What is included/allowed in personal income and expenses for tax purposes?

In Albania, personal income is taxed on all income earned inside and outside the country by a resident individual and inside the country by a non-resident individual, except for the exceptions for each source of income. All the elements that are included and excluded are detailed below.

A. Taxable income for the individual

The following income is considered taxable income of a personal income tax payer and is calculated as annual income. Income is taxable regardless of whether it is paid in cash or in kind. Income in kind is valued at market value.

Individual taxable income is:

1. income from employment[1];

Exemptions for employment income

– the value of consumed food, non-alcoholic beverages, work equipment, medical treatment and other anticipated benefits, in the premises operated by the employer
– reimbursement of travel and accommodation expenses and travel allowances,
– compensations for employees in case of illnesses, disasters or life difficulties
– contributions for life, health and work accident insurance
– the income derived from the salaries and compensations for the employment relations of the officials of the consulates, diplomats, or similar of third countries and
– international organizations, who during the performance of their official functions in the Republic of Albania

2. business income[2];

3. income from investments[3].

Exemptions for income from capital investment

– income from the alienation of movable assets, except for the alienation of vehicles, airplanes and ships if they are sold within less than 12 months of purchase;
– income for the transfer of the right of ownership of agricultural land when the legal successor holds the land for the same purpose and activity;
– income from interest and capital gain of Eurobonds issued by Republic of Albania, when the beneficiary is a non-resident natural person.

Various exceptions for incomes from different sources

The following incomes are exempted from tax, which are received as:

– insurance income in the mandatory social and health insurance scheme;
– economic assistance from public budgets for individuals with no income or with low income, according to the provisions in the relevant legislation in force;
– exempt income based on international agreements ratified by the Assembly of the Republic of Albania;
– financial compensation paid to property owners as compensation for expropriations made by the state in the public interest, or to former owners for expropriation of their  property in the past;
– financial compensations paid to former political prisoners and their descendants;
– rewards and prizes given by state institutions for achievements in science, sports, culture;
– scholarships for pupils and students;
– benefits for damages, received through final court decisions, benefits for damages from the insurance contract, received pursuant to the law in force for insurance and
– reinsurance activity, as well as certain compensations for court costs;
– income from support with grants and subsidies in agriculture and animal husbandry with funds from the state budget or other sources.

B. Deductible expenses for the individual

The annual tax base is reduced by allowances and deductions.
If the difference between the annual taxable income and the total amount of allowances and deductions is negative, the annual tax base is considered to be zero

The taxpayer of personal income with income from employment and/or business can deduct from the tax base for the tax period

– 600,000 ALL if the annual income is up to 600,000 ALL, or an amount of 50,000 ALL per month if the monthly income is up to 50,000 ALL;
– 420,000 ALL if the annual income is over 600,000 ALL to 720,000 ALL, or an amount of 35,000 ALL per month if the monthly income is over 50,000 ALL to 60,000 ALL;
– 360,000 ALL if the annual income is over 720,000 ALL, or an amount of 30,000 ALL per month if the monthly income is over 60,000 ALL;
an amount of compensation for each dependent child under 18 years of age of 48,000 ALL.

Notice! The personal income taxpayer with annual taxable income from employment and/or annual taxable income from business less than ALL 1,200,000 can deduct, in addition to the individual amounts as above, current expenses for children’s education in his charge, in the maximum value of 100,000 ALL

The personal income tax payable is calculated for the person’s taxable income and deducting any:

– foreign tax credit[4];

– withholding tax (for investment or business income)

– wage tax held during the tax year (held by the employer);

– advance payments for business income tax installments, paid during the tax year.

The calculation of the tax payable on personal income from employment and investment is done separately from the calculation of tax payable on personal income from business.

Tirana, 2024

[1] wages, bonuses and benefits arising from the employment relationship
rewards from participation in management boards
income earned by a self-employed individual from less than 3 clients

[2] the income of a natural person from any business activity
interest income, dividends and royalties
proceeds from the sale of securities
income from leasing a business
proceeds from the sale of any type of business asset and liability
capital gain realized from the transfer of business assets and liabilities in a business reorganization
gifts, grants or subsidies received by a person in connection with his business
the income realized by the natural person for any type of automatic technical or digital service fee
capital gains from the revaluation of business assets, when they are a contribution in kind to the capital of a company
income from issuing or benefiting from virtual assets
income from transactions with virtual means

[3] income from interest, dividends and royalties
capital gains from the alienation of securities or financial instruments
capital gains realized from life insurance schemes
return on investment from private pension schemes
capital gain from alienation of immovable property
real estate rental income
income from issuing or benefiting from virtual assets
income from transactions with virtual tools
income deposited as funds in private pensions and withdrawn before time

[4] If during a tax year the resident taxpayer of personal income tax realizes tax income from sources outside the territory of the Republic of Albania, the amount of tax paid in a country must be deducted from the tax to be paid by that taxpayer for this income foreigners on this income.
The amount of foreign tax payable must be certified by the specific documentation issued for this purpose by the foreign country/s where the income was realized and according to the terms and procedures defined in the instructions of the minister responsible for finance
The deducted amount of foreign tax paid cannot exceed the amount of personal income tax that would be payable on this income, if it had been realized in the territory of the Republic of Albania.