Corporate - Income determination

Last reviewed - 12 January 2024

Inventory valuation

Inventory is valued at the end of each tax period using the methods stipulated in the Accounting Law, which should be applied systematically. The methods stipulated in the National Accounting Standards for the valuation of inventory at year-end are the average cost and first in first out (FIFO) methods.

Capital gains

Generally, on sale of shares, capital gain tax at a 15% rate arises on the difference between the sale price and the purchase price of the shares (or the nominal value).

Capital gains, if any, are added to the taxable profit of the company and are taxed together with those profits at the 15% CIT rate. If the seller is a tax resident in a country other than Albania, based on applicable DTTs, the capital gain on sale of shares is generally taxed in the country in which the seller is resident.

If the direct and/or indirect ownership of the share capital quotas or voting rights of a legal person changes by more than 20% in value or in number of shares, the entity is considered as selling a proportional share of all its assets, calculated on their value immediately before the change. In cases where the change in ownership includes the direct and/or indirect purchase of an immovable property in Albania, the resulting gain/profit is expected to be taxed for CIT purposes in Albania.

Note that the above applies in cases when the Albanian entity has realised an average turnover of ALL 500 million for three consecutive previous years.

The Albanian entity subject to ownership changes is expected to notify the tax authorities regarding the details of the change within 45 days from the moment the ownership change occurred.

The obligation to notify does not apply if the sale of shares results in less than a 10% change in ownership of the Albanian company.

Dividend income

Dividends and other profit distributions received by a resident entity from another resident entity or from a non-resident entity are not subject to CIT for the resident beneficiary of such income. This applies despite the participation quote (in amounts or number of shares) of the entity distributing profits in the shareholder capital, voting rights, or its participation in initial capital of the beneficiary.

Interest income

Interest income is taxed at the rate of 15%.

Royalty income

Royalty income is taxed as ordinary income, at the rate of 15%.

Foreign income

Albanian resident corporations are taxed on their worldwide income. If a DTT is in force, double taxation is avoided either through an exemption or by granting a tax credit up to the amount of the applicable Albanian CIT rate.

Albanian legislation does not contain any provisions under which income earned abroad may be tax deferred.