Albania abolishes taxes for small businesses

Albania/December 2015

The government of Albania has announced a new tax reform which includes the removal of the obligation to pay the simplified income tax for small businesses with annual turnover up to 36,000 Euros (or 5,000,000 ALL).

This reform, which will enter into force as of the 2016 fiscal year, also includes a tax reduction of 2.5 percentage points for businesses with annual turnover between 36,000 to 58,000 Euros (5,000,000 – 8,000,000 ALL). There are approximately 100,000 businesses which will benefit from this reform and it is expected that the new measures will help increase the general turnover of the economy and assist the economic development of the country.

The lack of business regulation continues to be one of the main problems of the Albanian economy. In order to find a solution for this issue, the Albanian Government has initiated tighter control of Albanian businesses in relation to the observance of the tax legal framework. Additionally, the Prime Minister has announced a new tax regime for small and medium businesses in Albania, which will enter into force with the beginning of the new fiscal year. Specifically the changes announced include:

-The total abolishment of the simplified profit tax for businesses with a turnover up to 2,000,000 ALL. Currently, these companies pay a flat tax on profit in amount of 25,000 ALL.

-The total abolishment of the simplified profit tax for businesses with a turnover between 20,000,000 and 50,000,000 ALL, which currently  pay a 7.5% tax on profit.

-The decrease of the simplified tax on profit (from 7.5% to 5%), for businesses with turnover between 5,000,000 ALL and 8,000,000 ALL.

In addition to the tax on profit, the prime minister announced several other positive changes and facilities for small businesses. An important change will include the possibility of employing family members without the obligation of paying social insurance arising from their employment. The definition of what would constitute “family members” will be determined by the new Law.

Despite the fact that the small businesses (with turnover not exceeding 50 million ALL) will not have to pay tax on income, they will continue to pay social insurance for their employees and they must declare the total turnover based on the invoices for all their purchases and sales. Every year until the 25th of February these businesses will have to submit the declaration of their annual incomes and expenses.

Another expected improvement is related to the way the fiscal administration will perform audits to the small businesses. The tax controls will be organized centrally and not as a door-to-door approach. According to the data gathered from fiscal devices, the tax authorities will be informed in cases when a business’s turnover will have drastic changes. Following such an event, the business will be subject to the appropriate tax control.

The above-discussed changes will be applicable from the 2016 fiscal year. The number of small businesses, families, and self-employed persons who will benefit from these changes and whose tax on profit will become zero has been estimated to be around is 83,300. Furthermore, there are 15,900 businesses whose simplified tax on income will be reduced to the 5% rate. The announced measures reflect the aim of the Albanian Government to formalize the economy and to reduce the taxes for small and medium businesses. It is also expected that due to the changes small businesses will not have an interest in trying to hide or misreport sales or purchase invoices considering that their tax on profit will be zero. These measures, along with the high penalties in case of non-issuance of fiscal receipt or invoice, will also help the Government combat unfair competition.

Dorina Asllani Ndreka,
T. + 355 (0) 42 248 548E.