Law No. 9920, dated May 19, 2008, titled “On Tax Procedures in the Republic of Albania” regulates the procedures for administering tax liabilities, the principles of organization and functioning of the tax administration in Albania.

Key aspects of Law No. 9920 include:

1. It establishes the core principles of the Albanian tax system and its administration.
2. It outlines the rights of taxpayers and their obligations to contribute to state revenues.
3. It stipulates how taxpayers should maintain documentation for tax purposes.
4. It establishes the principle of self-evaluation for taxpayers, balanced with the tax administration’s right to conduct risk-based audits.
5. It provides for an effective appeal system for taxpayers.

The law has undergone several amendments since its adoption in 2008 to adapt to economic developments and address the needs of the business community. It’s worth noting that a new Income Tax Law (Law No. 29/2023) was approved on March 30, 2023, and came into effect on January 1, 2024. This new law replaces the Law on Income Tax No. 8438 dated December 28, 1998. However, this relates specifically to income tax, not to the general tax procedures covered by Law No. 9920.

Country by Country Reporting

Law No. 9920, dated May 19, 2008, titled “On Tax Procedures in the Republic of Albania”, primarily focuses on regulating tax administration procedures within Albania. The law covers various aspects of tax administration, including:

1. Core principles of the Albanian tax system and its administration
2. Rights and obligations of taxpayers
3. Documentation requirements for tax purposes
4. Self-evaluation principles for taxpayers
5. Tax administration’s right to conduct risk-based audits
6. An effective appeal system for taxpayers

While the law has undergone several amendments since its adoption in 2008, there are nor any specific provisions related to country-by-country reporting.

It’s worth noting that country-by-country reporting is typically associated with transfer pricing regulations and international tax transparency initiatives. The changes to transfer pricing guidelines in Albania are part of the new Income Tax Law No. 29/2023, which came into effect on January 1, 2024, replacing the old Income Tax Law No. 8438/1998.

Income Tax Law No. 29/2023

Income Tax Law No. 29/2023 in Albania, approved on March 30, 2023, is a significant overhaul of the country’s tax system, replacing the previous Law No. 8438 dated December 28, 1998. This new law will come into effect on January 1, 2024, and introduces several important changes:

Key Changes

1. Corporate Income Tax Rates: The law establishes varying tax rates for different sectors:
   • 5% for agricultural cooperative companies until December 31, 2029
   • 5% for certified agritourism accommodation activities until December 31, 2029
   • 5% for software production or development until December 31, 2025
   • 5% for the automotive sector until December 31, 2029
   • 0% for entities with annual income not exceeding ALL 14 million until December 31, 2029
2. Personal Income Tax: Introduces a new progressive taxation system for employment income:
   • 13% for annual income up to ALL 2,040,000
   • 23% for annual income over ALL 2,040,000
3. Permanent Establishment Rules: Sets specific time limits for establishing different types of PEs, such as construction PEs (6 months) and service PEs (6 months)
4. Withholding Tax: Applies consistent rates to payments made to residents and non-resident PEs:
   • 8% on dividends (with exceptions for domestic participation)
   • 15% on interest payments
   • 15% on royalty payments
5. Transfer Pricing: Modifies guidelines, including extending the deadline for submitting documentation to 45 days after a tax authority request
6. Interest Deduction Limitation: Expands the 30% EBITDA limitation to all interest expenses, not just related party loans

Implementation and Implications

The new law aims to establish rules for taxing income of natural persons and entities, as well as income from inheritances, donations, and gambling earnings in Albania1. It represents a significant shift in the country’s tax landscape, affecting both individuals and businesses across various sectors.

However, it’s worth noting that the Constitutional Court of Albania has recently overturned certain aspects of the new personal income tax brackets, specifically repealing the 15% income tax levy on annual incomes up to ALL 14 million. This decision will likely necessitate further adjustments to the law’s implementation.