Reinvested profits increase in Albania, new capital stagnates – experts call for fiscal stability to encourage long-term investments

ALTAX presents a thematic study analysis on dividend taxation and a proposal for its reformulation.

Foreign direct investments in Albania have undergone a noticeable structural change during the period 2019–2024, where reinvested profits have doubled (+115%), while new capital has seen a relative decline.

According to data from the balance of payments (Table 4), reinvested profits increased from 397 million euros in 2019 to 853 million euros in 2024, while new capital fell from 722 million to 708 million euros over the same period. This change suggests a tendency of investors to reuse existing profits in the country rather than commit new capital.

According to the published analysis, the low dividend tax rate has encouraged profit distribution and helped maintain budget revenues during uncertain periods. However, experts emphasize that the lack of stability and transparency in fiscal policies has created an uncertainty effect that hinders new capital investments, turning the investment cycle into a slow “boom-bust” spiral.

“Albania needs a more sustainable approach in fiscal policy, where tax rates are harmonized with long-term security for investors,” emphasize economic experts. They propose increasing transparency, guaranteeing policy predictability, and strengthening the climate of trust to attract new capital.

This development is particularly important for the country’s fiscal consolidation, as new investments are essential for long-term economic growth and job creation.

Foreign investments and reinvested profits in Albania, 2019–2024

In total, reinvested profits over 6 years have reached a value of €3.644 billion, while new capital only €3.945 billion, showing a clear slowdown in new investment sources.

Based on the ALTAX study analysis on the reformulation of dividend taxation in Albania, here are some key questions that could serve as a starting point for deeper discussions in the media, public debates, or economic analysis:

📌 Questions for public and media discussion:

• What was the purpose of reducing the dividend tax from 15% to 8%?
• Was this measure an incentive for the formalization of undistributed profits or a one-sided fiscal relief favoring large businesses?
• How did this reduction affect dividend distribution and budget revenues?
• Has there been a significant increase in dividend tax revenues following this measure?
• Has this policy created fiscal inequality between shareholders who distributed profits before and after the legislative change?
• How can these inequalities be addressed in the future?
• What is the long-term impact of this measure on foreign direct investments and the country’s economic growth?
• Has this policy influenced the increase in reinvested profits compared to new capital?
• How can dividend taxation policy be harmonized with the need for fiscal stability and the encouragement of long-term investments?
• Should there be a fiscal policy review to ensure a more favorable climate for investors?

These questions aim to stimulate an informed debate on the effects of fiscal policies on the Albanian economy and to help in formulating more effective strategies for the country’s economic development.

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