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Albania: Prerequisites for banks’ bad debt tax deduction streamlined


Juliana Xhafa of Ernst & Young outlines new changes to the conditions required for banks and other financial institutions to have bad debts qualify for tax deductibility.

In addition to existing law provisions and related administrative guidelines of the Minister of Finance, which provide for certain conditions to be cumulatively fulfilled in order for the impairment of bad debts to be considered as deductible expense for Albanian corporate income tax purposes, the Ministry of Finance of Albania recently introduced a new guideline (Instruction No. 14 dated May 23 2013) providing for more clarity about when such impairments become tax deductible especially for banks and other financial institutions.

Specifically, the guideline stipulates that banks, branches of foreign banks and other financial institutions licensed by the Central Bank of Albania to engage in lending activities may claim tax deduction on the write-off of bad debts as follows:

· 365 days after submission of a request to the bailiff’s office for the initiation of compulsory enforcement procedures if the loan is secured by movable or immovable properties; or

· 365 days after the issuance of a writ of execution by the court if the loan is not secured by movable or immovable properties.

The guideline of the Ministry of Finance provides for unified deductibility rules of recognising bad debt by these institutions, enabling them to apply consistent rules for the tax recognition of debt impairments and eliminate the risk of subsequent tax adjustments upon a tax audit.

The existing law provisions require the following conditions to be met:

· The amount must have been recognised earlier in the taxpayer’s income;

· All possible legal means must have been exhausted by the taxpayer to collect the debt (and documented with a court decision or decision of any other competent institution acknowledged by law); and

· The bad debt must be written off in the accounting books.

Juliana Xhafa ( is tax services manager at Ernst & Young, principal Corporate Tax correspondent for Albania.

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