A. If an NGO or public entity makes taxable supplies, goods or services, they are obliged to register for tax liability for VAT.
B. VAT is a general tax on consumption of goods and services, proportional to their price, which is charged at each stage of production and distribution process for the price without tax.
C. VAT is applied as a percentage tax on the price of goods and services, and becomes required to be paid after the deduction of the VAT, which directly encumbers on the cost’s elements of the goods and services.
All supplies of goods and services performed against payment within the territory of the Republic of Albania by a taxable person and all imports of goods in the territory of the Republic of Albania are subject to the Value Added Tax
In the taxable transactions are included:
- The supply of goods, which means, the transfer of the right to dispose as an owner the tangible property
- The supply of services, which means, any transaction that is not a supply of goods, unless otherwise provided for in this law;
- Imports of goods, which means release for free circulation of goods in the Republic of Albania;
- Self-supply of goods and services, means any supply against payment by a taxable person, the supply of goods produced, constructed, extracted, processed, purchased or supply of services within the scope of his business to be used for the needs of this activity.
- Transfer of activity, is considered the transfer against payment or not, or in the form of a contribution in an enterprise of the totality of assets or a part thereof
- Mixed supply.
Standard rate of Value Added Tax
- The standard rate of Value Added Tax to supplies of goods and services which is applied as a percentage of the taxable value is 20 percent. The rate of VAT applicable to the imports of goods is that applied in the Republic of Albania for the sale of the same commodity.
- In addition to the standard rate of VAT may be applied the reduced rates of VAT, which is applied as a percentage of the taxable value.
- Also there are supply of goods and services which are exempt from VAT.
- Exports are considered supply with a rate 0 of VAT.
Exemption from VAT
Based on the DCM no.953 dated 29.12.2014 (a document found at the end of this page)
A. Criteria for implementation of the exemption for non-profit organizations
The Non-profit organizations are exempt from VAT if they meet the criteria and procedure for supplies as follows:
- The supply of services and goods closely linked to the assistance and social assistance, including actions performed from the care homes for the elderly;
- The supply of services and goods closely linked to the protection of children and youth;
- The supply of certain services closely linked to sport or exercise of physical education offered to persons who participate in sports or exercise of physical education;
- The supply of certain cultural services and education, as well as goods that are closely linked with them.
These supplies meet social, educational, cultural, athletic exempt from VAT when carried out by public or nonprofit organizations with social character, recognized by the competent authority in the Republic of Albania and the prices approved by the authority.
B. Criteria for assessing the non-profit organization’s intent
These supplies with social, educational, cultural, athletic character are exempted from VAT when are carried out by public or nonprofit organizations with social character, recognized by the competent authority in the Republic of Albania and with approved prices by this authority.
In case these prices are not approved, the activity of the organization receives this exemption from VAT, provided that the prices of supplies that offers the nonprofit organization are lower than those offered for similar supplies from the subjects of VAT, in order to not bring any distortion of competition.
C. Conditions to be met by non-profit organizations for the application of the exemption from taxes
- The governing bodies of the organization shall not have interests directly related to the activity of the organization.
- The non-economic activity (nonprofit) of the organization shall significantly prevail in relation to the rest of the activity, taking into account the relevant incomes shall prevail the earnings from the non-economic activity of the organization.
- The supplies carried out by the nonprofit organizations shall not compete profitable commercial sector. The amount of incomes from the economic activity of the organization, as its secondary activity, committed from these organizations for the purpose of the non-profit activities for which they are created, received during the calendar year must not exceed 20% of total annual incomes of the organization.
The notion of "total income" includes all the financial resources of the organization, including incomes from the use of supplies and subsidies.
- If any of the three criteria mentioned in point C is not met, then the supplies carried out from the organization do not benefit from the exemption.
- Benefit from the exemption the nonprofit organizations that carry out any of the activities exempted from VAT under the law, by fulfilling the same conditions and criteria as the natural and legal persons who have profit’s purposes.
- The organizations that benefit from the exemption to pay VAT, also benefit from the exemption from VAT on import of goods in function of their non-profit activities.
D. The organisms that are included based on their form of organization
The organisms, which benefit from this exemption, when they meet the above criteria for the economic activity performed by them, are:
- The associations of general interest organized in a form, such as political organizations, trade unions, professional, religious or philosophical, cultural, social, cultural or sports, folklore associations, etc.;
- The organizations established based on the Law "On non-profit organizations", which operate without profit purposes, such as foundations, interdependent groups, various committees.
These non-profit organizations that operate in this way, are exempted for the services of a social, educational, cultural or sports character, for supplies of goods that they offer at reduced prices mainly to their members as well as others, as part of their secondary activity carried out in function of their nonprofit purpose.
The nonprofit organizations shall not use advertisings, known as a practice used for commercial reasons, which are addressed to the nonmembers to advertise or to make known the activities of the organization.
If they advertise their activities, then their suppliers do not benefit from this exemption.
In the context of the supply of services and goods closely linked to the protection of children, whichever the legal person, public entity, association, enterprise, are exempted the supplies provided from institutions that care for children aged up to three years, which in the daily language are known as "nursery".
E. VAT Deduction
The non-profit organizations that benefit from the exemption from VAT for supplies that they offer within their economic activity, are not entitled to VAT deduction on goods and services purchased for the purposes of supplies exempted from VAT.
F. Obligation to declare VAT
The non-profit organizations, which pursue economic activities as their secondary activity, even when benefiting from VAT exemption under this decision are forced to declare VAT to the terms and manner set forth in the law.
In the VAT declaration shall be declared only the supplies made in the context of economic activity as sales and purchases exempted from VAT.
G. Procedure for the application of the exemption from the non-profit organizations
The nonprofit organization, which carries out economic activities, as the activities of its subsidiary and that meets the criteria set, in order to apply for the exemption from VAT on providing supplies of goods and services, is obliged to perform the following procedures:
- Submits at the Regional Directorate of Tax, where it is registered the following documents:
- The decision of the court (certified copy);
- Statute of the nonprofit organization and the foundation contract;
- A statement in which declares listed all the goods and services that it supplies to its members or to third parties along with the prices that the organization applies to each supply
- A statement where states the mission and purpose of the NGO, and identifies the main programs of the activity;
- A statement where is declared and identified the category of persons or groups in need, which it serves;
- A statement where is specified the organization's sources of funding by items, including incomes derived or expected to be derived from the economic activity.
In this statement, the organization must state in rough percentage the part that occupies or is expected to occupy the economic activity of the organization in relation to its nonprofit/uneconomic. This statement is required as in the case when the organization is newly registered and has not previously carried out an economic activities, as well as when it has previously carried out an economic activity, as well as when it has carried out activities based on financial statements submitted to the tax authority.
- The Director of the Regional Directorate of Taxes where the organization is registered shall establish a working group (with 2 to 3 employees), which shall examine the case based on the documents submitted, the situation that presents the organization, its history (if any) and any other available data.
- Based on the results of the verification, when are met the criteria set out in section 2 of this decision within 25 working days, the working group shall submit a report to the Director of the General Directorate of Taxes, by proposing the approval of the exemption from VAT for the supplies provided by the organization.
- In case it is deemed necessary, can be carried out on-site verification of the activity of the organization for the kinds of supplies of goods and services rendered and prices applying to each supply. Even if the verification is not done beforehand, it can be performed at any time from the tax authority.
- At the end of the procedure, no later than 5 working days, the Director of the General Directorate of Taxes issues an authorization for exemption from VAT. If the authorization is refused, the Director of the General Directorate of Taxes gives the reasons for which the exemption from VAT cannot be applied to the organization.
- The issuing of the authorization for exemption from VAT is valid for three (3) years, with the right of renewal. For the renewal of the authorization for exemption from VAT is followed the same procedure, the same conditions and criteria as in the case of receiving the authorization for the first time.
- For non-profit organizations registered for the first time, the authorization of the exemption from VAT is valid for 1 (one) year, to be renewed.
- For the renewal of the authorization for exemption from VAT is followed the same procedure, the same conditions and criteria as in the case of receiving the authorization for the first time, the authorization of the exemption from VAT is valid for 1 (one) year, to be renewed.
- For the renewal of the authorization for exemption from VAT is followed the same procedure, the same conditions and criteria as in the case of receiving the authorization for the first time.
The nonprofit organizations that do not conduct economic activities within the non-profit activities that are considered not taxable persons for VAT, do not undergo the procedure in question.
These organizations are not registered for VAT.
In addition, are not subject to this procedure, the non-profit organizations which carry out economic activities exempt from VAT under the law, such as health, education, etc., in accordance with the definitions in the legal provisions.
H. Manifestations organized from the non-profit organizations for charitable purposes or to support people in need
- The supply of goods and services carried out from the non-profit organizations, whose activities are exempt from VAT, in the case of manifestations or fundraising events exclusively for charitable purposes or in order to fulfill the purpose of the nonprofit activity of the organization, are exempted from VAT if the number of these manifestations or events does not exceed five (5) per year.
- In case are organized more of such manifestations, the exemption from VAT is applied to the incomes collected only five manifestations.
- However, regardless of the number, the exemption does not apply, if the organization of these events, with fees and open to the public, has a frequent character.
- The exemption is not applied to supplies made from commercial natural or legal persons, even if they are authorized by the organizers of the event, to exercise on their behalf several activities during the event, such as the sale of various products, using tents, bars etc.