Tax on profit for a legal entity. When to pay 0%, 5%, and 15%.

The tax on the profit of a legal entity is often stated as a single rate, 15%, and that's precisely where the mistake begins. In reality, an Albanian company can pay 0%, 5% or 15% on the profit from the same activity, and what determines it is not the size of the profit but the annual gross turnover and the type of activity.

Two common mistakes in March

March brings two mistakes that both cost money. A company with turnover below the threshold thinks there's nothing left to do and fails to file its annual return. Another one reads the threshold as a profit threshold and miscalculates prepayments. Both incur penalties, because the failure-to-file penalty does not depend on the fact that the tax is zero.

This text provides the complete framework for corporate income tax, including the three rates and the conditions for each, how to convert reported profit into taxable profit, an example calculated with rounded figures, the year's deadlines, and the point at which profit leaves the company. It concludes with a comparison to a sole proprietor, because the real question for many entrepreneurs is which form costs the least.

Read also: How much tax does the business pay on its profit?, for the full table of applicable rates and thresholds.

Who is considered a legal entity for the purposes of income tax?

Tax on the profit of a legal entity is levied on the company, not the owner. A legal entity, or entity, is a commercial company registered as a separate subject, distinct from the person who owns it. In Albanian practice, this primarily refers to limited liability companies (LLCs) and joint-stock companies (JSCs).

The distinction from a sole proprietor is not formal. The company has its own assets, reports its own income, and is taxed on that income. Its money is not the partner's money until the shareholders decide on a distribution. A sole proprietor, by contrast, does not have this separation, so the method of taxation is different.

Likewise, they are referred to as entities and are taxed under the same rules as the permanent establishment of a foreign company in Albania, as well as other entities that carry out economic activities and are required to maintain accounting records. Nonprofit associations and organizations have a special regime and are not covered here.

Three income tax rates for legal entities

The path from activity to rate goes through two questions, and neither has to do with the size of the profit. The first measures annual gross turnover against the threshold of 14,000,000 lek. The second checks whether the activity falls within the three categories with a reduced rate.

Here is this decision, written as a chart, to have in front of you when you close out the year.

Read also: Who doesn't pay tax until 2029, for the full terms of the zero rate.

Zero rate until 2029, what does it really mean?

The zero rate reduces a legal entity's profit tax to zero but does not eliminate any other obligations. The company remains a full taxpayer, keeps accounting records, issues invoices, reports employees, and submits its financial statements to the National Business Center by July 31. Only the amount paid on profit changes.

The threshold is measured on gross revenue, not on profit.

This is the point where businesses most often make a mistake. A company with revenues of 18,000,000 lek and a profit of 900,000 lek is above the threshold and pays 15% on taxable profit, even though the profit is small. A company with revenue of 11,000,000 lek and profit of 4,000,000 lek is below the threshold and pays zero, even though its profit is much larger.

Therefore, the real check is done at year-end, during the year rather than in March. When year-end approaches the threshold, December decisions—such as an invoice issued on December 29 or January 3—change the rate for the entire year.

Business split to stay under the threshold

The question arises on its own. If the threshold is 14,000,000 lekë, can two companies be opened, each with 10,000,000 lekë? The short answer is that form alone is not enough; substance is required. Two companies that share the same premises, the same staff, and the same client are treated as a single activity.

Read also: Business split to remain under 14,000,000 lek, with the conditions that make it sustainable and those that undermine it.

From net income to taxable income

Corporate income tax is not applied to the profit shown by the accounting. It is applied to taxable profit, which is determined by adding to the accounting profit expenses that the law does not recognize and by subtracting exempt revenues. Without this step, the calculation always results in an amount lower than the actual liability.

Expenses most often disallowed in small companies are those without supporting documentation, cash payments exceeding the legal limit, personal expenses treated as business expenses, and the portion of depreciation above the permitted rate. Each of these increases the taxable base by its own amount.

A year's loss is not lost. It is carried forward to the five subsequent tax periods and deducted from future years' profits, starting with the oldest loss. The right lapses when the company's ownership changes by more than 50%. Details are in the Page of carried-forward losses and to deductible expenses page.

Calculated example. Company above the threshold.

A limited liability company with a gross revenue of 20,000,000 lek closes the year with an accounting profit of 2,000,000 lek. During the review, 300,000 lek of expenses that the law does not recognize are identified.

1. Base. A 2,000,000 lek accounting profit is increased by 300,000 lek, so the taxable profit is 2,300,000 lek.
2. Tax. On over 2,300,000 lek, 15% is calculated, i.e., 345,000 lek.
3. Net profit. From the accounting profit of 2,000,000 lekë, 345,000 lekë in taxes are deducted, leaving 1,655,000 lekë.
4. Dividend. If the assembly decides to distribute the entire amount, 81% tax is withheld on the amount over 1,655,000 lek, i.e., 132,400 lek, and the partner receives 1,522,600 lek.

So out of a 2,000,000-lek accounting profit, the state takes 477,400 leks and the partner takes 1,522,600 leks. This is the figure that needs to appear up front when planning the distribution, not just the 15.1% rate.

Calculated example. Company below the threshold.

A limited liability company with a gross turnover of 12,000,000 lek closes the year with a profit of 1,500,000 lek. The profit tax is zero because the turnover does not exceed the threshold, but the annual return is filed anyway.

If the profit is distributed in full, an 81% tax (TP3T), or 120,000 lek, is withheld, and the partner receives 1,380,000 lek. This is why the zero rate is not interpreted as a complete absence of tax.

Deadlines of the year for a company

The corporate profit tax is not paid in a single lump sum at year-end. It is prepaid during the year in quarterly installments on March 31, June 30, September 30, and December 31, and the law also allows monthly payments by the 15th. The basis for the January, February, and March installments is the tax from two years ago divided by 12, while for the other nine months the tax from the previous year is divided by 12.

The annual profit tax return is filed by March 31 of the following year. It is mandatory even when the tax is zero and even when the year ends with a loss. Also by March 31, the annual report of controlled transactions is filed for companies that exceed its threshold.

By July 31, the financial statements and the assembly resolution must be submitted to the National Business Center. The same deadline applies to the filing of the resolution on the allocation of profit with the tax authorities.

Read also: How are tax prepayments calculated?, with the formula and the cases when the installment is reviewed.

When profit leaves the company. Dividend 8%

The company's profit is not automatically the partner's money. Until the board makes a distribution decision, the profit remains the company's. Once that decision is made, a dividend arises, which is taxed at 8% and withheld at source by the company itself before the net payment is passed on to the partner.

There are two deadlines, and they are easily confused. When the dividend is paid, the tax is due by the 20th of the month following the payment month. When the distribution decision is made but payment is not made, the tax is still due at the end of the third month after the month of the decision.

A special case is the partner company. If it owns at least 10% of participation and has held it for at least 24 months, the participation exemption applies and no withholding is imposed. This is the provision that allows parent-and-subsidiary company structures to avoid paying 8% at each tier.

Read also: How is the profit distributed and how much tax is levied on the dividend?, with the ready-made format of the assembly resolution.

What changes if the business is a sole proprietorship?

The profit tax for legal entities and for individuals starts the same way. The 14,000,000 lek threshold and the zero rate through December 31, 2029 apply to both forms, since they are calculated on gross turnover. The difference begins at the threshold.

The company pays 15% on all taxable profit, no matter how large. A self-employed individual pays 15% on up to 14,000,000 lek in taxable profit and 23% only on the excess. So for large profits, the company has the lower rate.

But the calculation doesn't end there. In a partnership, an 81% tax dividend is added when the money passes to the partner, whereas for a sole proprietor the profit is his from the start and there is no second layer of taxation. Therefore, a fair comparison is made on the amount that actually reaches his pocket, not on the rate written in the law.

Read also: Income tax scheme for individuals and the Should I register as an individual or as a company?.

Frequently asked questions

What is the corporate income tax rate in 2026?

The tax on profit for legal entities depends on turnover. For annual gross turnover up to 14,000,000 lekë, the rate is 0.1% until December 31, 2029. Above that threshold the rate is 15%, except for certified agritourism, agricultural cooperation societies, and the automotive industry, which pay 5% until the same date.

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 and even if the year ends with a loss. Failure to file on time is subject to a penalty of 10,000 lek for VAT or corporate income tax filers.

The threshold of 14,000,000 lek is measured on profit or on revenue.

On annual gross revenue. Profit is not included in this calculation. A company with small profit but revenue above the threshold pays 15%, while a company with large profit and revenue below the threshold pays zero.

If the company pays 0% income tax, does it pay dividends?

Yes. The zero rate covers the company's profit, while 81% is applied to the transfer of funds to the partner. Both are different taxes on different events.

What happens when you lose a year?

It is carried forward over the next five tax periods and deducted from future earnings, beginning with the oldest loss. The carryforward right expires when ownership of the company changes by more than 50%.

Is a foreign company's permanent establishment taxed the same way?

Yes, the permanent establishment profit rate is 15%. When it arises and how it is measured depends on the type of activity; for example, a construction site becomes a permanent establishment after six months.

Legal basis

• Profit tax rates and thresholds, Law No. 29/2023 “On Income Tax,” Articles 24, 40 to 43.
• A zero rate on gross income up to 14,000,000 lek and reduced rates of 51 TP3T, Law No. 29/2023, Article 69 and transitional provisions.
• Carrying forward of losses, Law No. 29/2023, Article 54.
• Advance payment installments and annual declaration, Law No. 29/2023, Articles 61 and 63.
• Tax on dividends and payment deadlines, Law No. 29/2023, Articles 56, 58, and 59.
• Submission of financial statements, Law No. 25/2018 and Law No. 9723/2007.
• Penalty for failure to declare within the deadline, Law No. 9920/2008, Article 113.