When an individual has an interest in a foreign controlled entity whose profits are not subject to tax or are exempt from tax in the Republic of Albania, any undistributed profit arising from passive income must be included in the individual's taxable income from the investment.
Any foreign entity is considered a controlled foreign entity when the following conditions are met:
a) the natural person, or together with related persons, holds a direct or indirect participation of more than 50 percent of the voting rights, or directly or indirectly owns more than 50 percent of the capital, or enjoys the right to receive more than 50 percent of the profits of that entity;
and the
b) the actual tax paid by the entity on its profit is less than 50 percent of the tax that would have been charged to the entity had it been a resident entity in the Republic of Albania.
The following profits are considered to arise from passive income:
a) interests or any income realized from financial assets;
b) royalties or any other income derived from intellectual property;
c) dividends and income from the sale of securities;
c) income from finance lease.
If passive income does not exceed 30 percent of the total profit of the foreign controlled entity, the provisions of this article shall not apply.
When the entity distributes profits to a natural person and those distributed profits are included in the natural person's taxable income, the amounts of income previously included in the tax base under this article are deducted from the tax base for the purpose of calculating the amount of tax due on the distributed profits.
When the controlled foreign entity has paid tax in the state of residence or domicile on the income included in the individual's taxable base under this article, that tax may be credited against the overall tax liability. The tax credit is calculated in accordance with Article 25 of this law.
The rules for the implementation of this article are determined in the relevant instruction approved by the minister responsible for finance.
Source: General Directorate of Taxes.