Income Tax

Scope of application

Liable to Profit Tax are:

• The Legal persons and partnerships registered for VAT;
• The Legal persons and other partnerships between individuals formed or organized in compliance with a foreign law, but exercising their activity within the territory of the Republic of Albania;
• Every other person, despite the status or legal form of registration or recognition, that is liable to VAT, except cases when this person is liable to simplify income tax for the small business.

Attention: Every person, despite the status or legal form of registration or recognition, in cases where is or becomes liable to profit tax, has the right, at any time, to request his deregistration, but cannot be liable to simplify income tax for the small business.

The liability to pay the profit tax
The resident taxpayers are liable to the profit tax on incomes provided from all sources established:

• inside
• or outside of the territory of the Republic of Albania.

The Non-resident taxpayers are liable to the profit tax on incomes provided:

• from all sources within the territory of the Republic of Albania.

Exemption from the profit tax:
Are excluded from the profit tax:
- The central and local governmental organs, the Bank of Albania, humanitarian associations, international organizations, if provided for in special agreements, enterprises, provided for in international agreements and ratified from the Assembly of the Republic of Albania, foundations or non – banking financial institutions formed or transferred upon the decision of the Council of Ministers, film production companies subsidized by the National Film Center, administrated voluntary pension fund.

Attention: All the above-cited subjects have the obligation to submit to tax organs their tax declarations and the annual report, respecting the same deadlines as subjects liable to the profit tax.

Taxable Profits
The taxable profits result from the deduction of the total revenues gained during the taxation period (calendar year) with the recognizable expenses.

The taxable profits of the taxation period are determined according to the annual report and its annexes that should be composed in compliance with the law “On Accounting and financial statements”

Incomes
The total incomes imply every type of income generated during the taxation period and include, not only, but also the incomes generated from the supply of services and goods, interest incomes, incomes from use of movable and immovable property.

Expenses
The recognized expenses (deductible)
To be considered as recognizable (deductible) the expenses must be:

1. Carried out for the immediate interest of the financial activity of the entrepreneurship.
2. Carried out effectively
3. Displayed by an accounting action diminishing the net activities.
4. Proved by the respective legal explanatory documentation

The unrecognizable expenses (deductible)
For purposes of defining the taxable profit, the expenses that are clearly provided in the exhaustively list of the law on taxation, will not be recognized. For further information, please refer to the Law no. 8438 on “Income Tax”, article 21, included in the following.

Tax rate
The Tax rate applicable on The Profit Tax is of 15%

Taxation payment
The down payment of the profit tax
Instalments may be paid on a monthly basis, in amounts as follows:
The profit tax is paid every quarter or in advance every month during the year, in the form of monthly down payments.
The instalments may be paid on a monthly basis, in the following amounts:

The general case

• For the months of January to March of the successive taxation period - total of profit tax of the two previous years divided by 12;
• For the months of April to December of the successive taxation period – total of profit tax for the previous taxation period divided by 12.

Specific cases
In cases when the taxpayer begins his activity during the preceding second year of the taxable period, the down payments are calculated as follows:

• For the months of January to March of the successive taxation period - total of profit tax for the taxable period of the two previous years divided by the number of months when the taxpayer has conducted his activity.

If the taxpayer begins his activity during the preceding taxable period, the down payments are:

• For the months of January to March of the successive taxation period – an estimated total of profit tax for the previous taxation period divided by the number of months of the previous period when the activity has been exercised.
• For the months of April to December of the successive taxation period – total of profit tax for the previous taxation period divided by 12.

If the taxpayer begins his activity during the successive taxable period, the down payments are:

• The estimated total of profit tax for the successive taxation period divided by the number of months left from the successive taxation period.

Exemption

• Taxpayers who start their activity during the successive tax period and work in the production field are not subject to prepayment of the profit tax liability for a period of 6 months or for the period remaining till the end of the successive year, even if such period is shorter than 6 months.

Correction of prepayments installments
In the case when the taxpayer, at any time during the taxable period, attests, before the tax authorities that the profit tax for this taxable period will be, significantly, lower than the income tax in the previous period or the previous second period, then the tax authorities accept the reduction of the down payment installments.

If the subject has reduced the down payment installments, determined from the tax organ and the annual tax liability for the profit tax, resulting from the balance sheet, exceeds the down payment by more than 10%, the subject has to pay default interest on the difference between the actual annual liability and the prepaid amount during the year.

If tax authorities estimate that the profit tax for the following tax period will exceed by more than 10 per cent the profit tax of the previous tax period, they can fix this by increasing the down payment installment, in accordance with the estimation of the profit tax made by them.

Declaration and final calculation of tax
By the end of the calendar year, the taxpayer drafts the annual declaration of taxable incomes in the form defined by the Guidance of the Minister of Finance as follows:
Form of Declaration of Payment on Profit Tax must be submitted at tax authorities no later than 31st of March of the succeeding year, submitting at the same time the Balance Sheet accompanied with annexes.

Potential cases:

If the declared and paid tax according to annual declaration is more than:

• The total amount of monthly prepayments made during the year and
• The paid foreign tax (credited), the taxpayer pays the difference before the 31st of Mars of the upcoming year.

If the declared and paid tax according to the annual declaration is less than:

• The total amount of the monthly prepayments made during the year and
• The paid foreign tax (credited), the tax administration transfers the overdue amount on the account of other tax liabilities prepaid by the taxpayer.

When the taxpayer does not have other unpaid tax liabilities, upon his written approval, the remaining amount, if any:

• Is automatically refunded within 30 calendar days from the date of the declaration and payment from the taxpayer.
• Is transferred to the taxpayer’s account of future tax liabilities.

Profit designation
The commercial companies together with the assembly of shareholders or respective competent decision-making organ of the company, in accordance with the profit tax payment and within 6 months from the closure of the financial year, must approve:

• The financial outcome of the previous year
• Profit designation after taxes

And also define:

• The Amount of the legal reserves
• The share to be used for investments or capital increase

The commercial companies and natural persons, no later than the 31st of the calendar year, shall deposit at the tax administration office, the decision of the responsible organ/natural person that approves the amount and destination of the taxable profit. Such obligation remains unaltered even if the current year has resulted in loss or zero.

Attention: In case of failure to present this document in due time, shall be applied a fine of 10 000 ALL for every month of delay.

The legal person shall declare and pay on the account of the tax administration, the tax on payable dividend, no later than the 20th of August of the same year when the approval of the results has been made, despite if the distribution of the dividend has been completed or not.