- A sole proprietorship or an LLC is chosen based on three things: how many partners you have, how much financial risk the business carries, and how you'll withdraw your profits.
- With revenues of up to 14,000,000 lek per year, both forms pay 0% tax on profits until December 31, 2029.
- Above this threshold, the LLC pays 15% on its profit, while an individual pays 15% on profit up to 14,000,000 lek and 23% on the excess.
- The LLC profit distributed to the partners is also taxed at 81 TP3T as a dividend. An individual is not subject to this tax.
- A partner in a LLC is not personally liable for the company's obligations. A natural person is liable with their own assets.
A sole proprietorship or LLC is the first choice anyone makes when starting a business in Albania. It affects taxes, the personal risk you assume, and how you withdraw money from the business. There is no one-size-fits-all structure; there is the structure that best suits your business, and it comes down to three questions.
Below you'll find all three questions, a tax comparison under the 2026 rules, a worked example, and what happens when you want to change the form later.
Read also: Sole proprietor as a business structure: what it is and when it's registered..
Natural person or LLC: a comparison in a table
| The issue | Sole Proprietorship | LLC. |
|---|---|---|
| Owners | A person | One or more partners |
| Responsibility for debts | With personal wealth | Up to the contribution to capital |
| Minimum capital | Not required | one hundred lek |
| Tax on income up to 14,000,000 lek | 0% until December 31, 2029 | 0% until December 31, 2029 |
| Tax on profit above the threshold | 15% up to 14,000,000 lek profit, 23% on the excess. | 15% |
| Tax when you withdraw the profit | There is no | 8% as a dividend |
| Owner's contributions | As a self-employed person | The administrator is listed on the payroll. |
| Business transition | Assets, contracts, and clients are transferred. | They exceed the quotas. |
The three questions that determine the form of the business
How many partners will the business have?
If the business will have two or more owners, the structure is an LLC, because a sole proprietorship always has only one owner. If you start alone but expect a partner or investor to join you later, it's worth setting it up as an LLC from the start. A sole proprietorship cannot be converted into a corporation, so any later change requires closing and reopening from scratch.
How much financial risk does the activity carry?
In a limited liability company, the partners are not personally liable for the company's obligations. If the company fails to pay a loan, a supplier, or damages, the creditor goes after the company's assets, not your home.
In a sole proprietorship, the business and the owner are the same person, so you're responsible for the business's debts with your personal assets. This matters when you take out loans, work on large contracts, or when the business's activities could cause harm to clients.
How will you withdraw the profit?
The profit of a sole proprietor is your money. You can withdraw it whenever you want, without a resolution and without additional tax. The profit of an LLC belongs to the company and goes to the partners only by a decision of the assembly, as a dividend, with 81% tax on the distributed amount. You can find the full rules on the page of dividend.
How much tax does an individual pay and how much does an LLC pay?
Business with revenues up to 14,000,000 lek
Both forms pay 0.3% tax on profit until December 31, 2029, under Article 69 of Law No. 29/2023. The only tax difference is dividends. The individual receives the profit tax-free, while the LLC pays 8% when it distributes it. You can find the terms of the regime on the page of regime 0% until 2029.
Business with a turnover exceeding 14,000,000 lek
LLC pays 15% on all profit. A natural person pays 15% on up to 14,000,000 lek taxable profit and 23% on the amount above that, according to Article 24 of Law No. 29/2023. The full rates and thresholds are on the page of profit tax rates.
Dividend, cost of limited liability
The dividend is paid only when the company distributes profit, according to the scheme. Corporate income tax. The profit retained in the company for investments or as a reserve is not taxed at 8%. So a LLC only incurs higher tax on the portion of profit you withdraw, and that is the price of the protection provided by limited liability.
The VAT threshold of 10,000,000 lekë in annual turnover applies equally to both formats.
Calculated example, profit 6,000,000 lek
A business has 20,000,000 lek revenue per year, so it's above the 14,000,000 lek threshold, and 6,000,000 lek in taxable profit. The owner will withdraw the entire profit.
As a natural person
The profit is under 14,000,000 lek, so it's all taxed at 15%, which amounts to 900,000 lek. The owner is left with 5,100,000 lek, with no further tax when he withdraws them.
As a limited liability company.
The company pays 15% tax on its profit, i.e., 900,000 lek, and is left with 5,100,000 lek. When it distributes them as dividends, 81% is withheld, i.e., 408,000 lek. The partner is left with 4,692,000 lek.
The difference of 408,000 lekë is the cost of limited liability in this case. If the company were to retain the profit for investments, this cost would not arise.
What changes in contributions and documents?
Owner's contributions
A natural person pays their own contributions as self-employed. In a limited liability company (LLC), the administrator is included on the payroll, even if they are the sole partner. You can find the rules on the pages of self-employed and administrator and contributions.
Decisions and documents
A limited liability company has more paperwork. Distributing profits, changing the capital or the manager requires an assembly decision, and money from the company's account doesn't flow freely into your personal account. On the other hand, the company presents itself more strongly to banks, suppliers, and major clients. How it works you can find on the page of General information about LLC..
Can you change the form later?
Not directly. Law No. 9901/2008, Article 214, allows reorganization only for limited liability companies and joint-stock companies, not for natural persons. When a natural person becomes an LLC, he… unregister and opens a New LLC., with a new NIPT.
Therefore, the initial choice matters. A subsequent change costs time, documents, and sometimes even contracts that need to be renegotiated. You can find the possibilities a LLC has after it has been opened on the page of reorganization of societies.
Every time there is a tax or financial change that affects your business, we notify you directly by email with a practical explanation.
Send me free notificationsFrequently Asked Questions for Individuals and LLCs.
What does LLC mean?
Limited liability company. The partners are liable for the company's obligations only up to their capital contributions, not with their personal assets.
Which form pays the least tax?
With income up to 14,000,000 lekë, a natural person is exempt, since their profit isn't taxed even when withdrawn, whereas an LLC pays 8.1% when distributing dividends. Above that threshold, the comparison depends on the size of the profit and how much of it you withdraw.
Can I convert a sole proprietor into an LLC?
No. Reorganization is only allowed for LLCs and joint-stock companies, pursuant to Article 214 of Law No. 9901/2008. The natural person is deregistered and a new LLC is established.
How much capital is required for an LLC?
The minimum capital is 100 lekë, according to Article 70 of Law No. 9901/2008. A higher capital is not mandatory, but it instills greater confidence in banks and suppliers.
Is a natural person registered for VAT?
Yes, when annual turnover exceeds 10,000,000 lekë, it is treated the same as an LLC. The registration application must be filed within 15 days of exceeding the threshold.
Where is each form registered?
Both are registered at the QKB online via e-Albania. You can find the steps for a natural person on the page of initial registration of the natural person, while for LLCs on the page of registration of the LLC..
Three steps for today
- Write down how many partners the business will have today and in three years.
- Estimate the first-year revenues and see whether they are below or above 14,000,000 lek.
- Ask yourself whether you will withdraw all the profit or if part of it will remain in the business.
Legal basis
- Law No. 29/2023 “On Income Tax.” Article 24 on the rate for natural persons, Article 41 on the rate for companies, Article 59 on the 8% tax on dividends, and Article 69 on the 0% rate until December 31, 2029.
- Law No. 9901/2008 “On Traders and Commercial Companies.” Article 70 on minimum capital and Article 214 on reorganization.
- Law No. 92/2014 “On Value Added Tax in the Republic of Albania,” regarding the 10,000,000 lek threshold for VAT registration.
