Calculation of corporate income tax and foreign tax credit

This section explains the final step of the calculation, namely from taxable income to the amount actually paid. The applicable rates and the zero regime are on our page. of norms and thresholds.

Foreign tax credit is the point where mistakes are most often made. It is not a refund. If the tax paid abroad is higher than what would be paid in Albania on the same income, the difference is lost. The rules and agreements are on the page of double taxation avoidance treaties.

Income and calculation of tax payable on corporate income

Except as otherwise provided by this law, all activities of an entity are treated as business activities and all revenues of an entity constitute business revenues.

The corporate income tax payable is calculated by applying the corporate income tax rates determined in Article 41 of this law to the taxable income of the entity and is reduced by:

• credit for foreign tax under Article 42 of this law;
• the tax withheld at source pursuant to Chapter V of this law;
• corporate income tax advances paid during the tax year.

If the difference calculated in point 2 of this article is negative, the taxpayer may claim the excess tax, and the tax administration will refund this amount to the taxpayer no later than 60 days from the date of application. If the taxpayer does not claim the overpaid corporate income tax, this tax will be considered an advance payment for the corporate income tax of the following tax year.

Tax rate

The corporate income tax rate is 15%. Exceptionally, the tax rate on dividends is 8%, with no deductions allowed.

Credit for foreign tax for corporate income tax

If during a tax year a resident entity derives taxable income from sources outside the territory of the Republic of Albania, the tax to be paid by that entity for this income must be reduced by the amount of tax paid in a foreign country for this income.

The amount of foreign tax paid is certified by specific documentation issued for this purpose by the foreign country where the income was earned, and according to the deadlines and procedures determined in the instructions of the minister responsible for finance.

The credit for foreign tax paid as described in point 1 of this article cannot exceed the tax payable on taxable income from foreign sources if such income were realized in the Republic of Albania.

Your tax credit, as determined in this article, is calculated separately for each foreign country which is a source of income or profits, if the income is derived from foreign sources in more than one country.

Source: General Directorate of Taxes.

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