Understanding Albania's New Income Tax Law

Law No. 29/2023 “On Income Tax”: A New Era in Corporate Taxation

On January 1, 2024, Albania’s new Law No. 29/2023 “On Income Tax” officially entered into force, replacing the long-standing Law No. 8438/1998. This legislative reform marks a significant step forward in the modernization of the country’s tax system, aligning Albania’s framework with international standards and introducing substantial changes that affect both resident and non-resident businesses.

The new law establishes clear rules on corporate taxation, tax residency, and permanent establishment, bringing clarity and structure to a previously outdated regime. Below, we explore the key provisions and implications of this law for companies operating in or engaging with the Albanian market.

Corporate Income Tax: New Rates and Exemptions

One of the cornerstone changes under Law No. 29/2023 is the updated corporate income tax (CIT) structure, which introduces turnover-based thresholds and timelines for tax obligations.

• Businesses with annual revenue up to ALL 14 million are granted a full exemption from corporate income tax through December 31, 2029.

• Starting January 1, 2030, these businesses will become subject to a 15% corporate tax rate.

• Companies with revenue exceeding ALL 14 million are already taxed at the standard 15% rate, with no transitional exemption.

• The dividend tax rate remains unchanged at 8%.

This framework is designed to support small and medium-sized enterprises during their early growth stages while ensuring consistency and fairness in long-term taxation.

Determining Tax Residency in Albania

Law No. 29/2023 introduces a clear definition of corporate tax residency, drawing upon internationally recognized principles. A company is considered tax resident in Albania if:

• Its head office is located within Albanian territory, or

• Its place of effective management—the location where key strategic and operational decisions are made—is in Albania.

Entities meeting either criterion are taxed on their worldwide income, emphasizing the importance of establishing a clear and compliant corporate structure when operating across borders.

Permanent Establishment: When Foreign Entities Are Taxable

A significant update under the new law is the refined definition of Permanent Establishment (PE), which determines when a foreign company becomes liable for tax in Albania.

A PE is deemed to exist in two primary situations:

1. Fixed Place of Business – where a foreign entity maintains a physical presence in Albania, such as:

   • Offices, branches, factories, or workshops;

   • Sites for natural resource extraction, including mines, quarries, or oil wells;

   • Construction or installation projects lasting six months or longer.

2. Service-Based PE – when a foreign company provides services, including consulting, in Albania for more than six months within a 12-month period, regardless of whether those services are delivered by employees or other personnel.

Foreign businesses triggering a PE under these rules are subject to Albanian corporate taxation on income attributable to their activities in the country.

Compliance Obligations and Strategic Considerations

The introduction of Law No. 29/2023 necessitates a strategic reassessment for both local and international businesses. Companies are advised to:

• Review their tax residency status and determine whether they fall within Albania’s jurisdiction for worldwide taxation;

• Analyze operational activities to assess potential exposure under the revised PE criteria;

• Ensure ongoing compliance with applicable tax rates and timelines, particularly with respect to the 2029 exemption deadline and the shift in rates post-2030.

Given the legal and financial implications, engaging qualified tax and legal professionals is strongly recommended. Multinational businesses, in particular, should be proactive in evaluating cross-border activities and updating internal structures to avoid unintended tax exposure.

Conclusion

Law No. 29/2023 represents a significant step in the evolution of Albania’s tax system, offering a more structured, transparent, and internationally aligned fiscal environment. By clearly defining rules on tax residency, corporate income taxation, and permanent establishment, the legislation provides greater legal certainty for both domestic and foreign businesses operating in the country.

Looking ahead, Albania’s continued commitment to tax reform may further strengthen its appeal as an investment destination. Future legislative developments could introduce targeted incentives to support strategic sectors and encourage sustainable economic growth. Regular review of the law’s implementation and its economic impact will be essential to ensure responsiveness to global trends and local needs.

As the business community navigates this updated legal landscape, those who adapt early and maintain compliance will be best positioned to capitalize on the opportunities Albania’s modernized tax regime now offers.

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