At the end 2019, the Albanian Government proposed a draft law to the Albanian Parliament, introducing several changes to the Income Tax Law. This draft law was approved by the Albanian Parliament during December 2019. While the changes do not substantially affect the level of taxation, they include several important legal aspects of income tax estimation, which influence certain taxpayers’ categories and their tax obligations. The relevant legal act was published in the Official Gazette no.162 of 2019 and entered into force in January 2020.
The latest fiscal package of the Albanian Government for 2020 has a special focus on the income tax law, by changing several of its provisions.
The capital gains deriving from the transfer of ownership of immovable properties in Albania is subject to tax at a 15% rate. As of January 2020, the first transfer of ownership – through donation or waive from ownership – of an apartment or land between close family members, husband, wife, child, will be exempted from income tax law.
Individuals with two or more employment relations, for the fiscal year 2019, will have to submit the annual personal income tax return, regardless of the value of their annual total income. Latest by 30th of April, they should declare their total annual incomes in one single form and calculate the relevant tax liability for the whole year, in order to pay any difference that may result from cumulative incomes and taxes paid. The obligation to submit the annual personal income tax return was previously imposed only to individuals with incomes exceeding 2 million ALL (approximately 16,000 EUR) per year. This measure aims to avoid tax evasion of employment income tax.
Exporting companies which during the last three financial years have realized more than 70% of their profits from exports, will be able to deduct – for tax purposes – documented expenses incurred for participating in fairs and exhibitions abroad, up to 3% of their annual turnover, previously deductible up to 0.3% of annual turnover.
Companies generating a taxable profit of over ALL 100 million (approximately EUR 800,000) which sponsor sports activities as part of the sports federations, will have the possibility to deduct from incurred expenses, not up to 3% of pre-tax profit, as previously provided by the law, but rather the triple of this amount. This provision can be applied only for the relevant tax year and is conditioned by the presentation of the sponsorship authorization, which is issued by the General Tax Director.
The Law provides for the decrease of the income tax rate for companies operating in the automotive industry, at a 5% rate. The specific criteria and the modalities of the application of this clause will be defined by the Decision of the Council of Ministers.
Due to the earthquake of 26th of November and the large donations from individuals and companies, the new law includes a provision regarding donations in case of natural disasters. The taxpayers will be able to deduct as expenditures donations up to 5% of pre-tax profit, within a prescribed period, and transferred to the national treasury accounts for coping with the natural disaster.
Taxpayers investing in business projects worth over ALL 1 billion (approximately EUR 8 million) will be allowed to extend their tax loss incurred in a period from 3 to 5 years, always following the principle of covering earlier losses. The implementation of this provision will be determined by the Minister of Finance and Economy.
The changes described above are only some of the amendments that the Albanian government and Parliament have provided for the current tax year, which – among others – include the reform of the Invoice and Circulation Monitoring System. The new Law establishes a new invoicing system of the trading activities of taxpayers and monitoring system by the Albanian tax authorities, which will be applied to all taxpayers, and to all transactions, regardless of whether cash or bank transfers. The main scope of this change is allowing the direct interaction between the taxpayer and the tax authorities, directly affecting the reduction of tax evasion. This new system will be implemented in a gradual manner, beginning from the 1st of September 2020 and ending by 1st of July 2021, depending on the type of transaction and the entity involved.
Albanian companies are advised to seek professional assistance in determining any impact the introduced changes may have on their operations and to evaluate any tax benefits that may result from the amendments. Our team in Tirana is at your disposal for any tax assistance required.