- The tax on capital gains for an individual has three rates, 0%, 15%, and 23%, and each is triggered by a different condition.
- With annual gross turnover up to 14,000,000 lek, the rate is 0.3% up to December 31, 2029,.
- Above that threshold, the rate is 15% up to 1,400,000 lek in taxable profit and 23% only on the excess, never on the entire profit.
- The figure 14,000,000 appears twice, once as a turnover threshold and once as a profit threshold. They are two different thresholds.
- A sole proprietor doesn't pay dividends, so the profits he withdraws are cheaper than those of a corporation.
- Self-employed contributions cost at least 178,800 lek per year and are also paid in the zero-tax year.
The profit tax for a natural person trader is not a single rate; there are three: zero, fifteen, and twenty-three percent. Which one applies depends on two different figures that happen to be the same: 1,400,000 lek.
The Misunderstanding with the 23% Standard
The phrase most often heard is “over 14 million pays 23%,” and from that comes the belief that the entire amount is taxed at 23%. In fact, 23% applies only to the excess, and the difference between the two readings easily runs into hundreds of thousands of lek.
This text gives all three rates along with the condition for each, explains why the figure 14,000,000 appears twice with different meanings, provides two worked examples, shows the cost of non-profit contributions, and concludes with the comparison to society, because that is the question that immediately follows.
Read also: How much tax does the business pay on its profit?, for the full table of applicable rates and thresholds.
Who is taxed as a natural person trader
A sole trader is an entrepreneur who carries on business in his own name, without forming a separate company. There is no separation between the business's assets and his personal assets, and it is precisely this lack of separation that determines the method of taxation.
The practical consequence is straightforward. The after-tax profit is immediately his, without an assembly resolution or a second tax. In the company, however, those same funds still require one more step and an 81% dividend tax.
What this status means in day-to-day operations, from registration to contributions and declarations, is covered separately in our guide. Read also: Business as a sole proprietor: what you pay and what you report..
Three income tax rates for individuals
The table below shows the entire scheme. It is read from top to bottom, and the first row that matches your case is your standard.
| Condition | The | What is it calculated on? |
|---|---|---|
| Annual gross turnover up to 14,000,000 lek, until December 31, 2029. | 0% | No tax is due, but the return is filed. |
| Gross income, the portion of profit up to 14,000,000 lek. | 15% | Taxable profit, up to this amount |
| Gross above the threshold, the portion of profit over 14,000,000 lek | 23% | Only the excess over 14,000,000 lek |
| Certified agritourism, agricultural cooperation, automotive | 5% | Taxable profit, until December 31, 2029 |
Two numbers with the same digits, two different meanings.
This is the point where most businesses get confused. The figure 14,000,000 lekë appears twice in the same scheme, but it doesn't measure the same thing.
The first threshold measures gross salary, that is, how much you have invoiced in total. It determines whether you fall under the zero-rate regime until December 31, 2029.
The second threshold measures taxable gain, so how much do you have left after the known expenses? It determines where the 15% bracket ends and where the 23% bracket begins.
So an entrepreneur with a turnover of 30,000,000 lek and a profit of 3,000,000 lek is above the first threshold and below the second. He pays 15% tax on the entire profit and not a single lek at 23%.
Read also: Who doesn't pay tax until 2029, for the full terms of the turnover threshold.
Two calculated examples
Taxable profit 2,300,000 lek
The turnover exceeds the threshold, so the zero rate does not apply. The taxable profit is under 14,000,000 lekë, so only the 15% rate applies.
- Tax. On over 2,300,000 lek, 15% is calculated, i.e., 345,000 lek.
- Surplus. Not a single lek goes to bracket 23%, because the profit doesn't meet the threshold.
- Step two. There isn't one. The remaining funds belong to the entrepreneur, with no dividend tax.
Taxable profit 20,000,000 lek
Here the work is divided into two parts, and this is precisely where the common mistake is made.
- Part one. On the first 14,000,000 lek, 151 TP 3 T applies, so 2,100,000 lek.
- Surplus. There remain 6,000,000 lek, which are taxed at 23.1%, so 1,380,000 lek.
- Total: 3,480,000 lekë, i.e., 17.41% profit and not 23%.
If the entire amount were taxed at 23%, the liability would be 4,600,000 lek. The difference between the incorrect reading and the correct one is 1,120,000 lek.
Cost that does not depend on profit
The tax on an individual's profit can be zero, but contributions cannot. The self-employed person pays social security and health insurance contributions on a basis that does not fall below the minimum wage, regardless of turnover or the year's result.
On the minimum basis, social security provides 11,500 lekë per month and health insurance 3,400 lekë per month. Total 178,800 lek per year, that are paid even in a loss year and even in a zero-tax year.
Therefore, the real accounting of a small business as a sole proprietor doesn't start with the tax rate. It starts with this fixed figure, which exists before the first lek is earned. Read also: Self-Employed Status Declaration and Contributions.
Every time there is a tax or financial change that affects your business, we notify you directly by email with a practical explanation.
Send me free notificationsDeadlines of the year
The annual income declaration and tax payment are made by March 31 of the following year. This deadline applies even when the tax is zero.
Invoices and contributions are submitted by the 20th of the following month. For natural persons engaged in trade and self-employed individuals who are not registered for VAT, the deadline is the 20th of the month following each quarter.
When an individual also has income from sources other than the business, an obligation to file an annual individual tax return may arise. Read also: Tax calendar, deadlines of the year.
An individual or a company, which one pays less?
A fair comparison isn't made based on the rate written into the law, but on the amount that actually ends up in your pocket. The two examples below illustrate the difference.
| Taxable income | Sole Proprietorship | Company with distributed profit |
|---|---|---|
| 2,300,000 lek | 345,000 lek | 477,400 lek |
| 20,000,000 lek | 3,480,000 lek, so 17.41% | 4,360,000 lek, so 21.81% |
The sole proprietor comes out ahead in both cases, but only because we assumed the profit is withdrawn in full. When the profit is retained within the business and reinvested, the company doesn't pay the second layer and the calculation flips.
And tax is not the only criterion. The corporation provides limited liability; the individual is responsible with their own assets. That protection comes at a price, and that price is precisely the 8% dividend.
Read also: Tax on profit for a legal entity and the Should I register as an individual or as a company?.
Frequently asked questions
What is the income tax rate for an individual in 2026?
For annual gross turnover up to 14,000,000 lek, the rate is 0% until December 31, 2029. Above that threshold, the rate is 15% on up to 14,000,000 lek of taxable profit and 23% only on the excess.
Is the entire profit taxed at 23% once the threshold is exceeded?
No. The 23.1% rate applies only to the portion exceeding 14,000,000 lek. On a profit of 20,000,000 lek, the total tax is 3,480,000 lek, or 17.4% of the profit.
Is the declaration filed when the tax is zero?
Yes. The annual return must be filed by March 31 even if the tax is zero. Failure to file on time is penalized, and the fine is not affected by the fact that the liability was zero.
Are contributions paid when the year ends with a loss?
Yes. Self-employed contributions are calculated on a minimum basis rather than on profit, so the annual cost of 178,800 lek remains even in a loss year.
Does an individual pay dividend tax?
No. The profit remaining after tax is his directly. The 8% tax on dividends exists only for corporations when profits are distributed to partners.
When the self-employed risks being reclassified as an employee
When 80% of the income comes from a single client, or 90% from fewer than three clients, the relationship is treated as employment and the obligations are calculated as if the person had been an employee.
Legal basis
- Rates 15% and 23% and the profit threshold, Law No. 29/2023 “On Income Tax,” Article 24.
- Zero rate on gross turnover up to 14,000,000 lek until December 31, 2029, Law No. 29/2023, Article 69.
- Annual declaration and March 31 deadline, Law No. 29/2023, Article 67.
- Payroll deadline, Law No. 29/2023, Article 65, paragraph 1.
- Reclassification of the relationship as employment, Law No. 29/2023, Article 12, and Directive No. 26/2023.
- Contributions of the self-employed, Government Decree No. 77 of January 28, 2015, as amended, Chapter III; Law No. 10383/2011, Articles 7 and 8.
