TAXATION IN ALBANIA: A COMPREHENSIVE OVERVIEW

INTRODUCTION

Albanian tax law adheres to the principle of worldwide taxation. Resident entities are taxed on their global income, whereas non-resident entities are taxed only on income sourced within Albania. The country’s tax legislation comprises the following: 

• Income Taxes
• Value Added Taxes (“VAT”)
• Social and Health Contributions (“SHC”)

INCOME TAXES

• Personal Income Tax (“PIT”)
  Residents are taxed on their worldwide income, while non-residents are taxed only on income sourced in Albania. Individuals are deemed residents if they have a vital interest centre in Albania, stay for more than 183 days in a 12-month period, or are Albanian citizens working abroad as officials. 

• Corporate Income Tax (“CIT”)
  Entities subject to CIT include legal entities, branches of foreign companies, and entrepreneurs/self-employed individuals with an annual turnover exceeding ALL 14 million. However, from January 1, 2024 all entities, regardless of turnover, will be subject to CIT at a standard rate of 15%.
  Entities exempt from CIT include government bodies, religious or charitable organizations, trade unions, and certain entities defined under international agreements. Notably, salaries of IT personnel working in Science and Technological Parks, are tax-exempt for 10 years. 

• Transfer Pricing (“TP”)
  Transfer pricing regulations align with Organization for Economic Cooperation and Development (“OECD”) Guidelines. These rules apply to Albanian taxpayers engaged in cross-border transactions with related parties, defined as entities or individuals with direct or indirect control of at least 50% voting rights or shares. 

Transfer pricing methods include: 

• Comparable uncontrolled price method
• Resale price method
• Cost-plus method
• Transactional net margin method
• Profit split method

Taxpayers conducting controlled transactions exceeding ALL 50 million annually must submit an Annual Controlled Transactions Notice to tax authorities.

VALUE ADDED TAX (“VAT”)

Albania’s VAT system operates with a standard rate of 20%, applying to most taxable supplies. Reduced rates include: 

• 6% for essential goods like basic food items, public transportation, and medical supplies.
• 0% for exports and international services to boost competitiveness in global markets.

Certain products and services, such as financial and educational services, are VAT-exempt, meaning businesses cannot claim input VAT credits on these supplies.

SOCIAL AND HEALTH CONTRIBUTIONS

Mandatory Contributions is to apply to employees, self-employed individuals, unpaid family workers, and other economically active persons. 

• Foreign workers under local contracts must contribute like locals.
• Foreign workers under foreign contracts may opt for their home country’s scheme.
• Contributions are required from both employers but cannot exceed the maximum salary threshold.
• If one salary reaches the maximum, contributions are exempt for the second salary.

Contribution Thresholds:

• Employed individuals: Minimum salary: ALL 40,000; Maximum salary: ALL 176,416.
• Self-employed: Social contributions: ALL 40,000; Health contributions: ALL 80,000.
• No maximum threshold for employed health contributions.

CONCLUSION

Albania’s taxation system balances economic growth and compliance, taxing residents globally and non-residents locally. With streamlined corporate tax rates, innovation-friendly exemptions, and a structured VAT system, it promotes fairness and accessibility. Mandatory social contributions ensure equity for all workers. Understanding these regulations is essential for effective compliance and strategic navigation of Albania’s evolving tax landscape.