When a business pays rent to an individual, the Albanian Law on Income Tax mandates the lessee to withhold 15% of the rent at the source and remit it monthly to the tax administration. The individual lessor receives the net amount. The business declares the tax and pays it as part of its tax obligations.
This obligation is independent of the size of the business or the type of property. It depends solely on the status of the lessor. If the lessor is an individual, the business holds the obligation. If the lessor is a commercial entity, this obligation does not arise.
This article explains when the obligation arises, how the tax is calculated, what the lease agreement must include, how monthly filings are conducted, and the consequences of missing the deadline.
Legal Framework
The obligation to withhold tax on rental payments to individuals is regulated by Law No. 29/2023 "On Income Tax," which fully entered into force in January 2024. This law has revised and consolidated the entire income tax framework, including the obligations of withholding tax agents.
A withholding tax rate of 15% is applied to rental income. This rate is applied to the gross value of the rent, prior to any deductions.
Çmimet minimale të qirasë për qëllime tatimore janë vendosur me Vendimin e Këshillit të Ministrave Nr. 469, datë 3.6.2015.Ky vendim përcakton çmimin minimal mujor për çdo lloj prone dhe zonë dhe nuk lejon që kontrata e qirasë të parashikojë vlerë nën këtë minimum.
When the Obligation Arises
When the lessee is a business and the lessor is an individual, the business is obligated to withhold 15% of the rent and remit it monthly to the tax administration. The lessor receives the net amount.
This obligation varies according to the status of the parties involved in the contract.
When the lessor is a commercial entity, whether an LLC (sh.p.k.) or a JSC (sh.a.), withholding tax does not apply. The leasing company issues a regular tax invoice and pays the tax as part of its annual tax return.
When both parties are individuals, the lessee does not withhold tax. The individual lessor includes this income in their annual individual tax return and pays the tax based on the total income.
What if the property is yours?
Two situations may appear similar but are treated entirely differently.
When you are registered as a sole proprietor and conduct business on your own property, there is no rental transaction. The same rule applies when the property belongs to a family member listed on the same family certificate. In both cases, neither rent nor tax obligations arise.
The situation changes fundamentally when the business is registered as a corporation. When the personal property of an administrator or shareholder is made available to the company, a tax obligation arises regardless of whether rent is actually paid. Even if the company uses the property free of charge, the law treats it as a rental transaction at a minimum value based on the reference prices established by Council of Ministers' Decision. Withholding tax must be applied regardless.
How the Tax is Calculated
The tax is calculated as 15% of the gross rental value agreed upon in the contract.
The rental value cannot be below the minimum price set by Council of Ministers' Decision No. 469/2015. The minimum monthly price per square meter is calculated as 0.3% of the sales price per square meter of the building. This value varies according to the property type and geographical area.
For offices and warehouses, the minimum monthly price per square meter is equal to the minimum price for residential apartments in that area. For retail and service shops, the minimum price is double. Since the contract cannot state a value below the minimum, the tax is always calculated based on the contract value.
Examples
Office 50 m² in Tirana, contract rent 60,000 LEK/month.
Tax: 60,000 × 15% = 9,000 LEK.
Tax: 60,000 × 15% = 9,000 LEK.Warehouse 43.6 m². Minimum price per Decision No. 469/2015: 27,900 LEK/month.
Tax: 27,900 × 15% = 4,185 LEK.
Lessor receives: 23,715 LEK.Shop 30 m² in Tirana, rent 80,000 LEK/month.
Tax: 80,000 × 15% = 12,000 LEK.
Lessor receives: 68,000 LEK.
What the Lease Agreement Must Include
The lease agreement must clearly identify both parties, specify the property address, the surface area in square meters, and the monthly rental value. The rental value cannot be below the minimum set by Decision No. 469/2015.
The tax section of the contract should specify the gross rental value, the tax calculated as 15% of the gross value, the net value transferred to the lessor, the deadline and method for tax filing, and the obligations of the parties regarding payment documentation.
Does it Need to be Notarized?
A simple written contract is legally valid when the lease term does not exceed one year. Notarization is mandatory when the lease term is over one year. Notaries submit a monthly list of notarized lease agreements to the tax administration. A notarized contract automatically creates a record with the Regional Tax Directorate.
Download a Sample Lease Agreement
How Monthly Filing is Conducted
The business declares and pays the withheld tax on rent every month, without exception. The deadline is the 20th of the following month. Rent for the month of May is declared and paid by June 20th.
Filing is done through the electronic platform of the General Directorate of Taxes. The section of the return covering rental payments to individuals requires the lessor's personal identification number, full name, payment date, gross rental value, and calculated tax.
If you have two individual lessors, an analytical line must be completed for each.
When There Are No Rental Payments for the Month
The return must be submitted even if no rental payments are made that month. Failure to file is treated as a late submission and generates an automatic fine, regardless of the reason.
Copy of the Declaration for the Lessor
After submitting the declaration, the business sends a copy of the form to the individual lessor. Following the changes in Law No. 29/2023, the declared data is automatically integrated into the lessor's annual individual tax return. The tax administration now has visibility of both sides of the transaction.
Integration only works when the personal identification number and the lessor's name are filled in correctly. Incorrect data breaks the automatic link and creates issues that must be resolved through a formal request.
Key Points to Note
Lessor Requests to Pay the Tax Themselves
This arrangement occurs frequently, where the individual lessor requests the full rent and claims they will handle the tax themselves. Any such agreement between the parties has no effect on the tax administration.
The law is clear: the leasing business bears the legal responsibility for withholding and remitting the tax. If the tax is not paid, fines and interest are levied against the business, not the individual. A private agreement between parties does not shift this responsibility.
When the Lessor is a Non-Resident of Albania
If the individual lessor has tax residency outside of Albania, the tax is still withheld at a 15% rate. However, if Albania has a Double Taxation Avoidance Agreement with the state where the lessor is a tax resident, the rate may differ or be zero.
Albania has such agreements with over 40 countries, including Italy, Germany, Greece, Turkey, Austria, and France. To apply a reduced rate, the lessor must provide an official tax residency certificate from the other state. Without this document, the 15% rate is applied by default.
Every time there is a tax or financial change that affects your business, we notify you directly by email with a practical explanation.
Send me free notificationsDeadlines and Penalties
Delays or failure to file result in fines pursuant to Law No. 9920/2008 "On Tax Procedures" and interest on unpaid tax, calculated at the official interest rate for each day of delay.
A business that has failed to withhold tax on rent for 24 months at a value of 4,185 LEK/month has accumulated 100,440 LEK in principal tax. With added interest and penalties, the total significantly exceeds 130,000 LEK for a single lease agreement.
A business that rectifies the situation by submitting supplementary declarations prior to a tax audit pays the outstanding tax and interest, often avoiding the full penalty. A business that settles after an audit faces the full extent of the exposur
Why Acting Correctly Matters
Withholding tax on rent is a monthly obligation that the tax administration verifies with ease. The lease agreement exists as a legal document. Notaries report monthly. The new integration with the annual individual tax return ensures transparency for both parties.
When an external accountant manages this obligation, the declaration is submitted on time every month, lessor data is completed accurately, and interest does not accumulate on obligations that could have been easily avoided.
Frequently asked questions
Should we withhold tax if the lessor is a business?
No. The obligation arises only when the lessor is an individual. When the lessor is a business (sole proprietor or commercial entity), withholding tax on rent does not apply.
What happens if we have paid rent without withholding tax for years?
The situation can be rectified by filing supplementary declarations and paying the unpaid tax along with accumulated interest. Taking action before a tax audit significantly reduces the total cost.
Is tax also withheld for vehicle rentals?
Yes, if the vehicle lessor is an individual. The law stipulates tax for any rental payment directed to an individual, not just for real estate.
If rent is paid every 6 months, how is it declared?
The tax is withheld and declared in the month of payment, based on the total amount paid. If you paid 6 months' rent in January, the tax is calculated on the full amount and declared by February 20th.
The lessor requests proof of paid tax. How do we provide it?
The declaration form itself does not serve as official proof without certification from the competent tax authority. Certification is requested through a formal application to the Regional Tax Directorate.
How does the lessor know if the tax was paid correctly?
With the changes in Law No. 29/2023, the data declared by the business is automatically integrated into the lessor’s annual individual tax return. The lessor can view this directly in their electronic account.