VAT, GST and Sales Tax in Albania

Summary

Name of the tax Value-added tax (VAT)
Local name Tatimi mbi Vleren e Shtuar (TVSH)
Date introduced 27-Apr-95
Trading bloc membership Central European Free Trade Agreement
Administered by General Directorate of Taxes of Albania
VAT rates
Standard 20%
Other Zero-rated and exempt
VAT number format A23456789B
VAT return periods Monthly
Registration thresholds
Resident taxable persons Annual turnover of ALL5 million
Exporters, importers,non-established businesses Subject to registration regardless of turnover
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods and services performed by a taxable person in Albania
  • Importation of goods into Albania, regardless of the status of the importer
  • Services supplied to taxable persons in Albania by service pro­viders whose place of business is outside Albania
  • Certain supplies of services rendered to nontaxable persons in Albania by providers whose place of business is outside Albania, such as digital services and services related to an immovable property located in Albania

Who is liable

Any person (entity or individual) who makes supplies in the course of the person’s independent economic activity is liable to VAT.

Taxable activities also include “the exploitation of tangible or intangible property for the purposes of obtaining income there­from on a continuing basis.”

Registration. A taxable person established in Albania is obliged to register for VAT purposes and charge VAT if the annual turn­over in the previous twelve months exceeds ALL5 million. Once this threshold of ALL5 million is exceeded, any supply shall be subject to VAT, and the taxable person is required to apply for VAT registration within 15 days. Taxable persons with an annual turnover less than ALL5 million may voluntarily register for VAT, and that taxable person must remain registered for a minimum of two years.

Persons involved in import or export activities and taxpayers who supply professional services must register for VAT regardless of the amount of turnover.

Group registration. The Albanian VAT law does not allow group registration.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Albania.

No VAT registration threshold applies to taxable supplies made in Albania by a non-established business. A non-established busi­ness must register for VAT in Albania if it engages in any of the following supplies:

  • Supply of goods located in Albania at the time of supply
  • Certain supplies of services to nontaxable persons in Albania, such as digital services and services related to an immovable property located in Albania
  • Import and export activities in Albania

VAT representatives. A non-established business must appoint a resident VAT representative to register for VAT purposes in Albania unless the reverse-charge mechanism applies. The VAT representative may act on behalf of the taxable person for all purposes related to VAT and is jointly liable for compliance with all VAT obligations of the non-established business.

Reverse charge. The reverse-charge mechanism applies to sup­plies of services made by a non-established business to taxable persons in Albania. A non-established business is not required to register for VAT if all its taxable supplies in Albania fall under the reverse-charge mechanism.

Digital economy. Albania follows the destination principle with regard to cross-border digital services supplied to nontaxable persons in Albania. The place of supply of cross-border digital services to nontaxable persons is the place where the nontaxable person is established or where he has his permanent address or usually resides. Thus, a foreign service supplier providing digital services to a nontaxable person in Albania should register for VAT purposes in Albania by appointing a VAT representative in the country to account for and pay the VAT liability.

Registration procedures. The application for registration can be performed online or at the National Center of Registration (NCR). A taxable person may personally or through an autho­rized person submit the registration form with the NRC. The registration procedure lasts three to four working days.

Late-registration penalties. Noncompliance with the requirement to register or to update registration data triggers a penalty of ALL15,000.

Deregistration. Every taxable person registered for VAT may request to be deregistered if turnover fell below the VAT registra­tion threshold during the previous 12 months. Such deregistration becomes effective 6 months after the request. Taxable persons ceasing their economic activity must request deregistration within 15 days from the termination of their activity.

VAT rates

The standard VAT rate for taxable supplies is 20% and applies to all taxable supplies of goods and services unless a ministerial decree introduces a reduced or zero rate for specific supplies. A supplier of zero-rated supplies may deduct the VAT paid on inputs.

The use of goods or services purchased or produced in the course of business activity for private purposes constitutes a taxable sup­ply to the extent the VAT on those supplies was deducted.

Examples of zero-rated supplies of goods and services

  • Exports of goods
  • International transport
  • Services relating to maritime activities
  • Supplies under diplomatic arrangements
  • Supply of gold to the Central Bank of Albania
  • Intermediary services of agents, brokers or other intermediaries related to zero-rated supplies or services rendered abroad

Certain supplies are referred to as “exempt with credit,” which means that no VAT is chargeable, but the supplier may recover the input VAT (effectively zero-rated). Exempt-with-credit sup­plies include exports of goods, supplies related to international transport, and other supplies of goods or services under diplo­matic and consular arrangements or international bodies.

Examples of exempt supplies of goods and services The term “exempt supplies” refers to supplies of goods and ser­vices that are not subject to VAT and that do not give rise to an input VAT deduction, such as the following:

  • Hospital services and medical care
  • Insurance and reinsurance services
  • Supply and rent of land and buildings
  • Financial services
  • Postal services
  • Education services
  • Hydrocarbon exploration operations
  • Printing and sale of publications
  • Media advertising
  • Betting, lotteries and gambling
  • Importation of machinery and equipment used for inward pro­cessing of goods and in the agricultural sector or in the imple­mentation of contracts of ALL50 million or more
  • Importation of production machinery for small business

Option to tax for exempt supplies. The Minister of Finance may grant through decree the right to opt for taxation for the following VAT exempt supplies:

  • Financial transactions
  • The supply of building and of the land on which the building stands
  • The supply of land
  • Leasing of immovable property

Time of supply

VAT becomes due at the “time of supply” unless otherwise pro­vided in law. The time of supply is considered to occur when an invoice is required to be issued or when goods or services are delivered. The invoice should be issued at the moment the supply of goods or services takes place. If the payment is made before delivery of goods or services, the moment of supply is the moment when the payment is made.

The time of supply for a continuous supply of goods and services, including construction services, is considered to be the month when the invoice is issued. Invoices should be issued on a monthly basis.

Imported goods. The time of supply for imported goods is the date of importation or the date on which the goods exit a duty suspension regime.

Reverse-charge services. Invoices for reverse-charge services are required to be issued by the 14th day of the month following the month in which VAT becomes due.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is the VAT that the taxable person paid on the purchase of goods and services that were used to provide taxable goods and services in Albania. A taxable person may also recover VAT related to the overseas sup­ply of services (outside the scope of Albanian VAT) that would have been taxable if made in Albania. A taxable person generally recovers input tax by deducting it from output tax, which is the VAT charged on supplies made.

Input tax includes VAT charged on goods and services supplied in Albania, VAT paid on imports of goods and VAT applied to reverse-charge services.

Examples of items for which input tax is deductible
(if related to a taxable business use)

  • Expenditure relating to publicity and promotional articles
  • Expenditure relating to representative expenses up to the amount of expenses that are recognized as deductible for cor­porate income tax purposes
  • Expenditure on fuel used solely for carrying on taxable eco­nomic activity up to the limit defined by a decree issued by the Minister of Finance

However, not all input tax is deductible.

Examples of items for which input tax is not deductible

  • Expenditure on fuel unless the payer is a company that pur­chases the fuel for trading purposes
  • Expenditure on trips and per diems and hotel accommodation
  • Expenditure on cars, unless the business activity consists of the trading or renting of cars such as car rentals, taxi services and ambulances

Partial exemption. If a supply of a good or service is used partly for purposes of taxable supplies and partly for exempt supplies, the taxable person may not deduct input tax in full. This situation is known as “partial exemption.” The calculation of the amount of input tax that may be recovered is made on a pro rata basis by using the following formula:

(Amount of relevant input VAT x VAT creditable turnover) / total annual turnover

During the tax year, the pro rata VAT due may be calculated based on the preceding year’s results. The calculation must be adjusted by 31 January of the following year to reflect the actual results of the tax year. The calculation does not include supplies of capital goods used by the taxable person for business purpos­es, nor does it include incidental real estate and financial transac­tions.

Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input tax is generally deducted in the VAT year in which the goods are acquired. If the business comprises both taxable and exempt supplies and the capital goods do not only serve taxable supplies, the amount of input tax recovered depends on the taxable person’s partial exemp­tion recovery position in the VAT year of acquisition. The amount of input tax recovered is adjusted over time if during the adjust­ment period the taxable person’s pro rata calculation changes or the capital good is transferred to an exempt activity with no right to deduction.

The capital goods adjustment period is as follows:

  • Immovable capital assets: 10 years
  • Movable capital assets: 5 years

In case of pro rata changes during the adjustment period, the adjustment is made to 1/5 for movable capital goods and 1/10 for immovable capital goods, while for transfer of capital goods to an exempt activity the adjustment is made for the remaining years of the adjustment period.

Write-off of bad debts. Taxable persons who have not received partial or total payment for a taxable supply may claim the VAT charged as input tax if all of the following conditions are satisfied:

  • The debt has remained outstanding for more than six months.
  • The amount has been written off.
  • A court has recognized the debt as uncollectible because the debtor is insolvent.
  • The taxpayer carried forward the relevant amount as a VAT credit balance in the following three consecutive months.
  • The amount claimed exceeds ALL400,000.

The taxpayer must file a “Request for Refund” form, prescribed in the VAT law, with the relevant tax office. The tax office must verify the fulfillment of the refund conditions and approve the refund within 60 days.

Preregistration costs. A taxable person cannot recover any input VAT incurred on goods or services supplied to it before VAT registration.

Noneconomic activities. To the extent they do not distort competi­tion, payments received by not-for-profit organizations such as grants, donations and membership dues are considered to be noneconomic activities on which no VAT is due. The same applies to the performance of public services by the public authorities.

Recovery of VAT by non-established businesses

Non-established businesses not registered for VAT in Albania may not recover input VAT.

Invoicing

VAT invoices and credit notes. A taxable person must provide a VAT invoice for all taxable supplies made, including exports. The invoice must comply with the requirements set out in the VAT law. A VAT credit note may be used to reduce the VAT charged on a supply of goods or services; a debit note may be used to increase the amount of VAT. Tax credit and debit notes must be cross-referenced to the original VAT invoice.

Electronic issuance of invoicing. Electronic invoices are permitted, subject to acceptance by the recipient. The authenticity of the origin and the integrity of their content must be guaranteed by means of advanced electronic signature or by means of elec­tronic data interchange (EDI).

Foreign-currency invoices. An Albanian VAT invoice must be issued in Albanian lek (ALL). If an invoice is received in a for­eign currency, the amounts must be converted into lek. The exchange rate used for imports is determined by Customs, while the exchange rate for domestic VAT supplies is the rate published by the Central Bank of Albania for the date of the invoice.

Proof of exports. No VAT is chargeable on exported goods if exporters have documented their supplies with an official cus­toms declaration.

VAT returns and payments

The tax period is a calendar month. Purchase and sales ledgers must be submitted monthly by the fifth day of the following month. VAT returns must be submitted monthly by the 14th day of the month following the tax period. The deadline for VAT pay­ment is the same as the deadline for the filing of VAT returns. For imports, VAT is payable upon importation.

For a taxpayer that is newly registered, the first tax period begins on the date of the registration, as stated in the certificate of reg­istration, and ends on the last day of that month.

VAT payable by a taxpayer for a tax period equals the VAT on the total taxable value of supplies made during the tax period minus any input VAT allowed as a deduction.

Special schemes for travel agencies. This scheme applies to transactions where the travel agency deals with customers in its own name and uses the supplies of other taxable persons in the provision of travel services. In this case, the taxable amount for services supplied to customers is the travel agency’s margin, i.e., the difference between the total amount charged to the customer and the actual purchase price the travel agency paid for the services. The input VAT incurred by travel agents may not be deducted.

The special scheme does not apply to travel agencies that act only as intermediary, in which case the supplies and services of other taxable persons can be treated as disbursements.

Special arrangements applicable to secondhand goods, works of art, collector’s items and antiques. Profit margin schemes and tax simplification measures apply to sales by public auction by tax­able dealers of secondhand goods, works of art, collectibles and antiques.

Compensation scheme for farmers. The taxable person (purchas­er) of the agricultural services and goods is required to issue an invoice for purchases from farmers benefiting from this scheme for the taxable amount exclusive of VAT and then add VAT at the rate of 20%. The buyer pays the farmer the total price including the VAT calculated. The additional 20% is considered to be a compensation for the farmer for the input VAT that has been incurred. The taxable person (purchaser) must account for the VAT on the invoice but is entitled to recover the VAT subject to normal recovery rules.

Special scheme for investment gold. A special VAT scheme applies to investment gold.

Electronic filing and archiving. Taxpayers must electronically sub­mit the purchase and sales ledgers and VAT returns.

Annual returns. Not applicable. J. Penalties

The Albanian Tax Procedures Law (No. 9920, dated 19 May 2008), as amended, provides for the penalties described below.

Noncompliance with the requirement to register or to update the status of registration data triggers a penalty of ALL15,000.

Each late tax filing is subject to a penalty of ALL10,000. Late payment of a tax obligation triggers a penalty amounting to 0.06% of the tax due for each day of delay, up to a maximum of 365 days (i.e., capped at 21.9%). In addition, default interest applies.

Erroneous completion of a tax filing or a tax refund claim is subject to a penalty of 0.06% of the tax due for each day of delay, up to a maximum of 365 days. In addition, default interest applies.

Concealment of tax obligations constitutes a fiscal evasion and is subject to a penalty of 100% of the tax amount evaded.

Improper administration of sales and purchases books and docu­mentation is subject to a penalty of ALL50,000.

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.

Criminal offenses carried out by taxpayers are penalized under the Criminal Code. These offenses relate to certain situations, including, but not limited to, 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