24-04-2013

Taxation

Authors

  • Naim Isufi, MBA, LLM, ACII
    Managing Partner at ISUFI International & Associates Law Firm

Albanian Legislation has been very active in the field of taxes and duties. Tax system in Republic of Albania consists of a package of laws, directives, regulations, tax agreements with other countries, which contain all kinds of taxes and duties applied in Albania, their levels, procedures for setting, changing and removal of taxes, procedures for evaluation and collection of tax liabilities and tax control forms and methods.

Taxes as the main and the most important collection of public revenues appear in a variety of forms. Taking into account the moment of income creation and their expenditure, taxes in Albanian legislation are divided into direct and indirect. So, under this criteria taxes paid at the moment of income creation represent the direct tax group, while those executed at the moment of profited income expenditure are included in the indirect tax group.

While Tax is a compulsory contribution to be paid by any person who benefits a public service directly.

So, taxes represent a compensation for special public services performed by the State in favor of different persons. These services relate to one or some direct benefits of citizens. Placing of taxes has the main intention to enlarge the market for Albanian manufacturers. Taxes are primarily addressed to large businesses and also small ones, because 95 % of businesses in Albania are individuals and only 5 % are corporations. Taxes belong to everyone not only to big businesses. Taxes and duties are:

  • Proportional
  • Progressive
  • Regressive

Each has its positive and negative effects. Pursuant to 1996 law, tax division in Albania was overcome, now there is a fixed VAT of 20 % for all goods. Taxes are needed in each country, as they are the income to fund State administration, police, medicine and so on. Examples and models are different, from those with a system directed to socialism as the Nordic countries, where taxes are among the highest, to the system directed to capitalism, as in England and United States of America.

Taxation plays an important role in Albania. So, by taxing economic (natural and legal) entities, the State collects its revenues and reduces the economic power of natural and legal persons in order to create its own economic power to finance public expenses. When taxpayers pay the tax to the State, they do not benefit directly, but the State provides indirect benefits to taxpayer. So, remuneration of State to taxpayer is indirect, because, with collected funds, the State finances education, science, culture, health, sport expenses, maintenance of roads, railways, waterworks, sewage, defense of the people, administration, etc.

Now, taxes are used as a very efficient financial instrument for the realization of numerous economic and social goals of the State. In this way taxes have become an instrument of economic policy and they have an influence:

  • On policy of prices
  • On investments volume and direction
  • On demand and offer equation
  • On limitation of inflation rate

METHOD FOR TAX BASIS SETTING

Tax basis serves for tax calculation, it is usually determined in money, whereas in extraordinary cases by any measuring unit. In practice, tax basis is determined by net collections or incomes after general expenses are deducted from general income. In practice, there are some methods for setting the tax basis:

  • Method of pre-signs - is the case when tax basis is determined pursuant to evident facts, this method is determined by facts, which in reality should express the economic power of obliged taxpayer.
  • Direct Method - is when tax basis of obliged taxpayer is set pursuant to data (tax books) that obliged taxpayer sends to tax bodies, so, he is obliged to do this action.
  • Indirect Method -is when a third person sends the necessary data for tax basis setting to State tax bodies, for example, banks are obliged to send to State bodies all the information regarding their clients.
  • Official Method - is that method when the official body does not accept as accurate the notes sent by obliged taxpayer. In those cases, tax body itself begins to collect the data, for example, from banks, business partners of taxpayer so that tax basis of taxpayer is determined from real data.

TAX CLASSIFICATION

Three are the main direct taxes paid by registered taxpayers in Republic of Albania.

Profit Tax, which is paid by taxpayers, which exceed VAT registration limit.

Simplified Profit Tax, which is paid by registered taxpayers realizing an annual turnover that does not exceed VAT registration threshold.

Local tax on small business, which is paid by registered taxpayers realizing an annual turnover that does not exceed VAT registration threshold.

During the implementation of tax policy, the State should be based on some principles to achieve certain goals of tax policy. One of these principles is:

Residence Principle

Determination of tax residence criteria for individuals, for legal persons and natural persons is related to place of payment of taxes by them.

According to the law, Albanian resident taxpayers are taxed in Albania for all the incomes realized worldwide (incomes with a source in Albania and abroad). Whereas non-resident persons are taxed in Albania only for the income sourced in Republic of Albania.

In particular , for the persons that are residents in the countries with which Albania has signed Agreements (Conventions) for elimination of double taxation and these Agreement have entered into force, the provisions of these Agreements will be applied.

  • The individual is considered Albanian resident for tax purposes, when he has a permanent house, has his family, that is, he has life and economic interests in Albania (country of vital interest), though he can work in different periods abroad or may have foreign citizenship.
  • For tax purposes, Albanian Resident is considered the individual who stays in Albania during a taxation year, continuously or intermittently, in total, more than 183 days, regardless by the citizenship or State where he has the vital interests. Calculation of duration of stay in Albania includes days of physical presence, so, not only the business days but also days of arrival, departure and holidays. So, Albanian tax resident is considered any individual (regardless by the nationality or citizenship), that meets one or two of the above-mentioned criteria.

A legal person is considered Albanian tax resident if:

  • it has a permanent residence (central offices), in Republic of Albania; and/or
  • has the effective business management place in Republic of Albania;

A natural person is considered Albanian tax resident when he exercises the business and is registered as a trade natural person in Albanian Court and in Albanian tax bodies.

TAX IMPACT ON ECONOMIC ACTIVITY CONDITIONS

Impact of taxes on economic activity of economic subjects can be viewed in two aspects: 1) in the aspect of tax impact on business conditions with the intention of promoting the rapid economy development and 2) in the aspect of social correction of income profit. Most developed and developing countries now use taxes in order to be developed as soon as possible in the economic aspect. Different methods are used to accomplish these goals, one such method is the method of promoting in the first place the development of economic branches that promote and push ahead the economic development.

Tax policies together with other instruments of the economic policy are used today to promote the economic development. It should be stressed that tax policy to promote economic development is mostly used by countries that are not much developed, which make efforts for rapid development, but this does not mean that developed countries do not use it. Tax impact on the economic development occurs in these ways:

  • Exemption from tax obligation of incomes that are used for investments, exemption from taxes of new industrial organizations, etc.
  • Reduction or the exemption from turnover tax (VAT) for construction of investments objects, for purchase of investment equipment, for raw material, etc.
  • Tax effects also infrastructure development (communications, energy, schools, health objects, etc.) which is a precondition for economy rapid development.

HOW ARE TAXES PAID IN ALBANIA?

Taxes and duties regime in Republic of Albania consists in a package of laws, directives, regulations, tax agreements with other countries which contain all kinds of tax levels, calculations, procedures, methods and forms of tax control for taxes included in Albanian tax system. Tax legislation is subject to continuous amendments and changes, due to rapid economy developments.

Tax rate

Legal and natural persons in the Republic of Albania are subject to the following taxes:

Tax Tax Rate
Profit Tax 10 %
Personal Income Tax 10 %
Withholding Tax 10 %
Value Added Tax 20 %

Profit Tax

All companies (whether or not foreign), which are registered in trade register and pay VAT, are subject to t profit tax. Resident taxpayers are taxed only for incomes generated in the territory of Republic of Albania.

Tax rate for profit tax is 10%.

Taxable profit for the tax period is determined based on balance-sheet and its annexes, which should be in conformity with Law No. 7661, date 19.1.1993 “On Accounting”, with provisions of this law, and with bylaws issued by Ministry of Finance to that end. In order to define taxable profit in Republic of Albania, recognized expenses are those incurred with the purpose of profit, profit security and protection, to the extent these expenses are certified and documented by taxpayer, and when they are subject to restrictions specified by this law.

The document used as a basis to justify the expenditure for tax effect is: VAT tax invoice, simple tax invoice and any other document compiled and issued in conformity with guidelines of Minister of Finance, pursuant to tax legislation.

Value Added Tax

Value Added Tax is paid:

a. for all taxable supplies of goods and services provided against payment by a taxable person, as part of its economic activity in the territory of Republic of Albania.

b. for all imports of goods in the territory of Republic of Albania.

Threshold for registration is 8 million lek (per calendar year) or any other amount, provided for by Council of Ministers pursuant to item 5 of this article.

All legal and physical persons involved in export or import activities are obliged to register in order to pay VAT.

Any other entity such as individuals, central and local government bodies, social, political and international organizations, diplomatic missions, etc, which carry out import-export activity, regardless of turnover, are also obliged to register. Customs operations for any entity which carries out import-export are conducted only after it submits the original or the notarized copy of the Certificate of the Identification Number for the Taxable Person (NIPT).

Total annual turnover is calculated pursuant to total price paid by purchaser, including payment of taxes and penalties (fines).

The VAT declaration and payment form is filled in two copies and taxable person submits it to the respective bank branch with which General Tax Directorate has signed an agreement regarding admission of VAT payments, within 14 days after tax period expiry. VAT is applied at the rate of 20%, unless this law provides for otherwise.

VAT tax-exempt are:

  • Provision of financial services
  • Supplies of gold, banknotes or coins to Bank of Albania
  • Supply post stamps used for mail service or similar stamps
  • Supply provided by a non-profit organization against a reduced payment is a taxexempt supply under conditions provided for by article 24, etc.

Supply taxable value is the total amount paid for that supply, except for the cases provided for otherwise by Law No.7928, date 24.04.1995.

Withholding Tax

All resident persons in Republic of Albania, central and local government bodies, nonprofit organizations and any other entity, recognized by legislation into force, are obliged to withhold tax at the source in the amount of 10% from the gross amount of the following payments, generated by a source in Republic of Albania:

Tax rate

Legal and natural persons in the Republic of Albania are subject to the following taxes:

Interests 10 %
Profit distribution 10 %
Fees for technical services, management and financial services, etc. 10 %
Payments for Rents 10 %
Dividends 10 %
Payments for copyright and intellectual property rights, etc. 10 %

Personal Income Tax

All individuals, residents in Albania are taxed for all incomes generated wherever in the world, while non-residents are taxed only for incomes generated within the border of Albanian territory.

TAX ON PERSONAL INCOME FROM EMPLOYMENT

Taxable Income (monthly)   Tax Rate (%)
Over (ALL) Up to (ALL)  
0 10 000 0 percent
10 001 + 30 000 + 10 percent of amount over 10 000 ALL
30 001 + More 10 % percent of amount over 0

NATIONAL TAXES

1. LEVEL OF HARBOR TAXES IN REPUBLIC OF ALBANIA

Harbor taxes are paid for a period of one month by the ships, which carry out trade activity, each time them touch the harbors and berth of Republic of Albania.

LEVEL OF HARBOR TAXES IN REPUBLIC OF ALBANIA

TYPE OF HARBOR TAXES For every net ton of vessels register for one month For every net ton of vessels register for a year
Ship Tax: EURO EURO
For vessels that have a tonnage up to 50 NRT 10 30
For vessels that have tonnage 51 NRT up to 500 NRT 0.5 1
For vessels over 501 NRT 1.0 1
For ferries, passengers and Ro-Ro 1.50 5
For tourist, sportive vessels, yachts 0.10  
Cruisers 0.4  
Headlight Tax: 0.1  
For all vessels
Tax for formalities performed by health bodies, harbor captainship and other authorities:    
For all vessels without exceptions 0.40  

Harbor taxes are paid prior to vessel departure from the harbor. Foreign vessels pay harbor taxs in freely convertible foreign currency, whereas vessels of legal or natural persons registered in t Republic of Albania pay in foreign currency or ALL.

2. TAXES FOR CONSULAR SERVICES

Taxes for consular services are collected by Ministry of Foreign Affairs and Ministry of Interior and other institutions under them according to Law provisions.

Taxes for issue of visas and traveling documents:

1. For issue of traveling passports: 2000 ALL

2. For issue of traveling passports by the representations: 50 EURO

3. Extension of passport by representations: 15 EURO

4. For laissez-passers 200 ALL

5. For laissez-passers issued by representations 30 EURO

6. Visa Tax for foreign citizens Reciprocity

  • For foreign citizens, who enter the territory of Republic of Albania with tourist groups through tourist companies, visa tax is based on reciprocity principle, but not more than 1 Euro for those entering by land and water border crossing points, and no more than 10 euro for those who enter through the air border crossing point.
  • For foreign citizens who do not need visas to enter the territory of Republic of Albania, entry tax is based on reciprocity principle, but not more than 1 Euro for those entering by land and water border crossing points, and no more than 10 euro for those who enter through the air border crossing point.
  • For foreign citizens who do not need visas to enter the territory of Republic of Albania with tourist groups, entry tax is based on reciprocity principle, but not more than 1 Euro for those entering by land and water border crossing points, and no more than 10 euro for those who enter through the air border crossing point.

One-day individual tourists and those who are organized in one-day tourist groups do not pay visa tax or entry tax.

More in this category: Taxation Of Individuals »
GREEK LAW DIGEST REPUBLIC OF ALBANIA MINISTRY OF INTEGRATION Union of Chambers of Commerce and Industry of Albania
Nomiki Bibliothiki ALBANIA INVESTMENT DEVELOPMENT AGENCY Foreign Investors Association of Albania
     

 

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