Scope of application
Profit limitations are subject to:
- Legal entities and partnerships with income above 8,000,000 ALL per year
- 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;
- Every other person, regardless of their legal status or form of registration or recognition, except when this person is subject to simplified profit tax for small businesses.
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 derived from all sources within and outside the territory of the Republic of Albania. Non-resident taxpayers are subject to tax on profits derived from all income sourced in the Republic of Albania.
Excluded from profit tax are: 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 Parliament, foundations or non-banking financial institutions established or transferred by Decision of the Council of Ministers, film houses of cinematographic production, subsidized by the National Cinematography Center, the administered voluntary pension fund.
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 structures “Four and five-star hotels/resorts, special status”, as defined in the tourism legislation, which hold a registered and internationally recognized trademark “brand name”, are exempt from profit tax for a period of 10 years for those structures that gain special status by December 2024. The effects of the exemption begin at the start of the accommodation structure's economic activity, but no later than 3 years from obtaining special status.
Taxable income
Taxable profit results from the difference between gross income earned during the tax period (calendar year) and recognized expenses.
Taxable income for the tax period is determined based on the balance sheet and its annexes, which must be prepared in accordance with the law For 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:
- to be performed in the direct interest of the enterprise's economic activity;
- to be performed effectively;
- to be reflected through an accounting entry by decreasing net assets;
- 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 specified in an exhaustive list are not recognized. For more information, refer to the Law No. 8438 “On Income Tax”, page 21, which you can find below.
Tax Rates
The profit tax rate is:
0.1% for taxpayers with annual income up to 14,000,000 lek.
15% for taxpayers with annual income over 14,000,000 lek.
The rate of the profit tax is 5 % per:
- For legal entities engaged in software production/development
- For legal entities that develop economic activities according to Law no. 38/2012, “On agricultural cooperation societies”
- For legal entities conducting economic activities in the automotive industry.
For entities that carry out certified hospitality activities as "agritourism," in accordance with the current tourism legislation, the rate of the profit tax is 5%. This rate applies for a 10-year period to legal entities that obtain the "certified agro-tourism operator" status, until December 31, 2021. The application of the reduced rate begins in the following tax year after obtaining the "certified agritourism operator" status.
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 must submit the decision of the responsible body, approving the result and the destination of after-tax profit, to the tax administration no later than July 31 of the calendar year.
This obligation remains even if the result for the fiscal year was a loss or zero.
Caution: For the delayed submission of this decision, a fine of 10,000 lekë shall be applied.
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.
Source: General Directorate of Taxes.