Amendments to Albanian property tax requested by IMF

Albania | April 2016 |

Property taxes in Albania are regulated by the law on the local tax system and consist of the building tax and the agricultural land tax. Subject to the property tax are all physical and legal persons, locals or foreigners, who own an immovable property (either agricultural land or a building). Taxpayers are determined based on legal documents that prove the ownership of the property.

Currently, the law defines specific criteria based on which the property tax is calculated in each case. The exploitation of the property is disregarded for purposes of tax calculation.
It is worth noting that Albania collects less than 1% of the country’s GDP from property taxes, which is much less when compared to other developed countries some of which collect 6% of budget revenues from property tax. Based on this, the IMF has asked the Albanian government to introduce a new property tax in order to increase the budget revenue. This new property tax will become effective by 2017.

Pursuant to obligations undertaken towards the IMF, Albania will have to reform the property tax system in the next two years. Most of the changes will be related to the method the tax is calculated and paid. Currently, the level of the building’s taxes is determined based on several factors. The first criterion is related to the city or municipality where the building is situated. There are three different zones: the first zone includes Tirana and Durrës while all other cities fall into one of the other two categories, depending on the city’s size. In each zone the buildings are divided in three categories; the first one includes residential buildings, the second tax buildings used for commerce, services, and other purposes and a third category for buildings situated in touristic villages. In the rural areas the property tax level is half of the appropriate level of the lowest building category situated in the centre municipality of the corresponding administrative region. The tax rate for a building varies from 5 ALL? per year per square meter in rural areas up to 400 ALL? per year per square meter in the capital.

For purposes of calculating tax on agricultural land, the Albanian territory is divided in 4 different sections based on the city’s size. The land in each section is divided in ten categories, based on which the respective property tax is defined. This tax ranges between 1,400 ALL per ha for each year in the small towns and up to 5,600 ALL per ha? per year in the major cities.

Municipal or local councils are the competent authorities that decide on the tax base level applicable, which can be 30% more or less than the prescribed indicative tax rate for the relevant category. For small business’ taxpayers the tax rate can range between 30% below the indicative tax rate and 10% above the indicative tax rate.

The International Monetary Fund has considered the actual level of immovable property taxes insufficient and has requested from the Republic of Albania to introduced relevant changes. By 2017, new taxes will become applicable. The Albanian authorities will complete the fiscal cadastre for purposes of evaluating the proper tax for each immovable property.

The new tax system will be based on the electronic registration of all types of immovable properties in Albania via the cadastre’s register. The register will be detailed and will include not only the owners, but also complete and accurate data of the properties. All the property taxes will be calculated based on the data provided by this register. The reform is expected to provide a final solution for the collection of immovable properties’ taxes and to reduce the informality in this important sector of the Albanian economy.

Dorina Ndreka