Removal of goods from use. Procedure, 5-day deadline and VAT

Every business that sells goods has a day when something expires, spoils, or can no longer be sold. The tax question is simple: Should the VAT that was deducted when that good was purchased be reversed?.

The answer depends on the procedure. If it is followed, the VAT adjustment is not carried out. If it is not followed, the missing goods are treated as sold, with all the consequences that entails.

Read also: VAT Deduction Regulations

Step-by-step procedure

Step	What is required
5 calendar days ahead	Written notice to the regional tax office where you are registered.
Content of the notice	List of goods, reason for each, quantity, purchase price, value, and date of processing
From the director	Two inspectors are appointed to participate and keep a record.
Confirmation	The minutes are confirmed by your representative and by the persons present.
After the process	A copy of the documentation is sent to the regional directorate.
Invoice	The process is not accompanied by a tax invoice.

Also keep a record of items taken out of service. It's not a formality; it's your proof when the question comes up two years later.

When the procedure is not followed

There are two consequences, and both come at a cost. First, an obligation arises to adjust the VAT deducted on that goods. Second, when the shortage is not documented at all, the goods are considered sold, meaning VAT and income tax are calculated on them.

The same applies when inspectors oppose the request or when an inspection finds that actions have been taken in violation of tax law or the sector laws in which you operate.

Insurance compensation

This is the trap that often goes unnoticed. If you receive compensation from your insurer for the same goods, VAT is calculated on the amount received. The taxable value is the amount received minus the applicable VAT.

Therefore, exemption from regulation does not mean that the entire transaction is tax-neutral. Where there is collection, there is also an obligation.

Damage from natural causes

The destruction of property by earthquakes, floods, fire, and other events is handled under civil emergency legislation. Here too, the basis is the official documentation of the event and the loss.

Frequently asked questions

Can I throw away expired goods without notifying anyone?

No, if you want to avoid VAT adjustment. Without prior notice and a minutes, the missing goods are treated as sold.

How far in advance should we be notified?

No later than 5 calendar days before the decommissioning date.

Is an invoice issued for this process?

No. The decommissioning process is not accompanied by a tax invoice.

What happens if I receive payment from insurance?

VAT is calculated on the value received, based on the amount received minus the applicable VAT.

A clean inventory isn't just a matter of tidiness. Spoiled goods left on the books inflate the stock levels and turn year-end closing into an exercise in guesswork.

Original text of the notice and procedure

Destruction of obsolete goods

In implementation of Article 79 of the law No. 92/2014 “On Value Added Tax in the Republic of Albania”, As amended, no adjustment of the VAT deduction shall be made for the removal of goods from use because they are unusable or have expired, as proven or confirmed in accordance with the relevant legal and regulatory procedures.

Warning! If the taxable person receives compensation for goods under an insurance policy, for goods to which the deductible VAT adjustment does not apply, then on the compensation amount the taxable person calculates VAT. The taxable value in this case is the amount received minus the applicable VAT.

If the taxable person does not document the absence of goods in accordance with the procedure set out below, such goods shall be considered sold.

 Procedure for the withdrawal of goods from use

The taxable person must keep a record of goods taken out of use. To carry out this procedure correctly, the taxable person must: I. No later than 5 calendar days before the date of taking the goods out of use, submit a written notification to the Regional Tax Directorate where it is registered and provide information on:

1. The list of goods that will render obsolete,
2. The reasons for taking each item out of service and
3. The number of units/quantity of goods,
4. The purchase price of each of the goods;
5. The value of goods;
6. The date on which this process will be carried out.

II. The Regional Tax Director assigns two inspectors to participate in this process, who keep a record for this purpose, confirmed also by the taxpayer's representative and other persons present during this process. III. A copy of all documentation maintained during the process of taking assets out of use is sent to the Regional Tax Directorate. IV. This process is not accompanied by a tax invoice. If the above procedure is not followed or the tax inspectors object to the taxable person's request or, in the event of an audit, find that the person has acted in violation of the provisions of the tax law or the specific laws of the sector in which they operate, then he is required to make the adjustment of the VAT deducted for the goods in accordance with the law.

 Other cases of damage or destruction of property

Destruction of the taxable person's property for natural causes such as earthquakes, floods, fires, etc., in cases of civil emergencies under the relevant legislation, or due to accidents that are verifiable and documented by the respective public institution, is not subject to adjustment of the input VAT. When goods are damaged or destroyed by a disaster, no adjustment of the deductible VAT relating to the damaged or destroyed goods is made if the taxable person documents:

1. A description of the damaged or destroyed goods, including the number of units or quantity of each type of goods.;
2.  Documents or evidence of the purchase of goods and the price at which the goods were purchased;
3. The relevant report from the competent authority confirming that the goods have been damaged or destroyed, as well as the manner (event) in which the goods were damaged or destroyed.;
4. The date on which the goods were damaged or destroyed.

Source: General Directorate of Taxes.

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