The tax system includes personal income tax, profit tax, tax on real estate, value added tax (VAT) and excise tax. The tax year is the calendar year. The process of modernization of the tax legislation started in October 1997 with changes to the VAT, established in mid-1996, by replacing the turnover tax. The initial VAT rate of 12.5 percent was increased to 20 percent and most exemptions were abolished. In December 1998, a new law on personal income tax and profit tax was introduced and new tax rates for personal income tax were established. A modern system of collection of tax on profit and withholding tax on dividends, interest, and certain services was also introduced. In January 1999, a new Customs Code came into force, simpler to apply and leaving less space for individual interpretation. It has also been designed to comply with WTO requirements.
Personal Income Tax
Under Albanian law, all individuals are liable to income tax. While residents pay tax on all taxable income sources, non-residents pay tax only on income generated within the territory of Albania. Residents are considered to be persons who stay in Albania, in aggregate for a period or periods exceeding 183 days in a tax year.
Personal income tax is levied on the following categories of income:
- Wages, salaries and other compensation derived from labor relations;
- Interest from bank deposits and other interest bearing securities;
- Income from copyrights and royalties;
- Income from loans and leasing, excluding cases when this income is generated through commercial activity;
- Income from lottery games and casinos;
- Income from transfer of ownership on real estate.
- Income subject to small business tax law (income from self-employment and from trade and service activities of individuals);
- Income of individuals who enjoy diplomatic status;
- State unemployment benefits, pensions and other transfers.
- Personal income tax rates
- Gross salaries and compensation for employees will be taxed according the amount of monthly compensation
- Income from lottery games and casinos is taxed at 20 percent;
- Income from transfer of right to ownership of real estate
- On other incomes, which are subject to tax, a flat rate of 10 percent is applied.
Social Security Contribution
The Albanian social security system is administered by the Public Institute of Social security, which is under the jurisdiction of the Council of Ministers. The employer contributions include contributions to the work accidents indemnities and unemployment fund. Employees are also liable to a percentage for both health and social security contributions.
Corporate Income Tax
Beginning from 1 January 206 the corporations conducting business in Albania are subject o profit tax at a flat rate of 20 percent. Tax is levied on any domestic or foreign legal entity whose status is determined by the Albanian laws in force.
The determination of the taxable base starts with the profit shown in the profit and loss count. The profit calculation should be made according to the General Accounting Plan and the relevant instructions issued by the Ministry of Finance.
Dividends and profit sharing
- Dividends and profit sharing, irrespective of the status of the recipient, are subject to withholding tax at a 10 percent rate.
- Interest paid to resident or non-resident individuals (irrespective of the status of the recipient) is subject to withholding tax of 10 percent.
- Gains that an individual realizes from the difference between the selling prices of the shares with their purchase price are subject to the withholding tax of 10 percent.
No withholding tax is imposed on dividends distributed to a company that owns more than 25 percent of stocks in the company paying these dividends.
Interest paid to resident/non-resident individuals and non-resident companies is subject to final withholding tax of 10 percent.
There is a 10 percent withholding tax for payments such as services, artistic performances, royalties and leases.
Value Added Tax
Taxable persons are all individuals and legal entities registered, or required to be registered, for VAT: any person making taxable supplies and having an annual turnover in excess of ALL 8 million is required to register. For individuals and legal entities that operate in the import/export sector it is mandatory to be registered, notwithstanding the annual turnover.
The taxable base is the turnover of taxable supplies. The taxable base for imports is the customs value of the goods, including customs duties.
The following supplies are not subject to VAT:
- The lease and sale of land;
- The sale of buildings;
- Financial services (including interest from finance lease activities);
- Certain services rendered by not-for-profit organizations;
- Postal services;
- Medicines, medical equipment and certain supplies in connection with oil exploration;
- Donation of goods made in case of natural or social calamities.
The rate of VAT is 20 percent. Exports of goods and services, and supplies relating to international transport are zero-rated.
Local taxes in Albania
Local taxes in Albania are:
Tax on real estate,Tax on buildings, Tax on agricultural land, Tax on transfer of real estate, Hotel residency tax, Taxes on small business,Local tax on small business, Simplified income tax, Excise tax, Customs duties