The tax administration previously announced the implementation of several sectoral plans during 2020, including that of the construction sector.
Promoting voluntary compliance with tax obligations is our main objective (General Directorate of Taxes), and the continuation of the actions being taken aim primarily to ensure that taxpayers are better acquainted with legal requirements. In line with this approach, a notification will be sent to taxpayers operating in the construction sector.
The subject of this notification concerns the sale (supply) of buildings, drawing the attention of taxpayers, and not only them, to the position of the tax administration. Taxpayers are obliged to issue a tax invoice at the time of cashing each installment from customers. Taxpayers must exercise care when recognizing revenue in the financial results, correctly assessing the status of buildings in relation to accounting standards.
Full address:
Subject: “About Declaration of income from the sale of building supplies”
To:
Based on the problems identified during verifications of Profit Tax declarations or tax controls carried out by the Tax Administration in relation to building supplies, we judge to bring to your attention and request tax self-assessment for the declaration and payment of tax obligations as provided by the current fiscal legal provisions, as follows:
Based on the law 92/2014 dated 07.24.2014 “On VAT,”, specifically in article 97 paragraph b of the law 92/2014 dated 24.07.2014 as well as Article 99 point a), which stipulates that the invoice is issued pfor any payment made before the supply of goods or before the completion of the supply of services, according to letter “a” of this point.
Also, the aforementioned law in Article 9 "“Supply of goods against payment, determines that, The supply of goods is considered effected in exchange for payment, in whole or in part, if the supplier directly or indirectly receives or is entitled to receive payment in cash or in kind for that supply, either from the person supplied or from any other person. Therefore, the supply of apartments in exchange for individuals generates monetary flows (income) which must be declared as a result of a supply effected, whether in whole or in part.
Based on Article 49 of the Law 9920/2008 ‘On Tax Procedures in the Republic of Albania”, it is determined that every right, every supply of goods or services for tax purposes is subject to invoicing with a tax invoice.
Based on Article 19 “Taxable Profit” of the Law No. 8438 “On income tax"”Taxable profit for the tax period is determined based on the balance sheet and its annexes, which must comply with the law “On Accounting and Financial Statements,” with the provisions of this law, as well as with the bylaws issued by the Ministry of Finance for this purpose.
Based on the Law No. 25/2018 "On Accounting and Financial Statements", ”National Accounting Standards" (NAS) are standards drafted and published by the National Accounting Council, which are declared mandatory for application by order of the minister responsible for finance.
Based on SKK 8 "Revenues"“
– Products are goods produced by an economic unit for sale.
-SALE OF GOODS AND PRODUCTS
Revenue from the sale of goods and products will be recognized when all of the following conditions are met: (a) the economic entity has transferred to the buyer all the risks and benefits associated with ownership of the goods and products; (b) the economic entity does not retain continuous involvement in the management of the goods and products to a degree that indicates ownership and/or effective control over the goods/products sold; (c) the amount of revenue can be measured reliably; (d) it is probable that the economic benefits associated with the transaction will flow to the economic entity.;
Assessing whether an economic unit has transferred the principal risks and rewards of ownership to the buyer requires an analysis of the circumstances of the transaction.. In most cases, the transfer of risks and benefits related to ownership to the buyer coincides with the transfer of legal title (for example, in retail sales it occurs at the time the goods/products are delivered to the buyer; in the case of partial delivery sale, the transfer of legal title takes place as described in the partial delivery agreement). Under certain circumstances, the transfer of risks and benefits arising from ownership does not occur at the same time as the transfer of legal title.
If the risks associated with ownership do not transfer to the buyer, then revenue is not recognized, regardless of whether legal title has passed to the buyer or not. Examples of situations in which the risks have not passed to the buyer and, consequently, revenues are not recognized by the economic entity include: (a) when the economic entity carries a liability for unsatisfactory performance that is not covered by normal warranties. (b) when the realization of revenue from a particular sale is contingent on the generation of revenue from the subsequent sale of those goods or products by the buyer; (c) when the goods or products are transported and must be assembled, and assembly is a significant part of the contract, which has not yet been carried out by the seller; (d) when the buyer has the right to cancel the purchase for reasons specified in the sales contract, and the seller is uncertain whether the goods or products will be returned.
In light of the above, you must take into account and exercise caution regarding the timing of issuing the tax invoice and the corresponding amount for which the invoice must be issued in the supply of buildings, as well as the moment when revenue recognition for the supply of buildings will occur:
An invoice must be issued for every sale of an apartment, building, or real estate property, whether it is VAT-exempt or not. Also, a tax invoice is issued for all advance payments for the sale of apartments and for their final sales.
Failure to issue a tax invoice, in addition to the tax assessment and penalties specified in Law No. 9920 dated May 19, 2008, as amended, also results in the non-recognition of activities and depreciation expenses for the acquiring company, according to articles 20, 21, and 22 of Law No. 8438 dated December 28, 1998, “On Income Tax,” as amended.
The taxable value of the sale of residential apartments, or the sale of real estate or buildings for offices, shops, garages, warehouses, etc., or for use for economic activity purposes (even in cases where they are exempt under the law and no VAT is charged), is the market value of the sale of these properties under the contracts, on the basis of which each individual will register the property in the real estate registry.
Income from the sale of residential apartments, or the sale of real estate or buildings for offices, shops, garages, warehouses, etc., will be recognized in accordance with IFRS 8.
In case you have not complied with legal and regulatory provisions, take steps to self-declare the income for 2019 for all units sold in prior years but recorded under the "Prepayments" line., units that are currently utilized by purchasers who have full rights to these properties as provided for in SKK 8, regardless of whether the transfer of the property title has been completed or not. A proper self-declaration on your part will avoid the penalties provided for in the Tax Procedure Law. Any taxpayer who fails to declare the income from the sale must legally prove, in accordance with SKK 8, why they did not do so.
From April 2020, after the verification of the 2019 Profit Tax declaration regarding the income declared from the sale, The DRT that manages you, in cooperation with the relevant structures at the General Directorate of Taxes, will assess risk indicators to conduct an on-site audit of the 2019 Profit Tax calculation to ensure that the sale proceeds have been declared in accordance with legal requirements.
We request that you provide the data according to the attached format for the number of units, booked or sold built areas. This information must be sent to DRT by April 5, 2020.
We hope for your understanding and voluntary compliance.
Source: General Directorate of Taxes.
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