Deductible expenses
Deductible expenses are all expenses incurred by a person subject to this law during the tax year, to the extent that these expenses for the purchase of goods or services are actually incurred for the purpose of generating profit and in the interest of the business, are documented by the taxpayer, and are not subject to any limitation provided by this law. The minister responsible for finance shall determine by directive the manner of implementing this article.
Deductible expenses for land exchanged for construction.
In determining the taxable profit of enterprises that operate in the construction and/or sale of buildings for residential, manufacturing, commercial, or service purposes, The methodology for recognizing revenue from sales and operating expenses, as well as the consideration of the landowners' profit share and the land costs themselves, are approved by a decision of the Council of Ministers.
Non-deductible expenses and the deduction limit
- The following expenses are non-deductible:
a) the costs of purchasing and improving land and building lots;
b) the cost of acquiring, improving, renovating, and reconstructing depreciable assets;
c) depreciation expenses in accordance with accounting rules and Article 51 of this law;
c) the increase of the company's share capital or of the contributed capital in a partnership;
d) dividends to shareholders or partners, as well as dividends of other entities subject to this law;
dh) interest paid that exceeds the average annual 12-month interest rate on loans set by commercial banks, as officially published by the Bank of Albania, excluding interest on loans granted by microcredit institutions.;
e) fines and penalties paid to a public authority for violations of legislation;
e) expenses for the creation or increase of provisions, reserves, or other special funds, except when otherwise provided by this law;
f) corporate profit tax, VAT receivable, as well as excise duty paid by entities that administer excisable goods;
g) representation and hospitality expenses that exceed 0.3 percent of annual revenue. For exporting taxpayers, excluding producers using commissioned materials, who in the last three years have generated over 70 percent of their revenue from exports, Documented expenses incurred for participation in or presentation at fairs or exhibitions abroad are recognized as deductible expenses up to 3 percent of annual revenue.
g) expenses incurred as personal consumption by shareholders, partners, administrators, and their family members;
h) expenses that exceed the limits set by law or by regulations in force;
i) gifts and donations;
j) expenses for technical, consulting, and management services invoiced by non-residents, provided they are not paid by the taxpayer within the period for filing the tax return. If such expenses are paid later, they are deductible in the tax year in which they are paid.;
k) expenses for wages, bonuses, and other forms of personal income related to employment relationships, paid to employees, including administrators, and which have not been made through the banking system or electronic money institutions licensed by the Bank of Albania.;
l) amounts paid in cash in excess of the limits set by the provisions of the law on tax procedures in the Republic of Albania;
ll) the costs of life and health insurance for the taxpayer's employees that exceed 51 percent of their gross wages for the tax year;
m) scholarships awarded to students of public and private educational institutions, other than those determined by the Council of Ministers;
n) expenses for contributions made by the employer on behalf of his employees to a private pension plan that exceed the limits of paragraph 5 of Article 20 of this law;
(n) income-related expenses that are not included in taxable profit under this law;
o) bribes and kickbacks;
p) Sponsored amounts:
i. that exceed 5 percent of pre-tax profit for print publishers and publications of
literary, scientific, and encyclopedic works, as well as for cultural or artistic activities;
ii. that exceed 5 percent of pre-tax profit for sports activities. Sponsorship amounts, within the above limit for the activities of sports teams that are part of sports organizations recognized by the applicable legislation, are deductible for the purpose of calculating the income tax for the tax period up to three times the value of the sponsorship amount. Their carryover to future tax periods is not allowed. This deduction is permitted after the issuance of the “Sponsorship Authorization” by the Director General of Taxes, in accordance with the procedures set forth in the guidance of the minister responsible for finance. This provision applies only to entities
sponsoring companies that realize an annual taxable profit of over 100 million lek,
iii. that exceed 3 percent of pre-tax profit for sponsorships of other activities not included in subparagraphs “i” and “ii” of this letter;
q) losses, damages, wastage, and spoilage during production, transit, storage, and trade beyond the limits set by applicable special legal and regulatory acts in force;
r) any claimed expense the amount of which is not substantiated by documents by the taxpayer or that does not represent a real transaction. - The minister responsible for finance shall, by directive, determine the manner of implementing this article.
Source: General Directorate of Taxes.