Construction accounting for the contractor and for technical trades.

Construction accounting has a rule that no other small business activity has. Revenue isn't recognized when you collect cash, nor when you issue the invoice. It's recognized based on the stage the work has reached at the end of the reporting period. This is required by National Accounting Standard No. 8, paragraph 24.

The practical consequence is simple and unpleasant. A company that has been operating for six months without collecting anything may have taxable profit. And a company that has collected a large prepayment may have no revenue at all for that period.

This guide is written for the contractor and for technical trades. That is, for the company or the self-employed individual who builds, installs, or maintains under contract. It does not address the real estate developer—that is, the person who builds apartments to sell in their own name. That activity is subject to a different VAT regime and inventory treatment. This guide covers the nine common modules, from legal form to the checklist.

Read also: What is considered construction work under VAT law?

Legal form and code of activity

The choice between a sole proprietorship and a limited liability company carries more weight in construction than in most other sectors. The reason isn't tax; it's liability. A construction defect or an accident on the job site creates obligations that, in the case of a sole proprietor, extend beyond personal assets.

When it's worth forming an LLC and when a sole proprietorship is enough

Technical trades that work alone or with an assistant, such as plumbers, electricians, or plasterers, typically start out as sole proprietorships. The work is carried out within an already erected structure, and the structural risk is limited.

Incorporation becomes necessary when you take on projects under contract, when you hire on-site staff, or when you apply for a professional license as a construction contractor. The license is issued to the entity, so the legal form comes first and the license second—never the other way around.

Which activity code do you declare at the QKB?

Construction is Section F of the Classification of Economic Activities. Within it, division 41 covers the complete construction of buildings. Division 42 covers engineering works, such as roads, bridges, and networks. Division 43 covers specialized works, namely installations and finishes. The full list of subclasses is available at Section F of the NVE.

The common mistake is declaring a single, very narrow code. When the company later takes on a project that also requires additional work, the business activity code in the QKB doesn't cover the contract. Amending it is possible, but it takes time—exactly when you need to sign.

Professional License and Technical Director

The execution of construction works requires a professional license. It is issued by a special commission within the ministry responsible for infrastructure. The license is divided into categories, with general works designated NP and special works NS. It is based on Council of Ministers Decision No. 759 of November 12, 2014, as amended several times, including by Council of Ministers Decision No. 943 of December 28, 2016.

Why the category determines what you can sign up for

The category is not a formality. It determines which tasks you can carry out and which you cannot. A contract signed outside your category becomes a problem at the very first inspection.

What changed for technical leaders?

The licensing regulation was changed in July 2025. The change that most affects small companies is a single one. A person cannot simultaneously serve as a technical director for more than one company. If the same engineer is listed with both companies, one of them is left without a valid technical director.

Also, that person's individual license for inspection and certification is automatically suspended as long as he is the technical director, and is reinstated upon his departure. The deadline for processing appeals was extended from 10 days to 20 days. The source of these three points is the media coverage of July 2, 2025, not the text of the decision, so see the first disclaimer at the bottom of the page.

How the income is recognized. The situation and the completion phase.

This is the stage where most mistakes are made and where a good economist pays for himself. The situation is the document by which the portion of work completed during a period is measured, and on which the invoice is issued. But the situation is not what generates revenue. Revenue is generated by the completion phase.

SCC 8, paragraph 24, allows recognition on a completion-stage basis only when the contract result can be measured reliably. Reliability requires three things simultaneously: a reliable estimate of the phase itself, an estimate of the costs yet to be incurred, and the collectibility of invoices.

Three ways to measure the phase

Paragraph 29 of IFRS 8 provides three methods. The first measures the weight of costs incurred against total estimated costs. The second method relies on inspection of the work performed. The third starts from the physical completion of an identifiable portion of the work.

The first method is the one most often used, because it relies on the figures you already have in your accounting. However, it has a catch. Purchased and unprocessed materials are not yet completed work, so they are not included in the costs that measure the phase.

When the result cannot be measured reliably

This occurs in contracts commenced without a completed project, or when the customer has payment difficulties. Paragraph 32 of IFRS 8 clearly resolves this. Revenue is recognized only to the extent of costs incurred that are recoverable, and costs are recognized as expense in the period in which they are incurred.

The second rule is more serious and is almost always forgotten. Paragraph 33 states unequivocally: When total estimated costs exceed contract revenue, the expected loss is recognized immediately as an expense. It is recognized in full, without waiting for the project's completion, and is not spread over periods.

Calculated example, with rounded figures

Contract: 20,000,000 lek without VAT. Total estimated costs: 16,000,000 lek. As of December 31, costs of 6,000,000 lek have been incurred, of which 1,000,000 lek are purchased materials still in stock.

The costs for the phase are 6,000,000 minus 1,000,000, so 5,000,000 lek. The completion phase is 5,000,000 divided by 16,000,000, which is 0.3125%. The period's revenue is 20,000,000 multiplied by 0.3125%, which is 6,250,000 lekë. The recognized cost is 5,000,000 lekë and the gross profit is 1,250,000 lekë.

Note that the collection was not included in this calculation anywhere. If the payer has only paid 3,000,000 lek, this affects the cash flows and the client's balance, not the recognized revenue.

The model below is copied and adapted. It is the minimal form that must accompany every situation so that the above calculation is protected in an audit.

Situation No. [number], Date [date]
Object: [name of the object and location]
Contract no. [number], dated [date], value [amount] lek without VAT
Orderer: [name of the subject]
Period covered: [date] to [date]

A. Work performed during this period
[item name] | [unit] | [quantity] | [unit price] | [value]
[item name] | [unit] | [quantity] | [unit price] | [value]
Value of works from this period: [amount] lek

B. Cumulative status
Work completed to date: [amount] lek
Costs incurred to date: [amount] lek
Total estimated costs: [amount] lek
Completion phase: [percentage]%
Purchased and unprocessed materials excluded from the phase: [amount] lek

C. Signatures
Executor: [name, function, date]
Supervisor of works: [name, license no., date]
Orderer: [name, position, date]

VAT on construction works

Construction and maintenance are service supplies and are subject to VAT. This is provided for in Law No. 92/2014 on value-added tax. Construction is defined as any operation that results in the complete or partial completion of a building, whether new or substantially altered. Maintenance is defined as any operation that prevents deterioration and keeps the facility in proper working order.

Definition matters in practice. It also includes building equipment work when the apparatus or materials are permanently installed, as well as restoration, repair, and installations of a real-estate nature. Thus, a company that only installs falls under the same regime as one that erects walls.

Construction site equipment and depreciation

Concrete mixers, scaffolding, generators, compressors, and work tools are not expensed in the year they are purchased. They are long-term assets, and their cost is recognized gradually at the rates set by Article 51 of Law No. 29/2023. This is one of the biggest differences between accounting profit and taxable profit for a construction company.

What are you buying?	Annual rate
Construction site equipment, machinery, scaffolding, tools, and office furniture	20%, linear method
Computers, servers, and design or facility management programs	25%, linear method
A warehouse or office building that has been in service for more than 15 years.	5%, linear method, individually
Intangible rights, such as multi-year software licenses.	15%, linear method

Three rules accompany this table, and each addresses a common on-site scenario.

The threshold is 10,000 lek. When an asset's depreciation base doesn't exceed it much, the entire amount is recognized as an expense in the year of purchase. A hand tool does not require a card.

The first year is measured proportionally. Depreciation for the year of purchase is calculated based on the period of use. Therefore, a concrete mixer put into service on December 1 does not yield the full annual rate.

The revaluation does not increase the base. When assets are revalued, tax depreciation remains on the original cost.

For the 1+4 personnel vehicle there is a double limit. The depreciation base shall not exceed 50% of the purchase and reconstruction costs including VAT. The total cost on which this 50% is applied does not exceed 10,000,000 lekë. The full treatment, with examples, is on the page of deductible expenses.

People on the construction site. The subcontractor and safety.

The subcontractor and the risk of reclassification

Construction works with subcontractors and independent craftsmen, and that's normal. The problem arises when the same person works exclusively for you, on your schedule, with your tools, and under your supervision, but bills as self-employed.

Article 12 of the Labor Code expressly allows reclassification. When the relationship is not clearly defined, the court determines its true nature based on the facts, not on the contract's label. The effects are retroactive for up to three years. The criteria and evidence are on the page about the self-employed and reclassification.

The defense is documentary and is built in advance, not at the time of inspection. Four things are required: a construction contract with a measurable objective; a situation report or acceptance protocol for each payment; a proper invoice from the subcontractor; and proof that he also works for others.

Safety on the construction site and a 200-working-day threshold

Safety at construction sites is not covered by the general block of the Labor Code; it has its own regulation. It was adopted by Council of Ministers Decision No. 312, dated May 5, 2010, and is called the Regulation on Safety at Construction Sites.

When a safety coordinator is required

According to Article 3 of the regulation, the client appoints a safety and health coordinator when the volume of work on the construction site exceeds 200 working days, or when the works involve particular risks as listed in Annex II. The coordinator is appointed for both the design phase and the execution phase of the works.

The same threshold also requires prior notification to the Labor Inspectorate, including when only one company is working on the construction site. The notification is updated whenever the site's status changes during the works.

What plans should exist?

The regulation recognizes three documents with abbreviations that are often encountered in practice. PSK is the Safety and Coordination Plan, prepared by the project coordinator. PRS is the Safety Reserve Plan, for any potential changes. POS is the Safety Operating Plan, and this is the one prepared by the implementing company itself.

Regardless of the threshold, the employer's basic obligations apply to every construction site, large or small. This includes risk assessment for each workplace, employee information and training, and medical examinations when the work presents particular hazards. The full list can be found on the page about Employer's safety obligations.

When an accident occurs, three actions begin at the same time: providing assistance and stopping the hazard, notifying the Inspectorate, and preparing written documentation. For accidents resulting in death, notification is required within 24 hours, and a copy of the report is kept for at least three years. The steps are on the page about work accident.

Late Payment. Law No. 81/2026

Payment delays are the sector's longstanding problem, and the legal framework was amended by Law No. 81/2026, which modifies Law No. 48/2014 on late payments. It was adopted on July 23, 2026, and promulgated by Decree No. 463, dated July 31, 2026.

The deadlines set are 60 days between commercial entities, 30 days when the contract does not specify a deadline, and 30 days with public authorities, extendable to 60. The commissioning or conformity verification may not exceed 30 days. Late interest accrues without the need for any notice.

The deadline for the final inspection is precisely the point where construction is affected more than any other sector, because that is the most common cause of delays. The full treatment of the law is found in Guide to Late Payments. Transitional provisions are important because the law applies only to transactions after its effective date. See the exact effective date in the second limitation at the bottom of the page.

Checklist and the three steps for today

The list below is what we check on a new construction client, in this order.

• The scope of work at the QKB covers every type of work you have contracted.
• The professional license is valid, and the category matches the work you perform.
• The technical director is not simultaneously listed at another company.
• For each contract, there is a total cost assessment, updated at least at the end of each quarter.
• The situations are signed by all three parties and match the invoices.
• Purchased and unprocessed materials have been excluded from the costs that measure the phase.
• Depreciation cards exist for every device costing over 10,000 lek.
• The subcontractors have a construction contract and an acceptance document for each payment.
• The safety file contains the risk assessment and, for construction sites above the threshold, the safety operational plan.
• The employees have been declared before the first day of work.

Three steps you can take today. Open your next largest contract and record the total estimated costs if they aren't already documented anywhere. Then check whether your technical director is listed anywhere else. Finally, count the workdays on your largest construction site and see if you exceed the 200-day threshold.

Frequently asked questions

How does construction accounting differ from that of a merchant?

For a merchant, revenue is recognized when the goods are delivered. In construction, it is recognized according to the completion stage of the work, so it can be recognized even when nothing has been invoiced yet and nothing has been collected.

Can I only recognize income when I collect it?

No. Revenue recognition affects cash flows and the customer's balance, not the timing of recognition. Recognizing revenue at the time of collection is the error that produces the largest difference between the statements and the declaration.

What do I do when the contract results in a loss?

The loss is recognized immediately and in full when you realize that total costs will exceed revenue. This is a requirement of paragraph 33 of IFRS 8 and is not deferred until the end of the period.

Are the materials on the construction site expensed or treated as inventory?

Until they are put into service, they are inventory. Therefore, they are not included in the costs that measure the completion phase, even though the purchase invoice is for the current year.

How much does a concrete mixer or a scaffold depreciate?

Depreciated over 20 years on a straight-line basis, as it falls under the category of other assets of the enterprise according to Article 51 of Law No. 29/2023. Equipment costing under 10,000 lek is fully expensed in the year of purchase.

Do I need a safety coordinator for each construction site?

Not for every construction site. It is required when the workload is 200 working days or more, or when the work involves particular risks. Basic safety obligations still apply even below this threshold.

Can my subcontractor invoice as a self-employed individual?

Yes, if he is truly independent. When he works solely for you, on your schedule and with your tools, the relationship may be reclassified as employment. The basis is Article 12 of the Labor Code, with retroactive effects of up to three years.

Legal basis and limitations

Two boundaries that we mark openly

First, the changes to the July 2025 licensing regulation were taken from the media coverage with a verified date within the text, not from the text of the decision. Therefore, the number and date of the amending decision are not provided, nor is the complete list of NP and NS categories with the criteria for each. The page is completed once the text has been read.

Secondly, the effective date of Law No. 81/2026 is not provided. Article 7 of the law sets it as 15 days after publication in the Official Gazette. The issue number of the Official Gazette in which it was published has not yet been verified by us, and we do not speculate. The page will be completed on the day the issue number is confirmed.

The acts on which this text is based

• National Accounting Standard No. 8 “Revenue,” paragraphs 24 through 34 on construction contracts and the completion stage, effective January 1, 2015.
• Law No. 29/2023 “On Income Tax,” as amended, Article 51 on depreciation rates and Article 52 on inventory.
• Law No. 92/2014 “On Value Added Tax in the Republic of Albania,” as amended, regarding the treatment of construction works as a service supply.
• Decision of the Council of Ministers No. 312, dated May 5, 2010, “Regulations on Site Safety,” Article 3 on the coordinator, preliminary notification, and PSK, PRS, and POS plans.
• Decision of the Council of Ministers No. 759, dated November 12, 2014, on professional licensing, as amended, including by Council of Ministers' Decision No. 943, dated December 28, 2016.
• Law No. 81/2026, amending Law No. 48/2014 on late payments, enacted by Decree No. 463, dated July 31, 2026.
• Law No. 7961/1995 “Labor Code of the Republic of Albania,” as amended, Article 12 on reclassification.