On March 30, 2023, the Assembly of the Republic of Albania approved Law No. 29/2023, “On Income Tax”, as amended, effective as of January 1, 2024 (Law No. 29/2023). The purpose of the tax law is to establish the rules governing the taxation of income for natural persons and entities, as well as income derived from inheritances, donations, and gambling earnings in Albania.
The implementation of the law was facilitated by the Council of Ministers’ Decision No. 753/2023, “On the Implementing Provisions of Law No. 29/2023 ‘On Income Tax’. Among the new rules introduced, the most significant and widely opposed is the levying of a 15% personal income tax on annual incomes up to ALL 14 million, which were previously exempt from taxation. The new tax measures apply to self-employed individuals and entities offering professional services, affecting an estimated community of around 30,000 professionals.
Recognizing the significant impact the new rules would have on the majority of middle-class professionals in Albania, Articles 3§5, 12§1/ç, 24§2 and 69§1/dh of Law No. 29/2023 were challenged in the Constitutional Court by several key stakeholders. These included one-fifth of the Deputies of the Albanian Parliament, the Institute of Authorized Accounting Experts, the Institute of Certified Accountants, and the Chamber of Advocates of Albania. Each of them submitted a separate appeal, which the court later consolidated into a single proceeding.
In essence, petitioners opposed the application of a 15% tax rate on annual incomes up to 14 million ALL, arguing that the new tax rate imposed a disproportionate burden on professionals in Albania, making the chosen method harsh, unnecessary, and unsuitable.
After the case was transferred to a public plenary session by the College of the Court on April 25, 2024, the Constitutional Court delivered its judgment and final decision on the matter on June 27, 2024.
Court Ruling and Its Implications for Taxation Law in Albania
The Court ruled that the change and implementation of a tax scheme on income up to 14 million ALL per year constitute a legal obligation of a financial nature, which interferes with the constitutional rights and freedoms of taxpayers. The Court determined that Article 69, Point 1, Letter “dh,” of the tax law, which establishes a different timeline for the entry into force of the new tax liability for self-employed individuals, violates the principles of proportionality and legal certainty.
The application of the new 15% tax rate without an appropriate transitional period and sufficient notice to the affected entities was deemed inappropriate and unfair.
The Court emphasized that the implementation of tax laws should be accompanied by transitional measures to allow taxpayers time to adapt. Hence, it concluded that Article 69, Point 1, Letter “dh,” of the tax law violates the freedom of economic activity and legal certainty, and therefore it should be abolished.
In conclusion, the Court decided to partially accept the request and abolished Article 69, Point 1, Letter “dh,” second and third sentences, of Law No. 29/2023, due to its incompatibility with the Constitution, as well as Article 4 of Decision No. 753, dated December 20, 2023, of the Council of Ministers, “On the Implementing Provisions of Law No. 29/2023, ‘On Income Tax,’ as Amended,” due to its incompatibility with the Constitution.
As a result, the new 15% income tax levy was repealed effective immediately from the date of the Court’s judgment, and personal income tax on annual incomes up to ALL 14 million will be taxed, as before, at 0%.
If you’re interested in learning more about the personal income taxation rules in Albania and their implications for those considering a move to the country, seeking professional advice is highly recommended. Our firm specializes in international taxation, and our team is ready to assist with any related matters. If needed, we can connect you with top professionals to support your business activities in Albania. Please feel free to contact us.
