Albanian Companies Given Incentives To Distribute Profits

The 2019 fiscal year in Albania introduced significant changes in the Law on Income Tax. The new law provisions provide for a reduction of the income tax rate on dividends and income sharing, for the shareholders and partners of legal entities, from the previously valid rate of 15% to 8%. This, as well as other changes to the income tax law, were made in order to incentivize the payment of previous fiscal years tax on profits and dividends. The income tax rate does not change for other types of income as provided by law.

The latest provisions of the law on income introduced several changes, but the decrease of the dividend and income sharing tax rate is the most influential one. The Ministry of Finance has predicted that the reduction of the tax rate on dividends and tax on profits will alleviate the fiscal burden of 20 thousand businesses and is also expected to increase tax collections, due to the awaited increase in the statements of companies paying this tax.

Another important change that the law has provided for is the decrease in the fiscal burden on high wage-earners. The salary threshold used to start calculating the 23% tax rate has increased from 130,000 ALL to 150,000 ALL per month. This measure will reduce the tax burden for about 15,400 employees, the majority of whom are middle- and high-level executives working in the private sector.

The new law has imposed some specific provisions that regulate the income tax during the transfer of shares or capital from a legal entity. If such a transfer is equal to or greater than 20% of the ownership shares, or capital quotas, the legal entity is treated as if it is selling a proportional share of all its assets. In such a case, the entity will be legally considered as the recipient of the sale revenue and at the same time as the repurchase of the same capital value, and in both situations, responsible to pay the respective profit tax. When the legal entity pays the profit tax, according to this provision, any change of ownership of shares or capital is exempt from profit tax. This provision is applied to companies that have had an average annual turnover in the previous three years of 500,000 ALL. In order for this notification to be obligatory it is necessary that at least...