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Albania: Albania changes VAT exemption rules

Ndreka

Dorina Asllani Ndreka

Albania's Ministry of Finance issued a Directive in May 2016 to change Directive No. 6, dated January 30 2015, 'On the value added tax in the Republic of Albania'. The Directive expands the range of financial transactions excluded and facilitates its implementation.

Directive No. 6 is the latest of several bylaws and directives adopted in Albania to enhance the 2014 Albanian VAT law, which was introduced to align the country's VAT legal framework with the European Union rules in Directive 2006/112/EC.

The amendments introduced by Directive No. 6 on VAT implements several changes regarding the features and peculiarities of exempting financial transactions from VAT. Unlike previous provisions, which excluded only specific financial transactions supplied by financial institutions, the new Directive exempts transactions even in cases where they are performed by a non-financial institution. With the recent changes, the application of the principle of exemption relates directly to the nature of the service and not to the entity or the subject that provides the financial service, nor to the person who receives this specific service, hence deeming the identity of the parties as irrelevant. For the application of the principle of exemption, the manner in which the service is delivered (electronically, manually or automatically) is also irrelevant.

Article 53 of the Law No. 92/2014, dated July 24 2014 "On the Value Added Tax in the Republic of Albania", among others, excludes the following financial transactions from VAT:

  • Insurance and reinsurance services, including insurance negotiations;

  • Granting, negotiation, and management of loans;

  • Loan guarantees when carried by the lender;

  • Exchange operations, supplying liquidity through payments, transfers, checks and other negotiable instruments, except for service debt collection;

  • Transactions regarding currency, with the exception of coins and banknotes not used as legal tender; and

  • Transactions relating to shares, quota, in bonds and other securities.

Other exempted services include the management of investment funds, in terms of the law on collective investment undertakings, interest payments for leasing transactions, advertising in electronic and print media, and financial services, as well as others.

Based on Article 53 of Law No. 92/2014, VAT exemption does not apply to the following transactions:

  • Debt collection services, including all contractual or other legal actions performed by the bank, or other companies, with the purpose of collecting their overdue debts; and

  • The rental of savings, even in those cases when the service is performed by a bank.

It should be noted, however, that the law does not provide an exhaustive list of services performed by a financial institution that do not qualify for VAT exemption. Any other service, which is not part of the excluded services set out in Article 53 of the law would be taxable.

VAT is the most important tax in Albania because it amounts to 33-34% of Total Budget revenues. This explains the special attention that the authorities pay to this tax, by approximating its legislation to the EU, closely monitoring its progress, and constantly making the necessary legal changes. The latest Directive of May 2016 issued by the Ministry of Finance serves this purpose as it expands the range of activities exempted from VAT. Previously, for many of the exempted activities, it was necessary to analyse the legal status of the company that performed the service. However, recent amendments have introduced a change that will facilitate the VAT exemption procedure of financial transactions in general.

Dorina Asllani Ndreka (tirana@eurofast.eu)

Eurofast

Tel: + 355 (0) 42 248 548

Website: www.eurofast.eu

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