Income Tax

Profit limitations are subject to:

• Legal entities and partnerships registered for VAT.
• Legal entities, as well as other partnerships of persons established or organized under a foreign law and operating within the territory of the Republic of Albania;
• Any other person, regardless of their registration or legal recognition status or form, when they are subject to value added tax, except when this person is subject to simplified profit tax for small business.

Caution: Every person, regardless of their status or legal form of registration or recognition, when they become or are subject to profit tax, has the right to request de-registration at any time, but not to become a subject subject to the simplified tax on small business profits.

The obligation to pay profit tax
Resident taxpayers are subject to tax on profits realized from all sources:

• Brenda and
• outside the territory of the Republic of Albania.

Non-resident taxpayers are subject to tax on realized gains:

• from all income, sourced in the Republic of Albania

Exemption from profit tax
Excluded from profit tax:
Central and local government bodies, the Bank of Albania, humanitarian associations, international organizations, when provided for by special agreements, enterprises envisaged in international agreements ratified by the Parliament, foundations or non-banking financial institutions established or transferred by Decision of the Council of Ministers, film production houses subsidized by the National Cinematography Center, voluntary pension funds administered.

Caution: All the subjects mentioned above are obliged to submit the tax declaration and annual balance sheet to the tax authorities within the same deadlines as the subjects subject to profit tax.

Accommodation facilities “Four and five-star hotels/resorts, special status”, as defined in tourism legislation, which are holders of a registered and internationally recognized trademark “brand name”, are exempt from profit tax for a period of 10 years for those facilities that obtain special status by December 2024. The effects of the exemption begin at the moment the accommodation facility commences economic activity, but no later than 3 years from obtaining special status.

Taxable income
Taxable income results from the difference between total income realized during the tax period (calendar year) and recognized expenses.

Taxable profit for the tax period is determined based on the balance sheet and its annexes, which must be prepared in accordance with the law “On Accounting and Financial Statements.”.

Revenue
Gross income means all types of income earned during the tax period and includes, but is not limited to, income earned from the supply of goods and services, income from participations, interest income, and income from the use of movable and immovable property.

Expenditures
Deductible expenses
For expenses to be recognized (deductible), they must meet these conditions:

1. to be performed in the direct interest of the enterprise's economic activity;
2. to be performed effectively;
3. to be reflected through an accounting entry by decreasing net assets;
4. to be proven with the relevant legal justification documentation.

Unknown expenses (deductible)
For the purpose of determining taxable income, expenses that the income tax law has defined in an exhaustive list are not recognized. For more information, refer to Law No. 8438 “On Income Tax,” Article 21, which you can find below.

Tax Rates
The corporate income tax rate is 15%.

For legal persons who carry out activities for software production/development, the profit tax is 5%.

Tax payment
Advance payments on corporate income tax
Profit tax is paid quarterly or monthly in advance during the year, based on monthly installments.
Loans can also be paid on a monthly basis, in the following amounts:

General term

• for the months of January-March, of the subsequent tax period, the amount of profit tax for the tax period of the two previous years divided by 12;
• for the months April – December, of the subsequent tax period, the amount of income tax for the preceding tax period divided by 12.

Special cases
In the event the taxpayer commences activity during the tax period of the second prior year, the prepayments are:

• For the months of January–March of the following tax period, the amount of profit tax for the tax period of the two previous years divided by the number of months during which the taxpayer carried out tax activity.
• For the months of April - December of the following tax period, the profit tax amount for the preceding tax period divided by 12.

In the event that the taxpayer begins their activity during the previous tax period, the advance payments are:

• for the months of January - March, of the subsequent tax period, the amount of estimated profit tax for the prior period, divided by the number of months in the prior period during which business was conducted.
• For the months of April - December of the following tax period, the profit tax amount for the preceding tax period divided by 12.

In the case where a taxpayer begins to carry out an activity in the subsequent tax period, the prepayments are:

• the estimated profit tax for the following period, divided by the number of remaining months in the following tax period.

Exception

• Taxpayers who begin their activity in the following period and engage in productive activities will not be subject to advance payment of the profit tax obligation for a 6-month period or for the remaining period until the end of the following year, if this period is even less than 6 months.

Correction of advance installments
In cases where the taxpayer proves at any time during the tax period that the profit tax for the current tax period will be lower than the profit tax of the preceding or second preceding period, the tax authorities shall accept the reduction of advance payments.

If the taxpayer has reduced the advance payments determined by the tax authority, and the annual income tax liability resulting from the balance sheet exceeds the advance payment by more than 10%, they must pay interest on the difference between the actual annual liability and the amount prepaid during the year.

If the tax authorities assess that the income tax for the following tax period will exceed the income tax for the previous tax period by more than 10%, they may adjust the prepayments upwards, in accordance with their assessed income tax.

Declaration and final tax calculation
Upon closing the calendar year, prepare the annual taxable income statement in the form prescribed by the Minister of Finance's instruction, which you can find below.
The Profit Tax Declaration Form is submitted to the tax authorities by March 31st of the following year, along with the accounting balance sheet and its annexes.

These cases may arise:

If the declared and paid tax based on the annual declaration is greater than:

• The sum of the monthly installments of advance payments paid during the year and
• foreign tax paid, (which is credited) the taxpayer pays the difference, by March 31 of the following year.

If the tax declared and paid based on the annual declaration is less than:

• total of monthly advance payments paid during the year; and
• Foreign tax paid (which is credited) The tax administration transfers the overpaid amount to other tax liabilities not paid by the taxpayer.

If the taxpayer has no other outstanding tax liabilities, with their written consent, the remaining amount, if any:

• automatically reimbursed, within 30 calendar days from the date of declaration and payment by the taxpayer;
• is transferred towards the taxpayer's future tax liabilities.

Profit destination
Commercial companies, according to profit tax payment, within a period of 6 months from the closing date of the fiscal year, must approve in the partners' assembly or the company's competent decision-making body:

• the previous year's financial results and
• to allocate profit after tax,

defining

• the sum of the legal reserves
• the portion to be used for investment or capital increase and
• the portion to be distributed as dividend.

Commercial companies and natural persons must deposit with the tax administration, no later than July 31st of the calendar year, the decision of the responsible body/decision of the natural person, for the approval of the result and the destination of the after-tax profit.
This obligation remains even if the result for the fiscal year was a loss or zero.

Caution: For the late submission of this decision, a fine of 10,000 lek is applied for each month of delay.

Legal entities must declare and pay dividend tax payable to the tax administration no later than August 20th of the year the financial results are approved, regardless of whether the dividend has been distributed or not.