The activities included under the category of software engineering/development, as well as the procedures to be followed by taxpayers exercising such activities, which starting from 1 January 2018 are subject to 5% corporate income tax (CIT), are now provided for in Decision No. 870 approved by the Albanian Council of Ministers on 12 December 2018.
The application of the reduced CIT rate is subject to limitations which are strictly related to the activity performed and compliance with the procedures set out in the new Decision.
According to the Decision, the activities falling under software engineering and production will be defined in accordance with the terminology of IEEE 12207-2017 - ISO/IEC/IEEE International Standard, Systems and software engineering - Software life cycle processes. The reduced CIT rate of 5% will be applied only to legal entities performing the following activities in the information technology (IT) sector:
The 5% CIT will be applied only if these activities are included in the registered scope of activity and the legal entity has duly submitted to the Regional Tax Directorate where it is registered a declaration listing the activities for which the reduced rate is to be applied.
Legal entities engaged in other related IT activities (i.e. which do not fall under the categories set out in the Decision such as trading of electronic devices or other) must apply the standard CIT rate of 15% for such activities. On the other hand, if a legal entity performs simultaneously any of the above listed IT activities and other business activities - such as construction, tourism or other, it will be obliged to separate the business activities in order to benefit from the application of the reduced CIT rate only for the IT activities.
Based on the accounting legislation, the legal entities operating in the IT sector are obliged to prepare financial statements in accordance with the provisions of Law No.25/2018 on Accounting and Financial Statements. Beside the requirements set out by the accounting standards, the explanatory notes of the Financial Statements are also to provide the following information:
The Decision of the Council of Ministers No. 870 dated 12 December 2018 is published in the Official Gazette 176 and entered into force on 14 December 2018.
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