Corporate tax in Albania

 

 

Corporate Profits Tax Rate (%) 15
Capital Gains Tax Rate (%) 15
Branch Tax Rate (%) 15
Withholding Tax (%)
Dividends 15
Interest 15
Royalties from Patents, Know-how, etc. 15
Rent 15
Technical Services 15
Management Services 15
Financial Services 15
Insurance Services 15
Participation in Management and Administration Bodies 15
Construction, Installation or Assembly Projects and their Supervision 15
Payments for Entertainment, Artistic or Sporting Events 15
Gambling Gains 15
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 3

Taxes on corporate income and gains

Corporate income tax. Albanian companies are companies that are incorporated in Albania or have their place of effective man­agement in Albania. Albanian companies are subject to corporate income tax on their worldwide income. 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.

Rates of corporate tax. The corporate income tax rate is 15% for taxpayers with a turnover exceeding ALL8 million (approxi­mately EUR57,000).

Small businesses (taxpayers with annual turnover ranging between ALL2 million to ALL8 million (approximately EUR14,000 to EUR57,000) are subject to a reduced profit tax rate of 7.5%, but the tax computed using such rate may not be less than ALL25,000 (approximately EUR180). Micro-businesses with an annual turn­over below ALL2 million (approximately EUR14,000) are taxed at a fixed amount of ALL25,000 (approximately EUR180) payable within the first half of the year.

Capital gains and losses. Capital gains derived from the disposal of assets, including shares, are subject to tax at the standard rate of 15%. Capital losses are deductible for tax purposes.

Capital gains derived by a foreign company from the sale of do­mestic shares are taxed if the gains are attributable to a local per­manent establishment or if the buyer of the shares is a domestic entity.

Administration. The tax year is the calendar year.

Taxpayers subject to corporate income tax make advance pay­ments of corporate income tax on a quarterly basis. The payments must be made by 30 March for January through March, by 30 June for April through June, by 30 September for July through September and by 30 December for October through December. However, taxpayers may opt to make monthly advance payments of corporate income tax by the 15th day of each month. Newly established companies involved in production activities are not required to make quarterly advance payments for either a period of six months or the period until the end of the fiscal year, which­ever is shorter.

The advance payments for January through March are cal culated based on the taxable income of the tax year before the pre ceding tax year. The advance payments for April through December are calculated based on the taxable income of the preceding tax year. The tax rate for the calculation of the advance payment is 15%. If the company demonstrates to the tax authorities that the tax­able income in the current year will be substantially lower than the taxable income of the reference period, the tax authorities may decide to decrease the advance payments. If the tax authori­ties approve the taxpayer’s request for the reduction of the corpo­rate advance payments and at year-end the corporate tax liability exceeds the amount of advance payments by more than 10%, default interest is applied to the difference. If the tax authorities determine that the taxable income of the current year will be in­creased by more than 10% compared with the taxable income realized in the reference period, they may decide to in crease the advance payments. Companies that generated losses in the refer­ence years make advance payments based on their taxable profit projections for the current year.

By 31 March, companies must file the annual tax return and pay the corporate tax due for the tax year less advance payments made. A 10 February deadline applies to taxpayers subject to the reduced profit tax regime.

Effective from 1 January 2014, taxpayers subject to the reduced profit tax regime make advance payments of simplified profit tax (profit tax applicable to small businesses; see Rates of corporate tax) on a quarterly basis. The payments must be made by 20 April for January through March, by 20 July for April through June, by 20 October for July through September and by 20 December for October through December. Taxpayers with turnover of ALL2 mil­lion to ALL8 million are provided with tax stamps for each pay­ment made during the year (total of four). Taxpayers with turn­over below ALL2 million are subject to an annual payment of ALL25,000 and consequently are provided with only one tax stamp. Taxpayers must place the tax stamps in the upper corner of their National Registration Centre (Tax Identification Number) certificate.

Companies not complying with the filing and payment deadlines described above are subject to interest and penalties. Late tax pay­ments are subject to interest at a rate of 120% of the interbanking loan interest rate, published by Bank of Albania. The interest is not de ductible for corporate income tax purposes. Late tax pay­ments and inaccurate tax return filings are charged with a penalty of 0.06% of the amount of the unpaid tax liability and contribu­tion for each day of delay, capped at 21.9%. In addition, a penalty of ALL10,000 can be assessed if the tax return is not filed by the due date. If the unreported tax liability results from tax evasion, the penalty is 100% of the unpaid liability.

Dividends. Dividends paid by Albanian companies to resident and nonresident individuals and to foreign entities are subject to with­holding tax at a rate of 15% unless the rate is reduced under an applicable double tax treaty (see Section F). Dividends receiv ed by Albanian companies are exempt from tax.

Foreign tax relief. Foreign direct tax on income and gains of an Albanian resident company may be credited against the corporate tax on the same profits. The foreign tax relief cannot exceed the Albanian corporate income tax charged on the same profits. If a company receives income from a country with which Albania has entered into a double tax treaty, other forms of foreign tax relief may apply, as stipulated in the provisions of the treaty.

Determination of trading income

General. The assessment is based on the financial statements prepared in accordance with the local standards or International Financial Reporting Standards (IFRS), subject to certain adjust­ments for tax purposes as specified in the Albanian Tax Code and other supplementary legal acts.

All necessary and reasonable expenses incurred for the business activity that are properly documented are deductible, except for the following:

  • In-kind compensation.
  • Wages and salaries that are not paid through the banking system.
  • Write-off of debts if all legal means for their collection have been exhausted.
  • Expenses for cross-border technical services and consultancy and management fees if the corresponding withholding tax (10% through 31 December 2014 and 15% from 1 January 2015) has not been paid by 31 December of the year in which the service is provided. In case of tax treaty protection, the above restriction does not apply, and the provisions of the applicable treaty apply.

Other types of expenses may be deducted up to a ceiling. These expenses include, but are not limited to, the following:

  • Representative and entertainment expenses are deductible up to 0.3% of annual turnover.
  • Production waste and losses, including losses from impairment, are deductible to the extent provided by the relevant legislation.
  • Sponsorships are generally deductible up to 3% of the income before tax and up to 5% for media-related sponsorships.
  • Per diems are deductible up to ALL3,000 per day for traveling inside Albania and up to EUR60 per day for traveling abroad.
  • Interest is deductible only to the extent that the rate does not exceed the average interest rate published by Bank of Albania and that the amount of the debt does not exceed four times the equity. Such limitation does not apply to banks, insurance com­panies and leasing companies.
  • Costs of improvements and maintenance are fully deductible in the year in which they are incurred to the extent that they do not exceed 15% of the remaining value of the asset.
  • Expenses settled in cash are tax deductible if they do not exceed ALL150,000 (approximately EUR1,070).
  • Voluntary pension contributions made by employers in favor of their employees to professional pension plans are tax deductible up to an amount of ALL250,000 (approximately EUR1,786) per year.

Inventories. The inventory valuation rules stipulated in the ac­counting law also apply for tax purposes. Inventory is valued at historical cost, which is determined by using the weighted aver­age, first-in, first-out (FIFO) or other specified methods. The method must be applied consistently. Changes in the method must be reflected in the books of the company.

Provisions. Companies may not deduct provisions, except for cer­tain levels of special reserves specified by regulations regarding insurance companies and provisions of financial service compa­nies created in compliance with International Financial Reporting Standards and certified by the external auditors.

Tax depreciation. Buildings are depreciated separately for tax purposes using the declining-balance method at a rate of 5%. If the remaining value of the asset at the beginning of a tax period is less than 3% of the historic acquisition cost of such asset, the entire remaining balance is recognized as a tax-deductible ex­pense in that tax period.

Intangible assets are depreciated using the straight-line method at a rate of 15%.

Other assets are depreciated in groups, using the declining-balance method. The applicable rates are 25% for computers, information systems and software, and 20% for all other fixed assets. If the remaining value of the asset at the beginning of a tax period is less than 10% of the historic acquisition cost of such asset, the entire remaining balance is recognized as a tax-deductible expense in that tax period.

Relief for losses. Losses may be carried forward for three con­secutive years. However, if a change of 50% in the entity’s owner­ship occurs, the remaining losses are forfeited. Loss carrybacks are not allowed.

Groups of companies. Each company forming part of a group must file a separate return. The law does not provide for consoli­dated tax returns or other group relief.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate
Value-added tax; exempt supplies include leases of land, supplies of buildings and financial services
Standard rate 20.00%
Exports of goods and supplies of services relating to international transportation 0.00%
Real estate property tax
Buildings ALL40 to ALL400 per square meter
Agricultural land ALL700 to ALL5,600 per hectare
Social security contributions, on monthly salary up to ALL97,030, paid by:
Employer 15.00%
Employee 9.50%
Health insurance contributions on monthly gross salary, paid by:
Employer 1.70%
Employee 1.70%
Excise duties imposed on specified goods (tobacco products, coffee, alcoholic beverages, petrol, diesel, fuel, kerosene and lubricants); the tax is calculated as a specific amount per unit Various
Consumption tax for petrol, gas, oil, and coal ALL27 per litre

Miscellaneous matters

Foreign-exchange controls. Albania has a free foreign-exchange market. The Albanian currency, the lek (ALL), is fully convert­ible internally.

Residents and nonresidents may open foreign-currency accounts in Albanian banks or foreign banks authorized to operate in Albania. Residents may also open accounts in banks located abroad. All entities must properly document all of their money transfers to comply with the regulations of Bank of Albania. No limits are imposed on the amount of foreign currency that may be brought into Albania. Hard-currency earnings may be repatriated after the deduction of any withholding tax.

Transfer pricing. New transfer-pricing rules, which are aligned with the Organisation for Economic Co-operation (OECD) Trans­fer Pricing Guidelines of 2010, were introduced in June 2014. Under these rules, taxpayers engaged in controlled transactions carried out on or after 4 June 2014 and in recurring transactions continuing after that date are required for the first time to maintain transfer-pricing documentation, which must be submitted within 30 days after a request of the tax authorities. Failure to prepare transfer-pricing documentation is not sanctioned with penalties, but fulfilling such requirement protects the taxpayer from the as­sessment of penalties in the event of transfer pricing-related audit adjustments. Such penalties equal 5% of additional tax liability and are applied for each month of delay, capped at 25%.

Only cross-border and controlled transactions are subject to the transfer-pricing rules. Consequently, domestic transactions are not subject to the rules. Controlled transactions are considered to be transactions between related parties, dealings between a perma­nent establishment and its head office, and transactions with an entity resident in a tax-haven jurisdiction. Two persons are consid­ered related parties if either one of them participates directly or indirectly in the management, control or capital of the other, or the same person(s) participate(s) directly or indirectly in the man­agement, control or capital of the two parties; that is, the same person owns 50% or more of the share capital of the other person or effectively controls the business decisions of the other person.

The new rules refer to the application of the most appropriate method among the OECD transfer-pricing methods, which are comparable uncontrolled price, resale price, cost-plus, transac­tional net margin and profit-split. If it can be proved that none of the approved methods can be reasonably applied, taxpayers are allowed to use other more appropriate methods.

Taxpayers are required to submit by 31 March of the following year a Controlled Transaction Notice, which lists the intercompa­ny transactions and the transfer-pricing methods applied to these transactions, if their controlled transactions exceed in aggregate ALL50 million (approximately EUR357,000).

Failure to timely submit the Controlled Transaction Notice sub­jects the taxpayer to a penalty of ALL10,000 (approximately EUR70) for each month of delay.

Debt-to-equity rules. Albanian tax law includes thin-capitalization rules with respect to the deduction of interest on loans, which apply if the debt-to-equity ratio exceeds 4:1. The ratio applies to all debts owed to related and unrelated parties as well as to loans obtained from financial institutions. However, the limitation does not apply to banks and insurance and leasing companies.

Treaty withholding tax rates

The rates of withholding tax in Albania’s tax treaties are described in the following table.

 

Dividends

%

Interest

%

Royalties

%

Austria 5/15 (a) 5 (b) 5
Belgium 5/15 (a) 5 5
Bosnia and Herzegovina 5/10 (a) 10 10
Bulgaria 5/15 (a) 10 10
China 10 10 10
Croatia 10 10 10
Czech Republic 5/15 (a) 5 10
Egypt 10 10 10
France 5/15 (a) 10 5
Germany 5/15 (a) 5 (b) 5
Greece 5 5 5
Hungary 5/10 (a) 0 5
Ireland 5/10 (a) 7 (b) 7
Italy 10 5 (b) 5
Korea (South) 5/10 (a) 10 (b) 10
Kosovo 10 10 10
Kuwait 0/5/10 (g) 10 10
Latvia 5/10 (a) 5/10 (b) 5
Macedonia 10 10 10
Malaysia 5/15 (a) 10 10
Malta 5/15 (a) 5 5
Moldova 5/10 (a) 5 10
Montenegro 5/15 (a) 10 10
Netherlands 0/5/15 (c) 5/10 (d) 10
Norway 5/15 (a) 10 10
Poland 5/10 (a) 10 5
Qatar 0/5 (h) 0/5 (b) 6
Romania 15 10 (b) 15
Russian Federation 10 10 10
Serbia 5/15 (a) 10 10
Singapore 5 5 (b) 5
Slovenia 5/10 (a) 7 (b) 7
Spain 0/5/10 (e) 6 (b) 10
Sweden 5/15 (a) 5 5
Switzerland 5/15 (a) 5 5
Turkey 5/15 (a) 10 (b) 10
United Arab Emirates 0/5/10 (g) 0 0
United Kingdom 5/15 (i) 6 (b) 0
Non-treaty countries 15 15 15
    a) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 25% of the capital of the payer. The higher rate applies to other dividends.
    b) Interest on government and central bank loans is exempt from withholding tax.
    c) The 0% rate applies if the beneficial owner of the dividends is a company that holds at least 50% of the payer and that has invested at least USD250,000 in the capital of the payer. The 5% rate applies if the beneficial owner of the dividends is a company that holds at least 25% of the payer. The 15% rate applies to other dividends.
    d) The 5% rate applies to interest paid on loans granted by banks or other finan­cial institutions. The 10% rate applies in all other cases.
    e) The 0% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 75% of the capital of the payer. The 5% rate applies if the beneficial owner of the dividends is a com­pany (other than a partnership) that holds directly at least 10% of the capital of the payer. The 10% rate applies to other dividends.
    f) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the payer. The higher rate applies to other dividends.
    g) The 0% rate applies if the beneficial owner of the dividends is the govern­ment or a government institution or agency of the other contracting state. The 5% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the payer. The 10% rate applies to other dividends.
    h) The 0% rate applies if the beneficial owner of the dividend is the government, a government institution or agency of the other contracting state. The 5% rate applies to other dividends.
    i) The 5% rate applies if the beneficial owner of the dividend is a company that holds directly at least 25% of the capital of the payer or is a pension scheme. The 10% rate applies to other dividends.

Albania has signed tax treaties with Estonia, India and Luxembourg, but these treaties have not yet entered into force.