Income Tax

The following information is valid and applicable until December 31, 2023, following the entry into force of the new Law No. 29/2023 On Income Tax. Please browse our website for more details and updated information at: https://alprofitconsult.al/tatime/

Scope of application

Profit limitations are subject to:

1. Legal entities and partnerships with income above 8,000,000 ALL per year
2. Legal entities, as well as other partnerships of persons established or organized under a foreign law and operating within the territory of the Republic of Albania;
3. Any other person, regardless of their status or legal form of registration or recognition, except in cases where that person is subject to simplified business profit tax for small businesses.

Notice: Any person, regardless of their status or legal form of registration or recognition, when they become subject to profit tax, has the right to request deregistration at any time, but may not switch to the simplified small business profit tax regime.

The obligation to pay profit tax

Resident taxpayers are subject to tax on profits earned from all sources, both within and outside the territory of the Republic of Albania.

Exemption from profit tax

Excluded from income tax are central and local government bodies, the Bank of Albania, humanitarian associations, international organizations, when provided for by special agreements, enterprises provided for in international agreements ratified by the Assembly, foundations or non-bank financial institutions established or transferred by a Council of Ministers' decision, film production companies subsidized by the National Center of Cinematography, and the administered voluntary pension fund.

Notice: All of the above-mentioned entities are required to submit their tax return and annual balance sheet to the tax authorities within the same deadlines as entities subject to income tax.

Accommodation structures “4 and 5-Star Hotels/Resorts (Special Status)”, as defined in tourism legislation and that are holders of a registered and internationally recognized trademark“Brand name”Exempt from income tax for a 10-year period are those structures that obtain special status until December 2024. The effects of the exemption begin at the time the accommodation structure commences its economic activity, but no later than three years after obtaining special status.

Taxable income

Taxable profit results from the difference between gross income earned during the tax period (calendar year) and recognized expenses.

The taxable profit for the tax period is determined based on the balance sheet and its annexes, which must have been prepared in accordance with the law.“For accounting and financial statements”.

Revenue

Gross income means all types of income earned during the tax period and includes, but is not limited to, income earned from the supply of goods and services, income from participations, interest income, and income from the use of movable and immovable property.

Expenditures

Deductible expenses

For expenses to be recognized (deductible), they must meet these conditions:

1. to be performed in the direct interest of the enterprise's economic activity;
2. to be performed effectively;
3. to be reflected through an accounting entry by decreasing net assets;
4. to be proven with the relevant legal justification documentation.

Unknown expenses (deductible)

For the purpose of determining taxable income, expenses that the Income Tax Law has specified in an exhaustive list are not recognized. For more information, refer to the Law No. 8438 “On Income Tax”, Article 21, which you can find below.

Tax Rates

The profit tax rate is:
a) 0% for taxpayers with income up to 14,000,000 lek per year.
b) 15% for taxpayers with annual income over 14,000,000 lek.

The rate of the profit tax is 5 % per:

• For legal entities engaged in software production/development
• For legal entities that carry out economic activities under Law No. 38/2012 “On Agricultural Cooperation Societies”
• For legal entities engaged in economic activities in the automotive industry.

For entities that carry out certified hospitality activities as "agritourism," in accordance with the current tourism legislation, the rate of the profit tax is 5%. This rate applies for a 10-year period to legal entities that obtain the "certified agro-tourism operator" status, until December 31, 2021. The application of the reduced rate begins in the following tax year after obtaining the "certified agritourism operator" status.

Tax payment

Prepayment: advance installments of income tax

The profit tax is paid quarterly or monthly in advance during the year, based on monthly installments. The installments may also be paid on a monthly basis in the amounts as follows:

General term

• for the months of January-March, of the subsequent tax period, the amount of profit tax for the tax period of the two previous years divided by 12;
• for the months April – December, of the subsequent tax period, the amount of income tax for the preceding tax period divided by 12.

Special cases

In the event the taxpayer commences activity during the tax period of the second prior year, the prepayments are:

• For the months of January–March of the following tax period, the amount of profit tax for the tax period of the two previous years divided by the number of months during which the taxpayer carried out tax activity.
• For the months of April - December of the following tax period, the profit tax amount for the preceding tax period divided by 12.

In the event that the taxpayer begins their activity during the previous tax period, the advance payments are:

• for the months of January - March, of the subsequent tax period, the amount of estimated profit tax for the prior period, divided by the number of months in the prior period during which business was conducted.
• For the months of April - December of the following tax period, the profit tax amount for the preceding tax period divided by 12.

In the case where a taxpayer begins to carry on an activity in the next tax period, the prepayments are equal to the estimated amount of profit tax for the next period divided by the number of months remaining in that period.

Exception

Taxpayers who begin their activity in the following period and engage in productive activities will not be subject to advance payment of the profit tax obligation for a 6-month period or for the remaining period until the end of the following year, if this period is even less than 6 months.

Correction of advance installments

In cases where the taxpayer proves at any time during the tax period that the profit tax for the current tax period will be lower than the profit tax of the preceding or second preceding period, the tax authorities shall accept the reduction of advance payments.

If the taxpayer has reduced the advance payments determined by the tax authority, and the annual income tax liability resulting from the balance sheet exceeds the advance payment by more than 10%, they must pay interest on the difference between the actual annual liability and the amount prepaid during the year.

If the tax authorities assess that the income tax for the following tax period will exceed the income tax for the previous tax period by more than 10%, they may adjust the prepayments upwards, in accordance with their assessed income tax.

Declaration and final tax calculation

Upon closing the calendar year, prepare the annual taxable income statement in the form prescribed by the Minister of Finance's instruction, which you can find below.
The Profit Tax Declaration Form is submitted to the tax authorities by March 31st of the following year, along with the accounting balance sheet and its annexes.

These cases may arise:

1. If the tax declared and paid on the basis of the annual return is greater than: (a) the sum of the monthly prepayment installments paid during the year and (b) the foreign tax paid (which is credited), the taxpayer pays the difference by March 31 of the following year.
2. If the tax declared and paid on the basis of the annual return is less than: (a) the sum of the monthly prepayment installments paid during the year; and (b) the foreign tax paid (which is credited), the tax administration shall apply the amount paid in excess against other tax liabilities not yet paid by the taxpayer.
3. If the taxpayer has no other outstanding tax liabilities, with his written approval, the remaining amount, if any: (a) is automatically refunded within 30 calendar days from the date of declaration and payment by the taxpayer; (b) is credited against the taxpayer's future tax liabilities.

Profit destination

Trading companies must, within six months from the end of the financial year, approve at the partners' assembly or the company's competent decision-making body the financial results of the previous year and allocate the post-tax profit, specifying:

• the sum of the legal reserves
• the portion to be used for investment or capital increase and
• the portion to be distributed as dividend.

Commercial companies must submit the decision of the responsible body, approving the result and the destination of after-tax profit, to the tax administration no later than July 31 of the calendar year.

This obligation remains even if the result for the fiscal year was a loss or zero.

Notice: A fine of 10,000 lek is applied for the late submission of this decision.

Legal entities must declare and pay dividend tax payable to the tax administration no later than August 20th of the year the financial results are approved, regardless of whether the dividend has been distributed or not.

Source: General Directorate of Taxes.