Value Added Tax

If an NPO or Public Entity carries out taxable supplies, goods, or services, they are obliged to be registered for the VAT tax liability.

VAT is a general tax on the consumption of goods and services, proportional to their price, charged at every stage of the production and distribution process to the price excluding the tax.

VAT is applied as a percentage tax on the price of goods and services and becomes due for payment after the deduction of the VAT that directly burdens the cost elements of the goods and services.
All supplies of goods and services carried out for payment within the territory of the Republic of Albania by a taxable person, as well as all imports of goods into the territory of the Republic of Albania, are subject to value-added tax.

Taxable transactions include:

• Supply of goods, which means the transfer of the right to dispose of tangible property as owner;
• Supply of services, which means any transaction that is not a supply of goods, except as otherwise provided in this law;
• Importation of goods, which means the release for free circulation of goods in the territory of the Republic of Albania;
• Self-supply of goods and services means any supply for consideration by the taxable person, the supply of goods produced, constructed, extracted, processed, purchased, or the supply of services within the scope of their economic activity to be used for the needs of this activity.
• Transfer of activity is considered the transfer, for consideration or not, or in the form of a contribution to an enterprise, of the totality of assets or a part of them.
• Mixed supplies.

Value Added Tax Rate

• The standard value added tax rate for supplies of goods and services, applied as a percentage of the taxable value, is 20 percent. The VAT rate applicable to imports of goods is the same as that applied within the territory of the Republic of Albania for the sale of the same goods.
• In addition to the standard VAT rate, a reduced VAT rate may apply, which is applied as a percentage of the taxable value.
• There are also supplies of goods and services that are exempt from VAT.
• Exports are considered supplies with a 0% VAT rate.

VAT Exemption

Based on Decision of the Council of Ministers (VKM) No. 953, dated 29.12.2014

A. Criteria for applying the exemption for non-profit organizations

Non-profit organizations are exempt from VAT if they meet the criteria and procedures for the following supplies:

• Supply of services and goods closely linked to social welfare and assistance, including activities carried out by care homes for the elderly;
• Supply of services and goods closely linked to the protection of children and young people;
• Supply of certain services closely linked to the practice of sport or physical education, provided to persons participating in such activities;
• Supply of certain cultural and educational services, as well as goods closely linked to them.

B. Criteria for assessing the non-profit purpose of the organization

These social, educational, cultural, and sporting supplies are exempt from VAT when carried out by public bodies or non-profit organizations of a social nature recognized by the competent authority in the Republic of Albania and at prices approved by this authority.

If these prices are not approved, the organization's activity benefits from this VAT exemption, provided that the prices of the supplies offered by the non-profit organization are lower than those offered for similar supplies by VAT entities, in order not to cause distortion of competition.

C. Conditions that non-profit organizations must meet to apply the VAT exemption

1. The governing bodies of the organization must not have interests directly linked to the organization's activity.
2. The non-economic activity (non-profit) of the organization must clearly prevail in relation to the rest of the activity; considering the respective income, income from the non-economic activity of the organization must predominate.
3. Supplies carried out by non-profit organizations must not compete with the profit-making commercial sector. The amount of income from the organization's economic activity as a secondary activity, carried out for the non-profit purposes for which it was created, collected during the calendar year, must not exceed 20% of the total annual income of the organization.

The notion of "total income" includes all financial resources of the organization, including income from supplies and operating subsidies.

Reminder

• If any of the three criteria mentioned in point C is not met, the supplies carried out by the organization do not benefit from the exemption.
• Non-profit organizations that perform any of the activities exempt from VAT by law benefit from the exemption by fulfilling the same conditions and criteria as profit-making natural and legal persons.
• Organizations benefiting from the VAT exemption also benefit from VAT exemption on imports for goods intended for their non-profit activity.

D. Entities included according to their form of organization

The entities that benefit from this exemption, when they meet the aforementioned criteria for the economic activity they perform, are:

• Associations of general interest organized in a form such as political, trade union, professional, philosophical or religious organizations, cultural, socio-cultural or sports associations, folklore associations, etc.;
• Organizations established according to the law "On Non-Profit Organizations", which operate without profit motives, such as foundations, interdependent groups, and various committees.

These non-profit organizations operating in this manner are exempt for services of a social, educational, cultural or sporting nature, as well as for supplies of goods they offer at reduced prices mainly to their members but also to others, as part of their secondary activity carried out in function of their non-profit purpose.

Non-profit organizations must not use advertising, recognized as practices used for commercial reasons, aimed at non-members to advertise or publicize the organization's activity.
If they advertise their activity, then their supplies do not benefit from this exemption.

Within the framework of the supply of services and goods closely linked to child protection, regardless of the legal person, public entity, association, or enterprise, supplies carried out by institutions caring for children up to three years old, commonly known as "nurseries" (çerdhe), are exempt.

E. On VAT Deductibility

Non-profit organizations that benefit from the VAT exemption for the supplies they offer within their economic activity do not have the right to deduct VAT on goods and services purchased for the purposes of VAT-exempt supplies.

F. VAT Declaration Obligation

Non-profit organizations that carry out economic activity as their secondary activity, even when they benefit from the VAT exemption according to this decision, are obliged to make VAT declarations within the deadlines and in the form defined by law.

In the VAT declaration, only supplies carried out within the framework of the economic activity as VAT-exempt sales and purchases shall be declared.

G. Procedure for applying the exemption by non-profit organizations

A non-profit organization that carries out economic activity as its secondary activity and meets the established criteria, in order to apply for the VAT exemption for the supplies of goods and services it carries out, is obliged to perform the following procedures:

1. It shall submit the following documents to the Regional Tax Directorate where it is registered:
2. The court decision (notarized photocopy);
3. The statute of the non-profit organization and the act of establishment;
4. A statement listing all services and goods it supplies to its members or third parties, along with the prices the organization applies for each supply;
5. A statement expressing the mission and purpose of the NPO, as well as identifying the main activity programs;
6. A statement declaring and identifying the category of persons or groups in need that it serves;
7. A statement specifying the organization's funding sources by item, including realized or expected income from economic activity.

In this statement, the organization must declare the approximate percentage that the economic activity occupies or is expected to occupy in relation to the non-economic activity. This statement is required both when the organization is newly registered and has not previously performed economic activity, and when it has performed activity based on the financial statement data submitted to the tax authority.

The Director of the Regional Tax Directorate where the organization is registered shall set up a working group (with 2 to 3 employees), which examines the case based on the submitted documentation, the organization's situation, its history (if any), and any other available data.

Based on the verification results, when the criteria set out in Article 2 of this decision are met, within 25 working days, the working group submits a report to the Director of the General Directorate of Taxes, proposing the approval of the VAT exemption for the supplies carried out by the organization.

If deemed necessary, an on-site verification of the organization's activity may be carried out regarding the types of supplies of goods and services performed and the prices applied for each supply. Even if the verification is not carried out beforehand, it can be performed at any time by the tax authority.

At the end of the procedure, no later than 5 working days, the Director of the General Directorate of Taxes issues the authorization for VAT exemption. If the authorization is refused, the Director General of Taxes provides the reasons why the VAT exemption cannot be applied by the organization.

The issuance of the VAT exemption authorization is valid for 3 (three) years, with the right of renewal. For the renewal of the VAT exemption authorization, the same procedure, conditions, and criteria are followed as in the case of obtaining the authorization for the first time.

Attention:

1. For non-profit organizations registering for the first time, the VAT exemption authorization is valid for 1 (one) year, with the right of renewal.
2. For the renewal of the VAT exemption authorization, the same procedure, the same conditions, and criteria are followed as in the case of obtaining the authorization for the first time. For the first time, the VAT exemption authorization is valid for 1 (one) year, with the right of renewal.
3. For the renewal of the VAT exemption authorization, the same procedure, the same conditions, and criteria are followed as in the case of obtaining the authorization for the first time.

Non-profit organizations that do not carry out economic activity within the framework of their non-profit activity, which are considered non-taxable persons for VAT, are not subject to the procedure in question.
These organizations do not register for VAT.

Furthermore, non-profit organizations that carry out economic activities exempt from VAT by law, such as health services, educational services, etc., in accordance with the definitions in the legal provisions, are also not subject to this procedure.

H. Events carried out by non-profit organizations for charitable purposes or support for groups in need

The supply of services and goods carried out by non-profit organizations, whose activity is exempt from VAT, in cases of events or fundraising organizations exclusively for charitable purposes or in function of fulfilling the non-profit purpose of the organization, are exempt from VAT if the number of these events or organizations does not exceed 5 (five) such per year.

If more such events are organized, the VAT exemption applies to the income collected for only five events.
However, regardless of the number, the exemption does not apply if the organization of these paid events, open to the public, is of a frequent nature.

The exemption does not apply to supplies carried out by commercial natural or legal persons, even if they are authorized by the organizers of the event to exercise certain activities on their own account during the event, such as the sale of various products, the use of stands, bars, etc.

Source: General Directorate of Taxes.