On 18 December 2019, the Albanian Parliament approved the Law No. 84/2019 amending the Law No. 8438 dated 28 December 1998 on Income Tax. This publication outlines the main changes related to tax compliance of individuals, new tax rates and a tax relief applicable for some categories of taxpayers, as well as new provisions affecting the list of deductible expenses for corporate income (CIT) tax purposes.
Annual Individual Income Tax Return
Double employed individuals will be obliged to submit the annual personal income tax return although their annual gross income would be below the threshold of ALL 2 million (approximately EUR 16 thousand).
Transfer of ownership between close family members
The first transfer of ownership (donation or waive from ownership right) of building and/or land between close family members (husband, wife and child) would not be subject to tax on transfer of ownership. In all other cases, such as a subsequent transfer between close family members or any transfer of ownership of a building and/or land between individuals not being categorized as above, the capital gain deriving from the transfer of ownership will be subject to tax at 15% rate.
New CIT Rate for Automotive Industry
The CIT rated for legal entities carrying out economic activity in the automotive industry will be subject 5%. The activities, criteria and procedures for the implementation of this provision will be specified by the Albanian Council of Ministers.
Tax Losses carried forward
Taxpayers investing in business projects exceeding ALL 1 billion (approximately EUR 8 million) would be allowed to carry forward the tax loss incurred in a certain year over a maximum period of 5 years. The tax loss can be offset against the positive financial result after tax adjustments for the respective tax period according to the “first loss before the last one” principle. The criteria and procedures for the implementation of this provision will be detailed in the Instruction of the Minister of Finance.
Amendments to the Article on Change of Ownership of Legal Entities
The amendments of Article 27/1 of the Law on Income Tax acknowledge that the provisions of a tax treaty prevail over the existing provisions of Article 27/1. As such, the provisions of this article would be applied if the beneficiary of income (capital gains resulting from the sale of shares) is resident of a non-tax treaty country. In all other cases (i.e. when a tax treaty is in force), the capital gains resulting from the change of ownership of an Albanian legal entity would be treated based on the provisions of the respective tax treaty.
Extension of list of non-deductible expenses
Legal entities generating a taxable annual profit which exceed ALL100 million (approximately EUR 800 thousand) would be allowed to recognize as deductible expense for CIT purposes the sponsorship expenses incurred for activities of sports clubs. The deductible sponsorship expense will be limited up to 3 times of the sponsored value and provided that an authorization of the General Tax Director is obtained in advance. Such sponsorship expenses should be recorded in the year they are incurred and are not allowed to be deferred in future tax periods.
Representation Expenses for Exporters
Exporters (other than those involved in inward processing regime), whose revenue in the last 3 years is dominated by exports of more than 70%, would be allowed to treat expenses incurred for representation in fairs or exhibits out of Albanian territory as deductible for CIT purposes. Such representation expenses would be limited up to 3% of the annual turnover and provided that are supported by appropriate documents.
Donations in case of natural disasters
Donations not exceeding 5% of the profit before tax made by legal entities in case of natural disasters will be considered as deductible expenses provided that are transferred in the state treasury account within the duration of period announced for the natural disaster status. If donations are in in the form of the immovable property, the level of the contribution up to 5% of the profit before tax will be evaluated in accordance with the procedures to be set out by the Albanian Council of Ministers.
Entry into Force
The provision relating to donations in case of natural disasters is approved with the Normative Act no. 5 dated 30 November 2019 and is published in the Official Gazette no. 162 dated 2 December 2019. This change became effective at the same date of publication.
All other changes are approved with Law No. 84/2019 which is published in the Official Gazette No. 184 dated 31 December 2019 and become effective 15 days after the publication, apart from changes which become effective with the approval of the Law on Invoice and Circulation monitoring system.
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