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Announcement on the amendments regarding the implementation of VAT when selling buildings

Dear taxpayers,

The DCM No. 8, dated 11/01/2017 “On some addenda and amendments to the decision No. 953, dated 29/12/2014 of the Council of Ministers “On the implementing provisions of the Law No. 92/2014 “On Value Added Tax in the Republic of Albania”, as amended, has been published in the Official Journal No. 2, dated January 16th, 2017.

Some of the main amendments deriving from this decision are:

  1. The right to choose the application of VAT for the supply of buildings or parts of buildings

The taxable persons can exercise their right to choose by treating the supply of buildings as a taxable supply at the 20% VAT rate.

Such right can be exercised by taxable persons that: 
-supply buildings or residential premises, or
-when the buyer is an individual.

The right to choose is exercised for buildings or parts of buildings that:
-are supplied (sold) for purposes of being used for the economic activity of the buyer, a registered entity, or
-for reselling purposes by the latter, thus, not for residential purposes.

In order to exercise the right to choose, the taxable person must apply the choice in any case, beside when:
-the buyer is a non-taxable legal person, or
-a taxable person that conducts activities that are VAT exempted.

It is a condition that the contract related to the building supply clearly stipulates the choice wanted by the supplier and its acceptance by the buyer.

In case that the buyer, that is a non-taxable legal person or exempted, does not accept the choice, then the right to choose to apply the VAT shall not be exercised.

  1. The modalities and rules of exercising the right to choose the application of VAT for the supply of building

The taxable person shall submit with the Regional Directorate of Taxes:
-a written declaration whereby he declares that the supply of building will be treated as a taxable supply with a 20% VAT rate. 
-a notary contract between the supplier and the buyer, which shall clearly state that the parties agree to treat the supply of the building as a VAT taxable supply. 
-the supplier shall possess the contract of sale, which he makes available to the Tax Authorities, when required. The lack of the supply contract does not give him the right to treat the sale of the building as a taxable supply. 
-In case the building is used for purposes of economic activities by the construction taxable person himself or the investor, the construction contract between the builder and the investor and the respective construction permit, as well as a notary declaration related to the purpose of using the building. In case the taxable person will sell the building to the taxable persons, which exercise VAT exempted activities, the building suppliers shall be treated with VAT, unless that in the supply contract the buying taxable person has been acquainted with such fact and has accepted to pay the VAT.
-In such case the supplier shall submit the respective contract, the lack of which does not give the right to treat the supply as taxable.

Such choice shall begin the first day of the month when it is formalized. Upon beginning to be applied, the choice is implemented as long as it has not been subject to interruption.

  1. The right to deduction when applying the choice to supply the buildings

The right to deduction shall be exercised pursuant to the provisions and definitions of the law “On Value Added Tax”.

The supplier must identify separately the VAT deductions for each of the buildings or group of buildings.

When the supplier of the buildings exercises other taxable activities as well, either through VAT or not, he shall identify separately all the purchases for each category of the activities related to the right of VAT deduction.

If the supplier of the building is in a situation where he cannot apply his right to choose, then the taxable person shall proceed with the adjustment of the VAT previously deducted, in case the taxable transactions are interrupted prior to the beginning of the ninth year succeeding the year when the right to deduction starts.

Caution! The right to choose is exercised for buildings or parts thereof, that are sold upon entry into force of this decision.

Thank you!