Albania introduces changes in the social contribution system for freelancers

Albania | March 2016 |

On January 21st, 2016, the Council of Ministers of the Republic of Albania adopted a new decision, which aims to determine the reference monthly salary for purposes of calculating the mandatory social contributions for the self-employed that practice a licensed profession. The decision affects some of the most widespread professions in Albania, including -among others- architects, dentists, public notaries, bailiffs, lawyers, engineers, pharmacists, teachers, doctors, assessors, accounting experts, mediators and translators.

The reactions to this new regulation in the field of social security payments have varied, but it is necessary to emphasize that the decision implements several facilities, which will help the so-called free professionals.

The decision no.37 of the Council of Ministers defined several criteria based on which the self-employed would pay social security contributions, including the type of professional activity, the salary of state employees for the same profession, the area where the activity takes place, the number of employees and the years of professional experience. The decision specifies the minimum salary based on which the contributions for social security will be calculated. The main criticism of the decision is directed towards the specific reference salaries and several interest groups have requested from the government to decrease them. The other dispositions of the legal act have generally been welcomed as they aim at creating a fair social security payment system.

In order to facilitate the opening of new professional activities and promote the self-employment of private professionals, the decision specifies that during the first 3 years of the activity the reference salary for the payment of social security contributions will be decreased by 30%. For the other 3 consecutive years of activity the salary will be reduced by 15%, regardless of the number of employees.

In case the self-employed hires unpaid family members that work and live with him / her, their social security contributions will be calculated based on the minimum salary in Albania, which based on the decision of the Council of Ministers no.77, dated 28.01.2015 is 22,000 Lek (or approximately 160 Euro). The social contribution obligation in this case is approximately 38 Euro.

In case the self-employed person has hired more than one unpaid family member, or other employees, the reference salary for social contributions will be raised by 3% for any full time employee and by 2% for any part-time employee. In no case will the reference salary exceed the maximum legal salary, which in Albania is 97,030 Lek (approximately 698 Euro).

The new decision guarantees another facility by helping the licensed professionals who, in addition to being self-employed, are also employed in the public or private sector. In this case they will be obliged to pay the social contributions based on the minimum salary. In any case the total contributions payment will not exceed the payment liable for the maximum legal salary.

In case the licensed professional is a retiree, he / she has no obligation to pay the social or health security contributions in cases when he / she works alone as self-employed and has no other employees. In all other cases where the profession has hired one or more employees, his / her social contribution will be calculated based on the minimum salary.

The tax legislation in Albania is based on the self-declaration by the tax subjects. The same principle operates in this case, with the taxpayer declaring the social contributions to the tax authorities and paying the relevant obligation. In cases when the tax authorities notice that any discrepancies between the legal obligation and the actual payment, they will perform necessary actions.

Before this legal act entered into force, all freelancers had the same legal obligation regarding the payment of social security contributions, regardless of the experience, the type of profession, or the city or region in which they exerted their profession. In addition to guaranteeing facilitations to the new professionals, professionals who are retired as well as providing assistance in cases of employment of family members, the decision also secures the freelance legal rights by granting a differentiated treatment based on specific criteria.

Dorina Ndreka