Table of Contents
- 1 Short Taxes in Albania overview
- 2 Payroll tax rates
- 3 Property Taxation
- 4 Real Estate Tax
- 5 Withholding tax
- 6 Health insurance
- 7 Corporate income tax
- 8 Tax on profits
- 9 Value Added Tax
- 10 Employment income
- 11 Self-employment income
- 12 Social Security Contribution
- 13 Local Taxes
- 14 Small Businesses
- 15 Excise Taxes
- 16 Temporary taxes
Short Taxes in Albania overview
Considering the combined effects of positive change and its ambitious goals, Albania is making a name for itself as an expat- and tax-friendly destination.
According to experts, Albania could be an option for those seeking to reduce their tax burden. With high-tax OECD nations like the U.S, UK, Australia and Germany dead-set on putting tax havens out of business—claiming they deprive their government coffers of billions in revenue and encourage money laundering and other illegal activity—Albania is quietly playing up its tax stance (generally a flat 10% on personal, corporate and capital gains earned within its borders). And the government is actively seeking to attract foreign investment while becoming even more taxpayer-friendly.
The tax system includes personal income tax, profit tax, tax on real estate, value added tax (VAT). The tax year is the calendar year. The process of modernization of the tax legislation started in October 1997 with changes to the VAT, established in mid-1996, by replacing the turnover tax. The initial VAT rate of 12.5 percent was increased to 20 percent and most exemptions were abolished. In December 1998, a new law on personal income tax and profit tax was introduced and new tax rates for personal income tax were established. A modern system of collection of tax on profit and withholding tax on dividends, interest, and certain services was also introduced. In January 1999, a new Customs Code came into force, simpler to apply and leaving less space for individual interpretation. It has also been designed to comply with WTO requirements.
Under the Albanian law on Incomes, all individuals are liable to income tax.Persons (legal entities and sole entrepreneurs) having an annual turnover from ALL 2 to 8 million, are not subject to profit tax. They are legally responsible for VAT and pay personal income tax on small business. Albania residents are taxed on income generated both in Albania and outside Albania. Albanian tax residents are:
I. Individuals who have a permanent residence in Albania, or are Albanian citizens and citizens who act as a consul, diplomat, or other officer outside Albania;
II. Individuals who are present in Albania for more than 183 days within a 365-day period. Albanian resident individuals are subject to personal income tax on their worldwide income, whereas non-resident individuals are subject to tax only on income derived from an Albanian source, unless a Double Tax Treaty (DTT) provides otherwise. Income tax credit may be granted on the grounds of a specified DTT or on the basis of the general provisions of the Law on Personal Income Tax.
Personal income tax is levied on the following categories of income:
- wages, salaries and other compensation derived from labor relations
- dividends and profit sharesinterest from bank deposits and other interest bearing securities
- interest from bank deposits and other interest bearing securities
- income from royalties
- income from loans and leasing, excluding cases when this income is generated through commercial activity
- capital gain from the sale of shares
- other income (i.e. any other income that is not explicitly exempt by the law)
- any income (not taxed before and not accompanied by supporting documents) contributed by an individual for the increase of the register capital of a company.
The following types of income are exempt from personal income tax:
- pensions and other social security benefits received from the Albanian social security system and economic benefits for individuals without income or with a low income
- scholarships for students
- compensation given to employees in cases of diseases, death of close relatives and other
- compensation given to owners for expropriation made by the state in the public interest
- income exempt on the basis of international agreements ratified by the Albanian Parliament
- interest generated from government treasury bills or other securities issued before 1999
- income from wages and compensation for labor relations of consular, diplomatic or similar officials of other countries and international organizations attributed with diplomatic status.
Latest changes in Personal Income Taxation
- According to New Fiscal Package 2014 taxation of employment income has changed from a flat tax rate regime of 10% to a progressive tax scale. Employment income ranging between ALL 30k and ALL 130k (approx. EUR 215 and 930k) is taxed at 13% and any excess income is taxed at 23%. The initial ALL 30k of the employment income becomes income tax exempt. Previously employees earning more than ALL 30k (approx. EUR 215) per month were taxed at the rate of 10% on their entire salary amount.
Payroll tax rates
Personal income tax on employment Income has changed from a flat tax rate of 10% to a progressive scheme with three scales according to the table below:
|From (in ALL)|
|30000||130000||13% of the amount over 30000 ALL|
|130001||unlimited||23% of the amount over 130000 ALL|
Albania has a low and reduced tax regime. If you plan buying a property in Albania, you should now that the taxes are relatively low at 1%.
Property – Buying Taxes
Purchase tax (and notary fees) come to around 1% when purchasing property in Albania.
VAT is applied at the rate of 0% on new build Albanian property.
Property – Buying Costs
Albania has a medium level of buying costs. The property prices are relatively low.
Some costs to consider are:
- Legal fees – typically 1,000 Euro
- Purchase taxes and notary costs typically come to around 1% of the purchase cost
- Mortgage costs – can be around 2% of the property value
Property – Selling Taxes
There is no direct tax when selling a property in Albania.
Annual Albania Property Tax
There is a small annual tax payable on property in Albania. The amount varies depending on the size and location of the property. Often the annual tax amounts to less than 50 euros.
Real Estate Tax
- Based on the latest amendments on Law of Income Tax, individuals owning more than one residential properties will be subject to a tax equal to a range of ALL 5 to ALL 30 (approx. EUR 0,04 to EUR 0,2) per square meter on the first property, and to two times higher rate for any additional property.
Dividends and profit sharing<
- Dividends and profit sharing, irrespective of the status of the recipient, are subject to withholding tax at a 10 percent rate.
- Interest paid to resident or non-resident individuals (irrespective of the status of the recipient) is subject to withholding tax of 10 percent.
- Gains that an individual realizes from the difference between the selling prices of the shares with their purchase price are subject to the withholding tax of 10 percent.
No withholding tax is imposed on dividends distributed to a company that owns more than 25 percent of stocks in the company paying these dividends.
Payer of amounts is obliged to keep records for calculating and withholding of the withholding tax on any income beneficiaries and make them available to the tax authorities and the income beneficiary to whom payment is made. Payer of amounts, for purposes of withholding tax, as provided in Article 33, “Deposition of the decision for the approval of the annual results and the profit destination”, is obliged to calculate, withhold, declare and transfer the tax withheld on account of tax authorities until the 20th of the month following the month of payment.
Paid by employee – 1.7%
Corporate income tax
In Albania the corporate income tax rate is 15% for Albanian and foreign companies that are established and operate in country. Last amendments to the Law on Income Tax were published on 30.12.2013 and entered into force on 1 January, 2014, due to the New Fiscal Package 2014, approved by Albanian Parliament. Albanian companies are subject to Corporate Income Tax on their worldwide income meanwhile foreign companies are subject to tax on profits generated from activities performed through a permanent establishment in the country and on income from Albanian sources. (According to Albanian Laws, a taxpayer is required to register for Corporate Income Tax if its turnover exceeds 8m ALL in a fiscal year). Tax is levied on any domestic or foreign legal entity whose status is determined by the Albanian laws in force. The determination of the taxable base starts with the profit shown in the profit and loss count. The profit calculation should be made according to the General Accounting Plan and the relevant instructions issued by the Ministry of Finance.
Tax on profits
During the activity year the tax on profits is paid by the taxpayer one month in advance. To determine the monthly payment amount of tax on profit the law has foreseen a formula, which takes into account the tax on profit the taxpayer has paid in the last two preceding years. During the coming tax period, the taxpayer pays the respective monthly tax on profit to the tax organ accounts no later than the 15th of each month, accounting for the next month.
Value Added Tax
Taxable persons are all individuals and legal entities registered, or required to be registered, for VAT: any person making taxable supplies and having an annual turnover in excess of ALL 8 million is required to register. For individuals and legal entities that operate in the import/export sector it is mandatory to be registered, despite the annual turnover.
The taxable base is the turnover of taxable supplies. The taxable base for imports is the customs value of the goods, including customs duties. VAT is applicable on sales of goods and services or the import of goods at a standard rate of 20%. The time-frame for verifying and authorizing VAT refund claims is 60 days, except for refunds to foreign donators having in place a financial aid agreement ratified by the Albanian Parliament or a grant agreement approved by the Council of Ministers, which requests should be processed within 30 days. Moreover, in order to prevent abuses from the tax authorities’ side, the payment of VAT amounts approved for refund by the tax authorities shall be processed by the treasury department on a first come first paid basis.
There is no longer a need for VAT taxpayers to visit the tax offices, in order to submit their sales and purchases books within the 14th of each month, as required previously. You don’t need to provide monthly submission of sales and purchases books, while reconfirming both, the legal obligation for accurate and regular record- keeping by businesses as well as the principle of self-declaration and selective tax audits. Total annual turnover includes all the taxable supplies and exempt ones, supplies for export purposes and any financial support to the whole business activity of the taxpayer anywhere it is performed and regardless the legal form of the braches and their title. Total turnover is calculated based on the total sale’s price to be paid by the buyer, including tax. To claim for VAT reimbursement the taxpayer must have carried forward a VAT tax credit for 3 consecutive months and the total refund must exceed 400.000 ALL.
VAT is applied at zero rate (0%) in the following cases:
- The supply of goods exported outside the territory of Albania.
- The supply of goods and services relating to international transport of goods and passengers.
- The supply of goods and services relating to maritime commercial or industrial activities. All natural or legal persons who perform export – import activities are obliged to register for VAT purposes, regardless the total amount of their annual turnover. Since it is the person who registers for VAT, registration covers all the business activities performed by the same individual or legal entity.
The following supplies are not subject to VAT:
- The lease and sale of land;
- The sale of buildings;
- Financial services (including interest from finance lease activities);
- Certain services rendered by not-for-profit organizations;
- Postal services;
- Medicines, medical equipment and certain supplies in connection with oil exploration;
- Donation of goods made in case of natural or social calamities.
The VAT declaration and payment form
The VAT declaration and payment form is filled in two copies and the taxable person submits it to the respective bank with which the GDT has an agreement regarding the admission of VAT payments, within 14 days after the expiration of the tax period.
Based on the Albanian Tax Procedures Law (No. 9920, dated 19 May 2008), noncompliance with the VAT filing and payment deadlines is subject to the same penalties and default interest applicable to corporate income tax. In additional, noncompliance with the requirement to register or to update the status of registration data triggers a penalty of ALL 25,000. Improper administration of sales and purchases books and documentation is subject to a penalty of ALL 50,000. The failure to issue a VAT fiscal invoice for the whole amount of the transaction is subject to a penalty of 100% of the undeclared and unpaid tax liability apart from the penalties determined.
Criminal offenses carried out by taxpayers are penalized under the Criminal Code.
These offenses relate to certain situations, as the following:
- Taxpayers willfully engaging in fiscal evasion
- Taxpayer not paying taxes to the state budget
- Taxpayers destroying and concealing important tax documents and information
Employed persons are subject to income tax on remuneration and all benefits received from employment. Employment income includes the following:
- Salaries, wages, allowances, bonuses, and other remuneration and benefits granted for services rendered in a public office or in private employment
- Directors’ fees
Self-employed individuals must register as individuals with the Commercial Register for tax purposes. Income derived by individuals from independent professional services and self- employment activities that generate more than ALL 2 million are subject to tax at a rate of 10%. The tax base equals the difference between total gross income and total deductible expenses.
Small businesses that generate annual turnover of up to ALL 2 million are subject to a fixed tax obligation that varies according to the type of business activity and the location of the business.
Social Security Contribution
The Albanian social security system is administered by the Public Institute of Social security, which is under the jurisdiction of the Council of Ministers. The employer contributions include contributions to the work accidents indemnities and unemployment fund. Employees are also liable to a percentage for both health and social security contributions.
Local tax on small business
Local tax on small business is paid in four equal rates. The first rate has to be paid within the 20-th of April, the second one not later than the 20-th July, the third one not later than 20-th of October and the fourth one not later than 20-th January of the next year. The place and the way of tax payment it is defined with a special instruction. If a taxpayer begins its commercial activity during the year, the taxes are paid for effective working months.
Small businesses taxpayers with annual turnover ranging between ALL 2m to ALL 8m (approximately EUR 14,290 to EUR 57,150) are relieved from the 10% personal income tax on their profits and are subject to the simplified income tax at a rate of 7.5% on their profits. They should make advance payments on quarterly basis and by 10 February file the annual tax return and pay the tax due for the year less the advance payments made. The simplified income tax for small businesses shall be administered by the General Tax Directorate and no longer by the local government. Previously, small taxpayers were in addition to the personal income tax, subject to the local tax on small businesses at the rate of 1.5% on their annual turnover payable on quarterly installments. Such tax was creditable against the personal income tax liability.
Small scale business activities with an annual turnover below ALL 2m are taxed at a fixed amount of ALL 25k (approximately EUR 179) payable within the first half of the fiscal year. Until now, they were subject to a fixed tax obligation which varied according to the type of business activity and their location.
- Starting from 1 April 2014, taxpayers operating in the hydrocarbons’ sector, including both contractors and subcontractors become subject to excise duties on the importation of petroleum by-products. The excise duties exemption previously granted to such taxpayers during the exploration and development phases will no longer apply.
- Excise duties for alcoholic beverages and tobacco products are increased. The new law introduces a new scheme on the excise of beer resulting in an increase of the excise duty.
- The excise tax for crude oil will be calculated at 25 ALL/kg. Penalties will apply in cases of surpluses or shortages of registered crude oil importers equaling to ALL 25 per kg.
- Energy drinks become subject to excise tax at the amount of ALL 50 per liter.
- The unroasted coffee is exempted from the excises duty, which previously used to be at the rate of 30 ALL/Kg. The roasted coffee excise rate decreases to 60 ALL/Kg from the previous rate of 140 ALL/Kg.
The municipality or county councils can apply new temporary taxes on the interest of the community that lives, under the jurisdiction of the municipality or commune. For more information on new taxes contact the municipality or unit in the city where you are based.
For recent changes to the tax system in Albania, consult this document Taxes in Albania by Deloitte.