Introduction: Taxable Income
The following income is considered taxable income of a personal income taxpayer:
a) employment income;
b) business income;
c) investment income.
Income is taxable whether paid in cash or in kind. Income in kind shall be valued at market value, insofar as it is not otherwise determined in this law or in subordinate legislation issued pursuant to it. The arm's length principle, as defined in Article 44 of this law, shall apply to transactions between related parties.
Business income
Business income includes, but is not limited to, the following income, unless otherwise defined as employment income under Nenit 12 of this law:
- the income of a natural person from any business activity of any kind, including any activity of self-employed individuals or traders;
- interest income, dividends, and fees, which are effectively related to the business;
- revenue from the sale of securities, which are effectively related to the business;
- income from leasing out a business, regardless of whether the lease includes all or part of the tangible or intangible assets;
- income from the sale of any type of asset and business liability, including the sale of the entire business;
- The capital gain realized from the transfer of business assets and liabilities in a business reorganization, as defined in Article 46 of this law;
- gifts, grants, or subsidies received by a person in connection with their business;
- income realized by the natural person for any type of automatic technical or digital service fee;
- capital gains from the revaluation of business assets when these assets are contributed in kind to the capital of a company, whether at its incorporation or during a capital increase;
- income from the extraction or profit of virtual assets;
- income from transactions with virtual instruments, which are effectively related to business.
Annual taxable business income is determined as the total amount of business income, reduced by deductible expenses incurred for the purpose of earning, maintaining, and securing income. Annual taxable business income is calculated in accordance with Chapter IV of this law.
Special regime for sole proprietors and self-employed individuals
Individuals, sole traders, or self-employed individuals with an annual turnover of up to 10,000,000 ALL, for the purpose of recognizing deductible expenses, are entitled to choose one of the following methods:
a) the adoption of a special regime, through which presumptive expenses are deducted apriori according to the amounts specified in this letter and without being subject to accounting record checks related to them by the tax administration;
i. 60% of income for production activities;
ii. 90% of revenue for wholesale trading activities;
iii. 70% të të ardhurave për veprimtaritë e tregtimit me pakicë të mallrave dhe transportit individual; iv. 60% të të ardhurave për veprimtaritë bare, restorante, disko etj., të kësaj natyre;
v. 50% of revenues for service activities, artisanal and craft activities;
vi. 30% of income for self-employed individuals; or
b) calculation of deductible expenses based on respective documentation and invoices for each expense.
2. Natural persons, sole proprietors, or self-employed individuals, according to point 1 of this article, shall choose and declare to the tax administration the method they will use. Switching from one method to another cannot be done more frequently than once every three years.
Determining the type of activities carried out by natural persons, sole traders, or self-employed individuals according to point 1 of this article shall be made by a decision of the Council of Ministers, in accordance with current legislation regulating such activities carried out by natural persons, sole traders, or self-employed individuals.
Individuals, sole proprietors, or self-employed individuals who have applied the special regime are not allowed to claim any deduction or other compensation except for the personal allowance according to Baby 22 of this law.
Source: General Directorate of Taxes