Republic of Albania is currently considered an excellent investment destination due to its comparatively low tax rates, in relation to other countries in Europe, making the country an attractive place to invest. This article provides comprehensive information on corporate income tax in Albania, designed to assist and inform potential investors.

Corporate Residency for Tax purposes

An entity is considered a resident for tax purposes in the Republic of Albania during a tax year if it is established within the country, or at any time during the tax year, the management and control of the entity’s affairs are conducted in the Republic of Albania.

In addition to the conditions outlined above, the management and control of an entity’s affairs are deemed to be handled in the Republic of Albania if:

Meetings of the entity’s governing board are held in the Republic of Albania, or at least two of the following conditions are met:

1. Decisions regarding the entity’s daily management are made in the Republic of Albania;
2. At least 50 percent of the entity’s board members or managers are residents of the Republic of Albania;
3. At least 50 percent of the entity’s capital or voting rights are directly or indirectly owned by individuals residing in the Republic of Albania.

Permanent Establishment

The legislation in Albania defines a Permanent Establishment as a fixed place where a business operates, either fully or partially. These include locations like an office, branch, factory, workshop, construction site, or installation site. Additionally, it includes providing services, such as consulting, by employees or others for six months or more in Albania.

Corporate Income Tax Rates and determination

Albanian resident entities pay taxes on all income, whether earned within or outside the non-resident entities; however, they are only taxed on income earned within Albania’s borders.

In Albania, the corporate income tax primarily includes:

1. Collective societies;
2. Limited partnerships;
3. Limited liability companies;
4. Joint stock companies; and
5. Any other entity, including non-resident entities, not specified in points “a” to “d”.

By general rule, the corporate income tax rate in Albania is set at 15%. This rate is levied to the profits after deducting allowable expenses from taxable income.

Exemption

Certain entities are exempt from corporate income tax, including:

1. Government bodies responsible for governance functions;
2. Financial institutions such as Bank of Albania, Financial Supervision Authority, and Deposit Insurance Agency;
3. Foundations or non-banking financial institutions supporting government development policies through loans;
4. Organizations engaged in religious, humanitarian, charitable, scientific, or educational activities, not benefiting their organizers or members;
5. Labor organizations or chambers of commerce, industry, or agriculture not benefiting individuals or members;
6. Entities specified in ratified international agreements;
7. Cinematographic production houses licensed and subsidized by the National Cinematography Centre.

Taxable Period

Tax periods are equivalent to calendar years, which means that you must file your last corporate income tax return on 31March of the following year. Certain exemptions are available; for instance, new enterprises in the production sector may be exempt from prepayment for a designated period. Taxpayers can change their advance payment amounts according to what they expect to earn in profits.

Exemption

Corporations with an annual turnover not exceeding 14 million Albanian lek (ALL) are exempt from corporate income tax.

Companies engaged in software production and development benefit from a reduced corporate income tax rate of 5%.

Agricultural and agro-tourism activities, as well as certified agro-tourism ventures, also enjoy a reduced corporate income tax rate of 5%.

Tax Payment Modalities

Corporate income tax in Albania is payable in advance, either on a monthly or quarterly basis, as detailed below:

1. Payments for January, February, and March are calculated based on the tax amount from two fiscal years prior, divided by 12.
2. For the subsequent nine months, payments are predicated on the prior fiscal year’s tax amount, divided by 12.
3. A final payment is due by31 March of the following year, which is the total income tax assessed for the year, less the total income tax instalments paid in that year.

Non-compliance with these prepayment deadlines incurs a penalty amounting to 10% of the unpaid tax liability.

It is very important that individuals, before engaging in investments, should be informed about the legal, financial, and tax implications that characterize the place of investment. Our firm provides ongoing support, comprehensive knowledge, and the most qualified experience in the field of international taxation. Do not hesitate to contact us so that we can arrange a more detailed informational meeting with you.