INCOME TAX
2024
LAW NO. 29/2023, “FOR INCOME TAX”
Law No. 29/2023 “On Income Tax”, as amended, aims to establish rules regarding the assessment, declaration, and collection of personal income tax for individuals, corporate income tax, as well as the tax withheld at the source of income from inheritance, donations, and winnings from games of chance. This law was published in Official Gazette No. 70, dated 2.5.2023.
Law No. 29/2023 entered into force on May 15, 2023, but as of January 1, 2024, the following obligations have commenced:
(1) self-employed individuals and traders:
For self-employed individuals and traders with gross income up to 14,000,000 lek, a 0% income tax rate will be applied until December 31, 2029. Starting from the year 2030, a tax rate of 15% will be applied.
| Annual tax base | Tax rate |
| 0 – 14 000 000 ALL | 0% – until December 31, 2029
15% – starting from January 1, 2030 |
| mbi 14 000 000 lekë | 23% |
Self-employed individuals providing professional services are subject to progressive tax rates based on annual income.
|
Annual tax base Tax rate |
| 0 – 14 000 000 ALL 15%
mbi 14 000 000 ALL 23% |
(2) corporations/entities
This category includes collective companies, limited partnerships, limited liability companies, joint-stock companies, and other entities not exempt from the application of this tax according to the law. Corporate income is taxed at 15%. Exceptionally, the tax rate for dividends is 8%, without deducting any costs.
In this case as well, corporations/entities with gross income up to 14,000,000 lek are subject to a 0% income tax rate until December 31, 2029.
Meanwhile, for corporations/entities with annual income exceeding 14,000,000 lek and corporations/entities providing professional services, the aforementioned tax rates apply (15% and 8%).
*The list of professional services is determined in the decision of the Council of Ministers no. 753, dated 20.12.2023, “On the implementing provisions of Law No. 29/2023, “On income tax, as amended” (below).
Tax on income from inheritance, gifts, and games of chance
Individuals (individual, self-employed, trader) and entities (corporations and other entities) are subject to a 15% income tax rate on income from inheritance, gifts, and games of chance. Additionally, individuals are subject to a 15% income tax rate on investment income, while dividends are taxed at a 8% income tax rate.
Income from investments includes: a) income from interest, dividends, and royalties; b) capital gains from the disposal of securities or financial instruments; c) capital gains realized from life insurance schemes; d) return of investment from private pension schemes; e) capital gain from the disposal of tangible assets; f) income from rent of tangible assets; g) income from investment for the disposal of securities, financial instruments, and virtual assets; h) income from transactions with virtual assets.
Annual tax declaration of personal income
An individual is required to submit an annual personal tax declaration when their annual taxable income is:
• more than 1,200,000 lek per year from all sources;
• when in an employment relationship with more than one employer, regardless of the amount of income received from the employers;
• more than 50,000 lek of any other income not subject to final taxation at the source.
Fiscal facilities
The law provides that certain tax concessions and exemptions offered by Law No. 8438, dated 28.12.1998, “On income tax”, as amended, will continue to apply as follows:
(a) Legal entities, registered prior to the entry into force of Law No. 29/2023, which engage in economic activities for the production or development of software, are subject to a profit tax at a rate of 5% until December 31, 2025.
(b) The income tax rate of 5% will be applied until December 31, 2029 for:
– persons who develop hosting activitiescertified as “agritourism”;
– agricultural cooperation societies;
– entities, which exercise economic activity in the automotive industry.
(c) entities operating in accommodation facilities “Hotel/Resort with four and five stars, special status” and that are holders of a registered and internationally recognized trademark “brand name”, are exempted from corporate income tax for a period of 10 years, if they benefit from the special status until in December 2024.
DECISION NO. 753/2023, “ON THE IMPLEMENTING PROVISIONS OF LAW NO. 29/2023 ON INCOME TAX”
The Council of Ministers has approved Decision No. 753, dated December 20, 2023, “On the Implementing Provisions of Law No. 29/2023, dated March 30, 2023, ‘On Income Tax, as Amended’,” which has been published in the Official Gazette No. 187, dated December 22, 2023. This decision determines:
- the economic activities of self-employed individuals and entities (including corporations) with annual revenues of up to 14 million lek, which provide professional services and will be subject to personal income tax from business or corporate income tax.
These economic activities/professional services include: services in the field of information technology; information services; financial services, excluding insurance and pension funding; insurance, reinsurance, and pension fund financing, excluding compulsory social insurance; other financial activities; real estate activities; legal and accounting activities; architectural and engineering activities; activities of technical testing and analysis; business management and consulting activities; advertising and market research activities; other professional, scientific, and technical activities; veterinary activities; rental and leasing activities of transport equipment, trucks, personal and household goods, etc.; employment activities; activities of travel agencies, tour operators, and other reservation services; security and investigation activities; building and grounds services; office administration, administrative support, and other support activities; public administration and defense; compulsory social security; health activities; artistic performances; sports, entertainment, and recreational activities; repair of computers and personal and household goods; other service activities.
- non-deductible expenses and the limitations on their deduction in the field of construction and land-for-building exchanges
The decision defines which expenses will be considered for taxpayers operating as construction contractors, builders and sellers of construction works, and investors and sellers of construction products.
- the types of activities carried out by traders and employees, who are subject to a special regime regarding the recognition of deductible expenses
These activities include manufacturing activities, wholesale trading activities, retail trading of goods and individual transportation activities, bar, restaurant, and disco activities, and other similar activities, service activities, artisanal and craft activities, and self-employed individuals (as reflected in the analytical table of the decision).
- the assessment of cost and selling price of construction areas acquired as a result of a land-building exchange contract
Regarding this matter, the decision specifies that the obligation to calculate capital gain in the case of land-for-building exchange arises at the moment of disposal of the immovable property acquired through the exchange contract (example: owner X exchanges his land for building areas. At this moment, no capital gain is calculated. The latter will be calculated at the moment when the building area is sold). The selling value of the building is determined in the sales contract, but if this value is lower than the reference prices, then, for the purpose of calculating the tax obligation arising from the disposal of immovable property, the reference price of the area/city will be taken into consideration.
GENERAL INSTRUCTION NO. 26/2023, “ON INCOME TAX”
The Minister of Finance has approved General Instruction No. 26, dated September 8, 2023, “On Income Tax” (the Instruction), published in Official Gazette No. 137, dated September 20, 2023. The purpose of the Instruction is to establish the criteria and procedures for the implementation of the provisions of Law No. 29/2023. In summary, the Instruction outlines the following:
- Resident taxpayers in Albania are subject to income tax on income earned both within and outside the territory of Albania. For income earned outside the territory of Albania, foreign tax paid is credited up to the extent of the tax liability attributable to such income earned outside the country.
- Non-resident taxpayers in Albania are subject to income tax on income earned within the territory of Albania, for those incomes derived in Albania.
- income from a source within the territory of Albania.
The law provides for a non-exhaustive list of income sourced in Albania, as follows:
(i) income from employment and services performed in Albania,
(ii) income from cultural, artistic activity or sports performed in Albania,
(iii) income that is an obligation to be paid by a resident employer, even if the work is performed abroad,
(iv) income from business activities and income of self-employed individuals and traders, for activities and services provided in Albania,
(v) income from business attributed to a permanent establishment in Albania,
(vi) income from immovable property, accessories, and their yields, as well as income arising from rights over immovable property located in Albania,
(vii) income from rights to exploit mineral resources, hydrocarbon resources, or other rights to exploit terrestrial and water natural resources,
(viii) income from movable property located in Albania,
(ix) income from the disposal of assets or rights specified above
(x) income from shares and similar interests (trusts, partnerships, etc.), if during the 1 year prior to disposal, 50% of their value arises from the immovable property or rights mentioned above,
(xi) dividends distributed by a resident person,
xii) capital gains from the alienation of shares or titles/other financial instruments of resident entities,
(xiii) interest paid by local or central government bodies,
(xiv) rents, lease agreements, license fees, technical service fees, and/or automatic digital service fees,
(xv) royalties,
(xvi) profits from gambling, inheritances, or gifts received from assets located in Albania,
(xvii) income from the use of virtual assets,
(xviii) income from any other activity physically performed in Albania.
Meanwhile, the instruction clarifies that income derived in Albania may also include other income, which can be identified:
- based on payments made by resident taxpayers in Albania to resident or non-resident taxpayers in Albania, regardless of the payer’s obligation to withhold tax at source or the recipient’s obligation to declare the income received and pay the tax liability related to this income,
- based on payments made by non-resident taxpayers in Albania to resident taxpayers in Albania, regardless of the payer’s obligation to withhold tax at source or the recipient’s obligation to declare the income received and pay the tax liability related to this income. In such cases, the instruction mentions as examples income and payments for Albanian resident individuals on internet platforms such as Google, Tik-Tok, Instagram, Facebook, YouTube, etc., Airbnb, Booking, etc., or on e-commerce platforms, such as Amazon, Alibaba, etc.
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