1 Tax Treaties and Residence
1.1 How many income tax treaties are currently in force in your jurisdiction?
Albania has concluded tax treaties with 41 countries, of which 40 are currently in force.
1.2 Do they generally follow the OECD Model Convention or another model?
Albanian tax treaties follow the OECD model.
1.3 Do treaties have to be incorporated into domestic law before they take effect?
The Albanian Constitution requires treaties to be ratified by Parliament.
1.4 Do they generally incorporate anti-treaty shopping rules (or "limitation on benefits" articles)?
The treaties do not incorporate anti-treaty shopping rules.
1.5 Are treaties overridden by any rules of domestic law (whether existing when the treaty takes effect or introduced subsequently)?
A treaty prevails over domestic law regardless of whether the domestic legislation existed previously or is introduced subsequently.
1.6 What is the test in domestic law for determining the residence of a company?
Entities that are established in Albania or have their place of effective management in Albania are considered resident.
2 Transaction Taxes
2.1 Are there any documentary taxes in your jurisdiction?
No, there are no documentary taxes in Albania.
2.2 Do you have Value Added Tax (or a similar tax)? If so, at what rate or rates?
VAT was first introduced in 1995. In 2015, the legislation was harmonised with the EU Directive on VAT. The standard rate of VAT is 20%, which applies to all persons (companies and entrepreneurs) having an annual turnover exceeding ALL 5 million (approx. EUR 35,000). Exceptionally, persons carrying out certain specific categories of activity (such as economists, auditors, doctors and dentists and similar professions except for lawyers) are VAT taxpayers irrespective of their annual turnover (i.e. there is no VAT threshold). Only accommodation in tourism facilities is subject to a reduced rate of 6%.
Exports of goods, goods in passenger baggage, the international transport of goods and passengers and related services, and services to international intra-governmental organisations, are subject to VAT at 0% (benefiting from VAT exemption but with a right of deduction).
2.3 Is VAT (or any similar tax) charged on all transactions or are there any relevant exclusions?
VAT regulations provide for supplies exempt from VAT without a right of deduction. The most important are as follows:
- Lease and sale of land.
- Sale of buildings, unless the seller opts for VAT applicability.
- Long lease of buildings (when the lease duration exceeds two months), unless the lessor opts for VAT applicability.
- Financial services.
- Certain services rendered by not-for-profit organisations.
- Educational services rendered by private and public educational institutions.
- Postal services.
- Materials used for the production and packaging of medicines.
- Supply of newspapers, magazines and books of any kind.
- Supply of advertising in electronic and written media but only when the advertising services are provided directly from the media (and not through intermediaries).
- Supply of services performed outside Albania by a taxable person whose place of activity or residence is in Albania.
- Supply of services relating to gambling activities, casinos and hippodromes.
2.4 Is it always fully recoverable by all businesses? If not, what are the relevant restrictions?
Generally, taxpayers registered for VAT are entitled to recover the input VAT, provided that the VAT is charged in relation to their taxable activity. VAT cannot be reclaimed on recreation and accommodation expenses, passenger vehicles, fuel under certain limits, or any expenses related to the above-mentioned expenses.
2.5 Does your jurisdiction permit "establishment only" VAT grouping, such as that applied by Sweden in the Skandia case?
There is no VAT grouping available in Albania, and "establishment only" is not permitted.
2.6 Are there any other transaction taxes payable by companies?
There is a fee on the transfer of an ownership right on real estate, payable by legal entities in case of sale or donation of real estate.
2.7 Are there any other indirect taxes of which we should be aware?
Except for VAT and excise, carbon and circulation tax is levied on the production and importation of certain combustible goods (including fuel) in Albania.
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"This article appeared in the 2018 edition of The International Comparative Legal Guide to: Corporate Tax; published by Global Legal Group Ltd."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.