Tax reliefs and exemptions are essential to the fiscal strategy in Albania, aiming to encourage investment and improve economic growth. In this article, we will explore different tax benefits in the country.

Entities Exempt from Taxation in Albania

 According to the rules, the following entities are exempted from the corporate income tax in Albania:

1. Entities carrying out religious, humanitarian, charitable, scientific, or educational activities.
2. Government foundations or non-banking financial institutions financing the government development strategy by way of loans.
3. Trade unions and chambers of commerce that do not serve the profit of individuals or their members.
4. Entities currently effective on international contracts that are ratified by the Parliament.
5. Cinematographic production sets that are licensed and subsidized.

Business Tax Benefits

In Albania, businesses benefit from a range of fiscal incentives designed to stimulate investments in important sectors such as tourism and hospitality. Notably, accommodation and restaurant services in certified agrotourism establishments or within recognized 4/5-star hotels enjoy a reduced VAT rate of 6%.

For the legal activities involved in software production/development specified below, a tax rate of 5% on profit tax will be applied, as opposed to the standard 15% applied to other types of businesses.

Type of business who benefit from the 5% tax rate:

1. Software design.
2. Development and maintenance of software systems.
3. Software testing.
4. Design and development of communication systems.
5. Design and development of security systems.
6. Development of migration systems.
7. Improvement/upgrade of IT systems.
8. Operation, management, user support, and technical/informatics audit for software systems.

Fiscal incentives are also applied to entities engaged in hydrocarbon production/development sectors. In the hydrocarbon domain, taxable profits are determined by deducting allowable expenses and losses, limited to 85% of the income. Various expenses, like budget payments, employment costs, material purchases, transportation, and third-party services, are deductible. Certain income types, such as interest and financial gains, are tax-exempt as well.

To read more about incentives and taxation in Albania click here.

Application of Deductions

Albanian legislation provides different fiscal incentives in the form of deductions for different types of taxpayers. For commercial and self-employed individuals with an annual turnover of up to ALL 10,000,000 there is the option to choose a special regime for deductible expenses, either based on specified percentages or actual documentation. Contributions to private pension funds are deductible from personal income, and returns from these funds are not taxable.

Moreover, individuals can benefit from deductions like a fixed amount based on their income, allowances for dependent children, and deductions for educational expenses related to their children.

Tax deductions vary by income levels:

1. For incomes up to 600,000 ALL (or 50,000 ALL monthly), the deduction is 600,000 ALL annually (that means that they are exempt from the tax)
2. For annual incomes between 600,000 and 720,000 ALL, the deduction is 420,000 annually or 35,000 ALL monthly.
3. For incomes above 720,000 annually, the deduction is 360,000 ALL annually or 30,000 ALL monthly:
4. For each dependent child under 18 years old, there is a tax deduction of 48,000 ALL available.

For those with taxable earnings from employment/business less than 1,200,000 ALL annually, additional to the above deductions, educational expenses for dependent children can be deducted up to 100,000 ALL/year.

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.