Taxation
Tax Legislation
Tax legislation in Albania is managed through the General Tax Department. Due to rapid development of the economy, tax legislation is subject to frequent amendments and changes. More detailed information on tax legislation in Albania can be found on the General Tax Department’s webpage www.tatime.gov.al.
Tax Levels Legal and/or physical persons in the Republic of Albania are subject to the following taxes:
CORPORATE INCOME TAX All companies (Albanian or foreign) registered for VAT are subject to the corporate income tax. Resident taxpayers are subject to this tax on their worldwide income. Non resident taxpayers are taxed only on their Albanian source income. A legal person is considered an Albanian resident if: a) has a permanent establishment (head office) in the Republic of Albania; b) has a place of business in the Republic of Albania
Corporate Tax Rate
* **
Capital gains are included in the taxable income and taxed at the regular tax rates. No separate capital gains tax is imposed on companies in Albania. These withholding taxes are final withholding taxes.
Fact Sheet No.7
Last updated: February 2007
Taxation
Taxable base Taxable income is determined based on the balance sheet and its annexes. Such documents are to be prepared according to the requirements of the law no.7661 “On accounting” and other rules and regulations of the Ministry of Finance of Albania. Profit or net taxable income is the difference between total revenues (in kind revenues included) and deductible expenses. The tax period begins on January 1st and ends on December 31st.
Tax deductible expenses As in other countries of the region, tax deductible expenses are those incurred to generate, ensure and maintain the taxable income. Expenses are tax deductible if: • They are made on behalf of the economic activity from which revenues are generated, or if they relate to the usual management of the taxpayer’s business activity. • They are accompanied by justifiable documentation which confirms the destination of such expenses. • They are reflected in accounting books by reducing net assets.
Depreciation of assets Depreciation of assets is a key deductible expense. Depreciation shall be calculated by: a) the owner of assets of a business, or b)
the person who bears the risk for losses or damage of assets, in cases of assets given in rent, usufruct, or any other form as provided by legal provisions.
According to the Albanian legislation, depreciation of assets can be calculated separately in a straight line or based on a pooling system method. Depreciation rates vary from 5% to 25% based on the different categories of assets indicated below:
1. Costs of improvement, restoration and reconstruction include expenses made with the aim of the improvement of the future capacity of the assets which value exceed 15% of the residual value of the same assets.
Fact Sheet No.7
Last updated: February 2007
Taxation
The above depreciation rates are also applicable for leased assets. Land, building sites, art, antiques, jewels, precious metals and stones are not depreciable.
Tax prepayment
Corporate income tax is paid in advance each month on the 15th. The amount to be paid each month by the taxpayers is calculated as follows: • For the first four months of the current taxable year the amount due is equal to the profit tax previously paid over the two proceeding years divided by 12. • The tax due for the remainder of the current taxable year is equal to the profit tax paid during the proceeding year minus the payments made from January-April divided by 8. Taxpayers whose prepayment does not exceed 10.000 ALL/month will pay quarterly corporate income tax instalments. The amount to be paid monthly by taxpayers with less than 2 years of business activity is calculated according to the instructions given in the Instruction of the Minister of Finances no.5, dated 30.01.2006 “On income tax”.
TRANSFER PRICING RULES
Transfer pricing or profit transferring through changes in prices is applicable only in case of commercial companies owned by the same persons and operating in two or more countries with differing tax legislation. Such companies can set sale prices for their inputs or products so that the majority of the profit can be transferred to the country where the Corporate Income Tax level is lower. The same principle is applicable to legal services. Price transferring modifications for international transactions are made only by the Commission of Price Transferring at the General Tax Department (www.tatime.gov.al). The Commission exercises its activities in compliance with the Instructions of the OECD on transfer pricing rules. Transfer pricing levels may be agreed upon in advance through a written agreement between the Commission and the taxpayer signed by the General Director of Taxes.
PERSONAL INCOME TAX
All individual residents in Albania are taxed on their worldwide income, while non–residents are taxed on their Albanian income. Taxable income includes the following: a) Salaries and other payments* related to labour
* - Other payments refer to any other payment and/or reward, except salary. If such payments are made in the location of employment they are considered to be taxable income. If payments made to the individual originate outside of the workplace such as management or participation on boards, councils, commissions etc., they are taxed at a rate of 10%.
Fact Sheet No.7
Last updated: February 2007
Taxation
b) Income acquired through the transfer of ownership of immovable property All individuals who transfer ownership rights to immovable property are subject to this tax. Tariffs on personal income derived from the transfer of ownership on buildings (immovable property) are presented below:
The value of the property is determined based on an evaluation by the Office of the Immovable Property Registration. Personal income derived from the transfer of ownership of agricultural land is taxed at a rate of 0.5% of the transaction value. c) Dividends and other taxable income Dividends, profit shares, income derived from interest loans, deposits or other similar contracts, income generated from the intellectual property ownership, rent, and any other similar contracts are taxed at a rate of 10%. For individual residents, dividends and distribution of earnings are excluded from total income for purpose of determining taxable profit. Resident companies or partnerships can also profit from the exclusion of dividends and distribution of earnings if they meet the following criteria: a) are subject to corporate income tax; b) resident companies must own at least 25% of shares in value or number of stock capital or have voting rights in Albania, and for partnerships they must have invested at least 25% of the initial capital.
Withholding tax All residents in the Republic of Albania, central and local government authorities, non-profit organizations, and any other entity, are obliged to withhold taxes at the rate of 10% from the following gross payments sourced from the Republic of Albania: a) dividends; b) profit shares; c) interest; d) payments on copyright and royalties; e) payments on technical, management, financial and insurance services; f) payments for management and participation in directing councils; g) payments for construction, instalment, assembling or supervising work that relate to such; h) rent payments; i) payments for performance from actors, musicians, or sportsmen, including such payments made to persons that employ artists or sportsmen or act intermediaries in arranging shows or performances.
Fact Sheet No.7
Last updated: February 2007
Taxation
Non residents are obliged to withhold taxes for all the above listed payments if these payments are made through a permanent establishment in the Republic of Albania or by their appointed representatives. Withholding taxes on payments defined above represent final tax liability. Withholding taxes are not applicable to: 1. Legal persons and partnerships as well as any other person regardless of the legal form of the registration, subject to the value added tax. 2. Natural persons, subject to the simplified profit tax when the payment is related to the services part of their business such as persons who are engaged with the collection of metal residues, medicinal plants, milk, olives, grapes, etc. 3. Albanian or foreign legal persons for payments related to the international transport of goods and passengers. 4. Foreign physical or legal persons for payments they make outside the territory of the Republic of Albania. Such payments should be supported by the appropriate documentation. VALUE ADDED TAX VAT is applicable on sales of goods and services or the import of goods at a standard rate of 20%. VAT is applied at a 0% rate for exports and international services such as the international transportation of goods and passengers. Construction services (construction and maintenance process) and buildings rentals are considered taxable for VAT purposes. All persons (individuals or legal entities) whose turnover exceeds or is expected to exceed 8.000.000 ALL in a calendar year must register with the tax authorities. All physical or legal persons who involved in import-export activities are obliged to register for VAT purposes, regardless the total amount of their annual turnover. Once registered, VAT applies to all business activities performed by the individual or legal entity. Total annual turnover includes all taxable and exempt supplies, supplies for export purposes, and any financial support to the business activity of the taxpayer anywhere it is performed regardless of the legal status of the branch or location where the activity takes place. Total turnover is calculated based on the total sales price to be paid by the buyer including tax. To claim VAT reimbursement the taxpayer must carry a VAT tax credit for 3 consecutive months and the total refund must exceed 400.000 ALL. According to the Albanian legislation, financial services are exempt from VAT. Other exemptions include the supply of medical equipment, medical drugs, and materials used for their packaging and production. The supply of processing goods for re-export is also exempt from VAT. EXCISE DUTY This tax applies to the following products: • coffee, • fruit juice, water, and non alcoholic beverages • beer, wine, alcohol, and alcoholic drinks • tobacco and its by-products • oil and its by-products, • cosmetic items, perfume, and eau de toilette. Excise duties are due when these goods are imported into or produced in the Republic of Albania. However, physical and legal entities are permitted to perform these transactions without paying excise tax if the products will be exported or are set under a special customs or fiscal suspension system.
Fact Sheet No.7
Last updated: February 2007
Taxation
The payment of excise duties on goods requiring banderols is done by purchasing banderols for an amount equal to the excise duty due on the value of the goods. The purchase of banderols can be made through the authorities in accordance with procedures of the Minister of Finance. TAX ON IMMOVABLE PROPERTY Taxes on immovable property are administered by the local government. According to the Albanian legislation, immovable property includes: a) buildings and, b) agricultural land. All owners of such property in the Republic of Albania, whether Albanian or foreign, are subject to this tax regardless of the actual use of the land. Taxes are assessed as annual liabilities. The period of annual tax liability runs from 1 January to 31 December. Indicative tax levels on buildings and agricultural land are given in the following tables:
The above indicative tax levels apply to buildings located in urban areas (municipalities). For buildings located in rural areas (communes), indicative tax levels are half the value of that in the main city of that district. The Municipal or Community council has the right to change the tax level by +/- 30% of the indicative levels.
* - Classification of agricultural land category is defined by the Ministry of Agriculture, Food and Consumer Protection.
Fact Sheet No.7
Last updated: February 2007