Value Added Tax

Value-added tax (VAT) is a general tax on the consumption of goods and services. VAT is applied as a percentage tax on the price of goods and services and becomes payable after deducting the VAT that directly burdens the cost elements of goods and services. Subject to value-added tax are:

• all supplies of goods and services, made for a consideration, within the territory of the Republic of Albania, by a taxable person;
• all imports of goods into the territory of the Republic of Albania.

A taxable person is considered:

• Any person, regardless of their form of organization, who independently carries out economic activities, regardless of the place and the purpose or outcome of those activities. Economic activity is any activity carried out by producers, traders, or persons supplying goods or services, including extractive activities, agricultural operations, and professional activities.
• Any person residing in Albania whose annual economic turnover exceeds 2,000,000 lekë, which is the minimum threshold for VAT registration.

Please note, you are required to register:

• Within 15 days from the date the minimum threshold is exceeded, when your turnover over 12 consecutive months surpasses the limit.
• Immediately within 15 days from the date the threshold is exceeded, if the minimum VAT registration limit is surpassed in less than 12 months.
• When you import circulating goods (goods intended for trade), regardless of the actual or expected turnover.

Exclusion for AQT imports

Clarification Exempted from this rule are taxable persons who realize or anticipate realizing a turnover below the minimum registration threshold and import goods categorized as Tangible Fixed Assets (TFA) to be used for the purposes of their economic activity and not for trade. These taxable persons may import investment goods for use in their economic activity—which is subject to the small business regime under the law—without being required to undergo the normal VAT regime.

Specifics for Exporters Taxable persons who carry out exports and whose turnover is below the minimum VAT registration threshold are not required to undergo the normal VAT regime. Exception to the general rule Taxable persons providing services in economic activities, according to professions such as: lawyer, notary, specialist physician, dentist, specialist dentist, pharmacist, nurse, veterinarian, architect, engineer, medical laboratory technician, designer, economist, agronomist, registered accounting expert, certified accountant and property appraiser, as well as those carrying out economic activities in the hotel industry, regardless of annual turnover, are taxable persons registered for VAT. This requirement also applies to these persons if they carry out activities exempt under the law. Tax Representative When the person responsible for filing and paying VAT is a taxable person who is not established in Albania, the country where the VAT is due, that person must appoint a tax representative in the Republic of Albania as the person responsible for paying the VAT. Registration of the tax representative is carried out at the regional tax directorate. You can unsubscribe:

When can you register for VAT?

• When your turnover in the past 12 calendar months falls below the minimum registration threshold. Deregistration takes effect 12 months after the date of submitting the application to be subject to the small business regime.

The turnover used to calculate the registration threshold includes:

• the turnover generated by all taxable supplies of goods and services, excluding VAT;
• exempt supplies and supplies taxed at the 0% tax rate;

Entities Not Considered Taxable Persons:

• Non-profit organizations: For payments received from membership fees, funds, grants, and donations obtained for the non-profit purposes of the organization.
• Employees: Any individual bound to an employer by an employment contract.
• Central and local government bodies, other public law entities, for activities carried out in the exercise of their functions as public authorities.

Supply of Goods and Services Supply of Goods Supply of goods means the transfer of the right to dispose of tangible property as an owner. The following transactions are also considered “supply of goods”:

Other transactions such as the supply of goods

• The transfer of ownership of property against payment, by order of/or on behalf of a public authority or pursuant to the law.
• The delivery of goods under a contract which provides for the leasing of goods for a certain period or the sale of goods on installments, where ownership passes upon payment of the final installment.
• The transfer of goods based on a contract under which a commission is paid for the purchase or sale.
• The supply of electricity, water, gas, heating or cooling energy, and other similar items.

Supply of Goods for Consideration A supply of goods is considered to be made for consideration (payment), in whole or in part, if the supplier directly or indirectly receives or is entitled to receive payment in cash or in kind for that supply, whether from the person supplied or any other person. Warning! The transfer of an economic activity does not constitute a supply of goods or services within the meaning of this law; instead, it constitutes a transfer of assets from the transferring taxable person to another person, who is treated as the successor of the transferor. Importation of Goods The importation of goods is the release for free circulation of goods within the territory of the Republic of Albania, as defined in the customs legislation in force. Supply of Services A "supply of services" is defined as any transaction that does not constitute a supply of goods. A service performed by an employee for their employer by reason of employment does not constitute a supply of services by the employee. Mixed Supplies

How are mixed supplies treated?

• The supply of services included in a supply of goods is part of the supply of goods.
• The supply of goods included in a supply of services is part of the supply of services.
• The supply of services included in the importation of goods is part of the importation of goods.

Place of Supply of Goods and Services Place of Supply of Goods

• When goods are not dispatched or transported, the place of supply of goods is in Albania if the goods are located in Albania at the moment the supply is carried out.
• When goods are dispatched or transported by the supplier, the buyer, or a third party, the place of supply is in Albania if the goods are located in Albania at the moment the dispatch or transport to the buyer begins.
• When goods dispatched or transported by the supplier, the buyer, or a third party are installed or assembled (with or without testing) by or on behalf of the supplier, the place of supply is in Albania if the goods are installed or assembled in Albania.

Place of Importation of Goods The place of importation of goods is in Albania if goods originating from other territories are released for free circulation within the Albanian customs territory. Warning! For goods which, upon entry into Albania, are not in free circulation and are subject to special customs regimes, the place of importation is in Albania if these goods are released from the aforementioned regimes or situations within the Albanian customs territory. Place of Supply of Services General Rule The place of supply of services is in Albania if the recipient of the service, a taxable person acting as such, has in Albania:

Criteria that determine the place of supply

• Their business headquarters (seat of economic activity) or a fixed establishment;
• Their domicile or habitual residence, in the absence of a business headquarters or a fixed establishment.

The place of supply of the service is in Albania if the recipient of the service is a non-taxable person, whereas the service provider, a taxable person, has in Albania:

• the seat of his economic activity or a stable establishment from which the services have been provided, or;
• Their domicile or habitual residence, in the absence of a business headquarters or a fixed establishment.

Special Rules In other cases, depending on the status of the service recipient—taxable or non-taxable—and on the type of service provided, the place of supply of the service is exempt from the general rule. Taxation, collectability General Rule For domestic supplies, the tax becomes due and VAT becomes payable when:

• supply of goods or
• The provision of services is carried out.

For importation of goods, the tax becomes chargeable and VAT becomes due when the importation of goods is completed. Special Rules

Advance payments and invoices before supply

• For any payment made before the supply of goods is carried out or before the completion of the service, VAT becomes due upon receipt of the paid amount.
• In cases where a tax invoice is issued before the supply, VAT becomes due at the moment the invoice is issued.
• If partial or successive payments are made for supplies of goods or services, these supplies are considered completed at the end of each period to which the payments refer.
• Supplies of goods and services provided continuously over a period of time, including construction operations, are considered completed in the same month in which the invoice is issued.
• For goods which are not in free circulation and are subject to special customs regimes upon entry into Albania, the tax becomes chargeable and VAT becomes due when these goods are released from said regimes.

Taxable value The taxable value includes everything that constitutes the consideration that the supplier of the goods or service receives or will receive from the purchaser, the client or a third party, in exchange for the supply, including subsidies directly linked to the price of these supplies, excluding VAT. The taxable value of imported goods consists of the value determined at import by the customs authority, based on the customs legislation in force in the Republic of Albania. Elements Included in the Taxable Amount:

What is included in the taxable value?

• Taxes, duties, levies, fees, and similar charges, excluding VAT.
• Incidental expenses, such as commissions, packaging, transport, and insurance costs.
• The value of packaging when it is non-returnable.

Elements Not Included in the Taxable Amount:

• Price reductions for early payment discounts.
• Price discounts and rebates granted to the buyer or client.
• Amounts received by a taxable person from their client as reimbursement for expenses incurred in the name and on behalf of the latter.

Tax Rates Standard VAT Rate The standard rate of value-added tax on supplies of goods and services, which is applied as a percentage of the taxable value, is 20 percent. 0% VAT Rate The 0% VAT rate is applicable to:

Supplies taxed with 0%

• Export of goods;
• Supply of goods to non-profit organizations;
• Supply of services consisting of work on imported goods to be processed in Albania and subsequently dispatched outside of Albania;
• Supply of services directly linked to the export or import of goods;
• Certain operations related to the international transport of goods and passengers;
• Supplies of goods and services carried out within the framework of diplomatic and consular relations;
• Supplies of goods and services to international organizations and their members;
• Supplies of goods and services for the armed forces of other NATO member states;
• Supply of gold to the Bank of Albania.

Goods in the Personal Baggage of Travelers Goods intended to be transported in the personal baggage of travelers are also considered exports and are taxed at 0%, provided that:

Conditions for goods in personal baggage

• The traveler is not established within the Republic of Albania;
• The goods are transferred outside of Albania within three months following the month of supply;
• The total supply value, expressed in lek or its monetary equivalent in lek, including VAT, must not be less than 120,000 (one hundred twenty thousand) lek.

Exemptions, Supplies Certain types of supplies of goods and services, for purposes of general public interest or as specifically provided for in law, although included within the scope of VAT, are exempt from VAT taxation. For more information, refer to Law No. 92/2014 “On VAT” - articles 51-56 The right to deduct VAT Principle of VAT Deduction The taxable person has the right to deduct from the VAT calculated on taxable transactions the amounts of VAT on the supplies of goods and services received that are used by the taxable person for those taxable transactions. Specifically:

• VAT paid or payable in the Republic of Albania for supplies of goods and services provided or to be provided by another taxable person;
• VAT paid for goods imported into Albania.

Note: The VAT law sets out in detail specific cases for applying the right to deduct VAT. Conditions that enable the application of the right to deduct. The right to deduct arises and applies when:

Conditions for deducting VAT

• It serves the taxable activity;
• The deductible VAT becomes chargeable;
• It is formally supported by a legal justifying document (tax invoice, customs import declaration).

Application of Partial VAT Deduction (Pro-rata) If supplies of goods and services are used by a taxable person, both for making taxable transactions that give rise to the right to deduct VAT and for other transactions, that do not confer this right, then only the portion of VAT related to the first category of transactions is deductible. Refund Conditions for VAT Refund A taxable person may request a refund of the excess VAT credit if:

When the right to reimbursement arises

• The taxable person has carried forward the deductible VAT surplus for 3 consecutive months;
• The VAT requested for refund is over 400,000 lek.

When is a refund granted? Exporters are entitled to request a refund when their surplus exceeds the amount of 400,000 lek, thus without the first condition being required. Within 30 days from the date of the filing of the request by the exporting taxable person, the tax administration carries out the refund procedure. Within 60 days from the date of submission of the request by a taxable person who is not an exporter, the tax administration carries out the refund procedure. Where is the refund request submitted? Taxpayers submit the request for VAT refund to the VAT Refund Directorate of the General Directorate of Taxes. This request is filed using the approved “Request for VAT Refund" form, which can be found below. Payment of the refundable credit surplus is made within five days through the treasury system, based on the rules established by the Minister of Finance. The person responsible for the payment of VAT

Who pays the VAT?

• VAT is payable by the taxable person who carries out a taxable supply of goods or services, except where otherwise specified.
• VAT is payable by the taxable person or the non-taxable legal entity, identified for VAT, to whom the services are supplied, if these services are provided by a taxable person not established within the territory of the Republic of Albania.
• VAT is payable by any person who indicates VAT on an invoice.
• When an issued invoice does not correspond to the actual supply of goods or services, or indicates a price that is not effectively paid by the buyer, VAT is payable by the person who issued the invoice.
• For imports, VAT is paid by the person or persons responsible for paying customs duties, as defined in the Customs Code of the Republic of Albania.
• VAT is paid by the person who releases the goods for free circulation from special customs regimes.

Warning! The taxable person for whom a supply of goods or services has been made and who is aware of or cannot deny the fact that VAT- the VAT due or part of this VAT on this supply or on all previous supplies of goods or services, has not been paid due to fraud, is jointly and severally liable with the supplier for the payment of the VAT. Obligations of taxable persons The taxable person must be identifiable. He must obtain a Unique Identification Number (NUIS) from the National Business Center (NBC), a number which is indicated on the certificate issued for this purpose. The taxable person must ensure the issuance of an invoice in the following cases:

Circumstances when a tax invoice is issued

• For every supply of goods or services carried out for another taxable or non-taxable person;
• For any payment made prior to the supply of goods or before the completion of the service;
• Periodically, for several supplies of goods or services provided on a regular or continuous basis between the taxable person and their client within the same month in which the supplies occurred;
• In the construction sector, a tax invoice must be issued every month;
• An invoice may also be issued by the buyer or the client of a good or service (self-billing) for supplies received from a taxable person.

The VAT invoice, in form and content, is approved by the Minister of Finance. The taxable person may issue a simplified invoice for supplies valued under 40,000 lekë and when the buyer does not request a VAT invoice. The taxable person is required to keep a book of purchases and sales, in which they record all purchases and sales made during the tax period (month). The book of purchases and sales must be submitted electronically no later than the 10th day of the month following the tax period in which it is filed. Every taxable person must submit a VAT return, which contains all the necessary information on which the calculation of the VAT that has become due is based, the amount of VAT that can be deducted, taxable values of transactions related to the calculation of the VAT due and the deductible VAT, as well as the value of VAT-exempt supplies. The declaration form is approved by the Minister of Finance. The VAT return must be filed no later than 14 days after the end of the tax period being declared. Special Regimes The special VAT application regimes in Albania are as follows:

List of special regimes

• Regime for travel agencies;
• Special regime applied to the sale of second-hand goods, works of art, collectors' items, and antiques;
• Profit margin regime;
• Auction sales regime;
• Special regime: Compensation scheme for agricultural producers;
• Special regime on investment gold.

Source: General Directorate of Taxes.