The new fiscal year in Albania has started with significant changes introduced in the Law on Income Tax. The new law provisions provide for a reduction of the income tax rate on dividends and income sharing, for the shareholders and partners of legal entities, from the previously valid rate of 15% to 8%. This, as well as other changes to the income tax law, were made in order to incentivize the payment of previous fiscal years tax on profits and dividends. The income tax rate does not change for other types of income as provided by law.
The latest provisions of the law on income introduced several changes, but the decrease of the dividend and income sharing tax rate is the most influential one. The Ministry of Finance has predicted that the reduction of the tax rate on dividends and tax on profits will alleviate the fiscal burden of 20 thousand businesses and is also expected to increase tax collections, due to the awaited increase in the statements of companies paying this tax.
Another important change that the law has provided for is the decrease in the fiscal burden on high wage-earners. The salary threshold used to start calculating the 23% tax rate has increased from 130,000 ALL to 150,000 ALL per month. This measure will reduce the tax burden for about 15,400 employees, the majority of whom are middle- and high-level executives working in the private sector.
The new law has imposed some specific provisions that regulate the income tax during the transfer of shares or capital from a legal entity. If such a transfer is equal to or greater than 20% of the ownership shares, or capital quotas, the legal entity is treated as if it is selling a proportional share of all its assets. In such a case, the entity will be legally considered as the recipient of the sale revenue and at the same time as the repurchase of the same capital value, and in both situations, responsible to pay the respective profit tax. When the legal entity pays the profit tax, according to this provision, any change of ownership of shares or capital is exempt from profit tax. This provision is applied to companies that have had an average annual turnover in the previous three years of 500,000 ALL. In order for this notification to be obligatory it is necessary that at least 50% of the value of these shares, at any specific time during the previous 365 days, derives from immovable property, or any rights that this law considers as such. The law also provides the mandatory notification of tax administration within 45 days for this ownership change. The mandatory notification is obligatory for all changes that are amounting to 10% or more of the capital value.
Another novelty of the law is the inclusion of the non-resident persons who are subject to profit tax, on all profits made by the sale of shares, the value of which derives from real estate in the Republic of Albania. These individuals will then be required to complete the declaration of taxable income by 31 March of the following year.
The law expands the income tax base, by including incomes from rights of exploitation of natural resources in Albania, as well as shares and other interests deriving from these rights as income from immovable properties.
The new law provides that the 8% tax rate will be applicable not only for the years to come, but also for undistributed profits realized during or before 2018, including legal reserves and capitalized profits. Companies will benefit from this clause only if they pay the respective tax on dividend and undistributed profits attained previous to 2017 or during it, before the 30th of September of 2019. The tax on the profits of 2018 must be paid by 20th of august 2019.
We advise Albanian companies who have previously held off on the distribution of profits due to the tax burden created by such distribution to seek professional assistance in determining the tax that would be due if they now decide to distribute such profits. Our team in Tirana remains at your disposal with custom-made advice in regard to the above amendments.
Dorina Asllani Ndreka & Drilona Likaj
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