The Ministry of Finance has made an important update to the guidance. No. 26, dated September 8, 2023 For income tax, it clarifies the tax treatment of self-employed individuals who derive their income primarily from one or a few clients. This change does not constitute a legal amendment but is an important clarification affecting many taxpayers.
What has changed?
Previously, under section 2.8 of the previous guidance, the calculation of the tax liability on the net income of self-employed individuals was based on income received. Now, under section 12.8 of the new guidance, the calculation is based on billed income. This change further aligns the reporting system with standard accounting practices and eliminates previous uncertainties about when tax should be applied.
Article 12 of Law No. 29/2023 “For Income Tax”
According to Article 12 of Law No. 29/2023 “For Income Tax,” a self-employed individual who earns 80% or more of his income from a single client, or 90% from fewer than three clients, is considered employed for tax purposes and his income is treated as employment income.
This provision does not apply if the self-employed individual provides services exclusively to non-residents of the Republic of Albania or exclusively to entities that do not have a permanent establishment in the Republic of Albania. In that case, the self-employed individual is considered to derive business income.
Impact on taxpayers
This clarification affects a large group of self-employed individuals, especially those who provide professional services and work primarily with one or a few clients. The main changes in impact are:
Change in the basis of calculation
Revenues are now calculated on a billing basis rather than on a collection basis. This means that tax must be paid on the billed revenues, even if payment has not yet been received from the client.
Declaration and reporting
In the annual tax return, self-employed individuals must report this income as employment income rather than business income if they meet the criteria set out in Article 12 of the law.
Impact on financial planning
For self-employed individuals who previously based their tax planning on cash receipts, this may require changing their financial strategy to avoid a lack of liquidity for paying their tax obligations.
Example
| Example.Declaration for the year 2025 – The self-employed individual with the initials “A.B.” under economic code J6201 “Computer programming activities” shows that during the year 2025, he had gross business income of 4,000,000 lekë. Of these revenues, 3,280,000 lekë of the total were earned from the company with the initials “C.D.,” while the remaining taxable income of 720,000 lekë comes from five other companies. The self-employed individual's tax expenses for the year 2025 are 1,000,000 lekë. Other notes: Meanwhile, the self-employed individual has a child under the age of 18 and has the highest taxable annual income in the family. | |
| How will the self-employed individual's income be taxed?ëEmployed: | 82% (3,280,000 lekë/4,000,000 lekë) of business income comes from a single client. Since the self-employed individual's income from a single client exceeds 80% (letter c/i, point 1, of Article 12) then the taxable profit of the self-employed individual will be considered employment income for calculating the tax liability. Note. For the sole purpose of calculating the % measure of revenue earned by each client, the weight of earned revenue from the client is considered the same as the weight of gross revenue from the client. |
| How will the declaration be made: | The self-employed individual in his annual declaration “Form for Declaration and Payment of Personal Income Tax from Business” will complete fields 8/9 “Income from Employment.” After completing lines 8 and 9, lines 10 through 21, which relate to business income, are not completed. |
| Calculation of income tax on employment income: | Taxable base = Tax revenue – (tax deductions + tax expenditures)Note. A self-employed individual, since they have annual income of up to 10,000,000 lek, is entitled to opt for the special regime for recognizing deductible expenses. This apriori deductible expense is 30% for self-employed individuals. In line 28 of the declaration, this taxpayer specifically checks the “Yes” box for the apriori expense deduction. – In the example presented, since the individual chooses the apriori deduction of expenses, the deductible expenses will be:30%*4,000,000 lekë = 1,200,000 lekë– Meanwhile, the taxpayer also benefits from the deductions under Article 22(1) of the law, specifically 360,000 lekë under letter “c” and 1,480,000 lekë under letter “ç.”. Taxable base = 4,000,000 lek – (360,000 lek + 48,000 lek + 1,200,000 lek)Taxable base = 2,392,000 lekCalculated tax = 13%*2,040,000 lekë + 23%*352,000 lekëCalculated tax = 346,160 lekë |
Declaration for the year 2025 – The self-employed individual with the initials “A.B.” under economic code J6201 “Computer programming activities” shows that during the year 2025, he had gross business income of 4,000,000 lekë. Of these revenues, 3,280,000 lekë of the total were earned from the company with the initials “C.D.,” while the remaining taxable income of 720,000 lekë comes from five other companies. The self-employed individual's tax expenses for the year 2025 are 1,000,000 lekë.
Meanwhile, the self-employed individual has a child under the age of 18 and has the highest taxable annual income in the family.
How will the income of a self-employed individual be taxed?
- Percentage of revenue from the key client: 82% (3,280,000 lekë / 4,000,000 lekë) of business revenue comes from a single client.
- Legal criterion: Since the income of the self-employed individual is 80% or more from a single client (pursuant to Article 12 of Law 29/2023), then the taxable profit of the self-employed individual will be considered employment income for the calculation of the tax liability.
How will the declaration be made?
The self-employed individual in his annual declaration “Form for Declaration and Payment of Personal Income Tax from Business” will complete fields 8/9 “Income from Employment.” After completing lines 8 and 9, lines 10 through 21, which relate to business income, are not completed.
Calculation of income tax on employment income
Taxable base = Tax revenue – (tax deductions + tax expenditures)
Tax deductionsA self-employed individual, since they have annual income of up to 10,000,000 lek, is entitled to opt for the special regime for recognizing deductible expenses. This apriori deductible expense is 30% for self-employed individuals. In line 28 of the declaration, this taxpayer specifically checks the “Yes” box for the apriori expense deduction.
Calculation of deductible expenses: 30% * 4,000,000 lekë = 1,200,000 lekë
Other discounts by law: 360,000 lekë under Article 22, paragraph 1, letter “c” and 1×48,000 lekë under letter “ç.”.
Taxable base: 4,000,000 lek – (360,000 lek + 48,000 lek + 1,200,000 lek) = 2,392,000 lek
Calculated tax: 13% * 2,040,000 lekë + 23% * 352,000 lekë = 346,160 lekë
Conclusion
This clarification in the guidance eliminates ambiguities regarding how self-employed individuals with few clients should report and calculate their tax. Using billed income as the basis for taxation is a significant change that requires taxpayers to exercise more careful management of their invoices and payments. In this way, self-employed individuals must better plan their tax obligations and ensure they have sufficient funds to cover these obligations on time.
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