Business Entities and Companies
Commercial companies, established under the law on entrepreneurs, including joint-stock companies (JSC) and limited liability companies (LLC), are required to pay corporate income tax.
Simple Partnerships
Partnerships established under the Civil Code that generate profit are also required to pay corporate income tax.
Foreign Entities operating in Albania
Non-resident entities that establish a branch or a permanent establishment in Albania and realize profits from activities in Albania are required to pay corporate income tax.
Entities with Special Tax Regimes
Certain sectors, such as the hydrocarbon sector, have special tax rules regarding corporate income tax.
Entities Exempt from Corporate Income Tax
Certain entities are exempt from corporate income tax but are still obligated to submit financial reports.This includes non-profit foundations, humanitarian, charitable and religious organizations, chambers of commerce, and entities provided for in international agreements.
Entities with a Permanent Establishment
Entities established under Albanian or foreign legislation that create a permanent establishment in Albania are subject to taxes under Albanian law.
Management and Control in Albania
If an entity exercises the management and control of its affairs in Albania, it is considered an Albanian tax resident, regardless of where it was established.
Conditions for management and control in Albania:
Management and control are considered to be in Albania if at least two of the following conditions are met:
When entities that are subject to corporate profit tax own shares or participations in other entities, the income from dividends or profit distribution from these other entities is treated as follows:
For non-resident entities, these rules apply as well if the investment is made through an entity established in Albania.
Example of the participation exemption calculation:
If Company B owns 50% of the capital of Company A and has had an investment period of more than 24 months, the dividend it receives from Company A will not be added to the tax profit of Company B. Likewise, a dedicated tax will be calculated for the dividend that will be distributed to shareholders.
Interest expenses are deductible up to 30% of EBITDA for the tax year. EBITDA includes taxable profit, interest expenses, and depreciation/amortization.
Excess interest occurs when interest expenses are greater than taxable income from interest.
Calculation:
Examples:
Exemptions: Does not apply to banks, financial institutions, and loans for financing public projects in Albania.
Provisions
Financial institutions may deduct expenses for provisions created for:
Bad Debt Deduction
The deduction of bad debt is allowed only if the following conditions are met:
Write-off of Bad Debt for Banks
The write-off of bad debt becomes a deductible expense for banks if the loan is secured and, after a 365-day period, the assets can be executed. If the debt is recovered, it must be added to the taxable profit of the year.
Profit Declaration
Corporate income tax is declared annually, within March 31 of the following year for the tax year covering the period from January 1 to December 31. In cases where the activity is interrupted before the end of the year, the declaration can be made at any period during the year, but no later than March 31 of the following year.
Calculation of Profit Tax Liability
Profit tax is calculated based on the current tax rate. The tax liability can be reduced through:
Payment of Remaining Tax:
If, after deducting the above payments, a negative difference results, the taxpayer may request a refund of the overpaid tax. The tax administration is obliged to refund it within 60 days of the request, without requiring a tax audit. If a refund is not requested, the difference will be considered a prepayment for the following year.
Standard Rate
The standard corporate income tax rate in Albania is 15%.
Different Rates
For specific sectors and industries, tax rates different from the standard rate may apply. These may be temporary or permanent and must be defined in this law or other laws providing specific fiscal treatments, such as the law "On the Fiscal System in the Hydrocarbon Sector" and the law "On Technological Development Zones."
For individual entrepreneurs, the self-employed, and entities with gross income up to 14 million ALL per year, a 0% tax rate applies until December 31, 2029.
Resident Entities and Foreign Tax Credit
Resident entities in Albania may credit foreign tax paid on profits realized from permanent establishments in other countries, aiding in the avoidance of double taxation. The foreign tax credit helps reduce the tax liability in Albania for profits that are already taxable in a foreign country.
Limitation of Foreign Tax Credit
The foreign tax credit cannot exceed the amount of tax the entity would pay in Albania if the profits were realized there. This means the foreign tax may be less than or equal to the tax the entity would pay in Albania, but in no case greater.
Documentation required for foreign tax credit:
To apply for the foreign tax credit, the entity must present documentation proving the payment of foreign tax, including:
Definition of Taxable Profit
Taxable profit includes income subject to tax after deducting allowed expenses. This profit is determined by taking into account the financial results presented in the entity's financial statements, prepared according to the law on accounting and financial statements, while also applying the rules of income tax and relevant bylaws.
Declaration of Taxable Profit
The taxable profit declaration is based on the data and statements maintained by the taxpayer for the tax year, in accordance with the law on accounting and financial statements. The calculation process involves aggregating income and expenses of the respective groups, and subsequently calculating the result before profit tax, as presented in the income statement.
Legal Priorities and Accounting Standards
In calculating taxable profit, provisions in the tax law take priority, and if there are no conflicts, accounting standards as provided by the law “On Accounting and Financial Statements” apply. This is essential to ensure that the calculation of taxable profit is conducted in compliance with legal and accounting requirements.
Taxable Profit for Hydrocarbon Operations
The taxable profit of persons performing authorized hydrocarbon operations, such as exploration and production of hydrocarbons, is determined according to the rules and priorities established in the specific law for the hydrocarbon sector. These rules provide for special fiscal treatment for this sector.
Transactions between related parties must respect the arm’s length principle, according to the standards and procedures defined in the instruction of the Minister of Finance.
Definition of Long-term Contracts
Long-term contracts include projects carried out over a period exceeding 12 months, often in construction, assembly, investment component production, and other services.
Expenses and Income in Long-term Contracts
Expenses incurred must be allocated to the period in which they occur. Income related to the contract must be reflected in the Taxable Profit Declaration for the completed portion of the contract.
Determination of Completion Percentage
The percentage of completion can be based on the ratio of the year's expenses to total expenses, or according to accounting standards.
Tax Deductible Expenses
Expenses related to long-term contracts are recognized and deducted in the period they are realized, according to accounting provisions.
Capital Gains Tax Exemption
Capital gains are not taxed in cases of business reorganizations such as mergers, divisions, share exchanges, and branch transfers, allowing for the unhindered development and growth of enterprises.
Transferred Assets and Exemptions
In cases of business reorganization, the transfer of assets is not considered a capital gain, except when there are cash payments that exceed the specified payment.
Capital Gains Tax for Transfer of Assets Abroad
When business assets are moved outside of Albania or when an entity changes its tax residency, they are taxed at a rate of 15% on the market value at the time of transfer.
Transfer of Assets and Taxable Cases
The tax applies when:
a) Assets pass from the head office to a permanent establishment outside of Albania.
b) An entity changes residency, except for assets linked to Albania.
Taxable Base
The tax is calculated on the difference between the market value and the tax value of the transferred assets.
Definition and Criteria for Deductible Expenses
Business expenses are deductible from income for profit tax if they meet these conditions:
Limitations and Verification
Expenses that are not reflected in the fiscalization system, such as bank interests and commissions, may also be deductible if they are verified as business expenses.
For the Construction Sector
For construction and building sale activities, the expenses and income of the activity are determined by the decision of the Council of Ministers. Expenses related to the construction land and benefits from the sale of real estate are deductible, according to the specified conditions.
Expenses and Income
Expenses related to the construction of objects for housing, commercial, or service purposes are reflected as income from the sale or rental of the objects. To determine income and costs, the following are taken into consideration:
Deductible Expenses in Construction
Expenses incurred during the design, implementation, and sale phases of the building are also deductible for tax purposes.
Expenses that are not deducted from taxable profit:
a) Land Costs: Costs of purchase and expenses for the improvement of land, terrain, or construction sites are not deductible. These costs cannot be deducted as expenses for the relevant year, nor as depreciable costs in future periods, except when the land or site is held as an asset or used for the construction of other assets.
b) Costs of purchase, improvement, renovation, and reconstruction of depreciable assets:Expenses for improving the future capacity of assets are deductible only if they are classified as an increase in the value of the asset (capitalization), according to accounting standards.
c) Depreciation of long-term assets:This is distributed as an expense over annual periods, based on the relevant rates and rules. Long-term assets cannot be deducted immediately in the year of purchase or creation, unless otherwise provided by law.
d) Increase of the basic share capital of the company and contributory capital in a partnership: These increases affect balance sheet accounts and are not considered an expense.
e) Dividends distributed to shareholders or partnersDividends calculated for shareholders and partners are not deductible.
f) Interest paid by the taxpayer: When it exceeds the average market interest rate, it is limited. This rule excludes interest on loans provided by microcredit institutions, which are deductible.
g) Administrative penalties and fines: Including fines, late payment interest, and penalties for violations of tax legislation, these cannot be deducted.
h) Creation of reserves and provisions: Reserves created from after-tax profit and provisions for risks during economic activity are not deductible, except in special cases provided by law.
i) Corporate income tax, creditable VAT, and excise duty: Expenses for VAT and excise duty are deductible only if the taxpayer does not have the right to credit the VAT. For excisable goods, the calculated excise duty is not part of the cost of goods sold.
j) Expenses for participation in fairs and exhibitions abroad: Expenses that exceed the limit of 3% of documented expenses for exporting taxpayers are limited.
k) Personal consumption expenses by shareholders, partners, and administrators: Food, accommodation, private travel, and other personal expenses are not deductible by the
l) Expenses exceeding the limits set by law and bylaws: Expenses for per diems (dietat) and travel are limited to certain levels, including accommodation and payments for travel abroad and within the country.
m) Gifts and donations: The taxpayer may make gifts within the allowed limits, excluding symbolic gifts.
n) Invoices for technical services and consultancy invoiced by non-residents: These expenses are not deductible if they have not been paid by the taxpayer and the withholding tax has not been transferred to the state budget account.
o) Expenses for salaries and bonuses not processed through the banking system: Expenses for personal income paid in cash are limited and are not deductible.
p) Salary expenses related to amounts paid in CASHbeyond the limits set by the law on tax procedures.
q) Expenses for life and health insurance of employees exceeding 5% of gross wagesExpenses exceeding this limit are not deductible, except when they are within the allowed limit.
r) Expenses for scholarships of pupils and students of educational institutions:Expenses for scholarships that are not determined by the Council of Ministers are not deductible.
s) Expenses for contributions to private pension plans that exceed the limitations set by law.
t) Expenses related to the generation of incomethat have not been included in the taxable profit of the year. These expenses must be treated as prepaid expenses and allocated to the year when the income is declared.
u) Bribes and kickbacks: Expenses related to bribes and kickbacks, regardless of how they are addressed according to the Criminal Code, are not deductible.
v) Expenses incurred for sponsoring activities: Sponsorship expenses that exceed the limits set by law, including those for cultural, artistic, and sporting activities, are limited and can only be deducted within the allowed limits.
w) Losses and waste during production and transit: These expenses are deductible only when they are provided for by law and other bylaws. This rule applies to excisable goods and to industries that use fuel in the production process.
x) Expenses that are not documented with evidence and do not represent a real transaction: Any claimed expense that is not proven with documents will be considered a fictitious expense and cannot be deducted.
Fictitious Expenses That Are Not Deductible
a) Expenses that do not represent real transactions, even when documented with an invoice, will be considered fictitious expenses and cannot be deducted if the taxpayer has not performed actual economic activity.
b) "Carousel" fraud schemes for VAT , where invoices are used for the sale of goods and services that are not realized and are part of a tax fraud, are excluded from the deduction of expenses.
Depreciation of long-term assets
For the depreciation of long-term business assets, the straight-line method is used for all categories. Long-term assets in each category are depreciated individually.
Depreciation Calculation Base
The base upon which depreciation is calculated for each group is the cost of purchase or creation of the asset, adding the cost of its reconstruction during the tax year. The reconstruction costs of an asset in a year are determined according to National and International Accounting Standards, so that they are recorded as an addition to the value of the asset and depreciated over the years.
Asset Disposal (Decommissioning)
If an asset is taken out of use during a tax year, the remaining book value for tax purposes is deductible in that year, provided that any potential income from the disposal is included in the taxable profit. Disposal implies its sale, either as an asset or as scrap, or even its disposal as waste if the type of asset is such that it has no use value. The taxpayer must argue that it was impossible to recover any amount from the asset disposed of as waste.
Revaluations of long-term assets
Revaluations of any category of long-term business assets, performed in compliance with accounting standards and principles, or in implementation of any law in force for the revaluation of real estate, are not taken into consideration for the purpose of the base upon which depreciation is calculated.
Change of depreciation method
For those assets purchased before the law came into force, for which the depreciation method has changed, starting from January 1, 2024, the new depreciation method will be applied.
Example:
Company A purchased a building valued at 1,000,000 ALL on January 1, 2022. It calculated depreciation for the years 2022 and 2023 using the reducing balance method (residual value method), as shown in the table below:
| Viti | Opening Value (II) | Depreciation Rate (III) | Depreciation Expense (IV = II * III) | Closing Value (V = II - IV) |
| 2022 | 1.000.000 ALL | 5% | 50.000 ALL | 950.000 ALL |
| 2023 | 950.000 ALL | 5% | 47.500 ALL | 902.500 ALL |
| 2024 | 902.500 ALL | 5% | 45.125 ALL | 857.375 ALL |
| 2025 | 902.500 ALL | 5% | 45.125 ALL | 812.250 ALL |
| 2026 | 902.500 ALL | 5% | 45.125 ALL | 767.125 ALL |
| 2027 | … | … | … | … |
Change of Method: From reducing balance depreciation to straight-line depreciation for the year 2024 and onwards, depreciation will be calculated according to the straight-line method until the unamortized carrying value reaches 0 ALL.
Inventory Valuation Methods
Inventory, including work-in-progress (inventory in process), is valued according to methods defined by accounting legislation. The chosen method must remain consistent and unchanged for at least 5 years, ensuring consistency and stability in financial reporting.
Treatment of Devaluations and Revaluations
Devaluations and revaluations of inventories, financial assets, and intangible assets, after their initial recognition, are not included in the calculation of taxable profit. Positive revaluations are not taxable, while negative ones (devaluations) are not deductible, ensuring equal treatment from a tax perspective.
Amortization of Small Inventory
Small inventory (low-value assets) is amortized over two periods: 50% in the year of purchase and 50% in the following year. It includes materials for consumption or utilization, as defined by the Ministry of Finance instructions for annual financial statements.
Treatment of Bad Debt
A bad debt may be deducted from taxable income when its collection is not possible, provided that the taxpayer has taken the necessary steps for its collection. The deduction is not allowed if the debtor is a related party. The taxpayer must prove their efforts, such as contracting debt collection agencies or documenting collection attempts.
Conditions for Full Deduction
Full deduction is allowed when all legal actions for collection have been undertaken without success, and the debt has been written off from the accounting books. This includes the results of judicial and enforcement processes, leaving no further hope for recovery.
Carryforward of Tax Losses
Losses from economic activity can be carried forward and offset against the profits of the following five tax years. However, if the tax administration determines after an audit that these losses cannot be carried forward, the taxpayer has no right to use them. In case of disagreement, the taxpayer may appeal the decision through administrative or judicial structures. Losses are treated according to the principle of "earliest loss is carried forward before subsequent losses" (FIFO), and carryforward ceases if they are not offset within the 5-year limit.
Example 1: Loss Carryforward for the period 2024–2030
| Nr. | Years | Tax Profit/Loss | Allowed Loss Carryforward from Previous Periods | Carried Forward Loss | Profit/Loss after Carryforward | Taxable Profit |
| 1 | 2024 | -10 | 0 | 0 | -10 | 0 |
| 2 | 2025 | 1 | -10 | -1 | -9 | 0 |
| 3 | 2026 | 2 | -9 | -2 | -7 | 0 |
| 4 | 2027 | 1 | -7 | -1 | -6 | 0 |
| 5 | 2028 | 3 | -6 | -3 | -3 | 0 |
| 6 | 2029 | 2 | -3 | -2 | -1 | 0 |
| 7 | 2030 | 6 | 0 | 0 | 6 | 6 |
In the year 2030, the remaining loss from 2024 amounting to -1 million ALL (10-1-2-1-3-2) is not carried forward as 5 years have passed from the carryforward allowance period. The profit of 6 million ALL for the year 2030 will be taxed according to the current tax rate in force.
Example 2: Loss Carryforward for the period 2024–2030 with a Change in Tax Situation
| Nr. | Years | Tax Profit/Loss | Allowed Loss Carryforward from Previous Periods | Carried Forward Loss | Profit/Loss after Carryforward | Taxable Profit |
| 1 | 2024 | -10 | 0 | 0 | -10 | 0 |
| 2 | 2025 | 1 | -10 | -1 | -9 | 0 |
| 3 | 2026 | 2 | -9 | -2 | -7 | 0 |
| 4 | 2027 | 1 | -7 | -1 | -6 | 0 |
| 5 | 2028 | 2 | -6 | -2 | -4 | 0 |
| 6 | 2029 | -2 | -4 | 0 | -6 | 0 |
| 7 | 2030 | 8 | -2 | -2 | 6 | 6 |
In this case, a change in profits and losses for the tax period shows that losses from previous years were offset within the 5-year limit, while the taxable profit for the year 2030 is 6 million ALL.
Limitations in Case of Ownership and Activity Changes
If a change of more than 50% occurs in the ownership of shares, quotas, or voting rights, losses can no longer be carried forward, especially if the type of activity of the taxpayer also changes. If the activity remains the same, the taxpayer retains the right to carry forward the losses.
Business Reorganization
In cases of business reorganization, limitations on loss carryforward do not apply. The acquiring company may use the losses of the acquired company to reduce its tax profits for future periods, while adhering to the rules for loss carryforward.
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Responsibilities for Submitting the Tax Return
The annual tax return for income/taxable profit must be submitted to the tax administration by:
The legal heirs of a deceased person are responsible for completing the tax return for income generated up to the date of death. In case of a change in tax residency, the individual must declare income up to the date of departure from Albania.
Deadline and Method of Submission
Annual tax returns are submitted to the tax authority no later than March 31 31 mars of the year following the respective tax year. Submission is done electronically, using the relevant declaration forms approved by the tax administration.
Taxpayers who maintain accounting records according to the law "On Accounting and Financial Statements" submit the tax return to the tax administration, while financial statements are submitted to the National Business Center (QKB). The tax administration and QKB exchange information electronically to ensure access to financial statements.
Types of Tax Returns
Example: Change of Tax Residency
If an Albanian resident individual leaves Albania on July 31, 2024, they are obligated to declare income for the period January–July 2024.
Additional Obligations and Required Information
The tax administration has the right to request any necessary information according to the law "On Tax Procedures in the Republic of Albania." Taxpayers are obligated to provide all requested information to the tax administration.
Payment of Tax Liabilities
Tax liabilities according to the declaration are paid into accounts authorized by the State Budget Treasury.
Calculation of Profit Tax
Taxpayers (companies and self-employed individuals) calculate their tax base by deducting deductible expenses from gross income. This data is fully reflected in the tax return.
For the purpose of recognizing expenses as deductible, the taxpayer must possess a valid invoice as defined in the law "On Invoices and the Turnover Monitoring System," which includes electronic invoices for business-to-business sales issued by resident entities, self-invoices according to the provisions of the invoice law, import invoices registered under customs procedures, invoices from non-resident persons for services, as well as recognized documents for the payment of fees or obligations to state institutions and entities with diplomatic status.
Calculation of prepayment installments for corporate income tax
Taxpayers prepay monthly or quarterly installments within the following deadlines:
The tax administration calculates and notifies installments based on the previous year's profit declarations. Payments can be made monthly by the 15th of each month or quarterly at the end of the quarter.
Calculation for taxpayers with different tax periods
Downward correction of installments
Taxpayers may request a reduction if they show profits will be significantly lower due to:
Upward correction of installments
The tax administration may increase installments for the last quarter if monthly income grew >10% compared to the previous year. The increase cannot exceed 75% of the growth percentage.
Prepayments for Personal Income Tax from Business and Self-Employment
Taxpayers shall prepay quarterly installments within the same deadlines as corporate income tax.The calculation is based on the previous year's tax returns or their own self-assessment.
Adjustment of Personal Income Tax Installments
The reduction or increase of installments is conducted based on the same principles as corporate income tax.
If the projected income growth exceeds 10%, the taxpayer must submit an assessment declaration for the increase by September 10.
This system is designed to ensure a fair tax burden aligned with the taxpayer's actual situation.
Cases where payable tax is lower or tax loss is higher
If a taxpayer finds that the tax declared in their last return should have been higher or the tax loss lower, they are obliged to submit a supplementary return.
The taxpayer pays the difference between the previous tax and the correctly calculated amount, in compliance with current legislation.
Cases where payable tax is higher or tax loss is lower
If a taxpayer finds that the declared tax is higher or the tax loss is lower than it should be, they must submit a supplementary return to reflect these changes.
Procedures are applied in accordance with the legislation on tax procedures in the Republic of Albania.
Special Declaration for Non-Residents
Pursuant to Article 68 of the Law “On Income Tax,” non-residents subject to profit tax, to whom the standard procedures provided in Articles 61 and 63 do not apply, shall follow a specific procedure and declaration.
Special Cases of Declaration
The provisions of Article 68 apply to non-residents taxed on isolated transactions outside Albania, such as the sale of shares in a company within an offshore zone. In these cases, non-residents are not required to prepare financial statements or submit a standard tax return.
Declaration and Exemptions from the Installment System
Tax incentives and exemptions from Law No. 8438, dated 28.12.1998, “On Income Tax,” will continue to apply as follows:
Losses incurred from the year 2024 shall be treated in accordance with the new rules set forth in Article 54 of the new law.
Exporters operating under the inward processing regime, who exported at least 70% of their sales value in 2022, shall not pay prepayment installments for the months of June, September, and December 2023.
The provisions of the previous law (No. 8438) shall apply until December 2024. This rule excludes cases provided in letters “e”, “ë”, and “f”, which enter into force according to the provisions of the new law.