management and control of the company is exercised there. Resident companies are subject to corporate income tax on their worldwide income. Foreign companies are subject to tax on profits generated from activities performed through a permanent establishment in the country and on income from Albanian sources.
Rates of corporate tax. The corporate income tax rate is 15%. Until 2029, taxpayers with annual turnover up to ALL14 million (approximately EUR140,000) are subject to 0% income tax.
Windfall tax. In January 2023, the Albanian government introduced a temporary windfall tax on the excess sales realized by Albanian power producers due to the increase in energy prices. The windfall tax is imposed at a rate of 50% on excess income on the electricity sale at a price exceeding ALL8.5/kw, equivalent to roughly EUR73/mwh. The tax is applied retroactively for 2022 and should be paid in two equal installments, respectively, on 31 March and on 30 November of the following year. The tax is a deductible expense for corporate income tax purposes and is applicable until 31 December 2024.
Tax incentives. Tax incentives in Albania are described below.
Until 2025, the corporate income tax rate is 5% for software production and development companies registered before 18 May 2023. Until 2029, a reduced corporate income tax rate of 5% also applies to agricultural cooperatives, certified agrotourism businesses and companies operating in the automotive sector.
Investment in and operation of internationally recognized four- to five-star hotels and resorts that are awarded a special status by the Council of Ministers are exempt from corporate income tax for a 10-year period starting from the commencement of the economic activity, but no later than three years from the award of the special status. This exemption applies to four- to five-star hotels and resorts that are awarded the special status in or before December 2024.
Capital gains and losses. Capital gains derived from the disposal of assets, including shares, are subject to tax at the standard rate of 15%. Capital losses are deductible for tax purposes.
Capital gains derived by nonresidents from the alienation of immovable property located in Albania, shares of Albanian resident entities, securities and financial instruments in Albania, exploitation and other rights regarding minerals, hydrocarbons and other natural resources in Albania and information related to these rights are taxed in Albania. Also, capital gains derived by nonresidents from the alienation of shares deriving more than 50% of their value at any time during the last 365 days, directly or indirectly, from immovable property located in Albania or from any the abovementioned rights or information are taxed in Albania.
Capital gains derived from the direct or indirect transfer of shares or voting rights of an entity that owns rights for the exploitation of minerals, hydrocarbons and other natural resources in Albania or information related to these rights, or operates in the telecommunication sector or as a financial institution, are taxed at the
level of the entity whose ownership is transferred, to the extent that the entity meets both of the following conditions:
• It is subject to a direct or indirect change of ownership by more than 20%.
• It has an average turnover of ALL500 million for the last three years.
The entity is treated as having transferred a proportion of its assets before the transfer. The tax liability is computed on the difference between the fair value and cost of the underlying asset, apportioned to the ownership change percentage. This is a final tax, and the transferor of shares is exempt from taxation on capital gains. If the transferred entity is not liable to pay tax in accordance with the above rule, the obligation rests with the transferor of shares.
A nonresident person that is subject to capital gain taxation in Albania must declare the capital gains and pay the tax liability by submitting an annual income tax return by 31 March of the following year.
The Albanian taxpayer should also report these ownership changes with the tax authorities to the extent that the change is more than 20% for all types of companies and more than 10% for companies whose shares derive more than 50% of their value at any time during the last 365 days, directly or indirectly, from immovable property located in Albania or from exploitation and other rights regarding natural resources and information related to these rights.
Failure to comply with these reporting obligations is subject to heavy penalties.
If a tax treaty is in place, capital gains derived from nonresidents arising from the transfer of shares are taxed in accordance with the provision of the treaty.
Administration. The tax year is the calendar year.
Taxpayers subject to corporate income tax make advance payments of corporate income tax on a quarterly basis. The payments must be made by 31 March for January through March, by 30 June for April through June, by 30 September for July through September and by 31 December for October through December. However, taxpayers may opt to make monthly advance payments of corporate income tax by the 15th day of each month. Newly established companies involved in production activities are not required to make quarterly advance payments for either a period of six months or the period until the end of the fiscal year, whichever is shorter. Failure to pay the advance payment of corporate income tax on time is subject to a penalty of 10% of the amount due plus default interest.
The advance payments for January through March are calculated based on the corporate income tax of the tax year before the preceding tax year. The advance payments for April through December are calculated based on the corporate income tax of the preceding tax year. The tax rate for the calculation of the advance payment is 15%. If the company demonstrates to the tax
at historical cost, which is determined by using the weighted average, first-in, first-out (FIFO) or other specified methods. The method must be applied consistently. Changes in the method must be reflected in the books of the company.
Provisions. Companies may not deduct provisions, except for certain levels of special reserves specified by regulations regarding insurance companies and provisions of financial service companies created in compliance with International Financial Reporting Standards and certified by external auditors.
Tax depreciation. Assets are depreciated separately for tax purposes at the following rates:
• Buildings and installations with a useful life beyond 15 years: 5%
• Intangible assets: 15%
• Computers, information systems, software and data storage equipment: 25%
• All other assets: 20%
Relief for losses. Losses may be carried forward for five consecutive years. However, if a change of 50% in the entity’s ownership occurs accompanied by a change in the business activity, the remaining losses are forfeited. Loss carrybacks are not allowed.
Groups of companies. Each company forming part of a group must file a separate return. The law does not provide for consolidated tax returns or any other group relief.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature
Value-added tax; exempt supplies include leases of land, supplies of buildings (optional) and financial services
Reduced rate for the supplies of agricultural inputs (products)
Reduced rate for accommodation, restaurant (except for drinks), supplies from companies having the status of “agritourism certified entity,” supplies made from brand-name hotels and resorts having a special status, advertisement services from audiovisual media, supplies of books of any type, certain public transport vehicles and construction of sport facilities 6%
Exports of goods and supplies of services relating to international transportation 0%
Real estate property tax
Buildings Buildings used for business purposes; rate applied to value of building 0.2%
Buildings under construction; rate applied to value of the construction surface of buildings that have not been completed as per the time frame stipulated in the construction permit received 30%
31 provisions of individual treaties or the withholding tax regulations in domestic law.
(a)
(a) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 25% of the capital of the payer. The higher rate applies to other dividends.
(b) Interest on government and central bank loans is exempt from withholding tax.
(c) The 0% rate applies if the beneficial owner of the dividends is a company that holds at least 50% of the payer and that has invested at least USD250,000 in the capital of the payer. The 5% rate applies if the beneficial owner of the dividends is a company that holds at least 25% of the payer. The 15% rate applies to other dividends.
(d) The 5% rate applies to interest paid on loans granted by banks or other financial institutions. The 10% rate applies in all other cases.
(e) The 0% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 75% of the capital of the payer. The 5% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the payer. The 10% rate applies to other dividends.
(f) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the payer. The higher rate applies to other dividends.
(g) The 0% rate applies if the beneficial owner of the dividends is a government, a government institution or an agency of the other contracting state. The 5% rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 10% of the capital of the payer. The 10% rate applies to other dividends.
(h) The 0% rate applies if the beneficial owner of the dividend is a government, a government institution or an agency of the other contracting state. The 5% rate applies to other dividends.
(i) The 5% rate applies if the beneficial owner of the dividend is a company that holds directly at least 25% of the capital of the payer or is a pension scheme. The 10% rate applies to other dividends.
(j) The 5% rate applies if the license fee is related to industrial, commercial and scientific equipment. The 8% rate applies to other license fees.
Albania has signed tax treaties with Finland, India and Luxembourg, but these treaties have not yet entered into force.