When two countries have the right to tax the same income, the double taxation avoidance agreement determines who is taxed, how much is taxed, and how tax paid in the other country is taken into account. Albania has over 40 agreements in force, and when the agreement is implemented, it takes precedence over domestic law. This article will discuss double taxation avoidance agreements and their impact on Albanian taxpayers.
This page explains how the agreement works, how to obtain the certificate of residence, how to credit taxes paid abroad, and what documentation is required before payment.
Read also: When are you considered a tax resident in Albania?.
The agreement does not create a new tax. It allocates the right to tax between the two countries and eliminates double taxation. In practice, it does three things: it lowers the withholding tax rate on certain categories of payments, it assigns the right to tax to only one country for other categories, and it resolves the situation when two countries treat the same person as a resident.
What does the agreement do?
| Situation | The effect of the agreement |
|---|---|
| Payment to a non-resident from a country with an agreement | The withholding tax rate can be reduced. |
| Income categories that the agreement leaves to a single country | Tax is not withheld in Albania. |
| Two countries treat the same person as a resident. | The residency is selected according to the criteria of the agreement. |
| The Albanian resident pays taxes abroad. | Foreign tax is credited in Albania. |
| Documentation is missing at the time of payment. | The domestic law norm applies. |
Albania has over 40 agreements in force for the avoidance of double taxation. The list of countries and the text of each agreement are available at Instruction No. 11, dated July 23, 2024, and in its Annex 2. The rates and categories vary from one agreement to another, so the text is read on a case-by-case basis and is not assumed.
Read also: Avoidance of Double Taxation in Albania, Agreements and How to Proceed.
This is the point that costs the most money. The agreement applies only when the beneficiary proves his residence in the other country with a residence certificate and the documentation required by the applicable guidance. Without this proof, the Albanian payer withholds tax in accordance with domestic law.
Read also: The new directive on the avoidance of double taxation.
The certificate of residence is a document issued by the tax administration of the country where the beneficiary is a resident. It certifies that the person is taxed in that country and that the treaty may be applied.
✔ The non-resident beneficiary requests the certificate of residence from the tax administration of his country.
✔ The certificate is completed according to the form and requirements of Instruction No. 11, dated July 23, 2024, together with Annex 2
✔ The certificate and accompanying documentation are delivered to the Albanian payer before payment.
✔ The Albanian payer checks the validity and the period covered by the certificate.
Payment is made at the agreed rate, and the documentation is kept in the transaction file.
✔ When the certificate is missing, domestic law applies and the request for return is made later.
When the documentation is missing at the time of payment, the Albanian payer applies the domestic law rate. Recovery is possible afterward, but it is a longer procedure than submitting the document in a timely manner, so the certificate is required together with the contract, not after the invoice.
Attention. The recovery of overwithheld tax when the certificate is submitted late is described as a practice. The procedure, the form, and the deadline for the request must be confirmed at Instruction No. 11/2024 before publication.
The documentation of agreements has a deadline, and failure to submit it is punishable by a fine of 10,000 lek per month, for up to 24 months, pursuant to Article 115/3 of the Law.Case No. 9920/2008.
Attention. The precise link between the 24-month term, the loss of the right to enforce the agreement, and the monthly penalty must be confirmed in Instruction No. 11/2024 and in article 115/3 of Law No. 9920/2008 before publication.
An Albanian company pays 1,000,000 lekë for consulting services to a non-resident company. Without a residence certificate, 15% withholding tax is applied, i.e., 150,000 lekë. The provider receives 850,000 lek and the Albanian company declares and pays 150,000 lek. If the certificate is submitted before payment and the agreement provides for a lower rate for this category, the difference remains with the provider. If the agreement grants the right to tax only to the provider's country, nothing is withheld in Albania.
The exact rate of the agreement is not stated on this page because it varies from one country to another. It can be found in the text of the relevant agreement before payment.
Read also: How a non-resident who works or earns income in Albania is taxed.
An Albanian resident who has paid tax abroad on income also declared in Albania may credit that tax. The credit is limited and cannot exceed the tax that Albania would impose on the same income. Any excess tax paid is refunded within 60 days.
A resident Albanian company realizes 3,000,000 lek profit from a foreign activity and pays 500,000 lek in tax there. The Albanian tax on the same profit, at a rate of 15%, is 450,000 lek. The credit is capped at 450,000 lek, so in Albania no tax is paid on this profit and the 50,000-lek difference is not refunded. Had 300,000 lek been paid abroad, the credit would be full and 150,000 lek would be paid in Albania.
For individuals, the principle is the same and is applied under Articles 25 and 26, while for companies it is applied under Article 42.
Read also: Resolution of double taxation disputes with EU countries
The file for a payment to a non-resident is prepared before the payment and kept intact. When an audit comes, it is the only proof that the agreement was executed correctly.
✔ Beneficiary's certificate of residence, valid for the payment period
✔ The contract or order describing the service, the place of performance, and the price
✔ Provider invoice and bank payment document
✔ The form and declarations required by Instruction No. 11/2024 and Annex 2
✔ For the credit of foreign tax, proof of tax paid abroad
✔ For services received from abroad, self-billing documentation in accordance with the fiscalization law.
The agreement is assumed to be automatically enforced without a residence certificate, and the Albanian payer remains liable at the domestic rate.
The certificate of residence is required after payment, when recovery is much more difficult.
The rate of a single agreement is assumed to be the same for every country, whereas rates vary from agreement to agreement.
Last year's certificate is used for the new year's payments without checking the period it covers.
Foreign tax credit is required without proof of tax paid abroad.
Tax paid abroad is credited without limit, while the cap is the Albanian tax on the same income.
The agreement documentation was not submitted on time, and a fine of 10,000 lek per month applies.
Over 40 agreements in force. The list and text of each are available at Instruction No. 11, dated July 23, 2024 and the official page of General Directorate of Taxes.
It is issued by the tax administration of the country of residence and delivered to the Albanian taxpayer before payment, together with the documentation required by the instructions.
The Albanian payer withholds tax in accordance with domestic law, namely 15% on services and other categories, and 8% on dividends.
Yes. When the agreement is implemented and the documentation is complete, it takes precedence over domestic law.
10,000 lekë per month, for up to 24 months, pursuant to Article 115/3 of the Law No. 9920/2008.
It is deducted from the Albanian tax on the same income, up to the amount of the Albanian tax. Any excess is not refunded, but tax overpaid in Albania is refunded within 60 days.
The certificate is requested by the non-resident beneficiary from his country's administration, and then he hands it over to the Albanian payer.
The certificate must cover the payment period. Write to us with your circumstances, and we will tell you exactly what is required for your specific case.
Law No. 29/2023 "On Income Tax", as amended, Articles 25 and 26 on the credit for foreign tax and refund, Article 42 on the credit for companies, Articles 58 and 59 on withholding tax, and rates 8% and 15%
Instruction No. 11, dated July 23, 2024, and Annex 2, for the implementation of double taxation avoidance agreements
Law No. 9920, dated 19.05.2008 “For Tax Procedures,” as amended, Article 115/3 on documentation of agreements
Double taxation avoidance treaties, according to the list in Annex 2 of Directive No. 11/2024.
The text of Consolidated Law.