Applicable rules on business reorganizations
Business reorganizations include mergers, divisions, partial divisions, stock exchanges, and transfers of business branches.
A business reorganization does not cause capital gains tax on assets transferred to effect the reorganization, except for any cash payment that exceeds the cash-defined payment.
For the purposes of this article:
- “Merger by absorption” is any transfer by an entity of all its business activities (transferor) to a company (acquiring company) in exchange for the issuance or transfer of shares or quotas representing the capital of the acquiring company;
- “Transfer of a branch of activity” means any operation whereby a company (transferring company) transfers one or more branches of its activity, without being dissolved, to another company (acquiring company), in exchange for the issue or transfer of shares or quotas representing the capital of the acquiring company. A “branch of activity” means all the assets and liabilities of a sector of a company which, from an organizational perspective, constitute an independent economic activity and also includes the transfer of all the assets and liabilities of a company.
- “Exchange of shares or quotas” means any operation through which a company (the acquiring company) obtains a share in the capital of another company (the acquired company), in exchange for issuing or transferring to the shareholder or quota holder of the acquired company, in exchange for their shares or quotas, shares or quotas representing the capital of the acquiring company and, where applicable, a cash payment, provided that the acquiring company obtains the majority of the voting rights in the acquired company through this operation.
- “Melting/joining” is any operation through which:
- one or more companies (transferor companies), which are dissolved without entering into liquidation proceedings, transfer all their assets and liabilities to another existing company (acquiring company), in exchange for the issue or transfer to the shareholder or partner of shares or quotas representing the capital of the acquiring company and, where applicable, a cash payment; or
- or transfer companies, which are dissolved without going through a liquidation process, transfer all their assets and liabilities to a company they form (the acquiring company), in exchange for the issuance or transfer to the shareholder or partner of shares or quotas representing the capital of the acquiring company and, where applicable, a cash payment; or
- a company (transferor company), which is dissolved without going through the liquidation process, transfers all of its assets and liabilities to the company (acquirer company) and retains all shares or quotas representing its capital.
- “Distribution” is any operation through which:
- a company (the transferor company), which is dissolved without going through a liquidation process, transfers all its assets and liabilities to two or more existing or new companies (receiving company), in exchange for the issuance of proportional shares or interests or the transfer to its shareholder or partner of shares or interests representing the capital of the receiving company and, if applicable, a cash payment; or
- a company (transferring company) transfers one or more branches of activity of a company it forms (acquiring company), in exchange for the issue or transfer to the shareholder or member of shares or quotas representing the capital of the acquiring company and, where applicable, a cash payment.
- “Cash consideration” is cash consideration paid by an acquiring or purchasing company, in addition to the issue or transfer of shares or quotas, that does not in total exceed 10% of the nominal value of the shares or quotas issued or transferred in exchange.
- “Tax basis” means the value on which any gain or loss would be calculated for income tax purposes, the gains or capital gains of the transferor company if those assets or liabilities had been sold at the time of the reorganization, but independently of it.
The company that becomes active during business reorganization:
values the assets and liabilities assumed at their carrying amount in the transferring company at the time of reorganization;
values the business assets according to the rules that would have applied to the transferring company had the reorganization not occurred;
reserves and provisions created by the transferring company, depending on the conditions that would apply to the transferring company if the reorganization had not occurred. The acquiring company assumes the rights and obligations of the transferring company with respect to such reserves and provisions.
In the case of an asset transfer, the transferring company is exempt from tax on capital gains realized due to the reorganization, except for any cash payment exceeding the stated cash payment. The transferring company attributes the market value of the securities received from the business reorganization at the time of the reorganization. If the transferring company sells the securities received within three years of the business reorganization, the cost of acquisition for the calculation of capital gains will be lower than:
- market value at the time of reorganization; and
- the cumulative accounting values of assets and liabilities transferred due to reorganization, as they were in the transferring company prior to the reorganization.
In the case of a merger, division, or exchange of shares, the shareholder or partner of the transferring company:
- is not subject to tax on any capital gains realized due to a reorganization, except for any cash payment exceeding the stated cash payment;
- shareholders or partners do not attribute a value for tax purposes to the titles they receive in exchange that is greater than the value of the titles they held immediately prior to the reorganization.
This article applies only to the transfer of a branch or branches of activity located in the Republic of Albania if both the transferring company or individual and the receiving company are residents of the Republic of Albania.
Tax calculated for the transfer of business assets
The transfer of business assets is considered taxable in the following cases:
- A resident taxpayer transfers business assets from its domestic head office to a permanent establishment abroad, and the Republic of Albania no longer has the right to tax the transferred business assets due to the transfer;
- a taxpayer resident transfers their tax residence to another country, excluding those business assets that remain effectively connected with a permanent establishment in the Republic of Albania.
The taxable base to which tax will be applied is the amount equal to the market value of the transferred business assets minus their tax value at the time the business assets leave.
When the transfer of business assets or tax residency occurs in the Republic of Albania, the Republic of Albania accepts the market value upon entry as the initial value of the business assets for tax purposes.
For the purposes of paragraphs 1 through 3 of this article, the term “market value” means the amount for which a business asset can be exchanged or the mutual obligations between unrelated buyers and sellers can be settled in an arm's-length transaction.
Source: General Directorate of Taxes.