Albania changes VAT exemption rules

The 2014 Albanian VAT law aimed to harmonize the Albanian VAT legal framework with the European Union acquis in this field, specifically with Directive 2006/112/EC. The new law included many provisions not covered by the previous law. Since the entry into force of the new law, several bylaws and directives have been adopted, in order to facilitate the applicability and increase the law’s efficiency. Continuing on in this spirit, during May 2016 the Ministry of Finance issued a Directive which aims to change the existing directive no.6, dated 30.01.2015 ‘On the value added tax in the Republic of Albania’. The Directive expands the range of financial transactions excluded and facilitates its implementation.

The amendments introduced in the Ministry of Finances’ Directive on Value Added Tax deal with several changes regarding the features and peculiarities of financial transactions’ exemptions from VAT. Unlike previous provisions, which excluded only specific financial transactions supplied by financial institutions, the new directive exempts transactions even in cases where they are performed by a non-financial institution. With the recent changes, the application of the principle of exemption relates directly to the nature of the service and not to the entity or the subject that provides the financial service, nor to the person who receives this specific service, hence deeming the identity of the parties as irrelevant. For the application of the principle of exemption, the manner in which the service is delivered (electronically, manually or automatically) is also irrelevant.

Article 53 of the law no.92/2014, dated 24.07.2014 “On the Value Added Tax in the Republic of Albania”, among others, provided for the exclusion of the following financial transactions:

  1. insurance and reinsurance’s services, including insurance negotiations;
  2. granting, negotiation, management of loans;
  3. loans guarantee when carried by the lender;
  4. exchange operations, supplying liquidity through payments, transfers, checks and other negotiable instruments, except for service debt collection;
  5. transactions regarding currency, with the exception of coins and banknotes not used as legal tender;
  6. transactions regarding shares, quota, in bonds and other securities.

Other exempted services include the management of investment funds, in terms of the law on collective investment undertakings; Interest payments for leasing transactions; Advertising in electronic and print media; Financial services, etc.

Based on Article 53 of the law, exemption from VAT does NOT apply to the following transactions:

  • Debt collection services, including all contractual or other legal actions performed by the Bank, or other companies, with the purpose of collecting their overdue debts;
  • The Rental of savings, even in those cases when the service is performed by a bank

The services that are listed as not exempted from VAT, even if they are performed by a financial institution, according to the new directive, are not provided in an exhaustive list. Any other service, which is not part of the excluded services set out in Article 53 of the law, and listed in paragraph 2 of this Directive Article, shall be considered VAT taxable.

VAT is the most important tax in Albania because amounts to 33-34% of the total budget revenues. This explains the special attention that the authorities pay to this tax, by approximating its legislation to EU, closely monitoring its progress, and constantly making the necessary legal changes. The latest Directive of the Ministry of Finances of May 2016 serves to this purpose as it expands the range of activities exempted from VAT. Previously, for many of the exempted activities, it was necessary to analyze the legal status of the company that performed the service but recent changes have introduced a change that will facilitate the VAT exemption procedure of financial transactions in general.

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