Albania

Depreciation and amortisation

Allowed tax depreciation and amortisation rates and methods for each category of fixed assets are shown below:

Notes

• In cases where the net book value of the asset (in the beginning of the fiscal period) is less than ALL 10,000, the taxpayer may expense it entirely.
• The depreciation base is equal to the cost of acquisition or creation of the asset plus the cost of reconstruction of assets of the corresponding category during the tax year.
• The depreciation basis for staff cars having a capacity up to 1+4 passengers cannot be higher than 50% of the purchase and reconstruction costs, including VAT. The cost of the 1+4 car, which is depreciated by 50%, cannot be higher than ALL 10 million.

• 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 expenses

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. 

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. Interest for which the deduction is denied is carried forward for the next five years.

Bad debt

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.

Charitable contributions

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.

Taxes

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:

• Costs of purchasing and improving land and construction sites.

• Costs of purchase, improvement, renovation, and reconstruction of depreciable assets.

• Dividends for shareholders or partners, as well as dividends of other entities subject to this law.

• Fines and penalties paid to a public authority for violation of legislation.

• Expenses for the creation or increase of provisions, reserves, or other special funds, except when this is determined otherwise by this law.

• CIT, credit VAT, as well as excise duty paid by entities that administer excise goods.

• Representation expenses and expenses for reception-forwarding that exceed 0.3% of the annual income.

• Expenses incurred as personal consumption by shareholders, partners, administrators, and their family members.

• Expenses that exceed the limits defined by law or by-laws in force. 

• Expenses for technical, consultancy, and management services invoiced by non-resident, if they are not paid by the taxpayer within the period of submission of the tax return. In case such expenses are paid later, they are deductible in the tax year in which they are paid.

• Expenses for salaries, bonuses, and other forms of personal income related to labour relations, paid to employees, including administrators, and not made through the banking system or electronic money institutions licensed by the Bank of Albania.

• Amounts paid in cash in excess of the limits determined by the provisions of the law on tax procedures in the Republic of Albania (i.e. ALL 150,000).

• Life and health insurance expenses of the taxpayer's employees that exceed 5% of their gross salaries for the tax year.

• Expenses for contributions made by the employer on behalf of its employees to a private pension plan, exceeding the minimum yearly salary.

• Expenses related to income that are not included in the taxable profit based on this law.

• Kickbacks and bribes.

• Sponsored amounts up to a certain limitation as per the law’s provisions.

• Losses and damages during production, transit, storage, and trading beyond the rules defined in separate legal and by-laws that are in force.

• Any claimed expense the measure of which is not certified by documents from the taxpayer or does not represent a real transaction.

The amounts allocated to special reserve accounts in banks and insurance companies that 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 for the exercise of lending activity, the write-off of bad debt is recognised as a deductible expense if the following conditions are met:

• In cases where the loan is secured by movable or immovable property: 365 days after the filing of the request for the start of mandatory execution with the executor or at the time of execution of the movable or immovable property, whichever is the earlier date.
• In cases where the loan is not secured by movable or immovable property: 365 days after the issuance of the execution order by the court.

Employers’ contributions towards the life and health insurance of employees are deductible.

Net operating fiscal losses

Fiscal losses may be carried forward up to five consecutive years. However, losses may not be carried forward if more than 50% ownership of the share capital or voting rights of the company is transferred during the tax year, provided that this is accompanied by a change of business activity.

Albanian legislation does not allow losses to be carried back.

Payments to foreign affiliates

Payments to foreign affiliates are subject to withholding tax (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.