VAT implemented for energy transmission in Albania

On January 30, 2015, The Ministry of Finance of Albania published the Instruction on new VAT Law applicable from January 01, 2015. The new law and its instructions aim at harmonizing Albania’ domestic law with the European VAT rules incorporated in the EU Council Directive. The new VAT law changes the rules in respect of the place of supply of services in that it harmonizes them with the relevant rules of the Recast VAT Directive. As a general rule, services supplied to taxable persons, will be taxable in the place where the service recipient is established.

Hence, services provided to an entity established and registered for VAT outside Albania will be subject to VAT in the jurisdiction of the service recipient and there will be no obligation to charge Albanian VAT, nor will there be a limitation on the right to deduct input VAT.

If the service is supplied to a non-taxable person, the place of supply will be considered to be the place where the service provider is established. As a consequence, a foreign service supplier providing services to a non-taxable (B2C) person in Albania should register for VAT purposes in Albania by appointing a fiscal representative in the country to account for and pay the VAT liability.

Nevertheless, there is an exception to this general rule. Specifically, the place of supply will be the place where the non-taxable person is established or where he has his permanent address or usually resides in the case, inter alia, of the provision of access to a natural gas system or other utility distribution systems.

Pursuant to the new Law, a VAT reverse charge mechanism may be applied by an Albanian recipient who is a taxable person or a person identified for VAT purposes (B2C) if the foreign supplier of the services is not established in Albania. As a consequence, the foreign supplier does not need to register for VAT in Albania when supplying the services whose place of supply is Albania unless it creates a permanent establishment in Albania.

The new law changes the rules on the place of supply of natural gas, electricity and water through a transmission and/or distribution system. The amendments make a distinction between those supplies which are made with a view to resale and those purchased for consumption.

The place of supply of gas, electricity and water supplied through distribution systems will be where the taxable trader is established or has a permanent place through which the goods are supplied or, in the absence of such a place, the place where he usually resides (B2B). Further, the supply of natural gas, electricity and water in the final stage from the supplier to the final consumer will be taxed at the place where the customer consumes such goods (B2C).

As a consequence, suppliers that are not established in Albania where the consumption of the above-mentioned goods occurs will have to appoint a VAT representative in order to account for and pay the VAT due.

In conclusion, the Albanian legislation has implemented main rules and definitions in order to be harmonized with the EU VAT Directive, though some differences remain. In particular, the Albanian VAT law uses the zero VAT rate  (export), where the EU VAT Directive applies VAT exemptions. The reverse charge mechanism is applicable and mentioned in the invoicing rules of VAT law, though the reverse charge mechanism is not implemented as temporary measure for prevention of fraudulent activities.

Obstacles identified by stakeholders

Albania does not have a gas transmission network for the time being, thus all obstacles are related to transmission of electricity.  Allocation of interconnection capacity between Albania on one side and Montenegro and Greece on the other side is performed by SEE CAO, according to its auction rules and procedures. At the border with Kosovo[1] the interconnection capacity is allocated by EMS rather than KOSTT.

Foreign based companies can participate in Albanian wholesale energy market as long as they are licensed in countries establishing Energy Community.

Albanian legislation allows for the use of reverse charge mechanism.

There have been no particular obstacles identified by OST sh.a..

[1] This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.