Albania: Changes to the Law on Income Tax

February 26 2014

Dorina Asllani Ndreka

The Albanian Parliament has approved the Law No. 8438, dated December 28 1998, which has entered into force since January 2014, regarding one of the most important taxes in Albania, the tax on income. This tax comprises the personal income tax, the profit tax and the withholding tax. From January 1 2014 the income tax rate is no longer 10%, but 15%. The income tax relates to incomes gained from sale of real estates, profits from commercial activities, interests or dividends, profits from copyright, etcetera. Apart from the change in the tax rate, there have been several changes to the personal income tax on employment salaries. The main consequence is the reduction of the overall tax on employment incomes for all salaries up to ALL130,000 ($1,250). This reform is implemented through a specific progressive tax scheme as shown in Table 1.

These changes will reduce the employment tax for the majority of the employees in the public or private sector, considering that according to official data, approximately 5% of the employees have salaries above ALL130,000.

Some of the other changes to the law on personal income tax concern the incomes which are deductible from the personal income tax. Previously the following were recognised as deductible incomes by law:

Social security benefits and economic aid;
Scholarships;
Indemnity in case of illness or misfortune;
Indemnity in case of state expropriation;
Incomes that are excluded in accordance with international agreements;
Financial compensation of former owners and political prisoners;
The employer contributions regarding life and health insurance.

Besides those mentioned above, the recent changes to the law have added another category of incomes excluded from the income tax, which is the transfer of ownership rights on agricultural land from a registered farmer to a farmer, a physical person or a judicial person, that carries out agricultural activity. The main purpose of this measure is to aid the agricultural sector, by increasing the possibilities of development, especially in creating large farms or cooperatives.

Table 1
Taxable income (ALL)		Tax rates
Income from salaries and other compensations deriving from labour agreements	0 – 30,000	0%
	30,001 – 130,000	13% on the amount exceeding ALL30,000
	Over 130,000	ALL13,000 + 23% on the amount exceeding ALL130,000