As of January 1, 2024, Albania’s new Income Tax Law No. 29/2023 has introduced clearer guidelines on corporate tax residency and permanent establishment (PE). These changes align with international tax standards and impact both domestic and foreign businesses operating in Albania. Understanding these rules is crucial for companies seeking to optimize their tax obligations while ensuring full compliance with the legal framework.
Corporate Tax Residency in Albania Under Article 7 of Law No. 29/2023, a company is considered tax resident in Albania if it meets any of the following criteria: • Incorporation in Albania: If the company is legally established under Albanian law, it is automatically deemed a tax resident. • Effective Place of Management: If key managerial and commercial decisions are made in Albania, the company is considered tax resident even if it is incorporated elsewhere. Implications of Tax Residency A company that qualifies as a tax resident is subject to Albanian corporate income tax on its worldwide income, meaning it must report and pay tax on profits earned both domestically and internationally. Permanent Establishment (PE) Rules for Foreign Entities For foreign businesses engaging in activities in Albania, Article 8 of Law No. 29/2023 provides a broader and more detailed definition of a Permanent Establishment (PE). A PE is created when a non-resident entity has a fixed place of business in Albania or meets specific activity-based criteria. Types of Permanent Establishments 1. Fixed Place of Business PE A foreign entity has a PE in Albania if it maintains a physical presence in the country, such as: • Offices, branches, factories, workshops; • Mines, oil or gas wells, quarries, or other natural resource extraction sites; • Construction or installation projects lasting six months or more. 2. Service-Based PE • A PE is also created if a foreign company provides consulting or technical services in Albania for a period exceeding six months in a 12-month span, even without a physical location. 3. Agent PE • A foreign company will have a PE in Albania if it operates through an agent who regularly concludes contracts or negotiates terms on its behalf within the country. Tax Consequences of PE Status • A foreign business that qualifies as having a Permanent Establishment (PE) in Albania is required to: • Register for tax purposes in Albania. • Report and pay corporate income tax on profits attributable to the PE. • Comply with Albanian tax regulations, including transfer pricing rules and financial reporting obligations. Compliance Considerations for Businesses Companies operating in Albania or planning to expand should conduct a thorough review of their business structures to assess tax residency and PE risks. This includes: • Analyzing the location of key management activities to determine whether the company qualifies as an Albanian tax resident. • Reviewing service contracts and project durations to assess potential PE exposure. • Ensuring compliance with tax filing and reporting requirements under Albanian law. The updated corporate residency and PE rules in Albania provide greater legal certainty for businesses while aligning with international tax principles. Companies engaging in business activities in Albania should carefully evaluate their tax positions and seek professional legal and tax advice to mitigate risks and optimize tax efficiency.
0 Comments
Albania has introduced Law No. 29/2023 “On Income Tax,” which came into effect on January 1, 2024, replacing the previous Law No. 8438/1998. This reform modernizes the tax system, aligns with international standards, and impacts both resident and non-resident businesses operating in Albania.
Corporate Income Tax Updates Corporate Tax Rates: • Businesses with annual revenue up to 14 million ALL are exempt from corporate income tax until December 31, 2029. • From January 1, 2030, these businesses will be subject to a 15% corporate tax rate. • Companies earning above 14 million ALL are already taxed at 15%. • Dividend tax remains at 8%. Tax Residency A company is considered tax resident in Albania if: • Its head office is located in Albania, or • Its place of effective management (i.e., where key business decisions are made) is in Albania. Entities that meet these conditions are subject to Albanian corporate taxation on their worldwide income. Permanent Establishment (PE) Rules The new law refines the definition of a Permanent Establishment (PE), determining when a foreign entity becomes taxable in Albania. A foreign business has a PE in Albania if: 1. Fixed Place of Business: It has a physical location where business activities are carried out, including: • Offices, branches, factories, workshops; • Mines, oil wells, quarries, or other natural resource sites; • Construction or installation projects lasting six months or more; 2. Service-Based PE: Foreign companies providing consulting or other services in Albania for more than six months within a 12-month period (whether through employees or other individuals) are deemed to have a PE. Compliance & Business Impact Companies operating in Albania should: • Assess tax residency status to determine if they are subject to Albanian taxation. • Review operational structures to check if their activities trigger a PE under the updated criteria. • Ensure compliance with the new corporate tax rates and deadlines. This legislation significantly impacts multinational businesses, requiring careful tax planning and legal assessment. Consulting tax professionals is advised to navigate these changes effectively. When applying for any visa, certain core documents are necessary. These documents form the foundation of your application and ensure compliance with the specific requirements of the visa-issuing authority. Below is a detailed overview of the key documents required for all visa categories:
1. Visa Application Form: Ensure that the form is completed accurately and in full. 2. Applicant’s Photograph:
Additional Documentation Required by Visa Type 1. For a Type “C” Visa - Professional, Commercial, and Business Motives:
Costs:
2. Work Visas by Main Categories: i. Employment Visa Overview: The Work Visa/Unique Permit process streamlines applications for employment, residence, and work in Albania. Eligibility Criteria:
Required Documents:
Processing Time:
Costs:
ii. Digital Nomad Visa Overview: This visa offers a one-year renewable residence permit for remote workers employed abroad or self-employed individuals working for international clients. Eligibility Criteria:
Required Documents:
Processing Time:
Costs:
iii. Business Immigration (By Investment) Overview: Business immigration is available through company formation, investment in prioritized sectors, or direct employment creation. 1. Business Investment for Long-Term Residency: Eligibility Criteria:
Required Documents:
Investment Amounts:
Processing Time:
Costs:
2. Temporary Residence as Self-Employed: Eligibility Criteria:
Required Documents:
Investment Amounts:
Processing Time:
Costs:
iv. Domiciliary Residence by Investment in Real Estate Overview: This program allows investors to gain residency through financial contributions in real estate. Minimum Investment:
Required Documents:
Processing Time:
Costs:
Important Notes: This article provides a general overview of visa requirements and processes in Albania. Each case may vary, and government policies are subject to change. For personalized advice and up-to-date information, consult a legal or immigration professional. Registering a company in Albania can be a straightforward process if you follow the right steps. Here’s a simple guide to help you get started:
Step 1: Choose Your Business Structure The first and most important step in registering a company in Albania is deciding on the legal structure of your business. This choice will determine the legal, financial, and operational framework of your company. Here are the most common types of business entities in Albania: 1. Sole Proprietorship (Individual Business) Description: A business owned and operated by a single individual. Best For: Small businesses with minimal investment and simple operations. Key Features:
2. Limited Liability Company (LLC) Description: A separate legal entity where the owners (known as shareholders) have limited liability for the company’s debts. Best For: Small to medium-sized businesses, including startups and international ventures. Key Features:
3. Joint-Stock Company (JSC) Description: A business entity designed for larger enterprises, with shares that can be publicly traded (in the case of publicly-held JSCs). Best For: Large businesses with multiple shareholders and significant capital investment. Key Features:
Factors to Consider When Choosing a Structure Business Size and Scope: A Sole Proprietorship works well for small, simple businesses, while LLCs and JSCs are better for more complex operations. Liability Protection: LLCs and JSCs offer limited liability, protecting your personal assets. Capital Requirements: Consider the initial capital needed for each structure. Compliance Requirements: LLCs and JSCs require more documentation and ongoing compliance than Sole Proprietorships. Future Goals: If you plan to expand or seek investors, an LLC or JSC is often more suitable. By carefully evaluating these factors, you can select the business structure that aligns with your goals and resources. If you’re unsure which option is best for you, consulting with a legal or business advisor can help you make an informed decision. Step 2: Pick a Unique Name for Your Company Your company name must be unique and not already registered. To check the availability of your chosen name:
Step 3: Prepare the Necessary Documents The documents required to register a company in Albania depend on the type of business entity you choose. Below are the most commonly required documents: 1. Articles of Association What It Is: A formal legal document that defines the purpose, structure, and operational rules of your company. What It Includes:
Why It’s Important: This document establishes your company’s identity and provides guidelines for its operation, ensuring clarity and compliance. 2. Shareholder Agreement (If Applicable) What It Is: A private contract between shareholders outlining their rights, obligations, and relationships. What It Includes:
Why It’s Important: This document helps avoid conflicts by clearly defining roles and responsibilities in multi-shareholder businesses. 3. Identification Documents What It Is: Proof of identity for founders, shareholders, and directors. What It Includes:
Why It’s Important: Ensures all parties involved in the company are legitimate and meet legal requirements. 4. Proof of Address What It Is: Evidence of the physical address where your business will operate in Albania. What It Includes: Rental agreement or property ownership certificate. Why It’s Important: This is needed for official correspondence and to establish the company’s location for legal and tax purposes. 5. Additional Documents (If Required) Depending on the type of business, you may also need: Power of Attorney: If a representative is filing the application on your behalf. Licenses and Permits: For regulated sectors like food services or healthcare. Bank Confirmation Letter: Proof of initial capital deposit for LLCs or JSCs. Tips for Document Preparation Translation Requirements: If documents are in a language other than Albanian, they must be translated and notarized. Professional Assistance: A legal expert can ensure your documents meet Albanian standards and avoid delays. Step 4: Open a Bank Account
Step 5: Register Your Business at the National Business Center (NBC)
Step 6: Obtain Licenses and Permits (If Required) Some business activities require specific licenses or permits, such as:
Step 7: Register Employees (If Applicable) If you plan to hire employees, you must:
Step 8: Start Operating Your Business With your business officially registered, you’re ready to operate. Here’s what to do next: 1. Comply with Tax Obligations
2. Maintain Proper Accounting Records
3. Monitor Business Performance
4. Stay Compliant
By following these steps, you’ll be on your way to successfully starting and running a business in Albania. If you need assistance, don’t hesitate to consult a legal or business professional. |
Archives
February 2025
AuthorLareda Zenunaj, LL.M in Taxation |