1. A partner's loan is permitted only by written contract and with the prior authorization of the other partners, Article 13 of Law No. 9901/2008.
2. When the same person is both administrator and sole partner, the loan agreement with the company is expressly prohibited, Article 13, paragraph 7.
3. Withdrawals without documentation are taxed as dividends, with 81% tax at source, a 50% penalty for non-withheld tax, and interest at 7.8% per year.
4. The loan interest must be at the market rate, because the partner and the company are related parties under Law No. 29/2023.
5. Law No. 87/2026 requires that loans and advances to directors be shown in detail in the notes to the financial statements.
The partner loan is the most common and least documented transaction in Albanian small businesses. The Civil Code It recognizes the loan agreement in Articles 1050 to 1055, and no provision prohibits the company from granting loans in principle. However, Law No. 9901/2008 It imposes an absolute ban in the most common scenario in practice: the sole partner who is also the administrator. Meanwhile Law No. 29/2023 on Income Tax It defines "dividend" very broadly. Therefore, any undocumented withdrawal may be taxed as a profit distribution.
This article explains when lending to a partner is allowed and when it is expressly prohibited. It then shows what the contract must include and what happens when the regulator discovers the violation. Next comes the remedy for a prior state of withdrawals without the proper documentation. Finally, you'll find a ready-made contract template and the most frequently asked questions.
Read also: How is the profit distributed and how much tax is levied on the dividend?
Is a partner's loan permitted under the law?
In principle, yes, with three clear conditions. The loan agreement is governed by the Civil Code, articles 1050 through 1055, and the parties are free to determine the amount, the term, and the interest. The company is a legal entity in its own right., Therefore, her money is not the partner's money. When the partner takes money from the account, a relationship arises between him and the company that must be labeled. It's either a loan, a dividend, or a salary. There is no fourth name.
The three conditions that make a loan valid
The first condition comes from Article 13 of Law No. 9901/2008. The contract between the company and the administrator or persons related to them requires disclosure of the terms and prior authorization. In a limited liability company, authorization is given by all the other partners. The transaction is also disclosed in the financial statements, along with the nature of the interest involved. Without this authorization, the transaction risks being declared void.
The second condition is solvency. Article 77 of the same law allows the distribution of profit only under two conditions. Assets must cover liabilities, and the company must have sufficient liquidity for the next 12 months. The same care applies to borrowing. A loan that depletes the treasury conflicts with the duty of loyalty under Article 14. The company must remain able to pay its suppliers and wages. Furthermore, Article 16 imposes personal liability to third parties. It applies to the partner or administrator who treats the company's assets as if they were his personal assets.
The third condition relates to the nature of the activity. Granting loans as a regular activity is a financial activity licensed by the Bank of Albania under Law No. 9662/2006 for banks. A separate loan to a partner does not make you a financial institution. However, repeated lending to third parties, outside the scope of your business activities, may be viewed differently.
Read also: Tax on dividends: how profit is distributed in small and medium-sized businesses
Ban on the sole managing partner
Here is the provision that most people do not recognize. Article 13, paragraph 7, of Law No. 9901/2008 It is categorical. A person who is both a director and the sole partner or shareholder may not enter into loan or guarantee agreements with the company. The prohibition does not depend on the amount, the interest rate, or the purpose.
The practical consequence is significant. This is precisely the most common structure of a small Albanian business: a sole partner running his company alone. For this structure, the loan route is legally closed. Money from the company is taken only as regular dividends or as salary. The text of paragraph 7 makes no distinction regarding management. Therefore, the same restriction also applies to the reverse case, when the sole managing partner would lend to his own company. Before financing such a company, seek prior advice. The safe solution lies in increasing capital or dividing roles, not in a contract that the law prohibits.
When withdrawals from the account become hidden dividends
The term "hidden dividend" is not written anywhere in the law, but the mechanism is clear. Article 3, paragraph 19, subparagraph c, of Law No. 29/2023 defines dividend as income from any type of profit distribution by any kind of entity, regardless of how it is distributed. Furthermore, Article 10 of the same law also taxes income when received in kind. The same article requires that transactions between related parties comply with the arm's-length principle, as defined in Article 44. On this basis, tax audit It reclassifies the partner's undocumented withdrawals as profit distributions.
In practice, three situations are clearly distinguished.
First case, withdrawal without any documents
The partner withdraws money during the year for personal needs. There is no contract, no resolution, no repayment plan. On the balance sheet, the amount appears as the company's claim against the partner and grows each year. This is the classic hidden dividend scenario and the greatest risk in an audit. The older and larger the amount, the stronger the audit argument that no return was ever intended.
The second case: there is a contract, but with no interest and no return.
The contract exists on paper, but the interest is zero and no installment has ever been returned. Here, the control has two paths. You can calculate the interest at the market rate as the company's missing revenue, because the partner and the company are related parties and Article 44 requires arm's-length conditions. Alternatively, when returns have been missing for years, it can treat the entire amount as a profit distribution. A dead contract in a drawer offers no protection.
The third case: a regular loan under contract, with interest and repayment.
The contract is in writing, pre-authorized by the other partners, carries market-rate interest, and the installments actually pass through the bank. There is no reason to be concerned about this case. The company records interest income, the partner makes payments according to the schedule, and the transaction closes like any ordinary debt relationship.
Read also: Rental income and investments on the individual tax return
What happens when the inspection finds it?
The chain of consequences is written in Law No. 9920/2008 for tax procedures and is calculated on each outstanding year. First, the audit issues the tax assessment. The company is required to pay tax 8%. that was to be withheld at source at the time of withdrawal, pursuant to Article 59 of Law No. 29/2023.
Secondly, there is the penalty for the withholding agent under Article 117. When no tax has been withheld at all, the penalty is 50% of the unwithheld tax. When tax has been withheld but not declared and paid, the penalty is 100%. Third, interest accrues on the unpaid tax, currently 7.81% per annum under Article 76. It is calculated as 120% of the interbank rate and is reviewed quarterly. When the audit deems the case to be intentional concealment, Article 116 on evasion applies, with a fine of 100% of the concealed difference. The only mitigating limit is Article 111, paragraph 5: fines for the same obligation do not exceed 100% of the obligation itself. Full figures by article are available on our page. fines and late fees.
Appeal and coercive measures
The audit assessment is not the end of the road. It is appealed according to the steps and deadlines you'll find on the page. the procedure for review and appeal. But if the obligation remains unpaid and unappealed, the administration moves to enforcement measures. We explain the blocking of bank accounts and the security lien on assets on the page of enforcement of obligations by force.
Read also: Is your business ready for a tax audit?
What should the loan agreement include?
The written form is the minimum requirement. Notarization is not mandatory, but it gives the contract a certain date and evidentiary weight in arbitration or in court. The content must cover at least these elements.
The parties and their capacity, the company as lender and the partner as borrower. The amount and currency. The method of disbursement, always by bank transfer, because Cash payments among taxpayers are only allowed up to 100,000 lek. after the 2026 fiscal package. The repayment term and installment schedule. The annual interest rate and its market reference, for example the rate a bank would apply for a similar loan. Guarantees, if the amount requires them. And the prior authorization of the other partners under Article 13 of Law No. 9901/2008, which is kept as a separate document or reflected in the contract itself.
A simple template, customizable as needed, looks like this.
Loan Agreement
Today, on [date], in [city], between the company [company name] LLC, with NIPT [number], represented by its administrator [name], in its capacity as lender, and Mr./Ms. [name of partner], partner of the company holding [percentage]% of the shares, in the capacity of borrower, is entered into this contract.
1. The lender advances to the borrower the amount of [amount] lekë, which is disbursed by bank transfer to the account [IBAN] within [term] days from signing.
2. The loan is granted at an annual interest rate [rate]%, calculated on the unpaid balance. The interest charged constitutes the lender's income.
3. The borrower repays the loan within the full term, in [monthly/quarterly] installments according to the attached schedule, by bank transfer.
4. The granting of this loan has been previously authorized by the other partners by decision no. [number], dated [date], in accordance with Article 13 of Law No. 9901/2008.
5. For any dispute, the parties will resort to [the method of resolution].
Lender [signature] Borrower [signature]
Interest and taxes, in both directions
The loan between the partner and the company runs in two directions, and the taxes differ depending on the direction. The table below sets them side by side. Note: for the sole managing partner, both directions are prohibited by Article 13, paragraph 7.
| The issue | The company lends money to the partner. | The partner lends money to the company. |
| Interest | At the market level, as related parties, Article 44 of Law No. 29/2023 | At the market level, the same principle. |
| Tax on interest | Society's income is taxed at the profit rate. | The interest received by the individual partner is taxed. 15% at the source, articles 58 and 59 |
| Discountability | No interest expense is incurred. | Interest expense is deductible up to 30% of EBITDA, Article 30. |
| Documents | Contract, prior authorization, bank statement | Contract, bank statement, withholding tax declaration |
The second approach, where a partner finances their own company, is the most practical refinancing alternative. It works when the company has more than one partner or a dedicated administrator. Compared to equity expansion, the loan is easily repaid when the business catches its breath, without any procedure at the QKB. Just be mindful of the interest, which remains within the limit. 30% of EBITDA and is taxed at 15% at source when paid to the partner.
Read also: When profit isn't enough, liquidity and hidden cash in the business
Calculated example
The partner in a two-partner LLC withdrew 2,000,000 lek during two years for personal needs, without a contract and with no repayment. The 2026 tax audit reclassifies the withdrawals as dividends. Withholding tax is 8%, so 160,000 lek. The penalty for the agent who failed to withhold is 5% of the unwithheld amount, another 80,000 lek, under Article 117. Interest on the tax is 7.81% per year, approximately 12,480 lekë for each year of delay, which over two years amounts to about 24,960 lekë. The total bill reaches around 264,960 lekë, not including the time and stress of the self-assessment.
The same amount, distributed as a regular dividend by board resolution, would have incurred the same 160,000 lek in tax and not a single lek in fines or interest. If it had been granted as a regular loan bearing interest at 6%, the company would have recorded 120,000 lek in interest income per year. That income is taxed together with the profit. The partner would not have paid any personal tax, because he repays the loan, he doesn't earn it.
How to fix an old account and refinancing alternatives
If your balance sheet has carried a sum withdrawn by the partner for years, you have four ways to clear it. The choice depends on your real objective: whether you'll return the money or keep it.
Four ways to clean up the balance sheet
The first route is to formalize it as a loan. Sign the contract, obtain the other partners' authorization, set a market interest rate and a repayment schedule that banks will actually honor. This route only makes sense if the repayment will truly occur. It remains closed to the sole managing partner, because it is prohibited by Article 13, paragraph 7.
The second route is closure by dividend. The assembly approves the distribution of accumulated profit and the company withholds 81% tax at source. The partner's liability is then settled with the net dividend due to them, with clear documentation of the offset. The full procedure for the decision and declaration can be found on our website. Profit distribution and dividend. This is the cleanest route when the money can't be returned. For the sole managing partner, it's also the only one available, along with the salary.
Read also: How to submit financial statements and the assembly's decision to the QKB
The third option is a salary or compensation for the partner's actual work in the company. It's fair when the partner works in the business every day, but as an arrangement it turns out to be more expensive, because social security contributions are paid on the salary and progressive tax at rates of 13% and 23%.
The fourth path is the reduction of capital when the capital is actually greater than the business's needs. This requires a procedure at the QKB and attention to a detail of Law No. 29/2023. According to Article 3, paragraph 19, subparagraph dh, the amount obtained from the reduction of capital is taxed as a dividend. This applies to the extent that the capital is attributable to previously capitalized retained earnings.
2026 innovation: the loan is declared in the statements.
Whichever path is chosen, keep in mind a novelty of 2026. The law No. 87/2026, which changed the law No. 25/2018 on accounting, It requires all business entities to include a new explanatory note in their financial statements. This note shows the amounts of advances and loans granted to members of governing bodies, along with interest rates, key terms, repayments, and write-offs. In other words, the loan to the managing partner is now disclosed in detail and is visible to every reader of the financial statements, from the bank to the auditor. Silence is no longer an option.
Read also: The 10 most common tax return mistakes and how to avoid them
How was this practice established in Albania?
The blurred line between the owner's pocket and the business's cash register has a long history here. In the early years of the market economy, most businesses were born as family enterprises, where the company's accounts and the owner's wallet were practically one and the same. Formalization came in stages, and each stage narrowed the scope for unrecorded withdrawals.
| The moment | What changed? |
| 1994 | The Civil Code recognizes the loan contract, Articles 1050 to 1055, the civil basis that remains in force today. |
| 2008 | Law No. 9901 prohibits loan agreements with the sole managing partner and imposes personal liability on anyone who treats the company's assets as their own. |
| 2021 | Fiscalization makes money movements visible to the administration in real time. |
| 2024 | Law No. 29/2023 comes into effect with a broad definition of dividend, covering any form of profit distribution. |
| 2026 | The tax package lowers the cash threshold for taxpayers to 100,000 lekë, and Law No. 87/2026 requires the disclosure of loans to directors in the explanatory notes. |
The approach is the same at every link. The tax administration is seeing more and more and demanding ever more documentation. Its notifications and sectoral campaigns are regularly published in the official DPT page and it's worth following before any decision about the company's money.
What about a natural person registered with the QKB?
This rule applies only to commercial companies. Natural person trader It's different. He does not pay dividend tax on the money he withdraws from his own business, regardless of his income level and tax bracket. The reason is simple. A dividend, as defined in Article 3(19) of Law No. 29/2023, arises only from the distribution of an entity's profit. In the case of a sole proprietorship, the business and the owner are the same person, so there is no distribution. The profit is taxed once as business income, and the after-tax money is his, with no further action.
The medal has another side. A natural person is liable with all of their personal assets for business obligations, without any limit. The full distinction between the two forms, along with the regimes and norms, can be found on our website. self-employed persons and natural persons.
Frequently asked questions
Is the partner's loan taxed if it's repaid within the year?
No, when it's a genuine loan. With a contract, authorization, market interest, and actual return through the bank, there is no tax on the principal at any term. The problem arises when documentation is missing, not from the duration itself.
I am the sole partner and administrator; can I take a loan from my company?
No. Article 13, paragraph 7, of Law No. 9901/2008 It explicitly prohibits any loan or guarantee agreement between the company and the person who is both an administrator and the sole shareholder. Your only lawful avenues are regular dividends and salary.
I am an individual, not an LLC. Does the hidden dividend affect me?
No. As a natural person you don't have a separate entity from yourself, so your withdrawals aren't profit distributions and aren't taxed as dividends. Your profit is taxed once as business income, and that's it. You only need to be careful if you switch to an LLC, because from that day on the company's account is no longer your own.
Can society lend money without interest?
An interest-free contract is valid under civil law but risky from a tax perspective. The partner and the company are related parties, so the tax authority may calculate interest at the market rate as the company's foregone income. Set a reasonable interest rate and document how you determined it.
How much money can the partner withdraw in cash from the account?
Withdrawing cash for one's own use has no basis without a title, whether a loan, dividend, or salary. For payments between taxpayers themselves. The threshold after the 2026 fiscal package is 100,000 lekë.. For a loan, disbursement by bank transfer is the only standard that keeps you in control.
What happens to old contract-free withdrawals?
They are settled by one of the four routes in the article: formalization as a loan, settlement with dividends, wages, or a capital reduction. The sooner they are settled, the smaller the late fee and the lower the risk of fines. An inspection that uncovers the situation first leaves you with no choice.
Does the loan agreement need to be notarized?
It is not a legal requirement. However, notarization provides a definite date and stronger evidentiary value. For large sums or long-term commitments, we always recommend it.
How does the controller find a hidden dividend?
From the balance sheet. The amount withdrawn by the partner remains as a receivable that never moves toward repayment and grows year after year. Comparing it with retained earnings and bank transactions completes the picture within a few hours of review.