Online Services from Albania for US Clients and Tax Treatment

Online services (e.g., business monitoring, analysis, reporting) are the most typical case of digital service exports.

1. How is it taxed?

In Albania tax treatment consist like below:
The Albanian company issues an invoice for the service.
Revenue from this invoice is included in the company’s income and taxed in Albania (15% corporate income tax).
VAT does not apply to international B2B payments outside the EU. Therefore, payments made by US clients for online services are not subject to VAT.
Withholding tax does not apply, because the payment comes from abroad and the service is performed in Albania.

In USA, tax treatment it is:
For the US company, this is a deductible expense recognized by the IRS.
Since the service is performed outside the US and there is no physical “nexus” in the US, withholding tax does not apply.

2. Withholding tax

There is no withholding tax in the USA, because the service is performed outside the US.
According to IRS regulations, services provided by a foreign company to a US client, when the service is performed outside the US and not connected to a US trade or business, are not subject to US withholding tax.
This rule applies to payments related to foreign-source income that are not connected with any activity conducted within the US.
Albania does not have a tax treaty with the USA, but this only matters if the service is performed within US territory.
There is no withholding tax in Albania for payments coming from abroad.

3. Invoicing practice

The Albanian company should issue an invoice in USD or ALL (depending on the client agreement).
It should be marked as: “Online monitoring service – service export”.
Payment is received in the Albanian bank and recorded as revenue from service exports.

4. Practical example

Invoice for a US client = 10,000 USD.
The US company records it as a deductible expense of 10,000 USD in its accounting.
The Albanian company declares it as income and pays corporate income tax (e.g., 15% on net profit).
There is no withholding tax in the USA.
There is no withholding tax in Albania.

In conclusion, for online services from Albania for US clients, there is no withholding tax in either the USA or Albania. Only the Albanian company pays corporate income tax on the revenue earned.