The fiscal landscape of Albania has undergone a significant transformation with the recent enactment of Law no. 29/2023 “On Income Tax.” This pivotal legislation, effective from 1 January 2024, marks a significant update to Law No. 8438 “On income tax”, amended in 1998, and introduces several crucial changes aimed at enhancing tax compliance. In this blog post, we delve into the key provisions of the new Income Tax Law, particularly focusing on corporate income tax (CIT) compliance matters.
The scope of taxpayers subject to CIT has been expanded under the new law. Under the previous regime, only entities with annual incomes exceeding ALL 8 million were subject to CIT, with smaller businesses falling under the simplified profit tax. However, with the implementation of the new law, all entities, regardless of income level, are now obligated to comply with CIT regulations.
Moreover, the scope of CIT has been expanded to encompass any entity registered according to prevailing laws on entrepreneurs and commercial companies. Additionally, nonresident entities with incomes attributable to their permanent establishments in Albania, as well as entities registered under special tax regimes, are now within the purview of CIT.
What about self-employed individuals?
Under the new Income Tax Law, self-employed individuals engaged in commercial activities with a net annual taxable income of up to ALL 14 million will continue to enjoy income tax exemptions until December 31, 2029. This exemption provides relief for smaller businesses, allowing them to navigate the changing tax landscape with greater ease.
However, it’s essential to note that self-employed professionals offering services outlined in a specific list approved by Decision No. 753 of the Council of Ministers on 20.12.2023, will not qualify for this exemption. Instead, they will be subject to new taxation schemes, with tax rates of 15% or 23%, based on their annual business income.
What are deductible and nondeductible expenses?
In addition to the exemptions and provisions discussed earlier, the new Income Tax Law also outlines guidelines for deductible and nondeductible expenses. By adhering to these guidelines, taxpayers can ensure that they accurately report their expenses and avoid penalties. It is essential for businesses to maintain thorough documentation of their expenses and seek professional advice if unsure about the deductibility of certain items.
1. Deductible expenses encompass all expenditures made during the tax year that are aimed at profit attainment and in the interest of the business. These expenses must be documented by the taxpayer and should not be subject to any limitations, as specified by provisions outlined in the Law.
2. Nondeductible expenses include those stipulated by the current legislation, and the following additions:
- Depreciation expenses according to accounting rules.
- Interest payments exceeding the annual average interest rate of 12-month loans established by commercial banks, as officially published by the Bank of Albania, excluding interests on loans granted by microfinance institutions.
- Expenses incurred for personal consumption by shareholders, partners, administrators, and their family.
- Expenses for technical, consultancy, and management services invoiced by non-residents, if not paid by the taxpayer within the tax period.
- Employee life and health insurance premiums that exceed 5% of the gross salary per tax period.
- Expenses linked to income not included in taxable profit.
- Bribes.
As Albania ushers in a new era of tax legislation, businesses and individuals alike must acquaint themselves with the intricacies of the new Income Tax Law. Compliance with these regulations is crucial for navigating the evolving fiscal landscape and ensuring sustainable financial practices.
At K&L Studio, we are committed to assisting our clients in understanding and adhering to the latest regulations. Our team is dedicated to providing personalized guidance tailored to your specific needs. Contact us today to learn how we can help you navigate the complexities of the new Income Tax Law and ensure compliance for your business or personal finances.