On November 2017, before the approval of the budget for the 2018 fiscal year, the Government of Albania approved the Decision of the Council of Ministers no.652, dated 10.11.2017, which made several changes to DCM no. 953/2014 on the implementing provisions of the Value Added Tax law. Some of the major changes of the new by-law include the lowering of the annual turnover for the inclusion in the VAT scheme; the reduction of the VAT rate for the tourist accommodation services as well as several changes to the machineries that are exempt from value-added tax on imports. Below we discuss the most important amendment which concerns VAT on tourist accommodation services.
The standard Valued Added Tax rate in Albania is 20%, except for cases where the reduced VAT rate is applicable per article 49 of the Law on VAT. One of the most important changes done through the new Decision of the Council of Ministers is precisely related to this article and stipulates that the reduced VAT rate which will be applied to the supply of accommodation services will be 6%.
According to this Decision of the Council of Ministers, the supply of accommodation service includes the supply of lodging services by accommodation structures. The tourism legislation provides accurate definitions of the subjects, facilities and entities that are classified as suitable for offering accommodation services.
The food supplies or any other kind of services or supplies offered by the relevant facilities are not subject to the reduced VAT rate but rather to the VAT standard rate. The reduced VAT rate is applied for the supply of food/breakfast in cases where the accommodating facility offers the breakfast included in the price of the lodging service. The accommodation service subject to the reduced VAT rate of 6% must be shown separately in the VAT invoice.
In order to benefit from application of the reduced VAT rate, the taxpayers should only carry out activities in the field of tourism. In case they perform other kind of activities, they must separate the commercial subjects and create a new entity which exclusively operates in the tourism field. The application of the reduced VAT rate does not limit the right of the taxpayer to deduct VAT.
The Albanian Government – by decreasing the VAT rate for accommodation services – aims to decrease the prices in tourism sector while also reducing the costs of the commercial subjects which operate in this sector. The Decision of the Council of Ministers also included the important amendment on the lowering of the annual turnover threshold which for the inclusion in the VAT scheme. The annual turnover threshold which makes it mandatory for taxpayers to be included in the VAT scheme was reduced from ALL 5,000,000 to ALL 2,000,000 per calendar year.
For more info, feel free to contact:
Drilona Likaj
Senior Accountant, Eurofast Global Albania
E: drilona.likaj@eurofast.eu
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