Notice from the Tax Administration
The Tax Administration has informed It has been officially announced that all taxpayers providing professional services are entitled to apply for the refund of prepayments made for 2024. This process can be completed at the Regional Tax Directorate where the entity is registered or through the e-Filing electronic system.
This call is especially aimed at taxpayers who have received refunds due to inaccurately self-reported information or who have not declared their bank accounts in e-Filing. In any case, the refund request must include the bank account details in lek, which must be active and previously declared in the “My Profile” section of the e-Filing platform.
The right to a refund is not lost, and the taxpayer may apply at any time they deem reasonable.
Why did this situation with the prepayments happen?
At the end of 2023, the Council of Ministers' decision no. was approved. 753, in implementation of Law No. 29/2023 “On Income Tax.” This decision stipulated that a large number of activities providing professional services would be treated as liberal professions and taxed at a rate of 15% on profit, beginning in January 2024. The list of affected professions included lawyers, economists, certified accountants, auditors, architects, engineers, real estate agencies, information technology and marketing professionals, as well as many other services.
Read More Legal Changes (Tax on Liberal Professions): Starting January 2024.
In implementation of this legal amendment, the taxpayers involved were required to make the prepayment installments for 2024. For natural persons with turnover up to 10 million lek, the use of an alternative scheme was also allowed, under which 70% of turnover was treated as profit and tax was calculated on that basis.
In March 2024, the Constitutional Court of repealed this obligation for self-employed professionals with annual income of up to 14 million lekë. According to the Court, this measure conflicted with the principles of legal certainty and freedom of economic activity, as it was implemented on very short notice and did not give professionals time to adapt. The Court emphasized that the final list of affected professions had been published only eight days before the law's entry into force, which made it impossible to properly implement this change.
As a result, all liberal professions with revenues of up to 14 million lekë per year were reinstated into the 0% tax scheme, which will remain in effect until December 31, 2029.
What happens after 2029?
According to the transitional provisions of the new law, the 0% tax relief will continue to apply to traders, self-employed individuals, and entities with annual revenues of up to 14 million lekë, but only until the end of 2029. After this date, all these categories will be treated like any other taxable entity and will be subject to income tax at the rate of 15%.
Read More here for the taxes applied in Albania.
This means that as of January 2030, any freelancer or small business currently benefiting from the 0% tax scheme will pay tax on the net profit earned during the year. This change is expected to have a direct impact on the finances of any small business or self-employed professional who has not taken preliminary steps to analyze and adapt to this new fiscal reality.
Examples and detailed scenarios
To illustrate more clearly the impact of this situation, we are presenting some concrete scenarios.
A marketing consultant with annual revenue of 8 million lekë has calculated a tax prepayment of 15% on 70% of his turnover, which amounts to 840,000 lekë per year. If he has paid the first installment of 210,000 lekë, he is now entitled to request a full refund of that installment, since he benefits from the 0% tax scheme.
In another case, an architect with annual revenue of 13 million lek paid in advance 341,250 lek as the first installment, based on the same scheme. This taxpayer is also entitled to request a full refund of that amount.
The situation is different for a consultant with annual revenue of 15 million lek. By exceeding the 14 million lek threshold, he remains subject to taxation at the progressive rate and does not benefit from the relief. In this case, the tax continues to apply and the payments made remain in effect.
What should freelancers and entrepreneurs do today?
Every professional who has paid installments for 2024 must immediately verify their tax status and file a refund request with the Tax Administration. It is essential for every taxpayer to ensure that their bank account is declared and activated in the e-Filing system, as the refund can only be issued to this account.
In addition to immediate steps to secure reimbursement, it's time for every professional or entrepreneur to start thinking about the future. Beginning in 2030, the obligation to pay income tax will be unavoidable, and everyone will need to be prepared for this change.
How can the activity after 2029 be better structured?
After the exemption period ends, every self-employed professional must assess the most suitable way to organize their activity. Continuing as a sole proprietor may be a solution for those with modest turnover who do not plan to expand, but it carries the risk of direct taxation on personal income and the lack of separation between personal and business assets.
The transition in the form of a Limited Liability Company (LLC) It can offer greater security and flexibility. In this case, the business has a separate legal entity, profits can be reinvested more easily, and the risk to personal assets is minimized. This form of structure is more suitable for those seeking growth, collaborations, or new investments.
Every professional should consider that, when transitioning to a partnership, there are additional administrative costs and the need for full accounting, but the long-term benefits may outweigh the costs.
Conclusions
The Constitutional Court's decision to repeal the 15% tax for self-employed professionals with incomes up to 14 million lekë brought immediate relief to a large group of professionals. However, this is only a temporary measure. Until December 31, 2029, self-employed professionals benefit from a 0.1% tax, but after that date they will fall under the profit tax scheme like any other business.
It is important that every professional carefully monitor their tax situation, seek refunds for payments made, and start planning now for 2030. The business structure, financial organization, and choices made in the coming years will determine how prepared each professional will be to cope with the anticipated changes in the tax system.