FAQ’s

FAQ's


Albanian Network of Professionals providing Researches, Legal and Consulting Services, Auditing, Accounting, Taxation, Employment Relations and Education for Young Professionals

Tax verification of financial statements, annexes and tax returns is performed after the format of financial statements and declaration of fiscal result by the reporting entity, according to the law on income tax.

Tax verification is performed to see the accuracy of reports and to identify tax findings if the return contains risk elements. The main elements of risk are mainly related to the comparison of turnover by years, tax payments, number of employees, change in assets, as well as unpaid tax debts. Of course, that other elements can be included in the risk modules for tax verification.

The high risk is based on the deviations of financial reports from the average of the year within the economic sector.

The tax administration may request clarifications from the audited entity regarding:

Physical inventory of current assets;
Physical inventory of property, plant and equipment;
Dividends paid and withholding tax on dividends (latest version approved by the Minister of Finance)

This format will be required only if it has been approved by the highest decision-making body of the company, as the legal deadline for the declaration is 31 July.

The preliminary stage of tax verification is the one performed by the office. This verification takes into account:

– Changing the state of goods and materials at the beginning and end of the period (should be commensurate with the cost of goods sold at the purchase price)
– Verification of balance sheet items (calculations related to these items in the summary items of its columns)
– The change in the state of its products (should be reflected in the increase of income when it is increasing and in expenses when it is decreasing)
– Calculated depreciation rates (should not exceed the purchase value of fixed assets).
– Amounts provided for risks (provisions) (the implementation of the Law “on income tax” is checked)
– Tax revaluations made to the company from taxes (see if they are included in the financial statements items)
– Verification of the post profit unallocated in years (it should be clarified where is the situation in the company, if he has not paid dividend tax)
– Verification of title (s) of ownership for assets registered and depreciated as expenses of the company’s activity. If for the registered and amortized assets are not available property titles in the name of the company (they are not owned by the company), the working group to complete the minutes and notify the representative of the company, that in addition to other violations found there is this remark. If taxpayers after the deadline to submit do not provide explanations or complete the appropriate documentation, not be recognized as a deductible expense and look at the effect from previous years.
– Verification of the reflection on the start-up and expansion costs to be amortized for a period of 10 years and to make the relevant reflections, according to the nature of the finding.
– Verification of fiscal liabilities carried forward from previous years, those paid and their comparison with fiscal installments and issuing their balance at the end for each taxpayer, taking into account the law of tax procedures for the return of overpaid taxes.
– Verification of the expertise of the financial statements by experts.

The entire analysis of the financial statements results in a list of risky entities. This list is the one that serves for an in-depth control in the premises of the company that has declared its indicators.

Field control by the tax administration operates with:

-Every ascertainment of the structures of field verification and tax investigation during the exercised controls of the taxpayer is documented by keeping the relevant act of ascertainment, which is a document according to an approved format with serial number printed in advance.

– The act of ascertainment is kept at the place and at the moment of performing the control or verification at the taxpayer.

As a rule, this act is held in the presence of the taxpayer or authorized representative and is signed by the parties. If the taxpayer or his representative refuses, this fact is noted in the act.

-In the act of ascertainment it is clearly included that every fact and circumstance, action or omission and ascertained ascertainment, starting from the object of verification or control to the taxpayer, but not only.

– The act of ascertainment must contain accurate data by fully evidencing the identity of the taxpayer, his representative, the address where the ascertainment is performed if it is different from the declared address and Nipt.

-during the verification or control in relation to the declaration of employees in the tax authority in the act of ascertainment are clearly and unequivocally evidenced all employees ascertained, in the place of control, reflecting all generalities, name, surname, personal number reflected in the identification . document and in the absence of this document, if this fact is evidenced, data on the date, month and year of birth of employees are obtained.

-during the verification or control in relation to the documentation of the goods in the act of ascertainment are reflected the data for the goods, the detailed description of the goods and the ascertained quantity.

Also, the act of ascertainment describes in full the data for the tax documentation that accompanies the goods.

-As a result of the verification or control, it is ascertained through facts and evidence that the taxpayer has committed an administrative tax violation, then, in addition to the act of ascertainment, the relevant minutes are kept that sanction the violation.

-Proces – verbally sanctions the administrative tax offense and the relevant damage, making precise references to the legal provisions (article) in the sub-legal act to which the violation refers as well as the punishment that is applied based on the legal provisions.

If it is found that the taxpayer has committed more than one administrative tax violation, then each violation is kept in a separate record.

2-During the controls related to tax registration are taken into account

– A person who is not registered with the tax authority, but in fact has exercised economic activity, is not exempt from tax liability, based on Article 41 of the law.

If persons are identified who carry out commercial activities unregistered with the tax authorities, with the exception of immediate closure of the activity and confiscation of all materials, the suspension of the permit and license is proposed to the relevant bodies.

In cases where sequestration is impossible, a fine is applied.

3-During checks of goods documentation

All taxable persons subject to VAT or profit tax or all other taxpayers are obliged to justify with the necessary tax documentation.

-The document that serves for the movement of goods, for goods imported from abroad that are transported by customs where the goods are cleared in the direction of the warehouse of the importing entity is the import customs declaration issued by the customs administration accompanied by the invoice issued by the foreign supplier of goods.

– The document that serves for the movement of goods from customs to the warehouse or warehouses of the taxable person, some means and cargo are required, is a document accompanying the goods issued by the customs agency for each means of transport and for each cargo, together with photocopies of the import customs declaration and the invoice issued by the foreign supplier of the goods.

-The document that serves for the internal movement of goods from warehouse to warehouse, from warehouse to store or vice versa, from the center to the branch, from the place of production to the warehouse, from the place of production to the store, is the invoice accompanying the goods.

-Document that serves in the case of door-to-door sales, at the moment of movement of goods from the seller’s warehouse or from his place of production in his means of transport with which door-to-door sales are realized, is taxable subject to VAT or profit tax issues tax invoices. Whereas at the moment of realization of Every sale of goods, the taxable person issues a tax invoice for the buyer.

The movement of goods is accompanied by the original invoice for the sale of goods or by an accompanying invoice in cases of internal movement of goods.

4 – During verifications or controls related to the declaration of employees in the tax authority it is taken into account that:

-Every taxpayer is obliged to declare to the tax authority is taken into account:

-Every taxpayer must declare to the tax authority the employee (including unpaid employees of the family of the natural person who lives or cohabites. The declaration of employees must be made at least one day before the start of work of employees.

5-During the verifications for the use of the fiscal cash register:

-Taxpayers who do not use the bank for transactions of goods or services should use the fiscal cash register.

– for administrative contraventions, penalties are applied according to article 122 of the law on procedures

These are among the main tasks of field tax control.

There are three criteria, which constitute different cases of treatment of the place of supply, namely:

Location of the service customer (basic principle)
Location of the service provider;
The place where the service is effectively performed.

In the following, the features of each of the three above-mentioned criteria are treated in more detail.

First of all, the meanings should be clarified with “the headquarters of its economic activity or a stable location”, for which the services were received or provided, it means:

Place where the taxpayer is registered;
Has its headquarters and;
Where effective business administration takes place.

If the place of registration does not match the place where the business is effectively administered, the latter will be considered the principal place of business.

The place of effective business administration is where

Business is actually managed;
Where the governing bodies meet and;
Where business decisions are made.

By ordinary dwelling or residence is meant:

The place where the individual has a permanent residence at his disposal;
The place where his vital interests are most closely linked (where he has family and economic interests);
The place where he stays physically for most of the year (more than 183 days).

Place where the service customer is located (24.1)

This is the basic criterion, the principle, for determining the place of supply of services. According to him, the place of supply of services is in Albania, where the recipient of the service, a taxable person, has:

The seat of its economic activity or a fixed location for which the services were performed, or;
Ordinary dwelling or residence, in the absence of a registered office of economic activity or of a stable location.

This criterion or rule applies only in the case of supplies between taxable persons (both the supplier and the consumer are taxable persons).

On the contrary, the place of supply is outside Albania, if the recipient of the service, a taxable person for the same conditions (headquarters, location) is located outside Albania.

In the VAT law, this rule is given by its article 24.1.

The most typical types of service delivery of this group are as follows:

Supply of service performed by an intermediary person, acting in the name and on behalf of another person, when they are not related to real estate;
Supply of transport of goods in the territory of Albania, or internationally;
Provision of transport support services, such as loading, unloading, maintenance and similar activities;
Provision of services of expertise or work performed on tangible movable property;
Provision of intangible services
Leasing of vehicles for non-short-term periods, especially their financial leasing.

The following supplies are excluded from the B&B regime:

Performed for non-taxable persons;
Performed for the private needs of the taxable person or his staff.

If a service is provided partly to the taxable person for the purposes of his economic activity and partly, for private purposes, including activities that are not included in the scope of VAT application, this fact is not affected, in terms of determining the nature of the taxable person. In this case the place of supply is determined for the total supply, ie without separating it from the rules that apply to a taxable person.

Exceptions to the general rule (25, 26)

Contrary to what is provided in point 1, of article 24, of the VAT law, regardless of the place where the recipient of the service is located, taxable person, the place of supply of services for:

Provision of services related to real estate, including services of experts and real estate agents, provision of accommodation in the hotel sector or similar sectors, such as holiday camps or places created to be used as campsites, provision of real estate use rights and services for the preparation and coordination of construction works, such as the services of architects and firms that supervise the execution of works (supervision) is in Albania, if the real estate is located in Albania;
The passenger transport supply is in Albania, in proportion to the distance described;
The supply of restaurant services and catering services is in Albania, where these services are physically performed;
The supply of restaurant services and catering services, which are performed aboard ships, planes and trains during passenger transport is in Albania, if the place of departure of passenger transport is in Albania.

In the case of a round trip, the return portion is considered a separate transport transaction.

The provision of short-term rental service of a means of transport is in Albania, if this means of transport is actually made available to the client in Albania.
the provision of services, for the purposes of cultural, artistic, sports, scientific, educational, entertainment or similar events, such as exhibitions and fairs, as well as support services, related to admission to these activities, is in Albania if these activities take place actually in Albania.

Location of the service provider (24.2)

Where the service provider (a taxable person) has:

The headquarters of its economic activity or a stable location, from which the services are provided or;
Ordinary dwelling or residence, in the absence of a registered office of economic activity or of a stable location.

In other words, the place of supply is exactly where the supplier is located.

This criterion or rule applies only in the case of supplies between the taxable person, the supplier and the consumer, in the capacity of non-taxable person.

In the VAT law, the definition is given in its article 24.2.

Exceptions to the general rule (25, 27, 28, 29)

Contrary to what is provided in point 2, article 24, of the VAT law, regardless of the place where the recipient of the service is located, non-taxable person, the place of supply of services for:
Provision of services related to real estate, including services of experts and real estate agents, provision of accommodation in the hotel sector or similar sectors, such as holiday camps or places created to be used as campsites, provision of real estate use rights and services for the preparation and coordination of construction works, such as the services of architects and firms that supervise the execution of works (supervision) is in Albania, if the real estate is located in Albania;
The passenger transport supply is in Albania, in proportion to the distance described;
The supply of restaurant services and catering services is in Albania, where these services are physically performed;
The supply of restaurant services and catering services, which are performed on board ships, planes and trains during passenger transport is in Albania, if the place of departure of passenger transport is in Albania;

The provision of short-term rental service of a means of transport is in Albania, if this means of transport is actually made available to the client in Albania.
The supply of the service performed by an intermediary person, acting in the name and on behalf of another person, to a taxable person, is in Albania, if the place of the main transaction, as defined in this law, is in Albania.
The supply of freight is in Albania, in proportion to the distance described;
The provision of services and support services, for the purpose of cultural, artistic, sports, scientific, educational, entertainment or similar activities, such as fairs and exhibitions, including the provision of services of the organizers of these activities, is in Albania where these activities actually performed;
The provision of transport support services, such as loading, unloading, maintenance and similar activities is in Albania, where these services are physically performed;
The provision of expertise services or works performed on tangible movable property is in Albania, where these services are physically performed;
The provision of rental service of a means of transport, except the short-term one, is in Albania, where this client is located, has a permanent address or usually resides;

The place of supply of the rental service of a yacht or similar floating vehicle, other than the short-term one, is in Albania, where the vehicle is actually made available to the client and at the same time the service is provided by the provider of this service in the place of activity or a stable location in Albania.

Short-term means the continuous possession or use of means of transport for a period of not more than thirty days and in the case of vessels, not more than ninety days.

for the following services, the place of supply is the place where the non-taxable person receiving the service is established, has a permanent address or normally resides. Specifically:
Supply of telecommunication services;
Provision of radio and television broadcasting services;
Provision of websites, web-hosting, remote maintenance of software and equipment;
Software supply and their updating;
Supply of images, texts and information and the validity of the database;
Supply with music, movies and games, including games of chance and betting, as well as broadcasts of political, cultural, artistic, sports, scientific and entertainment events;
Provision of distance learning service;
Transfers and issuance of copyrights, patents, licenses, trademarks and other similar rights;
Advertising services;
Services of consultants, engineers, consulting firms, lawyers, accountants and other related services, as well as data processing and information provision;
Obligations not to exercise, in whole or in part, a commercial activity or a right referred to in this Article;
Banking, financial and insurance transactions, including reinsurance, with the exception of renting safes;
Staffing;
Leasing of movable property, with the exception of all means of transport;
Allowance service in the natural gas system or in any type of network connected to such a system, in the electricity or heating-cooling system, or transmission or distribution through these systems or networks and the supply of services directly related to them .

Place where the service is performed

In contrast to the first two, this criterion is based on reasoning, the fact of the place where the service is materially executed, regardless of the place where the supplier is located or the place where its recipient is located. It also does not matter whether the recipient of the service is a taxable or non-taxable person.

Services of this nature are as follows:

The provision of services related to a real estate is in Albania, if the real estate is located in Albania;
The supply of passenger transport is in the Republic of Albania in proportion to the distance described;
The supply of restaurant services and catering services is in the Republic of Albania where these services are physically performed;
The supply of restaurant services and catering services, which are performed on board ships, planes and trains during passenger transport is in the Republic of Albania if the place of departure of passenger transport is in the Republic of Albania;
The provision of short-term rental service of a means of transport is in the Republic of Albania if this means of transport is actually made available to the client in the Republic of Albania.
The provision of services and support services, for the purpose of cultural, artistic, sports, scientific, educational, entertainment or similar activities, such as fairs and exhibitions, including the provision of services of the organizers of these activities, is in Albania where these activities actually performed
The supply of restaurant services and catering services is in Albania, where these services are performed physically.

The case for clarification

1-The main seller / supplier is headquartered in Sweden

2- The main agent is based in Albania (main activity has electronic transfers and Paypal licensed by the BoA and operates with partial credit ratio)

3- Consumers will be EU countries (not in Albania because the platform does not fit)

Question?

Given that there will be a contract between Sweden and Albania where it will be determined that Albania acts as the main agent of the first can only declare invoices for sale for the commission received without including invoicing in purchase and sale for full value, regardless of the transaction that the movement of cash will be carried for full value?

Opinion 1

The company here to be in the role of the main agent and will bill the commission for the service performed Sweden 5% with VAT.

Meanwhile the problem lies in the billing scheme.

Sweden invoices Albania at full price 100 euros / each subscription code

Albania must make an invoice for abroad Switzerland / France at full price.

a- between Sweden-Albania an invoice is required and it is done with reverse charge

b- between Albania-France will be invoiced for the full value of the goods, As an excluded sale, if this invoicing scheme is implemented, the Albanian subject loses because it has a VAT credit coefficient of 30% and does not even cover the commission that would win

Opinion 2

The interpretation of the transaction determines whether the taxable person in Albania will be subject to tax (point 1 of article 11 of the VAT law).

To play this role, as explained above, a contract is needed between the parties.

The name of the principal must also be included in the billing for consumers.

Considering as the main agent, where the service performed by him is only electronic transfers outside Albania, I think we have two billing moments:

Self-invoicing for the purchase of the service from abroad;
Export of electronic service for buyers abroad (excluded according to Article 25.9 of the VAT Law);
Export of commission service for the principal (excluded according to Article 25.9 of the VAT Law);

Billing is done on these supply moments.

Example

Self-invoicing for purchase is 100 euros with VAT. In conclusion the registration of purchase and sale make VAT zero.

Invoice sale as export of service with 100 euros (VAT not included)

Sales invoice as export commission service 5 euros (VAT not included)

Partial lending = 100 + 5/100 + 5 = 1 (VAT has no effect on these types of transactions).

If this scheme of transactions is mixed together with other transactions of the Albanian company, then the calculation of the partial credit formula must be done, which continues to be unaffected by these transactions with Sweden and France / Switzerland.

Case for clarification

Company X, with financial services has mainly performed (a) services excluded from sale (money transfers, exchange) and (b) has also partially performed services taxable for sale (prepaid mobile phone cards and telephone handsets taking advantage sales commission with VAT).

Documentary practice by society

A secured employee and a cable phone are designated “separately” for the card service.

For all other purchases (except cards, camera and a cable phone) the company passes on exempt purchases, despite the fact that they are VAT invoices. The company bases this internal organization of its departments on the logic of clear division of activities, according to the type of supply in accordance with the VAT law, as well as an explanatory answer from the tax office, where the tax control in its implementation is not has claimed for the use of partial lending, due to the clear division of the company’s activities.

At the end of the monthly period the VAT liability comes out with payment (sale-purchase).

Legal basis

VAT law
VAT Instruction

Comment

Company X, based on the VAT Law, performs an activity excluded for those supplies which are subject to the legal basis.

In addition to the main activity, the company also performs the activity in the role of the main agent of the Law. For these taxable supplies the company calculates VAT on sales on the value of the service performed.

In the entries in the sales books for VAT (monthly), the company registers the supplies of exempt sales, the supplies of sales with VAT for the service of the agent.

In the entries in the purchase books for VAT (monthly), the company records the supplies for exempt purchases, supplies for purchases with non-deductible VAT, as well as supplies for purchases with VAT for the service of the agent.

For the purposes of separation of supplies, according to the type of supply, the company has adapted the structure of its operation by establishing separate units for taxable supplies for sale, and separate units for excluded supplies for sale.

According to the Law, the object of taxation is the taxable person as an entity that performs an economic activity, regardless of the legal form of its organization. Also, according to the law, the importance to be subject to tax is the turnover from all economic activities of the same taxable person.

Based on the logic of including each supply in the calculation of tax for each month, the internal organization of the company has no influence, to categorize according to the type of supply.

With reference to the VAT law, in terms of the civil construction sector (but not only) the process of construction of a building or construction work being considered as a service (ie a combination of work and technical operations with raw materials for create finished product) is applied in the following cases:

When construction companies build to sell or rent, VAT is calculated and paid monthly on the value of the monthly works situation.

Along with each monthly situation will be mandatory tax invoice with serial number. The value of the monthly situation will be the taxable value on which VAT will be calculated at the rate of 20%. The taxable person is obliged to calculate VAT every month. The total value of this monthly situation is recorded in the sales ledger.

When professionally licensed construction companies will build facilities for use in their licensed business, VAT is not calculated and it is allowed to credit the VAT paid on the purchases of materials made for this purpose. In this case the buildings must be of a type used in the construction industry and the purpose of their use must be announced and approved in the building permit of the municipality. The value of the monthly situation is recorded in sales and purchases.

This does not include buildings such as apartments and houses, hotels, public works, etc. For the construction of which VAT is always calculated and paid monthly on the value of situations.

When a construction company licensed as such builds housing for itself, it calculates and pays VAT, treated as its own supply. In this case it records the same value as in sale and purchase and the VAT status of the materials purchased for this construction work remains.

If an advance is received for the works to be performed, then the taxable person who receives the advance is obliged to issue an invoice at the time of receipt and record this invoice in the sales book of the tax period in which the advance is received.

Meanwhile, VAT on the sale of construction surfaces is not applied and this supply under VAT law is exempt.

Corporate Income Tax

Permanent headquarters

• The Draft Law introduces a time limit of 6 months as a criterion for the existence of a permanent Headquarters (PE) of a non-resident company in Albania. According to him, a non-resident company will be considered to create a PE in Albania if:

1. It carries out activities related to a construction site, a construction, assembly or installation project, or related supervision activities, if this construction site, project or activity lasts for more than 6 months;

2. It provides services, different from those included in point a) above, but including consulting services, through its employees or other personnel engaged for this purpose, if these activities continue within the territory of Albania for periods that in total exceed 6 months within each 12-month period.

• Current law on income tax no. 8438, dated 28.12.1998, as amended (hereinafter referred to as the current law) does not set any time limit for the purposes of the PE. Taxpayers subject to CIT

• The Draft Law defines as subject of CIT:

1. Any person other than a natural person;

2. Any entity that undertakes or is capable of undertaking business activities in Albania or that generates income from sources in Albania, including general partnerships, limited partnerships, limited liability companies, joint stock companies, simple partnerships (cooperation) and any association or cooperation of persons;

3. Any foreign entity, association or association of persons, identical in nature to one of the forms mentioned above and established in accordance with a foreign law.

• The current law defines as subjects of CIT legal entities, partnerships and any other form of registration, if these persons are subject to VAT in Albania (excluding here persons subject to simplified small business profit tax). Excluded income

• The Draft Law defines as exempt from CIT income from dividends and profit distributions, if:

1. The receiving taxpayer owns at least 10% of the shares or voting rights of the distributing entity, and

2. This minimum participation is maintained for an uninterrupted period of at least 24 months. If either of the two conditions is not met, an option is given to exclude from the CIT anyway the income from the profit distributions, if the receiving taxpayer gives a guarantee to the Tax administration for the amount of tax that would otherwise be payable and that covers the period until the minimum turnout is maintained for 24 consecutive months.

• The current law excludes from CIT income from dividends and profit distributions if the distributing entity is a taxpayer registered for CIT in Albania, regardless of the percentage of participation that the beneficiary holds in that entity and the period during which that participation is held.

Thin capitalization
• Under Draft Law, interest expense is not allowed as a deductible expense if the net interest expense (ie, after deducting interest income) exceeds 30% of taxable profit before interest and tax (ie, EBIT). after tax adjustments) as determined on the basis of the financial statements.
• The current law defines as non-deductible interest expenses on the part of the loan that exceeds 4 times the net capital (equity). Technical reserves / provisions for financial institutions
• According to the Draft Law, the amounts for creating / increasing and / or decreasing: will be allowed as deductible
• 1) Mandatory technical reserves created pursuant to Law no. 8081, dated 7.03.1996 for the insurance and reinsurance activity; and
• 2) mandatory provisions for commercial banks and other financial institutions established under the supervisory rules issued by the Bank of Albania for this purpose.
• Under Current Law, banks’ technical provisions / provisions are recognized if accrued in accordance with International Accounting and Financial Reporting Standards (IAS / IFRS) and certified without notice by external auditors. As for other financial institutions, there is currently no specific definition.

Evaluation of stock exchange
• The Draft Law gives the possibility to choose between 2 alternatives of special rules for the evaluation of shares taken in relation to an incorporation or transfer of a branch / several branches of activity. One of the alternatives consists in the possibility of valuing them at market value, or with the initial purchase price of the transferred shares (based on a joint request addressed to the Tax administration by the parties).
• The current law does not provide for similar provisions.

Transfer pricing
• The Draft Law includes more provisions regarding Transfer Pricing than the current Law. However, these additional provisions are the same as those currently contained in Guideline no. 16, dated 18.6.2014 on the Transfer pricing and the instruction no. 9, dated 27.2.2015 on Advance Price Agreements. Provisions against tax evasion
• The Draft Law contains some provisions against tax evasion which authorize the Tax administration not to consider an agreement (transaction, contract, event, etc.) in assessing the taxable profit of the taxpayer, if that agreement lacks economic substance and if it is undertaken for the primary purpose of obtaining a tax benefit.
• The current law does not provide for similar provisions.

Bad debt deductions
• The Draft Law provides for a progressive rate in recognizing bad debt as a deductible expense if the taxpayer has taken reasonable steps to ensure their collection by the unrelated party.
• The current law does not provide for any such option.
Tax losses
• According to the Draft Law, tax losses can be carried forward and deducted against the taxable profits of the next 5 years, according to the principle the earliest losses are used first.
• Under the current Law, losses can be carried forward for up to 3 years and their use follows the same principle.
• The Draft Law specifies that tax losses expire in the event of a change in the direct or indirect ownership of the capital or voting rights of the company of more than 25% in value or number.
• According to the Current Law, this rule applies to changes over 50%. • The Draft Law introduces a new possibility for the transfer of losses carried by the transferring company to the receiving company in the event of an incorporation, transfer of a branch of activity, a merger or division.

Long-term contracts
• The Draft Law defines as long-term contracts those concluded for the purposes of production, installation, construction or performance of services, which are expected to last more than 12 months. It allows income from long-term contracts to be recognized for CAD purposes based on the completion phase determined by reference to:
1. Or the actual cost / estimated total cost ratio,
2. Or expert evaluation of the completion phase at the end of the year.
• The current law does not provide special provisions for long-term contracts. Capital gains tax on the transfer of business assets and liabilities
• One of the alternatives provided in the Draft Law provides that the capital gain realized from the transfer of business assets and liabilities in connection with an incorporation, branch transfer, merger or division, may not be taxed immediately, but may be deferred until the sale of these assets and liabilities from the host company. This tax deferral is conditional on a list of criteria to be met.
• The current law does not provide for similar provisions.

Tax non deductible expenses
• The Draft Law adds / changes the list of non-deductible expenses compared to the Current Law as follows:
• Depreciation expenses according to accounting rules;
• Expenses incurred as personal consumption of shareholders, partners, persons exercising power in the management of the taxpayer and their families;
• Expenses for technical, consulting and management services invoiced by non-residents if not paid by the taxpayer within the tax period (if these costs are paid later, they are deductible in the tax period in which they were paid);
• Revenue-related expenses that are not included in taxable profit;

Amortization
• The Draft Law provides that in the year of purchase or entry into use of an asset (whichever occurs later), the full year depreciation is deducted. While in the year of issue, no depreciation is deducted.
• In the current Law, an asset is depreciated starting from the 1st of the month following the month of the asset’s entry, until the end of the month of its exit.
• The Draft Law provides for the following methods and depreciation rates permitted for the purposes of the CIT:
• Under Current Law, the first category includes assets with a projected use of over 20 years (instead of over 15) and the corresponding annual depreciation rate is 5% above net book value (instead of 3% over historical cost). For the third and fourth category, the Current Law does not specify the basis of depreciation as book value for tax purposes.

Withholding tax agent
• According to the Draft Law, Every taxpayer of TAK and Every taxpayer of TAP who earns business income, will serve as a withholding tax agent. Withholding tax will be paid until the 20th of the month following the earliest date between:
1. Date when this income was paid;
2. Date when the withholding tax agent has accounted for the relevant liability. In the case of dividends, regardless of when they are paid, withholding tax must be paid within the end of the third month following the month in which the company’s decision-making body decides on the distribution of the profit.
• According to the Current Law, withholding tax is paid within the 20th of the month following the month of payment of the respective obligation; while for dividends, within 20 August of the year following the year for which the distribution decision was made. Income subject to withholding tax
• (Unlike the Current Law), the Draft Law subject to withholding tax certain types of income paid to resident taxpayers regardless of their status, ie regardless of whether those taxpayers are subject to CIT or not.
• A taxpayer subject to CIT deducts in his annual return the withholding tax paid on his behalf by other taxpayers during the year.
• The current law does not have such a rule.

Personal income tax
residences
• According to the Draft Law, an individual will be considered a resident for fiscal purposes in Albania in a given tax year if he / she is present in Albania for a period exceeding 182 days within each 12-month period ending in tax in question.
• Under the current Law, an individual is considered resident in Albania for fiscal purposes if he / she is present in Albania for a period exceeding 183 days in the tax year in question.
Taxable income
• The Draft Law defines as taxable personal income income from employment, income from business, income from investments and other income, regardless of whether it is paid in cash or in kind. According to him, in-kind income is measured by market value.
• The current law does not provide any specifications related to taxation and measurement of income in kind
Income from employment
• The Draft Law contains a full and long article dedicated to employment income. This article provides for the types of remuneration that will be considered as employment income, depending on their payer (employer or other persons), their form (in cash or in kind) and the moment of their receipt. There is a clearer definition of employer and a new provision related to employment income paid to an employee through a non-resident labor agent in Albania.

The use of the company car for private purposes (regardless of the number of days of use during the month) is considered as income and is calculated at 1% of the cost of the car for each month of use. There is a clearer list of income that will not be taxable employment income such as:
Meals, work equipment, medical treatment and other benefits provided on the employer’s premises and available to all employees equally;
Reimbursement of travel and accommodation expenses as well as travel allowances;
3. Contributions for life and other in addition to the compulsory health care insurance made by the employer up to 5% of the gross income from the employment of the employee; etc.
Business income and expenses
• The Draft Law defines the list of income that will be considered as business income for the individual and includes: 1.
Income from business of any kind;
2. Income from independent activities; and
3. Income from copyrights, patents, trademarks, equipment and industrial, commercial or scientific knowledge; etc.

• If the taxpayer’s annual turnover does not exceed ALL 8 million (Euro 57,100), he has the right to deduct expenses in a fixed amount from the income of his business (instead of claiming documented expenses) in the amount of (a) 40% in the case of manufacturing business activities, and (b) 15% in other cases.
Investment income
• The Draft Law defines as investment income income from dividends, interest, alienation of shares and quotas (not part of business assets), alienation of property (not part of business assets), etc. It also designates certain types of income that will not be taxable income from investments. Tax base for TAP
• According to the Draft Law, the tax base for TAP is defined as the sum of annual income of employment, business, investment and other income, reduced by allowances and deductions provided.

Resident personal income taxpayers are entitled to deduct from the tax base:
1. A personal permit of 180,000 ALL (1,280 Euros),
2. A deduction for dependent children of 48,000 ALL (340 Euros), 3. Expenses for education and medicines / health care of dependent children, up to a certain level, for taxpayers with a total annual income of less than 2 million ALL ( 14,280 Euro). A possible alternative to the simplified profit tax for small businesses
• The Draft Law proposes an alternative to the simplified profit tax for small businesses (if the current tax of 7.5% on taxable profit is canceled but not less than 250,000 ALL / year), according to which:
1. Taxpayers with annual business turnover over 2 million ALL (14,280 Euros) but less than 8 million ALL (57,100 Euros), will be allowed to deduct 30% of the annual taxable income of the business;
2. Taxpayers with an annual business turnover of less than ALL 2 million will be allowed to deduct 50% of the annual taxable income of the business.

Corporate tax advances
• According to the Draft Law, advance payments of CIT are paid within the 20th of each month and are calculated as 1/12 of the CIT liability of the previous year (if this was higher than 30,000 ALL, or 215 Euros).
• Under the current Law, advances are paid on a quarterly basis, but monthly payments are also allowed. Monthly installments for the first 3 months are calculated as 1/12 of the CIT of two years ago. The installments of the following 9 months are equal to 1/12 of the CIT of the previous year.
• Withholding tax
Withholding tax agent
• According to the Draft Law, Every taxpayer of TAK and Every taxpayer of TAP who earns business income, will serve as a withholding tax agent. Withholding tax will be paid until the 20th of the month following the earliest date between:
1. Date when this income was paid;
2. Date when the withholding tax agent has accounted for the relevant liability. In the case of dividends, regardless of when they are paid, withholding tax must be paid within the end of the third month following the month in which the company’s decision-making body decides on the distribution of the profit.
• According to the Current Law, withholding tax is paid within the 20th of the month following the month of payment of the respective obligation; while for dividends, within 20 August of the year following the year for which the distribution decision was made. Income subject to withholding tax
• (Unlike the Current Law), the Draft Law subject to withholding tax certain types of income paid to resident taxpayers regardless of their status, ie regardless of whether those taxpayers are subject to CIT or not.
• A taxpayer subject to CIT deducts in his annual return the withholding tax paid on his behalf by other taxpayers during the year.
• The current law does not have such a rule.

Taxes and fees are incurred and paid by any person who exercises a right or receives a public service. Taxes are payments to the state budget, but in return may not be related to a specific service benefit for the individual or business that pays them. A taxpayer may not claim a special favor from the tax authorities for the taxes he pays. Given the fact that the tax is mandatory to be paid, it is calculated to serve not according to its mere name, but according to the needs of the state budget.

While fees are more closely related to a service or benefit from the individual who pays them. The fee is a direct payment that in return gives the payer an advantage or guarantee from the government (local or central) to the fee payer. The amount of the fee is calculated based on the expenses that the government (local or central) will incur to provide the service that is the object of the fee and on this basis the calculation determines the amount to be paid by the persons who have to pay the fee.

Taxes may have a scope according to the territory of a local government unit, being named in this case as local taxes or fees and are applied according to the authority of the local government, but they may also have a national scope and in this case are named as national taxes.

Also, the tariffs have an extension at the level of local government unit, as well as at the national level.
Examples of local taxes are: agricultural land tax, land tax, building tax, infrastructure impact tax, hotel accommodation tax, annual vehicle registration tax, etc.

Examples of local fees are: cleaning fee, fee for vehicles (parking, tonnage service, fee for licensing activity, fee for veterinary services, fee for urban services, for administrative services, fee for occupying public space etc.

Examples of national taxes are: used vehicle tax, port tax, royalty tax, deed and stamp tax, luxury vehicle tax, initial vehicle registration tax, tax on the right to use state land, etc.

Examples of national tariffs are: tariff for equipment with a driving license, tariff for consular service, tariff for services from the justice system, tariff for radio and television broadcasting, etc.

At first glance the fees with the fee seem to be the same in type, but in fact they differ as they have the difference in the way they are used, as well as the mandatory form to make the payment.
The tax is a mandatory and non-refundable payment to the state budget and is paid by any person who exercises a right or benefits from a public service. The object of the tax is to replenish the state budget coffers. While the fee is a payment of a voluntary nature, imposed by the local or central government, in exchange for special services that are done in the public interest, but that give an advantage to the person who pays compared to others (eg fees of the device with a navigation permit).

The money collected from a fee, as an international rule, is allocated to the budget specifically for the purpose of the services for which the fee is set (named) and is not merged with other state budget revenues. It is this connection between the fee and the service rendered that makes it distinct from the tax.

The local tax is paid in the budget of the local self-government units, by any person who exercises a right or benefits a public service in the territory of the local self-government unit. While the national tax is a mandatory and non-refundable payment to the State Budget paid by any person or through an agent, regardless of the location where the person lives and works (citizen or villager).

In some cases, the dividing line between tax and fee is not clear enough. In some cases, the cost of providing a service can be calculated directly and thus the fee can be easily linked to the service received (e.g. parking fee). But in cases where the costs are unclear, then even the payment of the fee may have an unclear connection with the service received.

In some cases, the tax may be confused with the fee simply for political reasons. For example, if a politician has promised that there will be no tax increase, but that in fact he needs additional income, then he makes a change or increase the existing tariff in order to achieve his secret goal.
In any case of imposing a tax or fee by the government a transparent process is needed, in order for individuals and businesses to have the right and clear information on what they need to calculate and pay.

The groups of tax indicators are summarized in:

Comparability. These benchmarks do not measure the performance or quality of the tax administration, but provide a comparative picture with comparable international references.
Administration structure. This category includes quantitative and qualitative indicators of organization and size of administration.
Tax revenue performance. These quantitative indicators provide an overview of the trend of the effectiveness of the tax administration in terms of the realization of tax revenues.
Tax structure. These quantitative indicators present the material structure of the tax law in a comparative and simple way.
Comparability

Cost of tax administration (KOSTATQ)

This performance indicator is related to the cost of tax system administration for all tax revenues collected by the tax administration. For example, If the budget of the tax administration is 2 billion ALL and it collects 195 billion ALL, this indicator will be 1.05%, or 1.05 ALL for every 100 ALL collected.

The lower this indicator is, the more efficient is the tax administration and the entire tax system in tax collection. This indicator can be affected by tax productivity for all major taxes.

Total Tax Income (TATT)

This is a reference indicator. It shows all tax and non-tax revenues collected by the central tax administration, customs, local and social institutions (insurance and health) as a percentage of GDP.

Personal Income Tax Income (TATAP)

This is a reference indicator. It presents the level of TAP as a percentage of GDP.

Profit Tax Receipts (ATF)

This is a reference indicator. It is an indicator of profit tax revenue as a percentage of GDP.

VAT Receipts (VAT)

This is a reference indicator. It represents the level of net revenues collected from VAT as a percentage of GDP.

Year of entry into force (VHF)

This is a reference indicator. It represents the year in which the implementation of each tax has entered into force, being acquainted with the age of the VAT system in the country.

Administration structure

Functional administration (ADMINFUNCTION)

This is an indicator of the structure of the tax administration. The Tax Administration is organized according to functions. This means that the functional lines administer all the taxes and fees of the country. Organizational experience to date in many countries with different economic developments.

Administrative dependency (VADMIN)

This is an indicator of the structure of the tax administration. In many countries the tax administration is semi-independent in tax administration. In some other countries it is completely dependent. In other countries it is independent and grouped with other functions of the state (treasury, mortgages, etc.). In the case of ATQ in Albania according to this indicator it is at the level dependent on the Ministry of Finance.

Large Taxpayer Structure (ORGTM)

This is an indicator of the structure of the tax administration. The global experience of the organizational structure of the administration of large taxpayers is divided into three levels. There are countries that have large taxpayer units, as a segmentation within the structure. Other countries have a segment independent of other segments of the administration. While there are countries that do not have to freeze a structural unit focused on large taxpayers.

Taxes for individuals (TATINDIVID)

This is an indicator of the structure of the tax administration. This indicator measures the size of the tax administration (central and local) in relation to the size of the country’s population. TATINDIVID is the ratio of the total number of employees of the tax administration per 1000 inhabitants. For example, If the tax administration in Albania is 1,500 employees and the total population is 2,800,000 inhabitants, then TATINDIVID will be 1.86 administrative employees per 1,000 inhabitants.

Taxpayers for taxpayers (TPTAT)

This is an indicator of the structure of the tax administration. It shows the number of tax administration employees to the number of active taxpayers in the country. An active taxpayer is a, who in the last fiscal year has exercised activity, ie has submitted tax returns and / or has not submitted declarations without activity, and / or in cases when the taxpayer does not officially declare and approve the suspension of commercial activity according to the specifications made in law. Otherwise, an active taxpayer is a person, organization or institution that makes declarations and reports of tax documents or pays on a regular basis. In administrations that rely heavily on TAP, which is withheld from wages and is required by law to declare their income, this indicator may be high. IN administrations where it is the opposite, ie VAT, etc. Have a dominance in the structure of tax revenues, this indicator is low.

Number of taxpayers (NRTP)

This is an indicator of the structure of the tax administration. It shows the total number of active taxpayers, in relation to the number of population in the country. It includes persons, organizations, institutions that regularly declare or pay regularly. In countries where direct tax is important in tax revenue, this indicator tends to be high. In administrations where VAT dominates in the structure of tax revenues, this indicator tends to be low.

  1. Tax revenue performanceProductivity of personal income tax revenues (PRODTAP)This is a performance indicator. This indicator aims to give the trend of revenue performance of this tax. It is calculated as the ratio between the revenues realized from this tax with GDP (TTAP). For all PRODTAP countries it fluctuates between 0 and 1.Profit tax revenue productivity (PRODTF)This is an indicator of tax revenue performance. It presents the effectiveness of profit tax within the product on income, according to the tax rate. It is calculated by dividing the result of the ratio of profit tax revenue to GDP by the profit tax rate.Gross Weight of VAT Fulfillment (VAT)

    This is an indicator of revenue performance. This indicator is the same as PRODTVSH, but differing from it in terms of the fact of not taking into account only the principle of the final consumer. This indicator is calculated by dividing the result of the ratio of net VAT to private consumption in the economy with the VAT tax rate. For example, If the ratio of net VAT to private consumption is 5% and the standard VAT rate is 20%, then PBPTVSH is 25%. This means that PBPTVSH is the ratio of VAT collected to potentially collectible VAT (expressed in%). The GDPP is similar to the revenue collection effectiveness indicator, with the only difference being that the VAT collection effectiveness indicator is related to public spending, except for private consumption. Given the fact that public expenditures are mainly, salaries and related, PBPTVSH shows that it is an indicator closer to the reality of the performance situation.

    VAT Productivity (PRODTVSH)

    This is a performance indicator for revenue. It measures how much VAT has on budget revenues, according to the tax rate. It is calculated by dividing the result of the ratio of Net VAT revenue to GDP by the standard VAT tax rate.

    2. Tax structure

    Minimum level of taxable base for personal income tax (MINBTTAP)

    This is an indicator of the tax structure. It is the lowest level of the tax base on which shmintap is applied, multiplied by per capita income. For example, If the lowest level of the taxable base is 10,000 lek and per capita income in 2011 was 410,000 lek, then this indicator will be 0.024.

    If we have a flat tax system, ie with a single tax rate, for all personal income, this indicator will be the value of basic deductible personal expenditure, multiplied by per capita income.

    Maximum level of taxable base for personal income tax (MAXBTTAP)

    This is an indicator of the tax structure. It is the highest level of the tax base on which shmaxtap is applied, multiplied by per capita income. For example, If the highest level of the taxable base is based on income groups and per capita income in 2011 was 410,000 ALL, then this indicator will depend on the division.

    If we have a flat tax system, ie with a single tax rate, for all personal income, this indicator will be the same for MINBTTAP, as well as for MAXBTTAP.

    Profit tax rate (TF)

    This is an indicator of the tax structure. It represents the tax rate applicable to income tax. In many countries only one tax rate is applied.

    Maximum Personal Income Tax Rate (MAXTAP)

    This is an indicator of revenue structure. It represents the highest rate of personal income tax.

    Minimum Personal Income Tax Rate (MINTAP)

    This is an indicator of revenue structure. It represents the lowest rate of personal income tax.

Value Added Tax Rate (VAT)

This is an indicator of the tax structure. The standard VAT rate is the one that applies to most goods and services in the country. In addition, in many countries the reduced tax rate is applied for certain goods and services. In Albania, a reduced rate exists since 2011 for medicines and medical equipment. Also, in all countries for export goods there is a zero percent tax rate.

Limit to enter the VAT scheme (PRAGTVSH)

This is an indicator of the structure of taxes, specifically VAT and is expressed in Lek. It indicates the amount of annual turnover (supplies for sale / purchase of goods and services) that the taxable person should become the object of the scheme for self-declaration of VAT. It also represents the limit, which if crossed obliges the taxable person to register for VAT.

Weight of insurance contributions (PSR)

This is an indicator of the tax structure. This indicator is not attached to any tax revenue performance indicator. It represents the payments made of the percentages of social and health insurance contributions, which apply to the gross income of employees and employers, on a personal basis. This indicator represents the combination of mandatory contribution payments to be paid by the employee and the employer, usually withheld by the employer (except in cases of self-employment). This indicator is expressed as a percentage of gross salary. It does not include other income (from interest, sale of capital, etc.), other than that related to salary and is the basis for calculating social security and health insurance contributions.

Labor tax (TMP)

This is an indicator of the tax structure. This indicator is not attached to any tax revenue performance indicator. Labor tax is an attempt to assess everything that includes labor value added tax, presented as a percentage of gross wage. It includes insurance contributions and personal income tax.

If the minimum level of the TAP base is greater than per capita income, then the TMP will be calculated equal to the weight of the social security contributions.

The Albanian Parliament has approved Tax Agreements, since 1995 and until 2022 there are 42 Tax Agreements ratified by the Assembly entitled “For the avoidance of double taxation and the prevention of Fiscal Evasion”, which are in force.

If you open the link of the General Directorate of Taxes of Albania, you can also download Tax Agreements with countries, as well as update your information regarding the number and content of new Tax Agreements.

DOUBLE TAXATION AVOIDANCE AGREEMENTS*
No. COUNTRY RATIFIED BY LAW OFFICIAL NOTEBOOK IN FORCE
No. DATE No. DATE PAGE FROM DATE
1 POLONIA 7783 26.01.1994 1 28.02.1994 11 01.01.1995
2 ROMANIA 7857 26.01.1994 15 10.11.1994 683 01.01.1995
3 MALAYSIA 7822 11.05.1994 6 23.06.1994 337 01.01.1995
4 HUNGARY 7686 15.03.1993 4 09.04.1993 262 01.01.1996
5 TURKEY 7858 21.09.1994 15 10.11.1994 684 01.01.1997
6 CZECH 7999 21.09.1994 21 10.10.1995 921 01.01.1997
7 RUSSIA 7950 21.06.1995 15 17.07.1995 618 01.01.1998
8 N.MACEDONIA 8305 12.03.1998 7 04.04.1998 261 01.01.1999
9 CROATIA 7937 24.05.1995 12 16.06.1995 501 01.01.1999
10 ITALY 7934 17.05.1995 498 16.06.1995 12 01.01.2000
11 BULGARIA 8447 25.01.1999 7 12.03.1999 203 01.01.2000
12 SWEDEN 8357 03.06.1998 14 23.06.1998 499 01.01.2000
13 NORVEGY 8446 25.01.1999 6 25.01.1999 167 01.01.2000
14 GREECE 8000 21.09.1995 21 10.10.1995 922 01.01.2001
15 MALTA 8667 23.10.2000 34 09.11.2000 1653 01.01.2001
16 SWITZERLAND 8597 06.04.2000 9 28.04.2000 401 01.01.2001
17 MOLDOVA 9036 27.03.2003 29 07.05.2003 935 01.01.2004
18 BELGIUM 9051 14.04.2003 38 23.05.2003 1279 01.01.2005
19 CHINE 9383 04.05.2005 43 13.06.2005 1553 01.01.2006
20 FRANCE 9054 24.04.2003 39 24.05.2003 1307 01.01.2006
21 EGYPT 9440 11.11.2005 93 08.12.2009 2805 01.01.2006
22 HOLLANDË 9382 04.05.2005 43 13.06.2005 1533 01.01.2006
23 KOSOVO 62/2014 19.06.2014 109 11.07.2014 4228 01.01.2016
24 SERBIA, MONTENEGRO 9403 19.05.2005 49 23.06.2009 1766 01.01.2006
25 AUSTRIA 9886 10.03.2008 44 01.04.2008 1987 01.01.2009
26 SLOVENIA 9938 26.06.2008 113 22.07.2008 4977 01.01.2010
27 LATVIA 9937 26.06.2008 113 22.07.2008 4963 01.01.2009
28 SOUTH KOREA 9615 27.09.2006 112 25.10.2006 4371 01.01.2009
29 BOSNIA-HERZEGOVINA 10000 29.09.2008 156 10.10.2008 7680 01.01.2009
30 LUXEMBOURG 10094 12.03.2009 42 10.04.2009 2151
31 IRLANDE 10214 21.01.2010 9 15.02.2010 306 01.01.2012
32 ESTONIA 10285 03.06.2010 79 02.07.2010 4115 01.01.2018
33 GERMANY 10287 10.06.2010 81 05.07.2010 4253 01.01.2012
34 KUWAIT 10292 01.07.2010 92 20.07.2010 4958 01.01.2014
35 SPAIN 10338 21.10.2010 154 2010 8135 04.05.2011
36 SINGAPORE 10402 24.03.2011 42 22.04.2011 1798 01.01.2012
37 QATAR 42/2012 19.04.2012 52 14.05.2012 2639  01.01.2013
38 INDIA 167/2013 31.10.2013 184 20.11.2013 7771
39 U.K. & N.IRELAND 173/2013 05.12.2013 201 27.12.2013 8182 01.01.2014
40 UNITED ARAB EMIRATES 61/2014 19.06.2014 109 11.07.2014 4228 01.01.2014
41 ICELAND 14/2015 26.02.2015 38 08.03.2015 1742 01.01.2017
42 SAUDI ARABIA 40/2019 20.06.2019 103 17.07.2019 8688 01.12.2019
* International Agreements “On the avoidance of double taxation and the prevention of tax evasion”, approved by the Parliament

The Republic of Kosovo until 2022 has in force 18 Tax Agreements with other countries. If you want to get acquainted with the International Tax Agreements, which are in force in Kosovo you can be informed by clicking the link of the Tax Administration of Kosovo.

Fiscal Freedom Day represents the Albanian people as a whole. But what is your Tax Freedom Day?

Here’s a simple way to calculate it for each year.

If you will have all the information you need when you pay your taxes the calculation is a simplified conclusion of actions. First, add your total liabilities to the central tax office (for cases where you are registered as an activity) as well as local taxes and fees.

In the case of the individual who is not registered with the tax office, but has income from various sources should be included in this calculation all taxes and fees you pay for the services required of you, as well as those withheld at your source (p. eg payroll tax, interest tax, municipal taxes, etc.).

On the other hand, record calculate the gross income you received during the past year. From the ratio between all the total taxes and fees paid and all your gross income results a number. This number is the last day of the year related to the tax burden. After this date which coincides in the calendar with a day of the months of the year is considered as your Fiscal Freedom Day.

For example,

If during the last year you have income only from salary and bank interest, then this is the part of your income, which resembles the Domestic Product of a country or region.

Meanwhile, after collecting and recording the earned income, you must also calculate all taxes and fees, such as: salary tax, social contributions, bank tax and local taxes you pay for the unit / municipality where you live, taxes customs when performing import.

The ratio between the amount of taxes and fees paid to the income you have earned, where the previous year is used as the calculation year, will result in a number. This number is the amount of days you are charged with fiscal burden for the year you are.

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