person is a foreign juridical person and carries out Promoted Activity, the duration of the

activity shall be at least for the term of the lease mentioned in Article 8 below and any renewal thereof. This

rule shall be applied even in the case of a joint venture.

Should a Promoted Activity be carried out by different persons, each of them shall be considered a Promoted

Person and be granted the appropriate incentives related to the nature of business, subject to these provisions.

Should a Promoted Activity be transferred to another person, the transferee shall become a Promoted Person

and shall succeed the transferor in the transferor's rights and obligations deriving from it.

GUARANTEE AND INCENTIVES

Article 6

The investments made by a foreign Promoted Person enjoy also the guarantees foreseen by the law Nr. 7764

dated 02.11.1993 "On Foreign Investments".

The Promoted Person enjoys these rights;

a. To import funds in foreign exchange needed to cover investment costs and the costs of operation by way of

equity of loan.

b. To export funds in foreign exchange to pay interests and principals of loans mentioned above, as well as

dividends.

c. To keep account in foreign exchange and operate it to pay the principals of the loan as well a the export of

dividends.

d. The foreign Promoted Person has the right of export freely, subject of the registration with the Bank and in

compliance with the provisions of the Albanian law and the regulations of the applicable taxes in power, funds

in foreign exchange deriving from the sale of shares or assets, or liquidation of a Promoted Person, or

compensation deriving from the implementation of the first paragraph of this article.

e. To be exempted from withholding tax on dividends and interest on loans paid to financial institutions. As to

the country's with which Albania has not signed a treaty in the field of taxes, it is applied the withholding tax at

a rate of 10% on interest of paid loans and profit, in compliance with laws of fiscal system.

f. To be exempted from customs and excise duties on goods and merchandise imported for the sole purposes

of investment in and the operation of a Promoted Activity, provided that said goods and merchandise are not

available in Albania at the same conditions of quality, quantity and price. This rule is also applied with regard to

a reasonable supply of spare parts. The Promoted Person enjoys these rights up to the end of the third fiscal

year.

g. To be exempted from profit tax in respect of five fiscal years starting from the date when the Development

Period ends. The Profit tax to be paid during the following five fiscal years will be 50 % of that defined by law.

h. To enjoy the right to offset losses incurred in the first five fiscal years during which Promoted Activity has

been carried on against profits in the following five years.

i. The profit tax shall be reduced by 40% to a foreign Promoted Person in case that he re-invests the said

profits in Albania.

j. The foreign Promoted Person enjoys the right to employ foreign nationals for the performance of specialised

tasks in the operation of a Promoted Activity, provided he will train in Tourism business a number of Albanian

citizens. This training shall be done according to the following rations;

During each of the first three years of the operation the number of Albanian nationals to be trained shall be not

less than one third of the number of foreign employed nationals, whereas during each of the following two years

not less than one fifth of the number of foreign nationals.

CONDITIONS

Article 7

The rights to engage in one of the Promoted Activities shall be granted to a Promoted Person, provided he

shall:

a. Engage itself to present the final plans and projects related to the Promoted Activity within 6 months from

the application and to start the Promoted Activity or the investment required to perform the Promoted Activity

within one year from the granting of Development right according to the provisions of this law. The applicant has

to deposit in an escrow account 25% of the amount mentioned in Article 9 below of this law (or the amount

from time to time determined through Minister of Tourism decision for any case other than the one mentioned

in "d" of this article.

The amount, together with the interest, shall be paid back to the applicant, should the application be rejected;

it shall be forfeited by the Minister of Tourism, should the applicant, without convincing reason, fail to start the

Promoted Activity (or the investment related to this activity) within the term defined in the paragraph above. In

case of objection of being unguilty for failing to start the Promoted Activity, this person may require his right in

the competence court in the Republic of Albania, in compliance with the Albanian legislation. The amount

together with the interest shall be credited against the consideration due, should the applicant start the

Promoted Activity (or the investment related to such an Activity) within the said term.

b. Engage itself to generate, directly or indirectly, during the first three years of operation, foreign exchange

earnings totalling at least 5% of total investment, under normal working conditions.

c. Engage itself to cover, or cause to be covered, 30% of investment costs through equity and if necessary,

shareholder's loans.

d. Accept to enter into a lease agreement with the Minister of Tourism, appointed, by force of this law, the legal

representative of the owner in title, for the use of real estate together with the unmovable's in it with regard to

the operation of a Promoted Activity. The Minister of Tourism may enter into an agreement with a Promoted

Person on the selling of land under the conditions foreseen by the Albanian legislation.

e. Accept to enter into a Development Agreement with the Ministry of Tourism for any other Promoted Activity.

Article 8

The Lease Agreement mentioned in Article 7 "d" above shall satisfy the following conditions;

a. Be concluded for an initial period of 25 years. The lessee shall have the right to renew the Lease for a

maximum of three consecutive periods out of which two for 25 years and one for 24 years.

b. be subordinated to the obligation of the lessee to use the leased property solely for the agreed upon

Promoted Activity; such obligation to be transferred to any successor of lessee.

c. Provide for a consideration due by lessee calculated in the convertible foreign exchange agreed upon

between the two parties in the Agreement and not exceeding the following percentages of investment cost;

Improved Property to be used for

Size of Investment Holiday Homes Other Purposes

Class A 25% 20%

Class B 20% 15%

Class C 15% 10%

Class A; means an investment the total amount of which, in Lek and/or foreign exchange will not exceed Lek

93,000,000.

Class B; means an investment the total amount of which, in Lek and/or foreign exchange will be higher than

Lek 93,000,000, but will not exceed Lek 465,000,000.

Class C; means an investment the total amount of which, in Lek and/or foreign exchange will exceed Lek

465,000,000.

d. The ceilings mentioned in "c" above of this article are calculated on the basis of the rate of exchange of Lek

issued by the Bank of Albania the day of the entry into force of this law. They shall be adjusted pursuant to the

relevant rate of exchange and/or the rate of inflation in Albania at the date of the application.

e. For non-improved property, the lessee shall have the right to deduct the amount to be invested to improve

the property, but not exceeding 50% of the applicable percentage in "c" of this article.

f. Should the leased property include buildings and other assets to be used for the Promoted Activity, the

consideration shall be increased by an amount agreed upon between the two parties.

Article 9.

Fifty percent (50%) of the consideration calculated pursuant to Article 8 "c" and "d" above shall be paid during

the development period. Thereafter, the lessee shall pay each fiscal year of initial term and any renewal thereof

and amount equal to 5% of the consideration calculated pursuant to above. This amount shall be adjusted each

year, on the basis of the rate of inflation registered in the country the currency of which was selected for the

payment consideration. For periods of less than one fiscal year, such amounts shall be calculated pro-rata.

The above notwithstanding, the lessee shall have the right, at any time, to replace the payment of this yearly

rent through the payment of a lump sum equal to the amount mentioned in the beginning of this article.

Article 10

The lessee shall be obliged to maintain and repair buildings, roads, utilities, green areas and the like during the

whole period of the continuation of the lease. This obligation will be automatically transferred to any successor

of the lessee.

Article 11

Upon the proposal of the committee, the Minister of Tourism has the right to modify the investment ceilings

mentioned in Article 8 "c" above or the parameters used to calculate the consideration, provided, however such

modifications will not adversely affect the rights previously granted to a Promoted Person.

Article 12

All the privileges mentioned in Article 6 together with appropriate conditions, are enjoyed by investors to

projects for construction or renovation of hotels in urban areas.

Article 13

The provisions of this law shall be applied for all matters it deals with, irrespective of what other legal provisions

foresee.

Article 14

Should the rights of a foreign Promoted Person be challenged for matters related to the validity of the permit

granted on the basis of Article 4 "a" and such a Person does not accept the solution given by the committee,

he shall have the right to submit the question for solution to the International Arbitrage in compliance with the

regulations of the Arbitrage of the United Nations Commission on International Trade Law. In the case the

Promoted Person is an Albanian national, the solution of disputes on the above mentioned matters and, in

compliance with the procedures mentioned above, shall be made by the competent court in conformity with the

Albanian legislation.

Article 15

This law enters into force immediately.

The Chairman of the Presidency

Pjeter Arbnori

Tirana, on 21.01.93

Nr. of law 7665

Promulgated by Decree Nr.446 dated 02.02.1993 of the President of the Republic of Albania, Sali Berisha.