Tax planning is the process of organizing your tax obligations in such a way that your business pays as little tax as possible within the legal framework. In simple terms, it means using tax rules to your advantage—without breaking them—to reduce your obligations to the government. Tax planning is especially important for small and medium-sized businesses, but in general for every type of business. It helps you avoid unpleasant surprises at the end of the year, retain more profit for yourself, and avoid fines or penalties for missing legal deadlines.
Why is tax planning necessary? Businesses often focus on sales and operating expenses, but they forget the cost of taxes. A tax plan allows you to legally reduce income tax, optimize cash flow, and make smart decisions about your finances. This is especially important in Albania, where tax laws have recently changed (e.g., regarding dividend tax or personal income tax). With a solid plan, you can save thousands of euros each year and reinvest them in your business.
Next, we will explain five concrete decisions you must make BEFORE December 31, 2026 to optimize your tax burden. These steps are written in the simplest possible language, with numerical examples, so you can easily understand what you need to do. For each decision, we will also mention the legal basis or technical guidelines of Directorate General of Taxation (DPT) that relate to it, as well as the concrete effect on your taxes. Finally, we'll show you how you can consult with experts (such as the team AlProfit) for the practical implementation of these recommendations.
Read also: Should I register as an individual or as a company?
Distribution of profit as a dividend before the end of the year
Dividends are the primary way to extract profit from the company into your pockets as an owner. The dividend tax in Albania is 8% of the amount of profit. distributed. This means that if your company decides to distribute profits, 81% is withheld and paid to the state as withholding tax, and you as partners receive 92% of the net amount.
The distribution of profits must be made by an official decision of the partners and declared within the deadlines. legal. According to tax law, at the moment the distribution of profit is approved (usually after the closing of the annual financial statements), the company must withhold 81% of the dividend and pay it into the treasury. of the state. Also, it must be completed. Withholding Tax Declaration with the details of the beneficiaries and amounts.
Why is this decision important? Because as the owner you have two alternatives: to keep the profit within the company or to distribute it as a dividend. If you distribute it, you pay tax 8% now; if you don't distribute it, you don't pay dividend tax for the moment. This is a key element of tax planning: you can choose to defer payment of the tax until you actually need to access the funds for I go.
The new law even provides that if the profit isn't assigned to any destination within the deadline, the administration may treat it as if it were a distributed dividend and tax you. Anyway. So plan carefully: either declare the dividend and pay 8%, or document that the profit is being reinvested in the business (e.g., by transferring it to additional capital or reserves). Don't just leave it hanging, because you could face an unexpected tax.
Example 1
Suppose your business has a net profit of 100,000 lek this year. Here's how the scenario changes with and without dividend distributions:
No dividend distribution
The company does not pay any dividend tax on this amount. The entire amount of 100,000 lekë remains in your company's account (of course, after you've paid the corporate profit tax, if applicable). You can reinvest this money in expanding the business or keep it as a reserve for next year. In the case of small businesses (annual turnover ≤ 14 million lek), the profit tax is 0%, so the entire year's profit can be retained without income tax on company.
By distributing dividends
If you decide to distribute these 100,000 lek to yourself as the owner, the company withholds 81% tax at source. The state would pay 8,000 lek and you would receive 92,000 lek. net. This 8% is the only tax you pay on profit (if your company has been exempt from corporate income tax). On the other hand, for a large business (a taxpayer subject to corporate income tax 15%), the 15% corporate income tax is paid first, and then the 8% on the distributed profit.
For example, if the company has 1,000,000 lek profit before tax, it pays 150,000 lek in corporate tax (15% tax), leaving 850,000 lek in net profit. If the entire profit is distributed, an 81% tax on the 850,000 lekë (about 68,000 lekë) is also paid as dividend tax. Total taxes amount to ~218,000 lekë, while you as the owner receive net about 782,000 lekë. Note: the profit was taxed twice – once as corporate income tax and once as dividend.
Tip: If you don't have an immediate need to withdraw profits, you can save 8% in tax by deferring the dividend distribution. Take advantage of this opportunity for long-term planning – leave the profit in the business for investments, and distribute it when you need the funds. On the other hand, if you want to distribute profits, do it by the rules: approve the partner's decision, declare it, and pay the tax within the legal deadline to avoid late fines and interest.
Temporary increase in the administrator's salary
Many business owners in Albania pay themselves a minimum or low wage during the year to save on social contributions and payroll taxes. However, when the end of the year approaches, temporarily increasing your salary as an administrator (for example, by granting a bonus or annual incentive) can be a smart tax strategy. The administrator's salary is a deductible expense for the company (just like other salaries), thus reducing its taxable profit. of the company . This results in lower corporate income tax for the company. Of course, the additional salary will be subject to personal income tax (PIT) and contributions for you as an individual, but in many cases these may be lower than the tax the company would pay on the same amount.
How does this work? Albania applies a progressive scheme for taxing wage income. Currently (2026), monthly wages up to 50,000 lek are taxed at 0%, the amount above this level is taxed at 13% up to a ceiling, and for very high wages an additional rate also applies. rate 23% . Also, social security contributions are capped at a monthly salary of 176,416 lekë – above this level, no further contributions are paid. pension . This means that if you give a very high reward, the portion above ~176,000 lek. there were no It carries additional costs for social security (only personal tax and health insurance will be calculated without limit).
Example 2
Suppose your company has achieved a pre-tax profit of 1,000,000 lekë for 2026. The profit tax (15%) would be 150,000 lekë, leaving 850,000 lekë of after-tax profit in the company. Now, imagine that before year-end, you decide to award yourself a 200,000 lek (gross) bonus as a director for the work done during the year. How does this affect the company's tax position?
About the company
The additional wage expense (plus the employer's social security contributions) reduces taxable profit. Instead of being taxed on 1,000,000 lek, the company will now be taxed on about 800,000 lek. The profit tax falls from 150,000 lekë to ~120,000 lekë – so the company saves ~30,000 lekë in profit tax thanks to the bonus payment. This amount of 30,000 lek is practically transferred from the company to the individual (you), but we will see the net effect below.
For you (the administrator)
Personal withholdings will be calculated on the additional salary of 200,000 lekë. Since 200,000 lekë per month exceeds the tax threshold, part of the salary is taxed at 13% and the portion above a certain level at 23%.
The calculation of TAP, under the current scheme, would be approximately: (200,000 – 50,000) × 13% + (the portion above a higher threshold at 23%…) resulting in about 20,000 lek personal tax (TAP).
Also, social security contributions will be paid: 9.51% by you and 15.1% by the company on wages up to 176,416. money (the portion above this threshold does not pay into Social Security), as well as 1.71% + 1.71% health insurance on the entire amount.
In total, social contributions will be about 42,000 lek (employer + employee on the first 176,000 lek) and health contributions about 3,400 lek (1.71% + 1.71% of 200,000 lek). In total, out of a 200,000-lek bonus, about 65,400 lek go to taxes and social contributions, you receive ~134,600 lek net in your account, while the company reduces its tax by 30,000 lek.
Net result
Without the bonus, you would have 0 lek personally and the company would have 850,000 lek after tax.
By giving a bonus, you now have 134,600 lekë in your pocket as net salary, and the company has approximately 680,000 lekë in profit after corporate tax (800,000 lekë taxable profit – 120,000 lekë tax = 680,000). The total taxes paid (company + individual) with the bonus is about 120,000 + 65,400 = 185,400 lek, compared to 150,000 lek that would be paid if only the corporate tax were applied without the bonus.
So, in this specific scenario, it appears that a bit more tax has been paid overall, but remember that the goal was to pull money out of your business for personal use. The non-bonus alternative to extract 134,600 lek net would be the dividend distribution, where the company initially pays 150,000 in corporate tax, and then you would have to withdraw a gross dividend of ~146,000 lek (on which 81% tax ~11,700 lek) to receive the same ~134,300 lek net.
In that case, the total taxes would be about 161,700 lek (150,000 + 11,700).
Conclusion
Compared to the dividend, the salary option cost you slightly more in total taxes in this example (185,000 vs. 162,000), due to social contributions., but There are scenarios where the difference tilts in favor of salary – for example, if you haven't distributed any profit and would have paid 15% corporate tax anyway, you can “transfer” part of that tax to your salary at a 1% or 13% rate. In practice, the decision on the administrator's salary must be calculated on a case-by-case basis, but as a rule: take advantage of the lower tax thresholds (e.g., the tax-free basic salary up to 50,000 lek and the 13% bracket) for yourself or family members involved in the business. This ensures that a portion of the profit is treated as a deductible expense (salary) and is subject to a lower personal tax rate than the 15% corporate income tax.
Note 2026: The minimum wage will increase to 50,000 lek from January 2026, aligning it with the threshold of tax bracket 0%. Any wage above this level is subject to tax 13%.
Caution: The administrator's pay increase must have a real economic justification. Do not artificially inflate the salary (e.g., sky-high) just to reduce taxes, because you may draw the attention of the tax authorities. Also, keep in mind the cost of social contributions – salaries up to a certain level pay into social insurance, then the additional cost decreases thanks to of the ceiling. Consult with your accountant or tax advisor to determine the optimal bonus amount that maximizes your net profit without overburdening the company.
Purchasing expenses recognized as costs before year-end.
“Spend to save” – to some extent this is true when it comes to taxes. If your business needs equipment, inventory, or other operating expenses, make these purchases before December 31 instead of postponing them until next year. The reason is simple: legitimate business expenses are deducted from your income, reducing taxable profit. Less taxable profit means less profit tax for the year 2026.
According to tax legislation, any business expense that is real, necessary for economic activity, and documented with an invoice is deductible from taxes. receipts. This includes the purchase of goods for resale, raw materials, office supplies, fuel, maintenance, marketing services, training, business travel, etc.Note: Some expenses have limitations or special treatment, for example, if you purchase a long-term asset such as machinery or a computer, the cost is not fully deducted immediately, but through depreciation over time. years. Anyway, even starting depreciation this year is better than starting next year.
Example 3
Your business projects a profit of 800,000 lek for 2026. Your profit tax rate is 15%, which means 120,000 lek in tax payable. Now, suppose the company needs a new delivery van, or to purchase office supplies and equipment for next year. The total cost of these investments is, let's say, 300,000 lekë. If you make these purchases in December 2026 and the invoices are recorded in this year's accounting, your taxable profit drops to 500,000 lekë. Thus, the profit tax will be only 75,000 lekë. You have saved 45,000 lekë in taxes by making these expenses now, instead of postponing them until after January.
Of course, the primary reason for making these expenditures should be your business's genuine need, not merely tax avoidance. Don't spend money just to lower your taxes, because at the end of the day, it's better to pay 15% tax and keep 85% in your pocket than to spend an extra 100% needlessly. But if you've already planned certain investments or purchases for the start of 2026, see if you can accelerate them to the end of 2026. Besides lowering your tax bill, you'll enter the new year with equipment/goods ready for use and off to a good start.
Tip: Make sure every expense is documented with a tax invoice or other legal document. The tax administration requires documentation for every deduction. For businesses under fiscalization, be sure that purchase invoices are issued and entered into the fiscalization system within the deadlines. For example, if you buy something on December 30, ask the supplier to issue the invoice and have it taxed immediately. In this way, the expense will be recognized in 2026 and will reduce your tax for that year.
Recording outstanding invoices (don't leave any expense unrecorded!)
Often, in the rush of work, some invoices “get lost” along the way: supplier invoices that didn't arrive on time, invoices forgotten in emails, small out-of-pocket expenses not recorded, etc. The end of the year is the time to conduct a full inventory of your financial documentation and ensure that every invoice from 2026 has been recorded in the accounting. Any legitimate expense you've incurred but haven't yet recorded, if not entered by December 31, will not reduce your taxes when the financial statements are prepared.
Review and reconcile all monthly purchases. Compare your bank statements with your records; look for payments that have gone out of the account but for which there is no invoice in your books. Also check the cash drawer: if you've made cash expenses (such as fuel, postage, travel per diems), make sure you've documented them with a tax invoice or receipt. Contact suppliers about any missing invoices (they can often resend a copy or refiscalize it if it wasn't issued at all). Also, make sure you have issued all sales invoices for goods or services provided – if you've left any invoices unpaid by clients, issue them before year-end (otherwise you could run into trouble with VAT or revenue reporting).
Example 4
A company discovers during an audit that there is a rental invoice of 50,000 lekë (for December) that has not yet been entered into its books, possibly because the payment is made at the beginning of January but the expense relates to December. By recording this rent invoice in December, the company reduces its year-end profit by 50,000 lek. As a result, it saves 7,500 lek in corporate tax (assuming it's taxed at a 15% rate). A modest amount, but remember: many stones make a wall. If you find a few similar invoices (utility, phone, maintenance, office supplies, etc.), the total effect can be significant.
Don't forget: Even if you've overlooked a bill and catch the mistake in January, it's too late to record it as an expense for the previous year. After the year-end closing, you'll have to reflect it in the 2026 results, so it won't help you with your 2026 taxes. Therefore, take precautions in advance. Use December to “clean up” all the small errors in your documentation. This also makes the annual balance sheet more accurate and puts you in a better position in case you have audits or verifications from the tax authorities next year.
Transition from sole proprietor (self-employed business) to LLC.
Why does it matter?
The legal form of your business significantly affects how its profits are taxed. Many medium-sized businesses in Albania start as sole proprietorships (small businesses registered in an individual's name) because it's simpler to set up and manage at first.
However, as turnover and profits increase, the sole proprietorship structure can become more costly in terms of taxes compared to a limited liability company (LLC). The new Law No. 29/2023 “On Income Tax” introduced a major change: individuals who earn high profits are now taxed at progressive rates of up to 23% on net profit.Meanwhile, an LLC (or a corporation) pays a flat 15% tax on its profit and then, only if it distributes dividends, pays an 8% tax on the profit of distributed. This means that an LLC can choose not to distribute its profits and in that case pays no 81% tax – in practice, it can limit its total tax burden to 15%, regardless of how high the profit is, by keeping the profit within the company.
The new Law No. 29/2023 “On Income Tax” introduced a major change: individuals who earn high profits are now taxed at progressive rates of up to 23% on net profit. Meanwhile, a limited liability company (or a joint-stock company) pays a flat 15% tax on its profit and then, only if it distributes dividends, pays an 8% tax on the dividend income. distributed. This means that an LLC can choose not to distribute its profits and in that case pays no 81% tax – in practice, it can limit its total tax burden to 15%, regardless of how high the profit is, by keeping the profit within the company.
When it makes sense
When is it worth switching to an LLC? In general, if your business has surpassed the “small business” threshold (currently annual revenue > 14 million lek) and is generating substantial profits, you should seriously consider converting to an LLC. This is because above that threshold, as a natural person you'll pay 15% tax on up to 14 million lek profit and 23% on the amount above that. In practice, your total personal tax can approach around 20% or more of your profit (depending on the amount). Whereas as an LLC, you remain at 15% on the profit (if you don't distribute dividends immediately). Even if you distribute all the profit, you effectively pay ~21.81% in total (15% + 8% on the portion of remainder) – this is similar to the progressive scheme 15%/23%, but the main difference is flexibility: you can choose not to pay that 8% immediately if you want to reinvest the profit.
Example 5
Suppose a business with annual profit of 2,000,000 lek (from an activity with turnover above the small business threshold). The table below shows the approximate taxes that would be paid as a sole proprietor compared to an LLC in the same scenario:
| Scenario (Profit = 20,000,000 lek) | Natural person (self-employed) | Company (Ltd.) with profit sharing | Company (Ltd.) no profit distribution |
|---|---|---|---|
| Profit Tax | 15% up to 14 million = 2,100,000 lek; +23% over 6 million = 1,380,000 lek. . Total: 3,480,000 lek | 15% over 20 million = 3,000,000 lek | 15% over 20 million = 3,000,000 lek |
| Tax on dividends | Not applicable (the individual does not have a separate dividend) | 8% over (20 million − 3 million) = 1,360,000 lek | zero lek (Profit is not distributed; it is retained entirely within the company) |
| Total taxes (income + dividend) | 3,480,000 lek | 4,360,000 lek | 3,000,000 lek |
| Effective tax (% of profit) | 17.4% (progressive average) | 21.8% (if all profit is distributed) | 15% (only income tax, unearned income as dividends) |
| Net profit after taxes | 16,520,000 lek (all personally taxable) | 15,640,000 lek Net to the owner (after taxes, if distributed in full) | 17,000,000 lek within the company (available for investment or distribution in the future) |
As you can see, as an individual you pay 3.48 million lek in taxes and are left with ~16.52 million lek net.
In an LLC, the company would pay 3 million lekë in corporate income tax. If you decide to distribute all the profits, you would also pay 1.36 million lekë in dividend tax, receiving about 15.64 million lekë net as a partner.
This seems a bit less than what a natural person receives (16.52 million) in this case when All the profit is distributed..But the advantage of an LLC is in the last column: you're not required to distribute all the profits. You can choose, for example, to distribute only part of them (e.g., 50%) and keep the rest as capital for expanding the business.
In that case, dividend tax would apply only to the distributed portion. Or you could not distribute any profit that year at all – and simply pay 15% corporate income tax (3,000,000 lek).
The difference lies in flexibility and long-term planning: an individual has their top tax bracket “locked in” once they cross the threshold, whereas an LLC can plan profit distributions in years with lower tax rates or according to the owner's personal needs.
Advice
Besides the tax aspect, converting to an LLC also brings other benefits: limited liability (protecting personal assets from business debts), the ability to add investor partners in the future, and increased reputation (LLCslook more “formal,” etc.). Of course, managing an LLC requires a bit more bureaucracy (e.g., maintaining accounting according to standards, filing annual financial statements, etc.), but these are relatively small costs compared to the tax and legal benefits.
Tip: Analyze your profits and long-term plans. If your business is growing and approaching (or has exceeded) the small business threshold, talk to a tax expert about the procedure for converting to an LLC. In fact, this decision can be made before by December 31 so that 2026 finds you in religious form. Registering a new LLC or converting a sole proprietor into an LLC can be done within a few days at the QKB. In a previous post, we covered the details and comparisons between a sole proprietor and a company – but the bottom line is: the only major tax difference between the two forms is dividend taxation. Therefore, consider this step an investment in tax savings for the years ahead.
Conclusion
As a business owner, you don't have to be an economist to make smart tax decisions. The five steps above – dividend planning, optimizing your salary, taking advantage of deductible expenses, getting your paperwork in order, and choosing the right legal structure – can make the difference between an average financial year and an outstanding one where you've saved thousands of euros in taxes. Most importantly, these measures help you sleep easy, knowing that you're in good standing with the government and aren't paying more than you legally owe.
Don't forget that tax planning is an ongoing process. It needs to be reviewed every year, because laws can change (as they did for individuals), business circumstances evolve, and new opportunities for optimization may arise. If you feel uncertain about any step, don't hesitate to seek professional help. A consultation with our experts at AlProfit can ensure you're doing things correctly and taking advantage of every tax-saving opportunity. Contact AlProfit today to discuss your specific situation – we will help you create a personalized tax plan for 2026, so you can focus on growing your business while we ensure you pay only what you owe.
Don't leave it until the last minute: the earlier you act, the greater your savings will be!
If you want to learn more about the topics discussed, take a look at our other articles such as “Dividend Tax 2026: Distribution of Profits in Albania” (detailed guide on procedures and dividend examples), or article “Should I register as an individual or as a company?” (analysis of the tax and practical advantages of each form). These resources will give you an even more comprehensive understanding of tax planning in Albania and how to implement it successfully.
Frequently asked questions
Is tax planning worthwhile even for small businesses with revenues under 14 million lek?
Yes. Even for businesses with a 0% profit tax, tax planning directly affects VAT obligations, contributions, and dividend tax. Steps 1, 3, and 4 in this guide apply to every business.
When is the last moment to act?
Ideally, September–October. December is too late for certain decisions (such as converting to an LLC or increasing salary) because administrative time is required for implementation.
Can I do my own tax planning without an accountant?
You can understand the logic behind any decision, but implementation requires concrete figures from your business. A brief consultation with an expert usually pays for itself many times over.