Strengthening a transparent and efficient tax system in Albania in 2025 by learning from European good practices

When analyzing Albania’s efforts to improve its tax system in 2025 and beyond, it is important to consider successful experiences from both European countries and neighboring regions, where similar tax reforms have been implemented.

Albania is focused on improving tax compliance systems in line with EU directives, especially as it seeks to strengthen ties with the European Union.

To complete a more transparent and efficient tax system in Albania, it is essential to learn from successful European models. Some examples to consider, although they are present in tax policy from various consultations with partners from the IMF, the World Bank, etc., are listed below.

European countries and neighboring regions have overcome significant challenges in modernizing their tax systems, often focusing on improving efficiency, transparency, and compliance. Here is how some of them addressed their respective issues:

• Estonia. Overcoming the barriers to digitalization Estonia faced the challenge of moving to a fully digitalized tax system, ensuring that its population and businesses were ready for the change. The government invested heavily in digital infrastructure, including the development of the e-residency program and electronic tax platforms. This change was initially met with resistance, especially from older generations unfamiliar with digital tools. However, through extensive public awareness campaigns and user-friendly platforms, Estonia successfully overcame these barriers. The system now allows businesses to file taxes, pay VAT, and submit documents within minutes, dramatically increasing compliance rates and reducing the need for physical interactions. The country’s success is often attributed to early adoption of technology and a strong commitment from all levels of government to provide accessible services.
• Croatia. Tackling VAT Evasion Croatia’s main challenge was the high rate of VAT evasion, which posed a significant obstacle to tax revenue collection. In response, Croatia implemented an innovative real-time VAT invoicing system, requiring businesses to submit invoices electronically and in real time to the tax authorities. This system effectively reduced VAT fraud by allowing the government to monitor transactions instantly. Initially, many businesses were skeptical of real-time reporting, but through phased implementation and training programs, Croatia managed to ease the transition. As a result, VAT compliance rates improved significantly and the country’s tax base expanded. This success was also aided by a broader push to integrate with EU tax practices and align with international standards, which improved investor confidence and business operations.
• Serbia. Modernizing Tax Dispute Resolution Serbia’s tax system struggled with a lack of transparency in tax dispute resolution, leading to lengthy legal processes and business uncertainty. In response, Serbia reformed its tax dispute system, creating an independent body for tax dispute resolution and simplifying procedures. The main challenge Serbia faced was convincing businesses that the new system would be fair and efficient. The government’s solution was to focus on transparency, providing clear timelines and promoting a more predictable framework for tax disputes. They further introduced training for businesses to understand their rights and obligations under the new system. The introduction of a simplified and more transparent dispute resolution mechanism helped restore trust in the tax administration and reduce the burden on the judiciary.
• North Macedonia. Simplifying the Tax Code North Macedonia faced challenges with a tax code that was complex and burdensome for businesses. The government took decisive steps to simplify tax rates and procedures, cutting unnecessary paperwork and creating clear and straightforward rules for businesses. The challenge of simplifying the code included addressing bureaucratic resistance and ensuring that all businesses, especially SMEs, were on board. North Macedonia introduced a gradual implementation strategy, allowing businesses to adapt to the changes by providing them with support in the form of workshops and online resources. This approach, along with lowering tax rates and eliminating some redundant taxes, led to higher compliance rates and a more business-friendly environment.
• Slovenia. Corporate tax reform Slovenia faced a challenge in attracting foreign investment due to its relatively high tax rates and a complex system. To address this, Slovenia simplified its corporate tax structure and introduced incentives for SMEs and technology companies. The challenge was to balance the need for tax revenue with the desire to stimulate investment. Slovenia overcame this by offering targeted tax breaks for specific sectors, such as research and development, while ensuring that the overall tax rate remained competitive compared to neighboring countries. They also worked to ensure that businesses understood the benefits of the new tax regime, through information campaigns and clear communication of the long-term benefits of the reforms.

Key achievements in overcoming challenges appear to be:

Digital transformation. Countries such as Estonia and Croatia show that overcoming resistance to digital systems can lead to massive improvements in tax compliance and efficiency. These countries invested in education and support to ensure that businesses and citizens can effectively use the new systems.

Streamlining complex systems. Simplifying tax codes, as seen in North Macedonia and Slovenia, is a crucial step in fostering better business environments. Simple processes reduce administrative burdens and encourage businesses to comply more easily.

Transparency and dispute resolution. As demonstrated by Serbia, establishing transparent and efficient dispute resolution mechanisms helps rebuild trust in the tax system and reduces litigation costs for businesses.

For Albania, adopting a combination of these strategies – leveraging technology, simplifying tax codes, and ensuring transparent systems – would be a crucial step towards modernizing its tax framework and overcoming current challenges.

Albania’s tax system could benefit significantly by adopting practices from its European neighbors. Key reforms should include improving digital tax reporting, introducing real-time VAT monitoring, simplifying tax codes, and establishing effective dispute resolution systems. These steps, when combined with Albania’s ongoing efforts to align with EU tax standards, will help create a more transparent, efficient, and business-friendly tax environment. By reducing bureaucracy and improving compliance through technology, Albania can optimize its tax system and create a more sustainable and competitive economy.

Albania can benefit by integrating similar digital tools with human capacity, improving data sharing between businesses and the tax authority, and simplifying its regulatory framework. Furthermore, aligning tax policies with EU standards would increase investor confidence and provide a more predictable business environment. The key is to ensure that reforms focus on reducing compliance costs for businesses by increasing transparency and accountability in the tax system.

By focusing on these aspects, Albania can improve tax compliance, attract investment, and ultimately create a stronger and more transparent tax system. Aligning with EU standards and best practices would help the country modernize its tax system, reducing inefficiencies and stimulating long-term economic growth.

In 2024, Albania’s tax system is undergoing significant developments aimed at improving compliance, transparency and simplification. These reforms are particularly focused on increasing tax collection, encouraging investment and aligning with international best practices in tax administration.

The Albanian government has also made progress in aligning its tax system with international standards, including the implementation of transfer pricing guidelines and country-by-country reporting rules. This will further increase transparency and reduce opportunities for tax avoidance by multinational companies operating in Albania.

Furthermore, Albania is investing in strategic sectors such as technology, logistics and tourism. Through a mix of financial incentives, such as VAT reductions, tax exemptions and support for infrastructure development, the country aims to improve its attractiveness as an investment destination by fostering a more predictable and business-friendly environment.

These steps demonstrate a clear move towards building a more modern, efficient and transparent tax system that not only attracts foreign investment but also improves the overall culture of compliance within the country. The new income tax law, alongside initiatives for better business infrastructure, demonstrates Albania’s commitment to improving its tax system and creating a more sustainable economic future.