Albania Personal Income Tax

Individuals who are resident in Albania are subject to tax on their worldwide income. Nonresidents are subject to tax on income derived from Albania sources only.

The following individuals are considered resident for tax pur­poses in Albania:

  • Individuals who have a permanent residence, family or vital interests in Albania.
  • Albanian citizens serving in a consular, diplomatic or similar position outside Albania.
  • Individuals who reside in Albania consecutively or non-consecutively for at least 183 days during a tax year, regardless of their nationality or country of vital interests. The calculation of the residence period in Albania includes all of the days of physical presence, including holidays.

Income subject to tax. Individuals are subject to tax on the fol­lowing types of income:

  • Employment income
  • Self-employment and business income
  • Dividends
  • Interest from bank deposits and securities
  • Royalties
  • Income from rentals and leases of real property and loans
  • Income derived from transfers of ownership rights over immov­able property
  • Income derived from transfers of quotas and shares
  • Income derived from gambling and other games of chance
  • Other income

These categories of income are described below.

Employment income. 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-employment income. Self-employed individuals must regis­ter as entrepreneurs with the National Registration Centre for tax purposes. Small businesses with annual turnover between ALL2 million to ALL8 million are subject to a simplified income tax at a rate of 7.5% of their profits, but the computed tax may not be less than ALL25,000. The tax base equals the difference between total gross income and total deductible expenses. Self-employed individuals must make advance payments on a quar­terly basis, file the annual tax return and pay the tax due for the year less advance payments made by 10 February of the follow­ing year.

Microbusinesses that generate annual turnover of up to ALL2 million are taxed at a fixed amount of ALL25,000 that is payable in the first half of the fiscal year.

Dividends. Dividends received by individual shareholders or part­ners in commercial companies are subject to tax.

Amounts received for decreases in the total of participation quo­tas or capital withdrawals by partners or owners of initial capital are considered dividends received and are taxed to the extent that the amounts are paid out of the company’s capitalized profits and not from contributions in cash or in kind by the owners.

Interest from bank deposits or securities. Bank interest and inter­est on securities, other than interest generated from government treasury bills or other securities issued before the law “On income tax,” as amended, entered into force in 1999, are included in tax­able income.

Royalties. Taxable royalties (intellectual ownership payments) are considered to be income generated from the use of, or the right to use, literature, artistic or scientific works, including mov­ies, tapes, radio records, patents, trademarks, sketches or models, designs, secret formulas, technological processes and industrial, commercial or scientific information.

Income from rentals and leases of real property and loans. Taxable income from rentals and leases of real property and loans includes any periodic compensation in cash or in kind that an individual generates from the leasing of real estate and lending of replaceable items (for example, funds).

Income derived from transfers of ownership rights over immovable property. The taxation of income derived from transfers of owner­ship rights over immovable property is discussed in Capital gains.

Income derived from transfers of quotas or shares. The taxation of income derived from transfers of participation quotas or capi­tal shares is discussed in Capital gains.

Income derived from gambling and other games of chance. The payer of income from gambling and other games of chance must withhold a 15% tax and remit it to the tax authorities within 24 hours after making the payment.

 

Other income. Other forms of income include all types of income that are not identified in the categories mentioned above. This category includes the following:

  • Income from sponsoring (for example, individuals not regis­tered with tax bodies receive sponsoring from different sources and use the sponsorship for artistic or sports activities).
  • Income from professional activities, including teaching, train­ing and publishing articles in newspapers if the beneficiary is not registered with tax bodies and if such activities are of a temporary or secondary character.
  • Income realized from collecting and selling metals.
  • Cash contributions to share capital. Such contributions are tax­able if they have not yet been taxed or if no sufficient evidence exists that they originate from sources that are excluded from the scope of Albanian taxation or that they are exempt from tax for other reasons.

Exempt income. The following types of income are exempt from personal income tax:

  • Income received from obligatory and voluntary schemes for life insurance, pensions and health insurance and allowances for families or individuals with no or low income.
  • Scholarships received by students.
  • Allowances received for diseases or disasters, up to 20% of the annual employment income earned by the recipient of the allowance.
  • Benefits in cash or in kind granted to former landowners as compensation for an expropriation effected by the government for the public interest. This exemption must be proven by legal documentation explaining the nature of the income.
  • Compensation for damages received from insurance companies.
  • Income in kind, such as food (antidotal), received from busi­nesses that are allowed to pay such income under the law.
  • Income excluded by international agreements approved by the Albanian parliament.
  • Indemnities received by former political prisoners.
  • Life and health contributions made by employers for the benefit of employees.
  • Compensation for damages ordered by final court decision.
  • Prizes received from the government for achievement in sci­ence, sport or culture.
  • Income derived from the transfer of an ownership title with respect to agricultural land by a registered farmer to another farmer or a legal entity engaged in agricultural activity.
  • Contributions made by employers to private pension schemes for their employees, to the extent they do not exceed the limits set forth in the law for voluntary pension contributions, cur­rently set at ALL250,000 per employee per year.
  • The return of investment, including capital gains, made through an insurance policy.

Taxation of employer-provided stock options. No specific rules in Albania govern the tax treatment of employer-provided stock options. Stock options are subject to personal income tax at the moment of exercise.

Capital gains

Transfers of ownership rights over immovable property. Capital gains derived from disposals of real estate are subject to tax. The tax base equals the amount by which the sale price exceeds the acquisition cost. Transfers caused by donations are also consid­ered. The value of the property taken into account on transfer may not be less than the “reference price” for such property. For this purpose, the “reference price” is the objective value per meter in the relevant area, as indicated in the reference table published by the Albanian Institute of Statistics for the main Albanian cities.

Transfers of quotas or shares. Capital gains derived from trans­fers of participation quotas or capital shares include income from sales of quotas owned by partners in businesses or partnerships, income from sales of shares and income from sales or liquida­tions of businesses. The tax base is equal to the following:

  • Shares: difference between the sales value of the shares and nominal value or the purchase value
  • Capital participation quotas: difference between the sales value and nominal value or the purchase value
  • Liquidation: difference between the sales value or liquidation value of a business and book value

Capital losses. Capital losses are not deductible for tax purposes.

Deductible expenses. In general, the gross amount of income is subject to tax and deductions do not apply. However, tax residents can claim deductions for the following expenses:

  • Interest on bank loans used for the education of the individual and/or his or her dependent family members
  • Health care expenses for medical treatment that are not covered by the health insurance

Rates

Employment income. Salaries and compensation relating to employment are taxed at the rates set forth in the following table.

Monthly taxable income Tax rate Tax due Cumulative tax due
ALL % ALL ALL
First 30,000 0 0 0
Next 100,000 13 13,000 13,000
Above 130,000 23

Other types of income. Albanian resident entities, government institutions and other specified entities must withhold a 15% tax from all other types of income paid. This tax is considered to be a final tax. These types of income include rent, dividends, profit distributions, interest, capital gains, royalties and income from gambling and games of chance. For a discussion of the types of income subject to tax in Albania, see Income subject to tax.

Other taxes

Annual Real Estate Tax. Annual Real Estate Tax (ARET) is imposed annually on all completed buildings based on the area in square meters of the building for each floor of the building above and below the ground. The annual tax ranges from ALL5 to ALL30 per square meter for the first residential property owned by individuals, depending on the municipality where the property is located. Individuals owning more than one residential property are subject to tax at twice the normal rate for any additional property. The annual tax on properties other than residential pur­poses ranges from ALL40 to ALL400 per square meter.

Tax on hotel accommodation. The tax on hotel accommodation is calculated based on the duration of stay and the category of the lodging. For four- to five-star hotels, the tax on hotel accommo­dation is ALL105 to ALL350 per night per person, depending on the hotel location; for bed and breakfasts, dormitories, and motels, the tax is ALL35 to ALL140 per night per person, depending on the location of the lodging.

Tax on waste disposal. The tax on waste disposal is determined at the municipality level. It is payable by individuals and legal enti­ties residing or performing economic activity in the municipality.

Tax on construction land. Construction land tax is calculated based on the surface of the construction land. Depending on the local government units in which the construction land is located, the tax rates vary between ALL0.14 per square meter to ALL0.56 per square meter, annually, for residential buildings and ALL12 per square meter to ALL20 per square meter, annually, for commercial buildings.

Social security

Contributions. Employers and employees contribute to a social security fund a percentage of the calculated monthly salary. The total contribution is 27.9%, of which 16.7% is borne by the employer, and 11.2% is borne by the employee. The contribution consists of a social security contribution of 24.5% (out of which 15% is borne by the employer and 9.5% is borne by the employ­ee) and a health security contribution of 3.4% (out of which 1.7% is borne by the employer and 1.7% is borne by the employee). The social security contribution is calculated on the monthly sal­ary, from a minimum amount of ALL22,000 to a maximum amount of ALL97,030. The health insurance contribution is cal­culated on the actual gross salary. The contribution must be paid to the tax authorities by the 20th day of the following month.

Self-employed persons must pay a social security contribution of 23%, calculated on their monthly remuneration declared by them. This remuneration cannot be lower than the minimum monthly salary set nationally, which is currently ALL22,000. The monthly remuneration is subject to social security contributions up to the maximum monthly salary amount for employed persons, which is ALL97,030. Self-employed persons must pay a health insur­ance contribution of ALL1,496, which is twice the minimum amount of health insurance contributions, calculated as 3.4% of the minimum salary.

Self-employed persons considered to be “professional freelanc­ers” must calculate and pay the social security and health insur­ance contributions on a minimum reference salary base as deter­mined by a separate decision of the Council of Ministers. Minimum monthly reference salaries for social and health insur­ance contributions vary from ALL41,250 to ALL88,800, depend­ing on the type of profession, working experience of the profes­sional, license status and the specific area where the activity of the professional freelancers is carried out.

 

Totalization agreements. To provide relief from double social security taxes and to assure benefit coverage, Albania has entered into social security agreements with Belgium, Macedonia and Turkey.

Filing and payment procedures The tax year in Albania is the calendar year.

Employers must withhold personal income tax from wages and compensation paid, and they must pay the withholding tax to the tax administration by the 20th day of the following month. Employers must maintain records of payments in accordance with instructions issued by the Ministry of Finance.

Individuals earning income of ALL2 million or more must file a personal income tax return for the preceding year by 30 April. Income taxed at source must also be declared, but no personal income tax is calculated on such income.

Double tax relief and tax treaties

Tax treaties. Albania has entered into double tax treaties with the following jurisdictions.

Austria                            India*                           Poland

Belgium                           Ireland                          Qatar

Bosnia and                      Italy                              Romania

Herzegovina                    Korea (South)              Russian

Bulgaria                           Kosovo                        Federation

China                               Kuwait                         Serbia

Croatia                             Latvia                           Singapore

Czech Republic               Luxembourg*              Slovenia

Egypt                               Macedonia                   Spain

Estonia*                          Malaysia                      Sweden

France                             Malta                            Switzerland

Germany                         Moldova                      Turkey

Greece                             Montenegro                 United Arab

Hungary                          Netherlands                  Emirates*

Iceland*                           Norway                        United Kingdom

* This treaty has not yet been ratified.

Foreign tax credit. Resident taxpayers may credit the foreign income tax paid in other countries on the income realized in such countries. The amount of the foreign tax credit may not exceed the amount of Albanian tax regarding such income.

Entry visas

Albania issues the following temporary visas:

  • Type A visas, which are transit visas permitting a visit or transit passage. Holders of transit visas may not undertake employ­ment or engage in profit-seeking activities.
  • Type C visas, which allow the holders to stay in Albania up to 90 days in a 180-day period.
  • Type D visas, which are issued to individuals who are planning to stay in Albania for more than 90 days within a 180-day period and who plan to apply for a residence permit. Such visas can be issued for the purposes of work, study, humanitarian activities or family reunion.

 

The following types of persons can enter, stay and travel through Albania up to 90 days within a 180-day period without a visa:

  • European Union (EU) and Schengen area citizens
  • Citizens of countries exempted from the Schengen visa require­ment as a result of the liberalization of the visa regime
  • Holders of a valid multi-entry Schengen, UK or US visa
  • Holders of a valid residence permit in one of the Schengen member states
  • Citizens of countries with which Albania has entered into inter­national agreements, such as citizens of Armenia, Azerbaijan, Kazakhstan, Kosovo, Turkey and Ukraine
  • Other persons, based on the principle of reciprocity as enacted by a Council of Ministers’ decision

Work permits

The Ministry of Social Welfare and Youth is in charge of the policies for the employment of foreign citizens. Work permits are issued to foreigners by local institutions (labor office, immigra­tion sector) and the Directory of Immigration Issues.

Foreigners must apply for either a work permit or a work registra­tion certificate. Citizens of the EU and Schengen area are exempt from the obligation to apply for a work permit or a work registra­tion certificate.

Work certificate. The work registration certificate is issued for a period of 60 days to 90 days within one year for the following categories:

  • Consultants and audit service providers
  • Artists and technical staff in cultural activities
  • Technical staff provided by foreign companies for technical services
  • Lecturers
  • Personnel of international transport in Albania and certain other persons

To obtain a work certificate, the following documents must be submitted:

  • Application form
  • Copy of the passport
  • Individual employment contract or secondment contract between the foreign entity, the local entity and the individual employee
  • If the above documents are filed by proxy, the relevant power of attorney
  • Five passport-size pictures
  • Receipt for fee payment

Work permit. The work permit can vary depending on the type of economic activity that the foreigners will perform in Albania. Type A/P work permits are issued to employees who have legally entered Albania, fall in the list eligible for this type of permit and have regular employment contracts.

Type A/P work permits are issued for the following terms:

  • One-year term for the first application
  • Two-year term, renewable two consecutive times
  • Permanent term, after the expiration of the second two-year term for the work permit

 

To obtain a Type A/P work permit, the following documents must be submitted:

  • Application form
  • Passport (expiration date at least three months after the visa expiration date)
  • Copy of passport information regarding generalities and other important information
  • Individual employment contract or secondment contract between the foreign entity, the local entity and the individual employee
  • If the above documents are filed by proxy, the relevant power of attorney
  • University degree certificate
  • Five passport-size pictures
  • Receipt for fee payment

Residence permits

Foreign citizens who plan to stay in Albania for more than 90 days within a 180-day period and who have entered Albania with a Type D visa or without a visa can apply for a residence permit. The duration of a residence permit may be three months, six months, one year, two years or five years, or the permit may be permanent. Residence permits with the first three periods of duration can be renewed up to five consecutive times. The two-year residence permit may be renewed only one time. Foreigners may apply for a permanent residence permit if they have had a legal residence in Albania for five consecutive years and have a permanent activity. To obtain a residence permit, the following documentation must be submitted:

  • Application form
  • Passport (valid for at least three months after the expiration date of the visa)
  • Copy of passport information regarding generalities and other important information
  • Criminal Records Clearance of the individual extracted in the last six months
  • Rent or purchase contract for an apartment or house in Albania
  • Personal/Family Certificate translated in Albanian, released in the last six months
  • Three passport-size pictures
  • Declaration from the host or employer about the purpose of stay
  • Photocopy of the work permit or the professional license
  • Health insurance certificate for Albania
  • Medical report (for citizens of and coming from countries affected by epidemics)
  • Fee payment receipt

Personal and family considerations

Marital property regime. The marriage property regime is based on the concept of common ownership, which means that prop­erty acquired after the marriage is deemed to be in joint owner­ship, unless otherwise agreed between spouses. The law distin­guishes the separate property from the joint property of spouses even after the marriage. The following is considered separate property:

  • Property that belongs to the spouse before the marriage and remains his or her property
  • Property acquired during marriage through inheritance, dona­tion or other forms of legal acquisition

Joint property is the property and income acquired through work during the course of the marriage, and the spouses are considered to be joint owners in equal share unless otherwise provided in a written agreement in accordance with the requirements of the law.

Forced heirship. Albanian succession law provides for forced heir­ship for children under the age of 18 and disabled dependents.

Driver’s licenses. Expatriates with valid residence permits may drive legally in Albania with their home-country driver’s licenses if their home-country licenses are valid and if the expatriates are not resident in Albania for more than one year. If the driver’s license does not comply with the form provided by international agreements, such license must be accompanied by an official translation of the license into Albanian.