Short answer
Expenses incurred in the interest of economic activity, duly documented, are deducted in accordance with Law No. 29/2023. Most rejections occur because the documentation is missing or because a legal limit is exceeded without being noticed.
Verified on from Andi Haxhillari, Certified Accountant. Compared with Articles 30, 50, and 51 of Law No. 29/2023.
An expense is recognized for tax purposes when it is incurred for the interest of the economic activity, is documented in accordance with the rules, and is not included on the list of expenses that the law does not recognize. Many businesses aim to identify deductible expenses to benefit from tax relief. Therefore, it is important to clearly understand which expenses are deductible and accepted by the tax authorities. When any one of these three conditions is missing, the expense may remain in the accounting but is added back to taxable income.
This page compiles the general rule, the list of non-deductible expenses with their respective limits, the interest limitation based on EBITDA, the depreciation rates, the inventory treatment, the gradual recognition of bad debt and write-offs. At the end there is a complete example with figures.
Read also: How is taxable income calculated?.
For every expense, three questions are asked: Does it serve the business? Is it supported by documentation? Does the law set a limit for this category?.
Expenses must be tied to the generation of income. Purchases for the personal needs of the partner, the administrator, or their family do not qualify, even if paid from the company's account. On the contrary, they may be reclassified as a benefit or as a distribution of profit.
The primary document is the invoice issued and fiscally validated in accordance with the Invoice Law. Without fiscal validation and the identification number, the invoice is not a valid tax document, so the expense is not deductible, even if the payment actually took place.
Caution. Payment does not replace the document. A bank transfer of 500,000 lek toward a supplier, without a fiscalized invoice, does not create a deductible expense.
Read also: Taxation, invoice elements, and deadlines.
Even a documented, business-related expense may be disallowed when the law has established a limit or an express prohibition. The list follows below.
Unrecognized expenditures and their limits
| Category | Tax treatment |
|---|---|
| Representation expenses | Recognized up to 0.31 TP3T of revenues; the excess is not deducted. |
| Life and health insurance for employees | Recognizes up to 51 TP3T of gross wages; the excess is not deducted. |
| Sponsorships | Recognized up to 51 TP3T of pre-tax gain; excess is not deductible. |
| Interest | The section on the Bank of Albania's published 12-month average lending rate is not available. |
| Cost of land and depreciable assets | It is not deducted as an expense; it is recognized through depreciation, whereas land is not depreciated. |
| Fines and penalties | They are not known. |
| Expenses without a valid document | They are not known. |
Note that the three thresholds are measured on different bases. Representation is measured on revenue, life insurance on gross wages, and sponsorship on pre-tax profit. It is precisely this difference that causes errors, because in practice all three are treated as “5% or 0.3% of turnover,” and the calculation comes out wrong.
The sponsorship limit is 51% of pre-tax profit. When pre-tax profit is zero or negative, there is no basis for calculation, so before signing a sponsorship agreement toward year-end, the expected outcome is assessed. For the correct treatment in a loss year, write to us with your figures.
In addition to the rate cap, the law also limits the amount. Net interest expenses are deductible up to 30% of taxable EBITDA, and any excess not recognized is carried forward for five years to be deducted in years when capacity exists.
The restriction does not apply to banks, insurance companies, leasing companies, and public infrastructure projects.
Company with taxable EBITDA of 10,000,000 lek and net interest expense of 4,000,000 lek. The deductible amount is 30% × 10,000,000 = 3,000,000 lek. The excess of 1,000,000 lekë is added to the year's taxable profit and carried forward for up to five years.
This rule primarily affects companies that are financed by loans from a partner or from group companies. When the loan comes from a related party, both the rate, the volume, and the market price are simultaneously controlled.
Read also: When the price transfer rules apply.
Long-term assets are not expensed in the year of purchase. Their cost is recognized gradually at the rates prescribed by law, and when the accounting rate differs from the tax rate, the difference is adjusted on the statement.
| Category | Tax rate |
|---|---|
| Buildings, structures, and installations with a lifespan of more than 15 years. | 5%, linear method, on an individual basis |
| Intangible assets | 15%, linear method, on an individual basis |
| Computers, information systems, software products, and data storage devices. | 25%, linear method |
| All other assets of the operation | 20%, linear method |
Land, real estate, works of art, antiques, jewelry, precious metals, and gemstones are not depreciated. When you purchase a unit together with the land, the land's value is separated and excluded from depreciation.
Building with a cost of 30,000,000 lekë, excluding the land value. Tax depreciation is 30,000,000 × 5% = 1,500,000 lekë per year, calculated separately for this asset. An intangible right-of-use with a cost of 3,000,000 lek is depreciated over 15 years on a straight-line basis, i.e., 450,000 lek per year.
All four categories are calculated using the straight-line method, meaning the same amount is added each year to the original cost. This is of practical importance because the straight-line method and the declining-balance method produce different figures from the second year on, and the difference appears directly in taxable income.
Staff vehicle. For 1+4 passenger vehicles used by personnel, the depreciation base shall not exceed 50% of the purchase and reconstruction costs, including VAT. And the total cost of the vehicle to which this 50% is applied cannot exceed 10,000,000 lek. Thus, for a car with a cost of 14,000,000 lek, the base is calculated on 10,000,000 lek and 50% is applied to that amount, i.e., 5,000,000 lek.
Assets under 10,000 lek. When the depreciable base of an asset does not exceed 10,000 lekë, the entire amount is recognized as a deductible expense in that year. No depreciation schedule is opened, and it is not spread over multiple years.
The revaluation does not increase tax depreciation. When assets are revalued, depreciation is not allowed on the revalued amount. The new value may change the schedules and rates, but the tax basis for depreciation remains the original cost.
If you want the exact depreciation schedule for your assets, send us the list and we'll get back to you with the calculation.
Once the inventory valuation method is chosen, it remains unchanged for five years. Changing the method within this period triggers a tax adjustment and audit inquiries.
The petty cash inventory, i.e., the small-value items that enter into use, is recognized at 50% in the year of entry into use and at 50% in the following year.
Purchase of petty inventory for 600,000 lek, put into use during 2026. 300,000 lek are recognized in 2026 and 300,000 lek in 2027.
An unpaid invoice is not fully written off as soon as it becomes past due. The law recognizes a portion of it based on the time that elapses, and only gives full recognition when the debt is written off the books and the business has taken legal steps to collect it. This rule applies to unrelated parties.
| Age of debt | The known part |
|---|---|
| Over 6 months | 20% |
| Over 12 months | 40% |
| Over 24 months | 60% |
| Over 36 months | 85% |
Unpaid invoice of 1,000,000 lekë against an unrelated client. In the year when the debt exceeds 12 months, 40% is recognized, i.e., 400,000 lek. When it exceeds 24 months, the recognized amount becomes 60%, i.e., 600,000 lek, and an additional 200,000 lek is recognized in that year.
The requirement for legal steps is not a formality. Without proof of collection pursuit, full recognition of the debt may not be accepted, and this is one of the most common corrections in commercial company audits.
For trade, manufacturing, bars, and restaurants, natural inventory losses in storage and during processing are recognized within certain norms set by a Council of Ministers' decision. Exceeding the norm is not allowed; therefore, periodic inventory counts and firos' minutes are working documents, not formal letters.
Service company, tax year 2026.
Calculated example, step by step
| Voice | Value |
|---|---|
| Total revenue | 60,000,000 lek |
| Accounting profit before tax | 7,000,000 lek |
| Annual gross salary | 12,000,000 lek |
Step 1. Representation. The limit is 0.3% × 60,000,000 = 180,000 lek. Expended 500,000 lek. Unrecognized 500,000 – 180,000 = 320,000 lek.
Step 2. Life and health insurance for employees. The limit is 5% × 12,000,000 = 600,000 lek. Spent 750,000 lek. 150,000 lek are unrecognized.
Step 3. Sponsorship. The limit is 5% × 7,000,000 = 350,000 lek. Donated: 600,000 lek. 250,000 lek remain unaccounted for.
Step 4. Administrative fine of 80,000 lek. Not fully recognized.
Calculated example, step by step
| Calculation | Value |
|---|---|
| Accounting profit | 7,000,000 lek |
| Plus representation on the border | 320,000 lek |
| Plus insurance over the limit | 150,000 lek |
| Plus sponsorship over the border | 250,000 lek |
| Plus fine | 80,000 lek |
| Taxable income | 7,800,000 lek |
| Tax 15% | 1,170,000 lek |
The adjustments added 800,000 lek to the base and 120,000 lek in tax. If the same sponsorship, the same insurance, and the same representation budget had been planned within the limits at the beginning of the year, this figure would have been zero.
Read also: Profit tax rates and thresholds.
Those carried out in the interest of economic activity, documented with a valid invoice, and not excluded or limited by law.
0.31 TP3T of the income. The portion above this threshold is added to taxable income.
Up to 51 TP 3T of pre-tax profit. When the year ends with a loss, the basis for calculation does not exist, so the decision is made before signing the contract.
5% for buildings and installations over 15 years, 15% for intangible assets, 25% for computers, software, and data storage equipment, 20% for other assets. All four are depreciated using the straight-line method. Land and real estate are not depreciated, and depreciation-based assets under 10,000 lek are fully expensed in the year of purchase.
Gradually, based on age: 20% after six months, 40% after 12 months, 60% after 24 months, 85% after 36 months. Full recognition requires removal from the books and legal steps for collection, and it applies to unrelated parties.
It is recognized within two limits simultaneously: it does not exceed the 12-month average credit limit published by the Bank of Albania, nor 301% of taxable EBITDA. Any excess volume is carried forward for five years.
They are recognized when the vehicle serves the activity, when invoices exist, and when consumption is documented. The vehicle's value is recognized through depreciation, not as an expense in a single year.
Documentation and cash payment limits are two separate issues that affect each other. Exceeding the limit triggers a specific sanction, so check the fiscalization and payments page.
The treatment of expenses for a closed period is not the same in all cases. Send us the invoice and the dates, and we'll show you how to correct it.
Read also: SKK 05 Tangible long-term assets and intangible long-term assets, revised
