Changes in the Law on Income Tax - KPMG Albania
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Changes in the Law on Income Tax

Changes in the Law on Income Tax

This section of issue 2 of KPMG’s Tax News for 2019 summarises the main amendments to the Law on Income Tax effective from 1 January 2019.

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Albanian sourced income

The amendments expand the category of Albanian sourced income deriving from an immovable property situated in Albania. They include here income from accessories or fruits of the property as well as income deriving from the rights over an immovable property situated in Albania. In addition, the term income from immovable property encompasses the income from exploitation rights on minerals, hydrocarbon or any other natural terrestrial or water resources, as well as any income from information related to such rights. 

Any income deriving from the alienation of property and rights or information related to such rights over any immovable property situated in the Albanian territory is considered to be Albanian sourced income.  

Based on the new law, Albanian sourced income will be any income deriving from the alienation of shares or similar interests such as interests in partnerships or trusts, provided that within 365 days before the alienation at least 50% of the value of these shares or interest derives directly or indirectly from immovable property situated in Albania or from rights or information on exploitation of natural resources in Albania as elaborated above. 

A new concept is introduced with regard to the income of non-Albanian tax residents. Albanian sourced income will be considered any income of non-Albanian tax residents deriving from the services provided to an Albanian tax resident.

Taxation of dividends 

Starting from this year, dividends or profit distributions will be taxed at 8%. Tax rate of 8% will also be applied for earnings realized in 2018 or retained earnings of prior periods, including the reserves and retained earnings transferred to registered capital, provided that:

  • The tax on dividends or profit distributions deriving from retained earnings of 2017 or earlier periods is paid before 30 September 2019
  • The tax on dividends or profit distributions deriving from earnings of 2018 is paid by 20 August 2019.

Tax compliance requirements for non-residents 

Income tax will also be applied to non-Albanian tax resident persons who are not registered for tax purposes in Albania. Starting from 2019, non-Albanian tax residents are obliged to file a specific tax return no later than 31 March of the following year to declare their taxable income in Albania. The income tax liability is to be paid no later than the deadline for filing the tax return; otherwise penalties and interest for late payment will be imposed. The format and modalities of completion of tax returns for non-residents will be defined through an Instruction of the Minister of Finance.  

The current legal provisions related to income tax advance payments and foreign tax credit will not be applicable for non-Albanian tax residents.

Change in the ownership of legal entities 

Where the direct and/or indirect ownership of stock capital, quotes or voting rights of a legal entity changes by 20% or more in value or number of shares or quotas during a tax period (calendar year), such a person is considered to have sold the said proportion of all of their property immediately before the change. In such a case, the legal entity is considered simultaneously as:

  • The beneficiary of the income realized from the transaction which is deemed to be equal to proportional assets’ market value at that time
  • The entity re-buying the assets at the same value as above.

This provision is applicable to legal entities having an average turnover of ALL 500 million in the last three preceding years. Any change of ownership of shares or similar interests held in a legal entity fulfilling the above conditions will be exempt from income tax if the legal entity itself is paying income tax as required by the new provisions.

Legal entities going through the above changes are obligated to notify the Tax Authorities within 45 days from the date the change has occurred.

The same deadline for notification, 45 days, is also mandatory for legal entities changing the direct or indirect ownership of stock capital or voting rights at 10% when such a change constitutes alienation of shares or similar interests such as interests in partnerships or trusts, wherever they are registered, provided that within the last 365 days before the alienation, at least 50% of the value of these shares or interest derives directly or indirectly from immovable property situated in Albania or from rights or information on exploitation of natural resources in Albania.

Failure to notify the Albanian tax authorities within the above terms will be subject to a penalty of 15% on the market value of the assets with changed ownership by 20% or more. If the change in the ownership is at 10%, the penalty to be applied is 5% of the market’s value of the shares or similar interests. The penalties will not be imposed if there is evidence that the taxable person was not aware of the change in ownership.

Non-deductible expenses

Expenses incurred by legal entities in relation to per diems paid to their employees for business purposes exceeding 50% of the annual gross salaries will be considered non-deductible expenses for corporate income tax purposes.  

Bad debts

Provisions of banks previously recognized as tax deductible will continue to be recognized as such, even if the movable or immovable property being the collateral of the loan is executed before the deadline specified under the Income Tax Law provisions in relation to collateral execution. The deadline is 365 days after the submission of the request for the start of execution at the bailiff office for loans secured with movable or immovable property.

Reduced corporate income tax (CIT) rates

Starting from 1 January 2019, a reduced CIT rate will be applicable to taxpayers with an annual turnover up to ALL 14 million and agriculture collaboration entities. The standard CIT rate of 15% will be applicable to all other taxpayers exceeding the annual turnover of ALL 14 million. 

The reduced CIT rate of 5% will be applicable for a period of 10 years also to entities operating in agritourism, provided that they are certified as such in accordance with the provisions of the Law on Tourism. The reduced rate will be applicable in the first subsequent year after the certification has been obtained. This change is approved with the Law No. 39/2018 dated 9 July 2018 and becomes effective starting from 1 January 2019. 

Personal income tax on employment income

Employment income will be taxed as follows:

Monthly income (in ALL) Tax rate
0 - 30,000 0%
30,001 - 150,000 13% of the amount over ALL 30,000
150,001 - unlimited ALL 15,600 + 23% of the amount over ALL 150,000

 

Entry into force

Law no. 94/2018 dated 3 December 2018 on Additions and Amendments to Law No. 8438 on Income Tax is published in the Official Gazette No. 183 dated 21 December 2018 and becomes effective from 1 January 2019.

© 2019 KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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