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Rudina Hoxha
Eurofast
Albania

Rudina Hoxha of Eurofast examines the latest tax reforms in Albania.

Albanian tax legislation is dynamic and prone to constant changes, making it easier and less costly for the companies to penetrate into the domestic market. That is why Albania keeps being a magnet for the foreign investors. 2011 is further confirming that. Characteristic of this year is the amendment of laws, decrease of social security contributions and accessibility to electronic filing and payment. Coupled with a natural interest for the small Balkan country, sandwiched between Italy and Greece, foreign investors are funding some of their projects to bring energy to the domestic market. In this respect, the simplification of start-up/registration procedures of the businesses has had its own impact.

This is confirmed even by Doing Business 2011: Making a Difference for the Entrepreneurs, a prestigious co-production of World Bank and International Finance Corporation (IFC). It compares the business regulations in 183 economies. Table 1 shows how Albania has shrunken the procedures for starting up a business and keeping it going from year to year. Table 2 gives an overview of the involved taxes.

Amendments to the Albanian tax legislation 2011

Income tax law

Amendments to the law on income tax involve exemption from personal income tax; exemption from corporate income tax, deductible expenses; special reserves for banks and insurance companies and corporate income tax advance payments. The amendments clarify that:

1. Voluntary life and health insurance contributions of employees paid by the employers are deemed deductible expenses for corporate tax reasons and are considered exempt from personal income tax.
2. The technical reserves of the insurance companies and the banks' reserves are regarded as deductible expenses, provided that they are created pursuant to the IFRS rules, and the external auditors have expressed an opinion on them, when it comes to calculate the taxable income of these two categories.
3. In the cases when the taxpayer is able to prove to the tax authorities that the corporate income tax, levied on taxable income, for X period is lower than the last period or the second before it, the tax authorities should reduce the advance payments of the current tax year following the Finance Ministry's relevant rules. If the calculated due annual profit tax exceed the prepaid profit tax paid throughout the previous year by over 10%, the taxpaying company is expected to pay late payment interest on the calculated difference.
4. Exempted from corporate income tax, dividends and profit shares received by a resident entity from other resident or non-resident entity which is subject to CIT, regarless of the capital owned of the recipient company.

VAT legislation

Amendments introduced by the Albanian Council of Ministers relating to the VAT legislation affect the decision on the determination of the VAT registration threshold as well as the consideration of the case of the drugs and medical services. Accordingly, the tax registered freelancers (such as accountants) would be free from a ALL 2 million ($20,000) VAT registration threshold starting from February 1, 2011 and onward. However, such categories must register for VAT purposes.

On the other hand, the provision of drugs and medical services from private or public health institutions is subject to a 10% VAT.

New law

An important new law was recently launched regarding the legalisation of the capital and the cancellation of a part of the tax and customs debt. Approved by the Albanian Parliament last April, the legalisation of the capital asks for the voluntary declaration of individuals (with Albanian citizenship or others registered for tax purposes) and legal entities, of their money that they are in possession of in the country or abroad and the payment of a respective fee with the relevant bodies. Clear-cut money declaration procedures are set to be followed by the two categories.

On the other hand, the cancellation of part of outstanding tax and customs liabilities is valid for those taxpayers who have no credit balance with the tax bodies or others who have agreed in writing to balance liabilities to be cancelled with the refunding rights. In addition, all the individuals or legal entities, who owe liabilities to the customs, do benefit from the cancellation of liabilities. The law involves even cases of cancellation of customs duties liabilities which have been created up to the period of December 31, 2008.

Taxpayers' Ombudsman

It is worthy to mention the creation of Taxpayers' Ombudsman, the newest structure of the Albanian Taxation Office. It was introduced last April according to the Law No: 9920 dt. 19.05.2008 "On tax procedures in the Republic of Albania" (amended.) This structure defends the taxpayers' interests in their relation with the tax bodies in the cases when the former suffer tax disputes. High priority was placed on the independent role of this institution and hot debates followed this matter consequently. Being part of the Taxation Office has questioned the independent role of this structure but its head, Artur Papajani, argued that working within the framework of taxation administration guarantees efficiency.

Rapid development

The Albanian tax system is developing rapidly with changes that need to be tracked down constantly and systematically. Such changes are leading to a more streamlined fiscal system. This is contributing to a transparent system which is being supported even by the international financial institutions.

Rudina Hoxha (Rudina.hoxha@eurofast.eu), Eurofast Global, Tirana Office/Albania