Taxes in Albania are grouped into three main categories: indirect taxes (VAT, excise, gambling and other indirect taxes), direct taxes (income tax, personal income taxes, taxes on capital); local taxes, and social and health security contributions. These three categories are under authority like below:
National Taxes, administered by the Central Tax Administration and Customs Administration include:
Indirect taxes include: Value added tax; Excise; Taxes on gambling, casinos and hippodromes;
Direct taxes include: Income tax; National taxes; Other taxes, which are defined as such by special law, and Customs taxes.
Social and health security contributions, as defined in the social insurances law
Local taxes and tariffs administered by Local Tax Administration include: Local tax on small business; Tax on immovable property, which includes tax on buildings and agricultural land; Tax on hotel accommodation; Tax on impact of new constructions upon infrastructure; Tax on transfer of ownership right on real estate; Annual tax for vehicle registration; Tax for occupation of public space; Board tax; Temporary taxes; Registration tariff for various activities; Cleaning and waste disposal tariff; Vehicle parking tariff; Tariff for services.
How is going on the Taxation of commercial companies?
Each individual, who is a partner in a commercial company, is responsible for the company tax liabilities to the tax administration, according to provisions in the company charter. According to commercial registry, over 95 percent of companies are limited liability companies. The remainder is joint stock companies, partnerships and less than 0.5 percent is limited partnerships. At the moment a company is created and starts its economic activity, it is responsible for:
– Calculation of VAT and timely declaration and payment;
– Payment of advance tax installments for profit tax to pay every month;
– Calculation, timely declaration and payment of tax on incomes from employment for employers and employees;
– Calculation, timely declaration and payment of social and health insurances contributions;
– Monthly payment of advance income tax installments in time;
– Withholding and payment of withheld tax, under obligation from the Law On Income tax;
– Calculation, timely declaration and payment of taxes according to specific activity for gambling, casinos and hippodromes;
– Calculation, timely declaration and payment of excise under specific law;
– Calculation, timely declaration and payment of national taxes and local taxes.
In order to calculate taxes, taxpayers who are subject to VAT or profit tax keep registers, accounting records, books and financial information and issue tax receipt or tax coupon, in accordance with relevant laws and regulations pursuant to them. Taxpayers keep their accounts in accordance with provisions of the law "On accounting and financial statements" and act pursuant to that law in accordance with IFRS principles. In order to register economic transactions related to taxes, taxpayers can also use books, records or documents specified in specific tax laws and respective regulations. Taxpayers are required to use basic documentation, including tax invoice, in accordance with tax legislation and relevant legal provisions.
What Tax exemption are applied?
Albania's tax regime is considered by far one of the most important incentives for foreign investment as it is the lowest in Europe; However, the tax system as such does not discriminate against or in favor of foreign investors.
Likewise, legislation relating to the public procurement process makes little distinction between foreign and domestic companies, as many activities in Albania require licensing within the territory. The procedures for obtaining a license are, however, the same for national and foreign companies. The government to date has not screened foreign investments and provided little in the way of tax, financial or other special incentives.
The Value Added Tax
The majority of goods and services are subject to VAT at a standard rate of 20 per cent, although certain exemptions apply (such as for financial services, postal services, non-profit organization supplies, packaging and materials used in drug production, supplies of electronic and written media for advertising, supplies of services at casinos and hippodromes (race tracks), sales of newspapers, magazines and advertisement services in them, as well as certain hydrocarbon operations).
According to the instruction of the Minister of Finance (No. 17, 2008), the most significant incentives for investors in Albania are as follows:
– VAT credit at the rate of 100 per cent for importers of machinery and equipment which will serve entirely their taxable economic activity;
– exemption of VAT for export of international services;
The tax export regime can be considered a kind of investment incentive for both foreign and national entrepreneurs, and is applicable to all Albanian products destined for export outside the Albanian customs territory. The export VAT rate it is 0 per cent. Exporters can benefit from a VAT credit for purchases made on behalf of their exports.
Overall, if the tax credit for a taxation period is higher than the VAT applicable in that period, taxpayers have the right to use the credit surplus for the following taxable period. Taxable persons have the right to request a reimbursement of the credit surplus when they have a taxable credit amount over three months that is above 400,000 Albanian Leks. As stated above, and since they are essentially exporters, investors are entitled to VAT reimbursement on the purchase of domestic goods or raw materials when it is for production purposes.
The Corporate taxation
Definition of Residence
A company is considered resident in Albania if it has its legal seat or place of effective management in Albania. Further, partnerships and legal entities with a permanent establishment in Albania would be considered resident taxpayers. Residents must register with the National Registration Center (NRC).
Residents are taxed on their worldwide income; non residents are taxed only on their Albanian-source income.
Taxable income of residents includes business profits, as well as dividends, interest, and realized capital gains. Taxable profit is the difference between gross profit and related expenses. The determination of the taxable profit is generally based on the profits shown on the financial statements.
Tax income Rate
The rate of income tax is a flat tax of 10% as of January 1st, 2008.
Taxation of dividends received by residents
Dividend income is generally considered taxable income, unless the participation exemption or a double tax treaty relief is applicable.
Participation exemption: Resident companies – Dividends and distribution of earnings are excluded from a resident's taxable profit when dividends and earnings are distributed from resident companies or partnerships which:
– are subject to corporate income tax; and
– the beneficiary resident's shareholding comprises at least 25%, in value or number, of stock capital or voting rights, while for partnerships at least 25% of the initial capital.
However, if the recipient shareholder has ownership of less than 25% of the distributing company, the dividends are included in the taxable income of the recipient shareholder.
Participation exemption: nonresident companies – No participation exemption is in place for holding of foreign companies. Consequently, dividends received from foreign companies would be included in taxable income. Taxation of dividends paid to nonresidents – Dividend income distribution to a nonresident is subject to a withholding tax of 10%, unless a double tax treaty provides for a lower rate.
Realized capital gains are considered as taxable income and are taxed together with other income, at 10% on a net basis.
Losses can be carried forward for three consecutive years, unless there is a change of ownership of 25% of the company shares. Carry-back of losses is not permitted.
There's no Surtax in Albania.
Alternative minimum tax
Reign tax credit
Double taxation is avoided through tax treaties. Albania currently has 25 treaties in effect with other countries.
Tax Treaties with Albania:
Poland (1995), Romania (1995), Malaysia (1995), Hungary (1996), Turkey (1997), Czech Republic (1997), Russian Federation (1998), Macedonia (FYROM) (1999), Croatia (1999), Italy (2000), Bulgaria (2000), Sweden (2000), Norway (2000), Greece (2001), Malta (2001), Switzerland (2001), Moldova (2004), Belgium (2005), China (2006), France (2006), Netherlands (2006), Egypt (2006), Serbia and Montenegro (2006), Korea (2008), Austria (2009), and Latvia (2009).
Holding company regime
Occasional tax relief from Corporate Income
Tax is granted for selected projects on a case-by-case basis. These projects may include investments channeled to public services, infrastructure projects, as well as tourism and oil industries.
Withholding tax is applicable to dividend, interest, and royalty payments, as well as certain other types of Albanian-source income earned by nonresidents.
Dividends are subject to a 10% withholding tax rate, unless the rate is reduced under an applicable tax treaty.
Interest is taxed at a 10% withholding tax rate, unless the rate is reduced under an applicable tax treaty.
Royalties are subject to a 10% withholding tax rate, unless the rate is reduced under an applicable tax treaty.
Other Albanian-source Income
A withholding tax of 10% is applicable to the gross amount of: a) technical service fees; b) management fees; c) payments for construction, installation, assembly or related supervisory work; d) rental payments; and e) payment for the performance of entertainment activities, which are made to nonresident taxpayers.
Withholding tax must be paid no later than the 20th day of the month following the month the remittance upon which the withholding tax is assessed. The payer of such amounts is responsible for retaining and paying the tax on the account of the tax authorities.
Branch remittance tax
Other taxes on corporations
Real property tax
Municipalities levy taxes based on the occupation of real property. A real estate tax on construction projects is levied on the value of a new investment at a rate of 2% to 4% in Tirana and 1% to 3% in other municipalities. Property tax is also applicable to agricultural land at rates varying from ALL 700 to ALL 5,600 per hectare, depending upon their use. A tax credit of 50% may be available for certain rural projects.