Corporate income taxes

Last reviewed 21 Aug 2023

Object of taxation

Income

Tax rate

0% for entitiies with annual turnover between ALL 0 million and ALL 14 million
15 % flat rate for entities in general with turnover in excess of ALL 14 million
5% : Apply for certain industries under specific conditions in accordance with specfic laws:

• software production and development
• taxpayers whose activity is based on agricultural co-operation
  and those that are awarded the status of “certified agrotourism entity” on or before until

31 December 2021.

• entities, which exercise economic activity in the automotive industry,

Tax liability

Commercial companies, permanent establishments

Unlimited

N/A

Limited

Entities estblished in Albania

Financial year

Accounting exercise begins on 1 January and ends on 31 December. Exemptions for specific activities, with the proposal of the National Accoun- ting Council, approved by the Council of Ministers.

Accounting

Is regulated based on the Accounting Law. Listed companies, financial institutions and certain other companies with public interest (PIE) are required to apply IFRSs. All other companies as specified by Albanian Accounting Act are required to use National Accounting Standards (in line with IFRS for SME) or may voluntarily chose to apply IFRSs.

Loss carryback

Not allowed

Loss carryforward

In general tax losses can be carried forward for three consecutive years. Tax losses can be carried forward for 5 years if certain investment thresholds are reached (1 milliard ALL).

Shell company purchase

If a change of more than 50 % in the entity’s ownership occurs, the remaining tax losses are forfeited.

Operating expenses

Expenses of the business

Transfer prices

Subject to Transfer Pricing Regulation are all Albanian taxpayers engaged in cross-border trans- actions with ‘associated parties’. Filing an annual controlled transaction notice is required only for companies which have aggregate controlled transactions (including loan balances) exceeding ALL 50,000,000 (approx. EUR 414,044) during the reporting period. Transfer Pricing Documentation must be filed within 30 days of request from Albanian Tax Authorities.

The Transfer Pricing documentation must address at least the following:

• Overview of the taxpayer’s business operations and organizational chart;
• Description of the corporate organizational structure of the group; Description of the con- trolled transaction(s), including analysis of the comparability factors and details of applicable transfer pricing policy (where relevant);
• Explanation of the selection of most appropriate
• transfer pricing method (cost plus, profit split, comparable uncontrolled price method);
• Comparability analysis as described above;
• Explanation of any economic analysis and projections relied on;
• Details of any advance pricing agreements or similar applicable to the controlled trans- actions;
• Conclusion as to consistency of the conditions of the controlled transactions with the market principle, including details of any adjustment made to ensure compliance;
• Arm’s-length basis, documentation required.

Interest on debt financing of acquisition of shares

Deductible under the same conditions as interest payable on other type of borrowings. However, interest paid by the taxpayer during the fiscal year which exceeds the 12-month average interest rate of the bank market as officially published by the Bank of Albania is not deductible.

Debt / equity

Interest is deductible if the debt/equity ratio does not exceed the 4:1 ratio. Short-term bank loans with duration of less than one calendar year not considered for purposes of calculating the ratio of the loan as above. This restriction (ratio 4:1) does not apply for banks, leasing and insurance companies.

Tax depreciation

For tax purposes fixed assets are divided into four groups:

• 1st group (non-depreciable assets): land, art objects, antiques, jewelry, precious metals and stones are not amortized;
• 2nd group (costs of purchase or construction and costs of upgrading, renovation and recon- struction of buildings, fixtures and machinery and equipment with long service) are depreciated separately with declining balance method at a rate of 5 % on net book value;
• 3rd group (intangible assets) are depreciated separately for each asset on a straight-line basis, at the rate of 15 %;
• 4th group (computers and IT systems) are depreciated based on net book value at 25 % and 20 % for all the other assets.

Accounting depreciation depends on accounting policy of the company

Provisions

Banks can now deduct only loan impairments (provisions) for Corporate Income Tax purposes if they are calculated following the International Financial Reporting Standards (IFRS).

Motor vehicle expenses

Depreciation expenses are deductible up to 20 % of the net book value. Depreciation over at least 10 years Acquisition cost: no ceiling

No deduction of input VAT on acquisition cost and running expenses of passengers' cars except when:

• the sole purpose of economic activity is the purchase of the vehicle for selling.
• the sole purpose of economic activity is the use of cars (e.g. renting, taxi service, ambulance service)

Non-deductible expenses

The cost of acquisition and improvement of land
Any capital increase of the company or contri- bution increase in a partnership, upon capital or initial contribution defined by the contract and status of the person.
The value of compensation in kind, which include any compensation paid not in cash by the employer or a person related to him for the services performed by the employee for his employer.

Compensations of such type are:
food compensation, donation of vehicles, house appliances, tickets for tourist trips etc., providing of dwelling houses or premises for personal use or other purposes that are not directly related with the conducting business activity
Dividends declared and profit distributed among partners or shareholders
Personal income tax, excise duties, profit tax, and input tax (VAT-deductible)
Voluntary pension contributions (while mandatory contributions of the employer according to legislation are deductible expenses of the business)
Interest paid from the taxpayers exceeding the loan interest rate as determined in the Official Gazette by the Bank of Albania (on December 31 of the previous year). The same is applicable to loan interest exceeding a debt to equity ratio of 4:1. Exceptions for banks and insurance companies when
Fines, late payment interests, and other penal sanctions paid for different legal and admini- strative reasons. In case of removal of the fines, late payment interest and other penal sanctions: the benefited income from removal of the above is not taxable and therefore for fiscal effects the fines will be reconsidered as deductible expenses
Provision for risks and expenses except of those created by insurance companies and banks
Representation expenses and reception for amounts exceeding 0.3 % of the annual turnover. Exemptions apply for exporting companies.
Personal living expenses (including all expenses of personal consumption which have no direct relation with performance and results of the business).
Net Interest is deductible if does not exceeds 30% of the EBITDA. The non-deductible Interest is carried forward under certain rules and regulations.

Interest barrier

Net Interest is deductible if does not exceeds 30% of the EBITDA.Such interest not deductible in the current period can be carried forward to future tax periods, provided that a change of 50% in the entity’s ownership does not occur. Such limitation does not apply to banks, other financial institutions that are not banks, insurance companies and leasing companies.

Interest and royalties to intra-group companies

N/A

Withholding taxes

Statutory withholding tax rate is 15 %. A lower rate or 0 % can apply, provided it is envisaged by a double taxation agreement (DTA)

Interest

15 % (a lower rate can apply, provided it is envisaged by a double taxation agreement)

Royalties

15 % (a lower rate can apply, provided it is envisaged by a double taxation agreement)

Dividends

8 % (a lower rate can apply, provided it is envisaged by a double taxation agreement)

Controlled foreign corporation (CFC) rules

N/A

Hybrid mismatches

N/A

National parent- subsidiary exemption

Dividends are tax exempted.

International investments

N/A

International parent- subsidiary exemption and portfolio investments

N/A

Goodwill amortisation

On a strait-line basis, at the rate of 15 %

Group taxation / pooling

Tax groups

N/A

Pooling

N/A