The Albanian government has proposed a comprehensive package of legal changes in the field of taxation for 2026. These changes aim to ease the burden on certain sectors, promote the formalization of the economy, and improve fiscal administration. Below, we have divided the key developments by topic, explained them in simple language, and highlighted which business categories are affected, as well as the main financial impacts. For each issue, we will provide practical examples to make the impact of the changes clearer.
Infrastructure Impact Fee
What is it and what's changing?
This tax is the payment that investors (public or private) make to the municipality when constructing new facilities, as a contribution to local infrastructure. Currently, for public-purpose constructions the tax is 1–31 TP3T of the investment value (for the Municipality of Tirana, 2–41 TP3T). The new amendment exempts from this tax public constructions in the fields of education, health, and social protection financed by the state or municipal budget. In other words, if a school, a hospital, or a social center is built with public funds, the municipality will no longer collect the impact fee.
Why is this exception being made?
The main reason is to ease the cost and procedures for investments vital to the community. By removing this financial burden, public projects are expected to be completed more quickly and at a lower cost. This initiative is seen as direct support for improving conditions in education, healthcare, and social protection, since the funds that would normally go toward the tax can be used for the project itself (e.g., for better equipment in a hospital or school). Likewise, avoiding the procedures for assessing and collecting this tax can eliminate bureaucratic delays in starting the work.
Financial effect and impact on local government
Of course, eliminating the tax on these investments means less revenue for municipalities. The Ministry of Finance's assessment shows that annual local government revenues will decrease by about 300 million lekë as a result of this measure. This amount, which municipalities would normally receive from public projects, will be compensated by the central government: an increase in the unconditional transfer from the state budget to municipalities is planned starting in 2026 to fully cover the shortfall. Thus, the municipalities will not be financially harmed – they will receive the money from the central government instead of from new schools or hospitals.
Practical example
Imagine a new school with an investment value of 100 million lek that is being built in a city. Under current rules, the municipality would require 1–3% of the value (i.e., about 1–3 million lek) as an infrastructure fee (in Tirana even 2–4%). With the new exemption, this amount will not be paid. The school saves, say, 2 million lekë, which it can use for computer equipment or furniture. The municipality loses 2 million lekë in tax revenue, but it will get that back in state transfers, which have been promised to increase proportionally. For the community, it means the new school can open a bit sooner (because there's no need to wait for and calculate the tax) and at a lower cost. In the long term, this is seen as an investment in human capital – education, healthcare, and social protection directly benefit from reduced costs.
Who is affected?
In this case, we're not dealing with private businesses that are taxed, but with public institutions and the municipalities themselves. Construction companies that win public tenders will have one less procedure (and a lower price for their bid, since they won't include the cost of the tax). Local authorities may worry about the loss of revenue, but with the planned compensation, local finances will remain neutral. For citizens, the effect is indirectly positive: the budget for schools, hospitals, or social centers goes 100% toward their construction and not partly toward taxes. In the long term, this enables better and faster public infrastructure in our communities.
Download Draft Law and the Relation.
Cancellation and Waiver of Tax and Customs Obligations (Fiscal Amnesty)
What does this law provide?
This is a partial fiscal amnesty for old tax and customs debts. The relevant draft law sets out the conditions under which unpaid tax obligations as of a specified date will be canceled, written off, or paid under eased terms. The objective is to clean up the system of old debts that have in reality become impossible to collect (often due to very high interest charges and penalties), and to give businesses and individuals burdened with historical debts a second chance. In short, the government is saying: “Let's draw a line under the past – we'll forgive part of the debts, reduce another part, so you can start over.” This initiative is expected to bring many entities back into regular economic activity and reduce the stock of outstanding tax debt, thereby improving the business climate.
Who benefits and who is excluded?
All taxpayers (businesses or individuals) who have tax obligations with the central tax administration, or customs duties, are eligible, regardless of whether they are still active, inactive (suspended), deregistered, or have any other status. Even if a business closed years ago but still has outstanding obligations in the system, it is included among the beneficiaries. Only those entities that have been found to have committed criminal violations are excluded from the amnesty. This clause is included so as not to pardon those who have committed serious tax evasion or intentional smuggling.customs, then they are excluded from this amnesty. This clause has been included so as not to “pardon” those who have committed serious tax evasion or intentional smuggling. Therefore, if a company or individual is currently in litigation over tax evasion, it must either win the case through normal legal channels or withdraw from the lawsuit in order to enter the amnesty scheme (as explained below).
Which periods does the pardon cover?
This is the key point to understand. The draft law has divided the old obligations into several time blocks, with different treatment for each:
Liabilities as of December 31, 2014
Complete waiver of the entire principal (unpaid taxes or fees) and, of course, any penalties or interest on it. The only exception is social security and health insurance contributions – the contributions themselves are not waived, but penalties and interest accrued through 2014 are. Thus, if an employer had failed to pay social security contributions for 2012, he is required to pay the principal (the basic insurance obligation), while the penalties and interest are waived. For all other types of taxes (VAT, corporate profit tax, income tax, etc.) for past periods up to 2014, the underlying obligation itself is also forgiven. This is a complete “reset” for everything up to 2014.
Liabilities for the period January 1, 2015 – December 31, 2019
Here a partial waiver is applied, provided that the taxpayer pays part of the liability. Two alternatives have been offered:
- If paid 50% of the principal (basic tax obligation) immediately, by June 30, 2026, is hidden (excuse me) Another 50% The remaining balance. So you pay half; the other half is forgiven.
- If the taxpayer cannot pay half immediately, they may opt for a payment plan. in monthly installments equal until December 31, 2026, by paying 75% of enforcement. In this case, you benefit from the forgiveness of the remaining 251 TP 3 T. In other words, if you accept the installment plan, the government will forgive only one-quarter of the debt, not half. These installments span two years (2025–2026), so it's a significant relief.
In both scenarios, for the 2015–2019 period all fines and late‐payment interest related to those obligations are fully waived as soon as the requirement of paying the principal in an amount equal to 501 TP3T or 751 TP3T is met. In fact, one scenario is even provided for: if during these years the taxpayer has already paid the tax principal but only the penalties and interest remain, they are all automatically waived (because the condition has been met – the underlying obligation has been satisfied).
Liabilities for the period January 1, 2020 – December 31, 2024
This period is treated more strictly, as it is considered relatively recent and the entities should have paid these years. For these years, no part of the principal is forgiven, but there is an opportunity to have penalties and late‐payment interest waived, provided that the entire underlying liability is paid by December 31, 2026. This means that if you have an obligation, for example, for the year 2021, you must pay the 100% tax by 2026, and the state will forgive any penalties or late‐payment interest associated with it. If you don't pay the principal, there's no forgiveness for anything from the 2020–2024 period. So this is more of a deferral and removal of late-payment interest for recent years than a forgiveness of the tax itself.
Social and health insurance (2015–2024)
For contributions for these years (other than those up to 2014 addressed above), the formulas are: if the 100% contribution is paid by December 31, 2026, all fines and late-payment interest related to it are waived. Here too the same logic applies: the insurance contribution itself must be paid, but the penalties are removed. This also applies to self-employed farmers who had separate insurance schemes.
Special categories of forgiveness
The draft law also eliminates certain “uncollectible” obligations:
- Taxpayers, whether individuals or legal entities, who have been deregistered (closed) with the QKB or the tax administration by December 31, 2024—that is, businesses that no longer exist—have their debts written off as uncollectible.
- Automatic administrative penalties for late filing (under the Tax Procedures Law) until the end of 2024 – these are the fines the tax system imposes when a business is late with its monthly/quarterly returns. Fines for late employee reporting are also included here – All are forgiven. This is because many small businesses have accumulated fines simply for filing a return late, even when their liability was zero.
- Failure to File: If a business has not filed returns for certain periods (i.e., unfiled returns), penalties for failure to file (through 2024) are waived provided the missing returns are filed by June 30, 2026. This is an invitation to “come in and submit your documents; we won't fine you for the delay.” In practice, it gives every taxpayer the opportunity to come to the tax administration and sort out their past-year documentation without fear of financial penalties.
How does the forgiveness mechanism work?
The amnesty will be enacted by a special law (to be approved by the Assembly). It specifies that the tax and customs authorities are charged with implementation – i.e., they will automatically calculate which obligations meet the conditions for cancellation, and will cancel fines/interest or close the accounts once the required payments are made. In most cases, the taxpayer does not need to submit a request; the amnesty is applied automatically when they take the prescribed action (e.g., pay 50% within the deadline). At the end of the period (after December 31, 2026), the administration will issue final acts to cancel the forgiven liabilities.
An important point: liabilities that are under administrative or judicial appeal can benefit from a waiver only if the taxpayer withdraws the appeal or lawsuit. So, if you have a case pending before the Tax Appeals Board or in court regarding those liabilities, you must decide – either proceed with the trial as usual, or withdraw the lawsuit and enter the amnesty. It makes no sense to pursue both: the state will not forgive someone who is taking it to court to avoid payment. For those who withdraw from the lawsuit, there will be a formal procedure (they declare their withdrawal, and then the tax authority waives the liabilities in accordance with the law). This clause ensures that the tax amnesty does not undermine existing legal proceedings – one must choose one path.
Practical examples
A small business that closed in 2010 and still has 1 million lek in tax liabilities from back then will likely be fully and automatically settled by the state. (because it pertains to the period up to 2014) – under this law, that business will no longer have any outstanding obligations.
An active business that has 1 million lek in tax debts for the years 2015-2019 can choose either to pay 500 thousand lek immediately and have 500 thousand forgiven, or pay approximately 750,000 lek in installments over two years and have approximately 250,000 forgiven. In any case, any fines or interest that had been added to that one million will be completely wiped out as soon as he finalizes the agreement.
A company that in 2022 underwent a tax audit and was issued a 5 million lek obligation (tax + fine + interest) now has the option to pay only the tax portion (say 3 million) by 2026 and have 2 million (the fines and interest) forgiven.
A self-employed individual who hadn't paid social security contributions in 2018 and has a large amount of fines and interest, if they now pay the 100% basic contributions, their fines will be zeroed out.
Effects and message
This policy has multiple effects.
First, thousands of businesses and individuals who de facto could never have paid their old obligations (either out of hardship or because their operations ceased) are freed from the burden. This gives them the opportunity to start over without fear: for example, a small business that shut its doors in 2015 due to debts can now consider returning to operations, since the debt will be wiped out.
Secondly, the tax administration cleans the books of a mountain of uncollectible debt and can focus on current liabilities. Currently, high penalties account for 551 TP3T of the tax debt stock – meaning that most of the debt was fines and interest, not tax. The amnesty eliminates these fictitious figures.
Third, a new culture of trust is being created: the state is offering peace for the past in exchange for voluntary compliance in the future. Of course, on the other hand, it is expected that after this amnesty the administration will be more rigorous with those who once again fail to pay – so businesses should use this “amnesty” as an opportunity to fully formalize and begin a new chapter.
Caution: This is not “taxes forgiven, obligations waived and no questions asked” – it's a one-time offer. After 2026, any forgiven obligation will be considered closed. But obligations from 2025 onward must, of course, be paid normally, and the government is not expected to offer such amnesties often (to avoid the misunderstanding that “it's no big deal if we don't pay—they'll forgive us”). Even the International Monetary Fund is usually skeptical of frequent fiscal amnesties, but this current one is argued to be necessary under conditions where much of the debt is old and inherited.
Download Draft Law and the Relation.
Changes to the Law on Value Added Tax (VAT)
The new agricultural compensation scheme
The main change in the VAT package relates to farmers and agricultural producers. The government is reintroducing a compensation scheme with a fixed rate of 10% for farmers who are not registered for VAT. How does this work? A farmer who sells his produce to a buyer or factory does not charge VAT on the invoice (because, as a farmer, he is not VAT-registered). It has been this way for years; but until recently there was a mechanism whereby farmers received compensation for the VAT they paid on inputs (fertilizer, seeds, fuel, etc.). This compensation rate was 6% until 2019, then it became 0% (it was removed entirely). Now it is proposed that the farmer receive 10% of the value of the goods they sell as a form of VAT refund on VAT paid on purchases. This 10% will not be charged to the private buyer – but will be paid to the farmer directly by the tax administration (i.e., the state returns the money to the farmer).
This scheme is optional in the sense that the farmer automatically benefits if the conditions are met, without applying, but it does not force farmers into VAT – it keeps them outside the VAT scheme and grants them this 10% as compensation. The main conditions provided are: the buyer of agricultural products (i.e., the one who purchases them from the farmer) must be registered for VAT and must have an activity as a collector, processor, or certified agritourism operator. This is done so that the scheme is applied only when the products enter the formal chain (to a business that has an NIPT and issues an invoice). In practice, the buyer will issue a fiscalized invoice for the produce received from the farmer and hand that invoice over to the farmer. The tax administration then pays the farmer 10% of the value of that invoice. The farmer must keep the invoice as proof.
Example: A farm produces vegetables and sells them to a canning factory for 1,000,000 lek in produce. Currently, the farmer does not charge the factory VAT (because he is not in the scheme), and he cannot reclaim the VAT he has paid, for example on chemical fertilizers. Under the new scheme, the farmer will receive 100,000 lek (10%) from the state as compensation. This amount roughly covers the VAT on the inputs he used (assuming he paid about 10% VAT on them). The factory will have to be VAT-registered and issue an electronic invoice to the farmer, since only on the basis of that invoice will the tax authorities make the payment to the farmer. This also ensures that the farmer's sale is formalized – there are no more “cash purchases” without documentation: the farmer will request the invoice, because otherwise he won't be able to claim the 10%.
This is also intended as a measure against informality in agriculture. Many agri-food transactions take place in the black market, where the farmer sells without an invoice and prices are suppressed. Now, he has an incentive to declare, because he receives additional payment. The old scheme (when factories paid a “compensation” to the farmer and then deducted it as VAT) didn't work well – it was often not fully implemented by buyers. Therefore, the state is now taking it upon itself to pay the compensation directly, something that EU directives also allow. Countries like France and Greece have been applying this form (payment by the state, not by the buyer) for some time. Initially it will be implemented cautiously, so it is limited to cases where the buyer is VAT-registered and in a specific sector (e.g., it does not apply to sales to private individuals at a market – there is no invoice, no compensation).
Influence
Producer farmers receive additional cash directly, which lowers their costs and makes them more competitive. For the agricultural sector, this injects liquidity: in 2024 it is estimated that about 9,875 farmers sold to roughly 659 formal buyers; with 101 TP3T compensation, a portion of the over 2.6 billion lek sales they made will be returned to the farmers. (assumption: around 264 million lekë, if it had been implemented). This could also encourage other farmers to sell directly to large companies and declare their sales. Consumers are not directly affected, but in the long run there could be lower prices and a more stable supply (farmers survive financially better and produce more). Large formal buyers (factories, agribusiness processors) benefit equally: all the farmers they purchase from will receive 10% state compensation – there will no longer be “Farmer So-and-So won't issue an invoice because he doesn't gain anything.” Thus, it reduces informality on their part as well.
What's happening with small businesses and the VAT threshold?
The VAT draft law this time does not directly address the turnover threshold for VAT registration, so the existing threshold of 10 million lekë per year to become a VAT-registered entity remains. This threshold was raised from 2 million to 10 million lek in 2021 as a measure to support small businesses during the pandemic. Currently, businesses with annual turnover below ~10 million lek (around €80,000–€85,000) are exempt from VAT. This means that a small shop, a craftsman, or a neighborhood café with, for example, 5 million lekë per year do not have to calculate 20% VAT on their invoices, nor credit VAT on purchases, nor file monthly VAT returns. This is a major administrative relief for them (fewer documents and taxes to pay). Of course, there are also downsides: these businesses cannot claim a refund of the VAT on their purchases, and their business customers (if they sell to businesses) cannot deduct the VAT on the invoice. But most of their clientele are end consumers, so the fact that they're VAT-exempt makes their prices 20% lower than they would be if they were VAT-registered – a competitive advantage over, say, large supermarkets that are VAT-registered.
In the fiscal package it was discussed that in the future the 10 million lek threshold could be reviewed, possibly lowered again (the IMF has advised against keeping it so high, because it pushes many businesses out of the VAT scheme). One rumored scenario is lowering the threshold to 8 million lekë in parallel with the small business tax (see point 6 below), so that the simplified turnover tax would apply up to the new VAT threshold. However, in the current drafts submitted so far there is no concrete change to the VAT threshold – so the 10 million remains, at least for 2025–2026.
What does this mean for small and medium-sized businesses?
Small businesses (under 10 million lek)
They will continue to be exempt from VAT. This means no monthly VAT returns, no VAT-registered cash register, and no prices +20%. For them, the 2021 status quo remains. This is good news in terms of the burden, but we must remember that if the threshold is lowered in the coming years, some of them may be brought back into VAT. For now, around 10,000 small businesses were removed from VAT when the threshold was raised to 10 million—they still enjoy “no VAT.”.
Small businesses (on the threshold)
For them it makes no difference – if you're above 10 million lekë, you've been and will remain in the 20% VAT scheme. Some businesses near the threshold may have considered splitting their activities or not exceeding the threshold to avoid entering VAT; This incentive persists as long as the threshold remains high. (Someone with €11 million in turnover might think, “I'll split my business into two €5.5 million companies so I don't have to be VAT-registered.”) This creates some market distortion, but the tax administration is vigilant against such abuses – for example, it monitors transactions between entities with the same owners, etc. At the moment, businesses with revenues of 8–12 million lek are in a somewhat “gray” zone: some of them just barely exceed the threshold and have to join VAT, which puts them at a disadvantage compared to those at 9.9 million lek that remain outside. If the threshold is lowered to 8 million lek, this zone will be somewhat clarified.
Overall, the changes to the VAT law particularly favor the agricultural sector and informal businesses that trade in cash (by bringing them into formal channels through incentives). Small city businesses do not see any direct changes, but they need to pay attention to the future, as there may be adjustments to the threshold. Ordinary consumers are not affected by any VAT rate increase (it remains the standard 20%, 6% for basic food products and certain services such as tourism, and 0% for medicines and books – these are unchanged). An indirect positive aspect: with increased support for farmers (a 10% compensation), the domestic food chain is expected to be strengthened and formalized, which in the long term could bring more tax revenue and rural development.
Download Draft Law and the Relation.
Novelties in Tax Procedures (Deadlines, Penalties, Appeals)
The Law “On Tax Procedures” is the “code” that governs how the tax administration acts toward taxpayers (inspections, penalties, deadlines, appeals, etc.). This law is also being amended in several key areas, with the aim of making it more efficient and better combating tax evasion. These changes affect every business in its day-to-day operations, as they relate to filing returns, making cash payments, business registrations, the fines system, and the tax appeals process.
Deadlines and declarations of taxpayers
Deadline for correcting tax returns
Currently, if an individual or business realizes they have made an error in a tax return (e.g., VAT return, corporate income tax return, or individual annual return), they have the right, within 36 months (3 years), to correct it without penalties. The draft law proposes shortening this period to 24 months (2 years). The aim is to improve administrative efficiency, since the overwhelming majority of corrections occur within the first two years anyway. Statistics show that over 94% of cases in which businesses file amended returns occur within two years of the original filing—so three years was an unnecessary luxury. For businesses, it means that from now on they must be more vigilant and quick in self-correcting errors. For example, if you filed an incorrect return in January 2025, you will have until January 2027 to correct it (not until January 2028 as under the old rule). For the annual individual personal income tax return (e.g., returns of high-wage employees or self-employed professionals), the correction period will also be limited to six months from the filing date – this was previously unclear. MessageCheck everything carefully and correct mistakes promptly; don't leave them until two years down the road. Naturally, the tax administration itself will catch errors sooner and has an interest in clearing up situations within two years, because after that it's difficult to go after them.
Electronic filing of returns and automatic assessments
A technical but important change is that the electronic tax system (e-filing) will automatically intervene when a business fails to submit a VAT return on time. More specifically, it is provided that within 24 hours after the filing deadline has passed, the system will issue a notification or carry out a preliminary assessment. This change aims to increase the accuracy of filings and reduce errors and omissions. For example, if a business forgets to file its VAT return for August by September 14, the system on September 15 will automatically flag the non-filing and may (pending regulations that are expected to address this) generate a provisional tax assessment based on previous periods, or at least an automatic penalty for failure to file. The business, however, has the right to amend or correct its return, but responsibility for any penalties for late filing remains with the business. This practice will compel businesses not to miss the monthly filing deadline, since the system's response will be almost immediate and automatic fines will be imposed within days.
Prepaid VAT statement
There are plans (also linked to EU initiatives) that in the future VAT returns will be pre-filled by the system itself for businesses, using fiscalization data and electronic sales/purchase books. Such a pilot plan could start by 2025. Under this legal change, if implemented, businesses will have a lighter reporting burden (because the tax authorities prepare the draft return for them), but they will also have less room for errors or manipulations. This is linked to the “E-invoicing and E-books” project, where every sales invoice you issue goes into the customer's purchase ledger—so the tax authorities have the data ready.
Cash payments
To combat the informal economy and unbanked transactions, the allowed limits on cash transactions are being lowered:
Business-to-business (B2B)
Currently, a payment between two parties can be made in cash up to 150,000 lek; for larger amounts the law requires the use of bank accounts (or checks, bank drafts, etc.). The new draft lowers this threshold to 100,000 lek. That means, for example, a spare parts store buying goods from a wholesale depot worth 120,000 lek will not be allowed to pay in cash but must use a bank transfer. Above 100,000 lek, every business-to-business transaction will be recorded in the banking system. This reduces the possibility that entire businesses operate off the radar (many small businesses pay for supplies in cash and don't go through banks, which makes audits more difficult).
Business-to-Consumer (B2C)
For the first time, a general cap of 500,000 lekë has been set on cash transactions between a business and an individual. This is primarily aimed at the real estate market, vehicles, high-end electronics, etc. – where many transactions are currently made in cash (e.g., a used car priced at €7,000 is often paid for in cash on delivery). Under the new law, no sale over 500,000 lek to an individual may be paid in cash. For new homes this limit already existed (under a separate law, every property payment is required to be made through a bank), but now it is formalized for any sector. Similarly, stores selling electronic devices, luxury watches, jewelry, etc., are expected to require bank payment for expensive purchases. Citizens who purchase high-value items will have to declare payment via the bank (which also gives them some protection because they have proof of payment).
Penalties for violations
Anyone caught making cash-on-the-threshold payments will, of course, be fined. A hefty fine of 1,000,000 lek is provided for those who break these rules (e.g., a business that accepts 200,000 lek in cash from another business will be fined 1 million lek). This amount surely exceeds the “leverage” of any violation – therefore the rule is expected to be respected. This measure also stems from IMF recommendations and a National Cash Reduction Strategy 2024-2027, which aims to curb the informal economy that thrives on money outside the banking system. By routing every payment over 100,000 (or 500,000 for individuals) through the bank, a transaction trail is created and it becomes harder to hide income. For small businesses, it will practically affect supplies: they won't be able to go to wholesalers with a bag of cash; for individuals, it will affect, for example, the car market (they'll have to make transfers).
Penalties and controls against informality:
The new draft law introduces several new punitive measures for tax evasion and serious violations. Here are the main ones:
Unregistered (informal) businesses
Until now, when tax authorities caught an unregistered activity (e.g., a workshop without an NIPT), they only fined it for failure to register and shut it down until it registered. Now it is provided that taxes will impose the same penalties on unregistered entities as on registered businesses for any violation found. This means, for example, that if an unlicensed unit is caught selling goods without an invoice and also has undeclared employees, it will be fined not only for not having an NIPT but also for each of these violations (just as would happen with a legitimate business). Thus, failure to declare employees – fine; lack of invoices – fine; etc., in addition to the fine for non-registration. This expansion of the penalty base aims to eliminate the advantage informals had (“I'm working under the table; at worst they catch me without NIPT and I pay a single fine”). Now, being unregistered exposes you to a avalanche of fines if you get caught.
Manufacturers and maintainers of fiscal software
An interesting innovation is that even companies that develop or maintain software systems for cash registers/fiscalization will bear administrative liability if their programs facilitate violations. Since the introduction of e-invoicing (electronic invoicing), businesses have used certified software to issue invoices. If a software company turns a blind eye and allows businesses to delete invoices, maintain two sets of books, or manipulate data, the IT company itself will now be penalized. The law explicitly imposes administrative sanctions on software developers/maintainers when their programs fail to comply with legal requirements. For example, if program “X” does not automatically close the sale when there is no internet connection (as required) and this is used for tax evasion, the tax authorities can fine company “X.” A fine of 1 million lek has been mentioned in such cases (depending on the violation). This will make IT companies much more cautious and cooperative in the fight against informality, because they don't want to risk their license or hefty fines. For ordinary businesses, this is positive: their invoicing programs will be more secure and won't offer illegal “shortcuts.”.
Suspension of reimbursement during a criminal investigation
In line with the principle that “the state should not give money to anyone under investigation for evasion,” the law explicitly provides that VAT refund claims are suspended for taxpayers who are subject to criminal investigation for VAT fraud or income concealment. In practice, the tax administration already does this today (it doesn't grant a refund if you're under investigation), but now it's being formally enshrined in law. Thus, for example, if a company requests a VAT refund of 50 million lek, but the prosecutor's office is investigating it for a fictitious invoicing scheme, the tax administration will halt the refund process until the investigation is concluded. This prevents the money from potentially going back to a fraudster who might later be found guilty and have to return it (the state thus avoids a double loss). From a business standpoint, this is a signal: don't get involved in shady schemes, because besides the legal troubles, you'll also be left without the liquidity from the refund. If the investigation closes without finding any wrongdoing, then the refund proceeds normally, including any accrued late-payment interest.
Other
Various technical provisions have also been added, such as an anti-evasion rule that automatically prevents the fiscalization system from registering invoices between an active business and a business with blocked status.deactivated (which, in the meantime, the system doesn't actually allow, but it's simply reflected in the law). It explicitly states the principle that criminal proceedings take precedence over administrative ones – i.e., if a tax matter is referred for criminal prosecution, all administrative proceedings are suspended until the criminal court issues its decision. This avoids situations where the tax authority and the criminal court reach conflicting decisions simultaneously.
Tax Appeal and Dispute Resolution
Although the question has been isolated, there are no fundamental changes to the administrative appeals structure—aside from what we mentioned regarding the waiver (giving up the appeal to benefit from the waiver). The standard administrative appeals process (at the Tax Appeals Directorate) remains in effect, with its deadlines (30 days from receipt of the decision to file the appeal, and 60 days for the administration to respond). One small change that is likely: since the tax administration is now gaining the right to make preliminary tax assessments in cases suspected of income concealment (where it finds indications of criminality), then the appeal procedure for these assessments may also have specific requirements (e.g., whether or not to suspend the liability during the appeal). In general, with the introduction of the entire electronic system, administrative appeals will be filed online via the tax portal (although this is already largely the case).
It should be emphasized that the tax administration also plans to issue clarifying guidelines to unify the parties“ interpretations of the law—this too is, in a way, a procedural ”innovation," since until now businesses have often complained about unequal treatment by different tax offices. The improvement of the appeals climate will also stem from the fact that, with the tax amnesty, many old disputes will be settled amicably (since businesses will drop lawsuits in order to take advantage of the amnesty). If there were a surge of complaints in the future (e.g., in the implementation of the new small business tax), the Ministry of Finance could intervene with alternative structures (mediation or special commissions), but nothing of the sort is provided for in these specific draft laws.
In summary, the changes to the Tax Procedures aim to create a more disciplined system where:
- businesses submit statements on time (otherwise the system automatically catches and fines them),
- You don't keep cash under a mattress for large transactions (you need a bank account with a minimum balance).,
- Those who operate completely in the dark are stripped of the benefit of “anonymity” (they are fined just as severely, and even more so, once they are discovered).,
- and the technology is deployed to combat evasion (whether through proper software, risk analysis, or automatic blocks).
These measures are expected to reduce tax evasion and increase budget revenues without touching tax rates at all. For most regular businesses, the impact will be manageable: there may be more bank transactions and less patience for late adjustments, but essentially they won't complicate life for honest taxpayers. On the contrary, they aim to rein in dishonest competitors (those who don't pay at all, those who keep two sets of books, those who hire without insurance).
Download Draft Law and the Relation.
The “Parental Peace” Agreement”
This is an absolute novelty in Albanian legislation – an instrument that comes as a concept from Italy (“fiscal pace”) and some other countries, to foster cooperation between business and the state. The fiscal (tax) peace agreement is not about forgiving old obligations, but about prior agreement on future obligations. In simple terms, a taxpayer and the tax administration sit down and agree on what the taxpayer's taxable profit will be for the next year and how much tax he will pay. During the term of the agreement, the taxpayer who abides by it is not subject to routine tax audits for that year – because he has “sealed the deal” with the state from the outset.
Who qualifies?
This scheme is not for everyone. The draft law clearly limits participation to taxpayers with gross annual income exceeding 14 million lekë. Thus, the target is medium and large businesses (14 million lekë is the current threshold at which a business is considered large and subject to the standard 15% corporate income tax). Also, to enter into the agreement, a business must not benefit from low preferential rates or tax exemptions – that is, an IT company with a 5% preferential tax rate is not eligible for this scheme (because it already has a fiscal advantage), or a contract manufacturing business exempt from VAT on imports does not qualify. The aim is for the scheme to target businesses that normally pay the full tax, without special favors. Likewise, the business must meet certain reputation requirements:
- to be up to date with tax payments (there should be no unpaid liabilities or unfiled returns),
- not be under criminal investigation for tax offenses,
- not have been previously convicted of tax evasion, money laundering, or income concealment,
- and not currently be subject to special tax audits (e.g., in an anti-fraud verification process).
Basically, we're talking about well-paying businesses with no legal issues – the administration will do a sort of screening: only those it considers “model students” are invited to sign this agreement.
For example, a manufacturing company with a turnover of 1 billion lek that has filed and paid its corporate income tax regularly every year can join; but a construction company that hasn't paid VAT and has cases pending before the Tax Appeals Court won't be allowed.
How is the tax determined under the agreement?
The formula enshrined in law is relatively simple: the tax administration takes the business's taxable profit from the previous year and increases it by 18% – this will be the accepted profit for the new year. On that amount, the taxpayer will pay the normal tax (e.g., 15% for corporate income tax). If the business makes exactly that profit, there is nothing more to pay. If it earns more profit, the amount above that threshold +181% is taxed at a preferential rate of 5% (instead of 15%). If it makes less, it will still pay tax on the agreed profit (this is where the “peace” lies: even if profits fall, the state is protected). On the other hand, if it were to incur losses, it normally wouldn't pay tax—but by agreement it has accepted a minimum profit, so it must pay that minimum tax. This scheme lasts one year, but the law allows the business to renew it for up to two additional years after that (so a maximum of three consecutive years can be under this regime). After that, either he's given the opportunity to renegotiate again (if the law is extended), or he reverts to the standard regime.
Concrete Example:
A trading company earned 50 million lek last year. Under normal circumstances it would pay about 7.5 million lek in corporate income tax (15% tax). It decides to secure “fiscal peace” with the tax authorities. The tax administration reviews its history and proposes: “For next year you will declare a profit of 59 million lekë” (which is 50 + 181 TP3T). The company agrees and signs. During that year, the tax authorities do not audit it for corporate income tax (since they have already reached an agreement). At the end of the year, the company:
- If he actually earned, say, 60 million lek (i.e. 1 million more than 59), he pays 15% tax on the first 59 million as usual, but on the extra million he pays only 5% tax (i.e. 50,000 lek instead of 150,000). Thus the state gives him a “reward” for earning more – a very low tax on the excess.
- If he actually made 59 million, 55 million, or even just 40 million lek: he will still pay as if he made 59. So he pays 8.85 million lek in tax (151 TP3T of 59 million) even if his real profit turned out lower or even if he incurred a loss. This is the business risk: if his performance falls, he pays a bit more tax than he normally would—but he accepted it in the agreement and has no right to a refund for the difference.
In all cases, there will be no disputes over deductible expenses, inventory checks, or the accuracy of invoices – the tax authorities won't come digging because they've already collected their agreed-upon tax. This gives businesses complete assurance that there will be no fines or additional liabilities after the audit, and at the same time gives the government the certainty that it will collect at least 181% more in taxes from this business than it did last year.
What do the parties gain?
Business
It gains transparency and predictability – you know in advance how much tax you'll pay and can plan financially without fear of “surprises” from tax audits. It also gains stability in its relationship with the tax administration: as long as it abides by the agreement, inspectors won't come knocking to point out any discrepancies. Plus, if business goes well and you earn more, the marginal tax rate on that additional profit is only 51% – very low. This encourages you to declare as much as possible (because the state is “rewarding” you with a low rate on extra earnings). If he discovers a business opportunity he hadn't anticipated, he'll pursue it without worry because he knows the tax on it is also mild. These elements are expected to reduce tax conflicts and put an end to the mindset of “hide some profit because I don't want to pay too much.” – the agreement makes taxation fair and sustainable for both parties.
Tax Administration (the state)
It secures a more reliable and stable revenue stream. Instead of waiting until the end of the year and then discovering that some businesses reported lower profits (or spending energy on audits), the government has “reserved” an additional 181% in tax up front. It also cuts inspection costs: its inspectors won't have to deal with those taxpayers—they can focus on other high-risk sectors. Judicial disputes are expected to decrease, because when both parties agree there's no reason for appeals. This allows the administration to focus on actual evaders and problematic businesses, instead of spending time with companies that actually want to report correctly. Thus the state increases efficiency: fewer routine audits, more risk analysis. An indirect benefit is also the improvement of the business climate: major investors know they can have a stable pact with the state, which makes Albania a more predictable place to invest.
Is it mandatory?
No, not at all. The fiscal peace agreement is voluntary. Large taxpayers can apply, but they are not required to. The administration is setting the criteria and may open a portal where interested businesses will submit an application, and then receive an offer from the tax administration. The business can then accept or reject the offer within a specified period (e.g., 30 days from receipt). If no agreement is reached, the existing system (self-declaration, possible audit, etc.) continues as usual. It does not replace the current system; it only creates an alternative “window” for those who want it. It should be emphasized that this is intended as a temporary three-year scheme in total – in other words, it's an experiment. If it goes well it can be extended, but the idea is to see how it works in 2026–2028 and then reassess.
Who wouldn't want to enter into an agreement?
Among large businesses, those expecting a significant drop in profit next year have no interest, because they would pay tax on a higher profit than they will actually have. Also, companies with highly volatile earnings (e.g., $100 million in profit one year, zero the next) would hesitate, since the 18% tax on $100 million could then weigh on them in the weak year. On the other hand, companies forecasting sustainable annual growth of around 10–15% can enter without fear – the 18% tax on amounts above 100 million is manageable for them, and the 5% tax on everything above 18% also provides an incentive. Therefore, sectors such as banks, telecommunications, and manufacturing plants are expected to show interest, whereas sectors like construction (which experiences large swings in profits) probably won't.
Summary
The fiscal peace agreement is an innovative mechanism aimed at building trust between large businesses and the state. It reduces conflicts (moving from a traditional system based on control and punishment to prior agreement). Small businesses aren't affected at all (they can't even enter this scheme). Large businesses will assess the cost and leverage of the option – some may embrace it immediately, others may wait to see how the first year goes. It's entirely voluntary and negotiable: At the end of the day, the government won't lose (because it won't accept an agreement with less than +181 bps of tax above last year), and honest businesses won't lose either (because even if they pay a bit more, they gain peace of mind and the opportunity for low tax on growth). In a way, this instrument formalizes a practice that already happens de facto: large companies often communicate informally with the administration to avoid conflicts – now they will have a legal channel to prearrange matters. The peace agreement is expected to take effect in January 2026 (if approved by 2025), and will be piloted for three years.
Download Draft Law and the Relation.
Expected Changes in Income Tax (Personal and Business Income)
The new Law “On Income Tax” (Law No. 29/2023) was approved in 2023 and entered into force on January 1, 2024, but the government has already proposed some additions and changes to it for 2025-2026. These changes focus primarily on the tax structure for small businesses and on closing tax avoidance loopholes between categories of taxpayers. We will discuss both businesses and employed individuals or professionals.
Small businesses and profit tax
As mentioned earlier, all businesses with annual revenue up to 14 million lek are currently exempt from corporate income tax (they have a 0% rate). This policy was intended to help small businesses during the COVID-19 pandemic and was later extended through 2029. Practically, a store with 10 million lek in annual sales today pays zero income tax, while a company with 15 million lek pays 15% on its profit (approximately 1.5 million lek in tax). The difference is significant, and unfortunately, it has led to abusive practices:
The phenomenon of “fictitious self-employment”
Employees (with taxable wages of 13% or 23%) left companies and registered as sole proprietors (small business) with NIPT, so they could be taxed at 0% instead of the employer paying payroll taxes for them. In other words, an IT specialist or consultant who was on the payroll decided to become “independent.” and to invoice the company for his services as an independent business – thus no 13% withholding tax was applied to that payment, but it was treated as a payment to an entity taxed at 0% corporate tax rate. This benefited him individually, but the state lost payroll tax and employer social security contributions. The scale of this phenomenon has been large: The number of natural persons providing professional services has increased by over 10,000 (53% growth) from 2018 to 2023 – an explosion that doesn't simply align with economic growth, but with the migration of employees toward the 0% tax scheme. Many of these individuals actually work for only one client (their former employer) and are, in practice, disguised employees.
The “1 business = 1 employee = 1 client” phenomenon”
Shareholders, company administrators, or key employees, to avoid dividend tax (8%) or income tax, have opened a personal NIPT and invoice their own company for consulting, marketing, management, etc., services. by fictionally increasing the company's expenses and reducing its taxable profit. Thus, instead of the company declaring a profit and distributing dividends (on which the state collects 8%), it reports a lower profit because it “paid” these individuals for services, while the individuals themselves were taxed at 0%. The latest figures showed that around 6,000 entities (natural persons) are potentially in this situation – and their 19% (over 1,000 entities) existed before 2016 (i.e., they were created not as a result of the pandemic or relief measures, but were real), while 81% have emerged after the imposition of the 0% tax. Thus, the 0% tax relief has eroded the tax base of employees, pushing some to switch to fictitious self-employment.
Reaction of the Ministry of Finance
These phenomena are considered problematic because they distort fair competition in the market and reduce budget revenues. Therefore, a plan has been drafted to bring small businesses back into the tax system, but under a simplified and lenient regime, not with a 15% tax on profit. In the 2022–2026 Medium-Term Fiscal Strategy (also mentioned by the IMF), the idea was put forward that:
- Very small businesses (turnover up to 1 million lek per year) should have a modest flat annual tax (e.g., 25,000 lek per year), similar to the “simplified tax” that existed years ago.
- Businesses with revenues between 1 million and 8 million lek should switch to a low turnover tax rate (2% to 4%) instead of being exempt. For example, a 21% rate could be set for revenues up to 5 million and 41% for 5–8 million lek (this is to be determined by a government decree or parliamentary debate). These would not calculate net profit, but would be based solely on turnover – so that there is no need for balance sheets or complicated accounting.
Businesses with an annual turnover of 8–14 million lekë (which are currently still taxed at 0.3% on profit) are expected to move to the standard 15% corporate tax regime or to a regime similar to that of large enterprises. In other words, the exemption threshold will be lowered from 14 million to 8 million lekë, bringing back into taxation part of the “big small business.”.
This is expected to happen from 2025 or 2026, as the government will first prepare the infrastructure and communicate the change. In fact, in July 2023, an anti-avoidance rule was introduced for cases of those “1 employee with NIPT for 1 client” – which stated that if more than 501 TP3T of an individual's income comes from a single client, and certain other conditions are met, that person will be taxed as if they were employed. This took effect on January 1, 2024. According to the Ministry of Finance, this anti-abuse measure (which in practice affects sham “freelancers”) was being applied indiscriminately and was also hitting some genuinely independent individuals, so the new draft law will clarify it with a “self-employed status declaration” and clear criteria. Individuals will self-declare whether they meet the criteria for being an independent business or not (e.g., do you have your own office, your own equipment? Do you have a schedule and a workplace set by the client? do you assume the risk yourself? etc.). This way, the tax administration will know which of those individuals with 0% tax are genuine businesses and which are disguised employees. This approach aims to treat fairly those who truly have business relationships (to continue enjoying the low tax) versus those who were simply there to save on taxes (who will have to pay the same as employees). It is a system similar to that used in countries like Canada or the UK (“contractor vs employee tests”).
Examples
- A craftsman with annual revenue of 500,000 lek (e.g., a small tailor) currently pays no income tax. Under the new scheme, he could pay a flat annual tax of 25,000 lek. This amount is symbolic (about 2,000 lek per month), but it conveys the idea that everyone contributes something.
- A grocery store with a turnover of 6 million lek, which until now hasn't paid corporate income tax, could start paying, for example, 5% tax. 3% of turnover = 180,000 lek per year. This is roughly equivalent to the 5% corporate tax this business paid until 2020 (back then, businesses with 5–8 million turnover paid 5% on profit). The difference is that now it will pay simply on turnover, not on profit, for simplicity. 180,000 lekë per year on 6 million lekë in turnover is affordable (effectively amounting to 3% of turnover, perhaps 10–15TP3T of its average profit).
- A small business with a turnover of 12 million lekë, which today is subject to the 0% rate, will, once the threshold is lowered, fall under the standard 15% profit tax. However, it will be able to deduct expenses, so it will be taxed on its actual profit. If its net profit is 2 million lek, the tax will be 300,000 lek. This is again less than 15% of revenue, and it gives it the opportunity to compete with larger players.
Progressivity vs. flat tax
These moves show that the government is pursuing a fair and progressive taxation approach, rather than continuing with full exemptions. It is not imposing a high, immediate tax on small businesses, but a graduated rate based on size: the very small pay very little, the small somewhat more (as a small percentage of turnover), the medium pay normally. In this way the principle that “whoever earns more, pays more (even proportionally)” has been preserved. Meanwhile, for employed individuals, the new tax law (29/2023) It kept in place the progressive rates of 13% and 23% for income from wages. There is no indication that those rates or thresholds will be changed. On the contrary, the government has stated that progressivity has yielded results in reducing inequality and will be maintained. Therefore, a return to a flat tax on wages is not expected. Currently, monthly salaries up to 40,000 lek are not taxed at all; from 40,000 to about 200,000 lek they are taxed at 13%; above about 200,000 lek they are taxed at 23%. These thresholds may be indexed in the future to account for inflation, but the core principle of progressivity—that higher incomes pay a higher rate—will remain. Even for business taxation, a form of progressivity (based on turnover bands) is being considered.
Capital gains and specific sectors
Income tax also includes special rates: dividends 8%, bank interest 15%, rent 15%, capital gains from the sale of assets 15%, etc. These do not appear to change in 2025 (no changes have been mentioned). Likewise, existing incentives such as the low 5% tax rate for the IT sector (provided through 2029) or for agritourism, etc., remain in effect. Again, for a small business that will start paying tax, it will be considered an extraordinary relief that up to 8 million lek will pay only 2–4% of turnover, compared with large businesses that pay 15% on profit (which often amounts to 2–5% of turnover as well). So no one is being burdened with a heavy tax—only the privilege of paying nothing at all is being removed.
Formalization of employment relationships
One objective of the changes to the income tax law is also a fairer allocation between business income and employment income. By introducing a status declaration and curbing abuse of fictitious self-employment, it is expected that many individuals will return to regular employment relationships (or at least declare to themselves a realistic salary as company directors, on which they pay taxes and social contributions). This means more social contributions into the scheme and more personal income tax revenue for the budget. For the individuals, it also means more rights – for example, the “self-employed” person didn't have full social insurance, didn't have annual leave, etc.; now, if they're classified as employees, they will have these benefits.
Final words on this topic
The new income tax structure will strike a balance between relief and fairness. Small businesses will not be burdened to the point where they can't cope (in fact, most paid a 51% simplified tax rate until 2020 and managed just fine), but they will “get in the game” by contributing something. This will increase the tax base and reduce the incentive for abuse. Meanwhile, large businesses are not affected in their rates (they will just have more formalized competitors), while employed individuals continue with progressive taxation as before. The goal is a simple, sustainable, and fair system where no artificial distortions are created. If these measures are implemented properly, we can expect to see fewer ghost businesses (individuals with NIPT without real activity) and more revenue in the budget from direct taxes – without harming economic growth, since rates will still be among the lowest in the region.
Download Draft Law and the Relation.
Conclusion
In conclusion, the anticipated tax law changes constitute a comprehensive package of reforms. They aim for a fairer, more efficient tax system that promotes development. On the one hand, we have relief and incentives: public investments in schools and hospitals are exempt from local taxes, farmers receive a 10% VAT refund as support, and thousands of businesses and individuals are freed from the burden of old tax debts. On the other hand, we have disciplinary and formalization measures: a cap on cash transactions in the economy, harsher penalties for the informal sector, a tax on small businesses that until yesterday paid nothing, and new rules against tax evasion. Almost all business categories are affected:
Large and medium-sized business
They benefit from the “fiscal peace pact” (tax stability), but they also see that unfair competition from smaller players will be reduced; meanwhile, they must continue to strictly comply with the rules (especially regarding bank transactions and invoices, as the fines are high otherwise).
Small business
It will reintroduce the culture of tax payment, but with low rates; it will have to put an end to practices such as artificially splitting turnover or fictitious employment as self-employed, since the law is closing the loopholes; Also, formalized small businesses have no reason to fear the new penalties – they're aimed at those operating in the black.
Farmers and agribusinesses
They receive substantial financial support (101 TP3T of sales), which makes them more competitive against imports; the agribusiness processing chain benefits because it will have more formal inputs with deductible VAT (invoices from farmers).
Municipalities
Their revenues have fallen slightly (300 million lekë), but they're being offset, so their finances aren't harmed; however, they need to improve administration because large transactions will no longer be in cash (for example, in wholesale markets) and they'll have to track them differently.
Employed individuals/professionals
Progressivity is maintained (i.e., those with lower wages remain untaxed or taxed at a low rate, while those with high wages pay more – status quo); Some freelancers who worked exclusively for one company will either have to formalize as employees or agree to pay more tax under the new rule – in both cases, they will also have greater social protection; In general, there are no tax increases for individuals; there is only the closure of opportunities to unfairly avoid them.
All citizens
They could potentially see faster public services (thanks to infrastructure investments without tax), a more formal and competitive market (businesses compete on a level playing field, not one with VAT and another without VAT hidden), more sustainable economic growth (theoretically, when everyone pays a little, the fiscal burden can be reduced elsewhere or more can be invested in public projects). Of course, the strict enforcement of these laws and raising business awareness to comply with the new rules are crucial.
If the reforms are successfully implemented, we will have a more modern and friendly tax administration: focused on partnering with compliant taxpayers (e.g., through peace agreements) and cracking down on serious violators (e.g., with penalties for those operating informally and fraudsters). This is part of a longer-term vision to increase budget revenues without necessarily raising tax rates, but by broadening the base – more contributors, fewer abusive exemptions. For the average citizen and the honest small business, these changes should bring a fairer environment where no one bears a disproportionate burden and where public services are better funded.
As always, the details remain to be seen in practical application, but in any case, from 2026 onward significant developments are expected in our fiscal system, with an impact on everyone's everyday economic life. As citizens and entrepreneurs, it is important to understand these changes and adapt to them so that we can make the most of the relief measures and avoid any potential penalties.