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.
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February 2025
AuthorLareda Zenunaj, LL.M in Taxation |