Depreciation and amortisation
Allowed tax depreciation and amortisation rates and methods for each category of fixed assets are shown below:
|Asset category||Method||Rate (%)|
|Buildings and machinery and other fixed structures installed in the building||Reducing-balance basis||5 (1)|
|Computers, software products, and information systems||Reducing-balance basis||25 (2)|
|Other assets||Reducing-balance basis||20 (2)|
|Intangible assets (including goodwill and start-up expenses)||Straight-line basis||15|
- In case the net book value of the asset (in the beginning of the fiscal period) is less than 3% of the historical costs, the taxpayer may expense it entirely.
- In case the net book value of the asset (in the beginning of the fiscal period) is less than 10% of the historical costs, the taxpayer may expense it entirely.
Land, fine art, antiques, and jewelleries are non-depreciable assets.
Depreciation and amortisation of fixed assets at amounts higher than those allowed for tax purposes is considered a non-deductible expense.
Interest paid in excess of the average 12-month credit interest rate applied in the banking system, as determined by the Bank of Albania, is a non-deductible expense. The amount of deductible interest expense may also be limited by thin capitalisation rules (see Thin capitalisation in the Group taxation section).
Additional to the above, any interest expenses that take at least 30% or more of earnings before interest, taxes, depreciation, and amortisation (EBITDA) are recognised as non-deductible for CIT purposes if these interest expenses arise from loans or financing from related parties.
Bad debts are only deductible if the following conditions are met simultaneously:
- An amount corresponding with the bad debt was included earlier in income.
- The bad debt is removed from the taxpayer’s accounting books.
- All possible legal action to recover the debt has been taken.
This applies to all entities except those operating in the financial sector.
There are no provisions in Albania regarding the tax treatment of charitable contributions. In general, contributions are considered as non-deductible expenses for CIT purposes.
Fines and penalties
Fines and other tax-related sanctions are non-deductible expenses.
Income taxes, VAT, and excise duties are non-deductible expenses.
Other significant items
The Albanian legislation also defines the following specific costs as non-deductible:
- Expenses not supported with fiscal invoices.
- Expenses paid in cash of amounts exceeding ALL 150,000.
- Benefits in kind and gifts.
- Wages, bonuses, and any other form of income deriving from an employment relationship and paid to the employees in cash.
- Provisions and reserves (with some exemptions applicable to the financial sector).
- Expenses for technical services, consultancy, and management received from foreign entities that are not registered for tax purposes in Albania and for which no withholding tax (WHT) has been paid by 20 January of the following year, at the latest.
- Losses, damages, and wastage incurred during production, transiting, or warehousing exceeding the norms defined by laws and related instructions.
- Impairment losses on fixed assets.
- Representation and reception expenses exceeding 0.3% of annual turnover. Exporters who have generated 70% of their revenue from exports in the last three years, can deduct up to 3% of their annual turnover the expenses incurred for representation abroad (attending fairs or exhibitions). Perdiem allowances which surpass 50% of the employee’s salary. Sponsorship expenses exceeding 3% of profit before tax and sponsorships of press and publications exceeding 15% of profit before tax. Excluded from this rule are entities which generate an annual taxable income above ALL 100 million and sponsor sport team activities. These entities are able to deduct as much as 3 times the amount of the sponsorship but are not able to carry it forward in the upcoming tax periods.
- Donations for recovery from natural disasters exceeding 5% of profit before tax, done on the occasions of the announcement of “natural disasters”.
The amounts allocated to special reserve accounts in banks and insurance companies which are calculated under International Financial Reporting Standards (IFRS) are deductible.
In the case of banks, branches of foreign banks and non-bank financial entities licensed by the Bank of Albania to conduct lending activities, in determining taxable profit, write off bad debt is recognized as a deductible expense upon fulfilment of these conditions:
- 365 days after filing the request for commencement of enforcement proceedings with the bailiff, if the loan is secured by movable or immovable property.
- 365 days after the court has issued the enforcement order, in case the loan is not guaranteed with movable or immovable property.
- if the movable or immovable property securing the loan is executed before the time limits set out in (a) and (b) above, the previous banking provisions, recognized as deductible expenses, shall continue to be recognized as such.
Employers’ contributions towards the life and health insurance of employees are deductible.
Net operating fiscal losses
Fiscal losses may be carried forward up to three consecutive years. However, losses may not be carried forward if more than 50% of direct or indirect ownership of the share capital or voting rights of the company is transferred during the tax year.
Albanian legislation does not allow losses to be carried back.
For taxpayers investing in business projects valued over ALL 1 billion, losses can be carried forward for five consecutive years.
Payments to foreign affiliates
Payments to foreign affiliates are subject to WHT unless tax relief is requested in accordance with the local legislation or any DTT in place. These payments are tax deductible if they are properly documented and incurred for business purposes only.
Payments to foreign affiliates made for the purpose of profit transfer might be subject to price revaluation by the tax authorities. Any transactions/payments made to foreign affiliates shall be performed on an arm’s-length basis.