Albania: Albanian government reduces VAT rate for tourist accommodation services

January 30, 2018

In November 2017, before the approval of the budget for the 2018 fiscal year, the government of Albania approved the Decision of the Council of Ministers (DCM) no. 652, dated November 10 2017, which made several changes to DCM no. 953/2014 as regards the implementing provisions of the Value Added Tax Law.

Some of the major changes under the new bylaw include the lowering of the relevant annual turnover for inclusion in the VAT scheme; a reduction in the VAT rate for tourist accommodation services; and several changes involving exemptions on VAT on imports of machinery. Below, we discuss the most important amendment which concerns VAT on tourist accommodation services.

The standard VAT rate in Albania is 20%, except for cases where a reduced VAT rate is applicable as per Article 49 of the VAT Law. One of the most important changes resulting from the new DCM relates specifically to Article 49 and stipulates that the reduced VAT rate to be applied to the supply of tourist accommodation services will be 6%.

According to the new DCM, the provision of accommodation services includes the supplying of lodging services by accommodation operators. Tourism legislation provides accurate definitions of the subjects, facilities and entities that are classified as suitable as regards the offering of accommodation services.

The provision of food supplies or any other kind of services or goods offered by the relevant accommodation operators will not benefit from the reduced VAT rate. The reduced VAT rate will be applied for the provision of food/breakfast in cases where these are included in the price of the lodging service. The accommodation service benefiting from the reduced VAT rate of six percent must be shown separately on the VAT invoice.

Only taxpayers operating in the field of tourism will benefit from the reduced VAT rate. In cases where tourist accommodation operators also perform other kinds of activities, they must separate their commercial operations, creating a new entity to deal exclusively with the tourism accommodation side of their business. The application of the reduced VAT rate does not limit the right of the taxpayer to deduct VAT.

By lowering the VAT rate for accommodation services, the Albanian government aims to reduce prices in the tourism sector while also lowering the costs of the commercial operators in this sector. The DCM also included an important amendment to the VAT scheme. The DCM lowered the annual turnover threshold for the mandatory participation of taxpayers in the VAT scheme from ALL 5 million ($45,100) to ALL 2 million per calendar year.