Fiscal regime for the petroleum products and downstream in Albania

Each individual, who is a partner in a commercial company, is responsible for the company’s tax liabilities to the tax administration, according to provisions in the company charter. According to commercial registry, over 98 percent of companies are limited liability companies. The remainder is joint stock companies, partnerships and less than 0.5 percent is limited partnerships. The tax period commences on 1 January and ends on 31 December of each calendar year.

The fiscal regime that applies in Albania, to the petroleum industry (downstream) consists of:

• Indirect taxes (VAT, customs duties and Excises)
• Direct taxes (Profit tax, personal income tax and capital gain tax)
• Social and health contributions
• National and Local taxes

At the moment, a company is registered and starts its economic activity, it is responsible for:

• Calculation of Value Added Tax (VAT) and timely declaration and payment;
• Payment of advance tax installments for profit tax to pay every three months;
• Calculation, timely declaration and payment of tax on incomes from employment for employers and employees;
• Calculation, timely declaration and payment of social and health contributions;
• Withholding and payment of withheld tax, under obligation of Law “On Income tax”;
• Calculation, timely declaration and payment of excise under specific law “On Excises” for the companies that have to deal with this tax;
• Calculation, timely declaration and payment of national taxes and local taxes.

Taxpayers keep their accounts in accordance with provisions of the law “On accounting and financial statements” and act pursuant to that law in accordance with IFRS principles.

The petrol products are subject to VAT at a standard rate of 20 per cent. The export VAT rate it is 0 per cent. Exporters can benefit from a VAT credit for purchases made on behalf of their exports.

According to the VAT Law, the most significant incentives for investors in Albania are as follows:

• VAT credit at the rate of 100 per cent for importers of machinery and equipment which will serve entirely their taxable economic activity;
• exemption of VAT for export of international services;
• automatic VAT refund system from treasury, based on risk management

If the tax credit for a taxation period is higher than the VAT applicable in that period, taxpayers have the right to use the credit surplus for the following taxable period. Taxable persons have the right to request a refund of the credit surplus when they have a taxable credit amount over three months that is above Euro 2.900[1].

Residents are taxed on their worldwide income; nonresidents are taxed only on their Albanian source income. Double taxation is avoided through tax treaties. When a Tax Double Treaty is in force between Albania and another state, its provisions prevail over the local tax regulations.

Taxable income of residents includes business profits, as well as dividends, interest, and realized capital gains. Taxable profit of a company is the difference between gross profit and related expenses. The determination of the taxable profit is generally based on the profits shown on the financial statements.

The profit tax rate is 15%.

Withholding tax is applicable to dividend, interest, and royalty payments, as well as certain other types of Albanian-source income earned by nonresidents.

Dividends are subject to a 15% withholding tax rate, unless the rate is reduced under an applicable tax treaty. Dividends and distribution of earnings are excluded from a resident’s taxable profit when dividends and earnings are distributed from resident companies or partnerships which are subject to corporate income tax despite the participation quota, in value or number, of the share capital, of the right to vote or the participation in initial capital or share capital of the beneficiaries.

Interest is taxed at a 15% withholding tax rate, unless the rate is reduced under an applicable tax double treaty. Royalties are subject to a 15% withholding tax rate, unless the rate is reduced under an applicable tax double treaty.

No participation exemption is in place for holding of foreign companies (nonresidents). Consequently, dividends received from foreign companies would be included in taxable income. Taxation of dividends paid to nonresidents. Dividend income distribution to a nonresident is subject to a withholding tax of 15%, unless a double tax treaty provides for a lower rate.

Realized capital gains are considered as taxable income and are taxed together with other income, at 15% on a net basis.

There’s no surtax or Alternative minimum tax

A loss may be covered by profits in the next three fiscal years, according to the principle ”first loss before the last one. The tax loss cannot be carried forward if the ownership of stock capital or voting rights of an entity changes by more than 50% in value or number.

Foreign investors can freely transfer, and purchase to transfer, foreign currency abroad after any corporate taxes due, including withholding taxes, have been duly paid.

The owners of companies may transfer abroad:

– Income generated through an investment

– Compensation against expropriation of investments for state needs

– Liquidation quotas upon termination of the investment

– Proceeds from the sale of an investment

– Sums received as a result of enforcement proceedings.

Resident employers are required to withhold personal income tax on employee wages and remit to tax authorities on a monthly basis. The threshold of salary nontaxable it is 30.000 Leks per month ( 215 per month). In Albania, since 2014 is applied the progressive tax rate, based in three tax brackets

This right may also be exercised by foreign individuals who have obtained a permanent residence permit and are registered as sole traders or participate in a co-operative, in an unlimited partnership or as unlimited partners in a limited partnership, after the payment of all taxes due

Employers must properly have calculated social and health insurance contributions and must pay no later than the 20th date of the month following the month of calculation. The total social security contribution is 27.9 per cent of the monthly secured compensation salary.  Social security and health insurance contributions are paid by the employer at the rate of 16.7%. Social security contributions paid by the employee are rated at 11.2%.

The national taxes are levied by a specific law, which was amended for 2016 for specific royalty taxes. There are a variety of other national taxes and fees. These include for petrol products the carbon tax and circulation tax on vehicles (green taxes). Starting from 2017 these taxes are exempted for the export of petrol products. National taxes shall be declared within deadlines provided by the Law on National Taxes through online tax system.

According to the Law on the Local Tax System, a wide range of local taxes is levied on every business activity. Most of them are levied at specific amounts and differ by location of business activity in the territory of Albania.

Albania applies the arm’s length principle. Since 2014 in Albania are in force the transfer pricing guidelines. The Albanian Tax Instructions refer to the OECD transfer pricing guidelines, 2010 for guidance in applying transfer pricing principles.

Excise duties are levied on certain domestic or imported petrol products such as: petrol, diesel, kerosene, gasoil, solar, biodiesel, petcock, bitumen, fuel oils, LPG[2] etc. Tax liable persons for excise duties are licensed producers and importers of the petrol products. Excise goods in the Republic of Albania and the relative tax rates are shown in the link (in Albanian version) [3]

Tax exemptions

Tax is granted for selected projects on a case-by-case basis and for every business as per under

• articles 18 of income tax law;
• articles 53, 54 and 56 of VAT law including the special scheme of exemption from VAT for investments value over Euro 360,000;
• articles 10-12 of excise tax law; and
• article 9 of National Taxes law.

The investment projects may include investments channeled to public services, infrastructure projects, as well as tourism and oil industries.