Albania has signed double taxation agreements with many countries, in order to ensure that tax on income is not paid twice. The latest agreement of this kind is the one concluded between the Republic of Albania and the Kingdom of Saudi Arabia in February 2019 and ratified by Albania in July 2019. Given the recent Saudi Arabian ratification, it will legally be effective as of 1st of January 2020, with the beginning of the new fiscal year. The aim of the agreement is to improve the economic relations and increase the investment flows between the two countries.
This agreement on the avoidance of double taxation and the prevention of tax evasion related to income and capital tax will be applied for residents of both countries. The main focus of the agreement is on the income and capital taxes applicable in both states. According to this Agreement, the income taxes are considered to include all taxes on overall income, on capital or on elements of income or capital, including taxes on profit from the alienation of movable or immovable property, taxes on wages, as well as capital gains taxes.
In accordance with the relevant tax legislation in both countries, this Agreement will be applied to the following taxes:
For the Republic of Albania:
• Taxes on income, including company profit tax, personal income tax from capital gains and from alienation of movable and immovable property;
• Tax on small business activities;
• Tax on property.
For the Kingdom of Saudi Arabia, it will include:
• Income tax, including tax on investment in natural gas
A withholding tax of 5% on dividends has been set, whereas a 10% rate will be applicable on interest and a 5% or 8% on royalties.
The Agreement also regulates the methodology for the exclusion of double taxation. If a resident of one state acquires profits or owns capital which, in accordance with the provisions of the Agreement, may be taxed in the other state, the said state will apply a deduction from the tax on income or capital. The deduction is equal to the tax on income or capital, paid in the other country. In the case of the Kingdom of Saudi Arabia, the methods for eliminating double taxation do not violate the provisions of the Zakat collection regime with regard to Saudi nationals.
The competent authorities in both states have the obligation to exchange the necessary information for the implementation of this Agreement. They also have an obligation to provide information on every important legal change in the domestic legal framework that has an impact in this Agreement.
This Agreement is expected to help the economic relations between the two countries and to increase foreign investment in Albania. The practical impact of the agreement is related with the opportunity of the commercial companies that operate in both countries to pay their tax obligations only in one country and to avoid a heavy tax burden. For more information on how this Agreement may impact your business in Albania, please contact our office in Tirana.