Regardless of your legal structure, hiring employees entails key obligations, including the calculation, withholding, and payment of Personal Income Tax (PIT) to the tax authorities.
Furthermore, it is the employer's responsibility to ensure the continuity of the professional relationship through formal employment contracts. For employees of Non-Profit Organizations (NGOs) or Public Entities, personal income tax is calculated based on the individual's total earnings.
The employer plays a vital role as a “tax agent,” bearing responsibility for all tax obligations related to employees' employment income. This role involves not only calculating the tax on the gross wage but also withholding and transferring it to the state budget. Additionally, NGOs or Public Entities are required to submit a monthly payroll statement by the 20th of the following month. This document includes all wage-related elements, such as gross salary, tax base deductions, and the net salary received.
The gross salary serves as the base for calculating employment income tax. According to the law, deductions from the gross salary are only permissible if the employee has submitted a “Personal Status Declaration” to their primary employer. If an employee has more than one employer, the tax base deduction is allowed only with one of them; other employers must apply the tax according to the progressive rates (13% and 23%).
Example 1: Dual Employment with High and Medium Salaries An employee earns 100,000 ALL from their primary employer and 50,000 ALL from a secondary employer.Primary Employer: Tax is calculated after the standard deduction:
100,000 – 30,000 = 70,000 × 13% = 9,100 ALL
Secondary Employer: Tax is applied to the full amount:
50,000 × 13% = 6,500 ALL
By the end of the fiscal year, the individual files an annual tax return to verify that the total tax of 15,600 ALL/month has been correctly settled.
Example 2: Low Salaries from Two Employers
In a scenario where an employee earns 25,000 ALL from each of their two employers:
Example 3: High Salaries from Two Employers
An employee earning 200,000 ALL from one employer and 180,000 ALL from another has a total monthly income of 380,000 ALL.Tax from Primary Employer:
(200,000 – 30,000) × 13% = 22,100 ALL
180,000 × 23% = 41,400 AlLL.
The combined monthly tax withheld is 63,500 ALL. However, due to the progressive tax scale applied to the total consolidated income, the employee will owe an additional difference of 17,000 ALL per month, payable via the annual tax declaration.
Employers often make payments for external services, such as teaching, consulting, or participation in board meetings. In these cases, a 15% tax rate is applied to the gross amount. However, if the payment is made to a self-employed individual registered with a Tax Identification Number (NIPT), the tax is not withheld at the source.
Beyond withholding and transferring taxes, the employer must maintain accurate records of employee income and report monthly according to current regulations. The employer is treated as directly liable for the tax payment, as if it were their personal obligation. This system ensures transparency and discipline in tax reporting and collection.
Withholding and Transferring Tax
Withholding tax on specified payments and transferring it to the tax authorities by the 20th of the following month. For dividends, the tax must be transferred within 3 months of the profit distribution.
Reporting and Documentation
Submitting declarations with details on beneficiaries and amounts withheld. Maintaining records and documents for potential tax audits.
Verification and Certificates
Requesting and storing Tax Residency Certificates for beneficiaries. Ensuring the accuracy of all data and declarations.
Employers also act as agents for payroll taxes and social security contributions.
Declaration Content:
The withholding tax declaration is based on the model specified in Annex No. 5 of the instruction and includes identifying data for:
The declaration covers all categories of entities, regardless of their specific tax status.
Withholding tax is applied to income from dividends, interest, royalties, gambling winnings, and rent, provided the beneficiary is an Albanian resident or a permanent establishment in Albania. This applies regardless of the beneficiary's status, except for exempted cases.
Tax is withheld on all royalties (copyrights, licenses, trademarks), irrespective of the beneficiary type.
Organizers of gambling activities must withhold tax on all player winnings and report accordingly to the tax administration.
Rent Tax is withheld when the lessor is an individual and the lessee is an entity, trader, or self-employed person with a NUIS. In transactions between two individuals, tax is not withheld at the source; the beneficiary must self-declare.
For services provided by individuals without a NUIS, tax is withheld according to Article 65.
No tax is withheld for:
For non-resident beneficiaries, tax is withheld on dividends, interest, royalties, gambling, construction, and performances, while respecting Double Taxation Avoidance Agreements. In the absence of such agreements, Albanian legislation applies.
Tax on Dividends and Profit Distributions
When an income payer distributes profits from a company, a withholding tax rate of 8% is applied to income from dividends and profit distributions approved by the entity's governing bodies.
Tax on Other Categories of Income
For any other category of income listed in paragraphs 1 and 2 of Article 58, the applicable withholding tax rate is 15%. This includes a wide range of income sources, such as interest, royalties, and other payments, which are subject to withholding tax for entrepreneurs.