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Albania: Albania-Ireland tax treaty enters into force

The income tax treaty that was signed back in October 2009 for the avoidance of double taxation and prevention of fiscal evasion between Albania and Ireland entered into force on July 12 2011 and will be applicable from January 1 2012.

In the case of Ireland the treaty is applicable on income tax, corporation tax and the capital gains tax and in the case of Albania income taxes, tax on small business activities and the capital gains tax.

Permanent establishment

Considered as permanent establishment (PE) a building site, a construction, assembly or installation project or supervisory activities in connection with aforementioned only if it lasts for a continued period of more than six months in any twelve month period commencing or ending in the fiscal year concerned.

Differentiations from the OECD Model Convention of 2010:

  • Also considered as PE is the furnishing of services, including consultancy, provided by an enterprise for such purpose if it last six months in any given 12 months period in the fiscal year concerned.
  • Offshore activities of a person carried out in connection with the exploration or exploitation of the sea bed and subsoil and their natural resources situated in a Contracting state shall be deemed to be carrying out business through a PE in that state.

Dividends

Withholding tax rate at source is kept at 5% if the beneficial owner (BO) is a resident of the other contracting state and a company (other than a partnership) which holds directly or indirectly at least 25% of the capital of the company paying the dividends and 10% in all other cases.

Dividends arising in a contracting state paid to the government of the other contracting state shall be exempt from tax. The term government includes in the case of Ireland: The Central Bank, the National Treasury Management Agency, the National Pension Reserve Fund and a statutory body or any institution wholly or mainly owned by the government of Ireland and in the case of Albania: the Central Bank of Albania and a statutory body or any institution wholly or mainly owned by the Albanian government.

Interest

Interest withholding tax rate at source kept at 7% if the BO of the interest is a resident of the other contracting state.

The source country will have no rights to tax the interest when the recipient and the BO are both residents of the other contracting state and:

  • If the BO, both in the case of Albania and Ireland, is the government body that was specified also as in the article relating to dividends;
  • If the BO is a financial institution or the interest was paid by a financial institution;
  • If the BO is a pension fund that is exempt from tax on the interest income;
  • If the interest is paid for indebtedness arising as a consequence of the sale on credit of any equipment, merchandise or service.

Royalties

Royalties may be taxable in a state which it arises but if the BO of the royalties is a resident of the other contracting state the tax to be charged shall not exceed 7% of the gross amount of the royalties.

Royalties shall be deemed to arise in a contracting state when the payer is a resident of that state. Royalties that are borne by a PE or fixed base, which belongs to the person paying the royalties, shall be deemed to arise in the state where the PE or fixed base is situated.

Both Albania and Ireland will apply credit method for the elimination of double taxation.

Eylem Philippou (eylem.philippou@eurofast.eu), Eurofast Taxand, Cyprus & Drilona Likaj (drilona.likaj@eurofast.eu),
Eurofast Global Tirana Office, Albania
Tel: +355 42 248 548
Website: www.eurofast.eu

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