TAXATION OF INDIVIDUALS

3. ENTITIES

Taxation on personal incomes is calculated on the incomes of individuals.

Taxation on personal incomes applies to any kind of income whatsoever, from any source, made by any individual subject to tax on the basis of law, except incomes, which are explicitly exempted by law.

Resident individuals are subject to personal income tax obligation during the tax period for all sources of their incomes (inside or outside the territory of the Republic of Albania), whereas non-resident individuals are subject to personal income tax only for those incomes generating in within the Republic of Albania.

3.1. Determining taxable incomes

For the purpose of personal income tax, the following income categories are considered as taxable:

•  Salaries and other fringe benefits related to existing working relations;

•  Incomes deriving from the profit made by a partner or stockholder in a trade company;

•  Incomes from bank interest rates or those deriving from investments on papers of worth.

•  Incomes that derive from copyright and intellectual property;

•  Incomes deriving from loans and rents, except cases when incomes have been made from exercising a trade activity, in the sense of trade legislation;

•  Incomes deriving from the transfer of ownership right on real estates;

• Incomes of individuals deriving from fortune games and casinos;
• Incomes made from the difference between the sale price and purchase price of stock owned by a partner or stakeholder and sold to a third party;
• Other incomes, not identified in the forms presented above, and made by resident or non-resident individuals, but with a source in the Republic of Albania .

3.2. Personal incomes exempted from taxation

The following are exempted from tax on personal incomes:

•  Incomes deriving as a result of insurance in the obligatory scheme of social and health insurances, as well economic assistance for individuals without incomes or with low incomes, according as specified by relevant legislation in effect.

•  Scholarships for students and pupils

•  Benefits received in cases of disease or disaster in compliance with the provisions of legislation in effect.

•  Incomes, in the monetary form or not, raised by owners in the form of benefits received by the state when their property is nationalized by the state to the benefit of public interests.

•  Incomes that are exempted from taxes on the basis of international agreements ratified by the People's Assembly of the Republic of Albania .

3.3. Levels of personal income tax

•  Salaries and fringe benefits, in connection with the actual work relations, will be taxed according to the tariffs provided below:

* Changed with the new fiscal package 2005 with the law No. 9326, Dated. 06.12.2004, “For some amendments and changes on the law “On the Income tax”.

•  Dividends, incomes deriving as partner's incomes, although a single one, interests on loans, deposits or similar contracts, incomes from copyright and intellectual property, rents or incomes from other similar contracts (loan-use) and all other incomes are taxed by 10%.

•  Incomes from fortune games are taxed by 20%.

•  Tax tariffs for the personal incomes that derive from the passing of the ownership right over buildings (immovable properties) are included below. Based on the new Fiscal Package 2005 this tax will begin from January 1, 2006 .

Law no 9326, dated. 6.12.2004 « On some changes and amendments in the law no.8438, dated. 28.12.1998 «On the income tax », determines the payment of tax for the agricultural land on the level of 0,5 % of the sale price.

3.4. Payment of personal incomes tax

Albanian tax legislation in general foresees the withholding at the source of personal income tax and all kinds of incomes. Each person who makes a payment is obliged to calculate, withhold at the source and transfer to the state budget the personal income tax that regards the payment made by this person for a specific individual.

As far as personal income tax from salaries is concerned, each employer who pays a salary or any fringe benefits is obliged to calculate and withhold at the source the personal income taxes (incomes from employment). This tax withheld by the employer must be transferred to the relevant tax organ no later than the 20th of the month succeeding the payment.

As for other payments related to incomes listed in paragraph “Determining taxable incomes”, the payer of incomes withholds the personal income tax at the source, according to the above tariffs, and transfers it to the relevant tax organ no later than the 15th of the month succeeding the payment.

For incomes from fortune games the tax is withheld at the source and is paid within 24 hours from payment.

Real estate is not registered with Real Estate Registration Office, without proof of tax payment by the individual who transfers the property.

For incomes deriving from sources outside Albania and/or paid by persons who cannot withhold the tax at the source to the benefit of Albanian tax organs, the income beneficiary is obliged to declare and to pay to Albanian tax organs a 10% tax on earned incomes.

 
•  Obligation of individuals to declare and pay

Every individual that gets income from any source determined in the point 3.1, for which is not paid the source income tax according to the law No.9326, Dated. 06.12.2004 approved by the New Fiscal Package. Should declare this incomes in the tax authorities not later than January 30 of the next year (see Annex A). Taxpayer pays the obligation in the bank according to the document issued by the tax authorities.

Every individual that realizes incomes regardless of the fact that they are taxed or not should present to the tax authorities the tax declaration for the personal incomes realized from every source not later than February 28 of the next year. Obligation to declare is applied according to the following phases:

•  In the first phase for the in comes realized during 2005 and in the following years, owners and administrators of the trade companies, physical persons registered as subjects of the simplified profit tax, directors of the state enterprises and the directors or owners of foundations or nongovernmental organizations should submit the integral declaration.

•  In the second phase, for the incomes realized during the 2005 and in continuance, all the employees that have the status of the civil servants should submit the integral declaration.

•  In the third phase, for the incomes realized during 2007 and in continuance all the employees of the state institutions or private, foundations and the self employed people or the employees in the small business should submit the integral declaration.

The approval of the new Fiscal package 2005 and more precisely of the law mentioned in the first paragraph of this point obligates all the individuals employed in the public or private sector, self employed, directors and business administrators of enterprises, directors of non profit organizations, employers in other state institutions to declare their incomes and their source despite if they are taxed or not according to the law provisions “On the income tax”. In the previous law every person whose incomes were object of the tax on the personal income should declare it.

•  Withholding tax at the source

3.6.1 Types of incomes, whose tax is withheld at the source and the tax tariffs

All persons rezident in the territorry of Albania, local and central governments, non-governmental organizations and every subject, known by the legislation, are obliged to withheld the tax at the source at 10% from the gross of the following payments that are rising from a source in the Republic of Albania:

•  dividends;

•  profit division;

•  interests,

•  payments for he author right and the intellectual property;

•  Payment for technical, management, financial and security services.

•  Payments for management and participation in the supervisor councils;

•  Payments for building, installation, fixing and other supervising works that are related with those.;

•  Payments for rent;

•  Payments for the exhibitions of actors, musicians or sportsmen including such payments that are done to persons who employ them or who intercede their exhibitions:

The tax withheld in the source for these payments represents the final tax obligation.

It is not withheld a tax at the source for:

•  Albanian residents persons registered as tax payers of the profit tax and VAT or persons that are registered as tax payers of the local tax and small business tax;;

•  Dividends and other divisions of profit from companies and other partnerships that: a) are subject of the tax on profit, and b) subject who profits has a package of securities not lower than 25% in the value or in the number of the joint-stock capital or of the right to vote and for the partnerships not lower than 25% of the initial capital;

•  Payments to the non-residents persons in relation to the services for the international transport of passengers and goods.

The new fiscal package 2005 and the law No. 9326, Dated. 06.12.2004 determines as taxable dividends with 10%, the profit after paying tax for those trade companies that haven't deposed near tax authorities within the July 31 the decision of the competent decision making authority for the utilization of dividends or one part of it. The utilization of the profit for the increase of the initial capital or for the statutory or legal reserves and the carriage of profit it is not considered as a delivery of dividend. From the other side, each reduction in capital that has not to do with the coverage of losses and it does not have to do with a money contribution of the owners is considered as a taxable dividend. In this case the tax is withheld in the source and is paid by the company within 30 days to the tax authorities from the date of taking the decision for the reduction of the capital.

>> Value added tax (V.A.T)