VALUE ADDED TAX

1. VAT Object and the tax rate

Value Added Tax is the main tax applied on the consumption of goods and services. VAT is paid:

• For all taxable supplies of goods and services executed upon payment by a taxable person as part of his economic activity in the territory of Albania .
• For all imported goods in the territory of the Republic of Albania .

Value Added Tax in the Republic of Albania is applied at 20%.

4.1. Registration

Every physical or legal entity exercising economic activity, whose turnover exceeds or is expected to exceed 8 million Lek in a calendar year, is obliged to ask for registration.

The term “person” implies any kind of entity exercising economic activity regardless of the legal form of its organization. It also includes institutions, central and local government organs, social and political organizations that perform taxable economic activities.

All other legal and physical entities or any other person, such as individuals, central and local government entities, social, political or international organizations, diplomatic missions, etc. performing import-export activities, are obliged to register regardless of turnover.

Only for goods of personal use individuals can take customs actions without being obliged to register.

4.2. Turnover calculation

The base period to be taken into account in turnover calculation is the calendar year, i.e. the period from January 1st to December 31st. In any case, if during the calendar year, the expected turnover exceeds or is expected to exceed 8 million Leks, the physical or legal person is obliged to ask for registration.

The turnover to be into account is the entire turnover realized by the same person.

The entire turnover includes all supplies made by a person: taxable supplies, exempted supplies and supplies for export. It also includes any other supplies that could be made in the course of a person's activity, such as aid, subsidies, etc. Turnover is calculated form the total price paid by the buyer. Price also includes taxes, fines and any other obligation.

All sales of sustainable assets by the taxable person, such as buildings, machinery and equipment are excluded. These sales are not taken into account when the entire turnover is calculated.

If a person has several activities in the same or different places, the turnover for determining the registration limit includes the turnover from all activities, in all the places it is exercised, regardless of the name of branches or their legal forms. It's the person and not the economic activity to be registered for VAT and any registration covers all activities of the registered person.

4.3. Self-supplies

If, for the purposes of his own economic activity, a taxable person uses goods produced by himself, he is treated:

• As if he supplies (sells) these goods as part of this taxable activity;
• As if he is supplied with (buys) these goods for the purpose of exercising his taxable economic activity.

The condition of self-supply is: goods manufactured by the taxpayer must to be used by him for purposes of taxable supplies to be made (he must have the right to credit). In such an instance the taxable person issues a sales tax bill for himself, which implies that he is both a buyer and a seller.

4.4. Moment of supply

Supply is considered complete at the moment it is mandatory to issue the sales bill. The person performing a taxable supply is obliged to issue a sales bill for that supply at the moment when goods are delivered for sale or when they become available, or when services are provided by him with regard to that supply. In all cases when the taxable person makes the payment before goods are delivered or made available, or before services are provided, he is obliged to issue a sales bill for that supply at the moment that payment is made by him.

When two or more payments are done for the supplies than every payment is considered for an individual supply for the amount of that payment. Frequent supply of services is done in any case when is issued an invoice.

Law No.9332, Dated. 06.12.2004, “On some changes and amendments in the law No. 7928, Dated. 27.04.1995 “On the Value Added Tax” approved with the 2005 Fiscal Package determines the obligation for paying the VAT also for cases when goods are transferred according to a contract. For goods that are transferred based on a contract which determines the rent or sale with instalment, despite from the moment of passing the ownership right, the obligation for paying VAT, is calculated upon the total value of the good and is calculated on the payments of the values of the instalments for the good in the disposal of the consumer.

Everything mentioned in the above paragraph it is not foreseen from the previous law.

4.5. Private use of goods

When goods belonging to an economic activity of a taxable person are privately used outside this activity, the supply is taxed (article 18.2). This includes self-produced goods, as well as goods from the inventory or assets of the taxable person's economic activity.

4.6. Supply upon Reduced Payment

In the category of supplies upon payment (taxable) fall all cases when goods supplied to a taxable person for the purposes of his own economic activity, are either supplied by him or given for use to third parties upon reduced payment, except cases when goods are only supplied or used as samples.

Supplies upon reduced payment are considered all cases when the supplier does not deposit the payment, such as gifts, goods and services supplied as promotional, or when payment is obviously less than it should have been if the supplier's goal was to profit from this and other similar supplies. Goods and services supplied under the above circumstances are subject to tax and their taxable value equals the total payment which should have been made for that supply if the supplier's goal is to profit from this and similar supplies.

4.7. Taxable and exempted supplies

Law “On Value Added Tax” applies to each supply of goods and services performed by each taxable person, regardless of their legal form of organization and economic activity they perform. At the same time, the law establishes a limited number of exceptions to this tax, as follows.

•  Land and buildings

•  Supply of land and building site or their rent is exempted supply, except cases when land is used for parking means of transportation and other mobile vehicles.

•  Supply of constructions is exempted supply undil December 31, 2005.

•  The rent of buildings owned by the state from the central or local bodies.

•  Supply of buildings and land exept the first sale of the new buildings is exempted supply begining from January 1, 2006 (according to the law No.9332, Dated. 06.12.2004, “On some changes in the law “On VAT” changed and approved with the New Fiscal Package 2005)

•  The rent of apartments that are taxed with the VAT in the moment of their sale is exempted supply since 1 January 2006.

The article 20 of the law “On VAT” changed that includes the exeptions from VAT for the land and buildings is changed according to the new fiscal package 2005 in regarding to the tax on passing the immovable properties right.

•  Financial services

Finnancial supplies mentioned above are excemptied from VAT:

•  Giving, negotiating, debt, credit, credit garancies and every security for the money including their administration;

•  transactions related to financial accounts, payments, transfeers, depts, cheques and the negotiable instruments except collection of debt;

•  transactions related to the currency, bancote and money that are legal means of payments, exept the articles used only for collections;

•  transactions related to shares, capital assets, bonds and other securities exept the services for the supervision;

•  administration of the investment fond;

•  transactions according to the contracts for life insurance, including the reinsurance;

•  transactions related to pensions fund and the obligatory medical insurances.

Yet, if the taxable person performs supervision services, transactions regarding items used for collections or actions that relate to debt collection, he performs taxable supplies.

Taxable supplies are also non-life insurance, with the exception of life insurance. Non-life supplies are all kinds of property insurance, insurance of civil responsibilities, all kinds of vehicle insurances and all the other kinds of non-life insurances.

 
•  Bank of Albania

Gold supply, banknotes and coins for the Bank of Albania are exempted from VAT.

•  Postal services

Supply of postal stamps for postal service use, supply of fiscal stamps and all other similar stamps are exempted from VAT.

•  Non-profit organizations

For the purpose of Value Added Tax, a non-profit organization is any company, institution, association or organization, which is founded and exercises its own activity in compliance with Law no. 8788 of 07.05.2001 “On non-profit organizations” and:

• Which is not established for profits or incomes to its members; and
• Whose rules do not allow profit or property distribution among its members

Under the non-profit organizations fall all other state-budget institutions, which are subsidized by the government.

Supplies made by non-profit organizations upon reduced payment, are exempted supplies if they are:

•  Supply of goods and services for medial or dental treatment;

• Supply of services for the care and protection of children and seniors;
• Supply of educational, cultural and sport services;
• Supply of services from religious and philosophical organizations for the purpose of their spiritual welfare.
  

•  Diplomats and international organizations

All supplies made to diplomatic missions and their own personnel are exempted from VAT on the basis of reciprocity and the same applies to the international organizations and their own staff on the basis of international agreements.

On the basis of this law, the import of goods for diplomatic missions and their personnel is exempted from VAT. The same applies to the import of goods by international organizations recognized as such by the Albanian state.

 
•  Hydrocarbon operations

The following are exempted from VAT:

• Supply of services that are conducted by contractors or their sub-contractors, established as such by the National Agency of Hydrocarbons , regarding research and development stages of hydrocarbon operations.
• Supply of imported goods that contractors make for each other or sub-contractors for their contractors.

•  Medical drugs and equipment

Supply of medical drugs, equipment and the supply of package and other materials, which are used for drug confection, are supplies exempted from VAT.

•  Exempted Import Supplies

The following are supplies exempted from VAT:

•  The final import by a taxable person of all goods when, under all circumstances within the country, their supply is exempted from VAT.

•  Import of goods under transit regime.

•  Import of goods, which are declared to be under temporary permit or active processing regime .

•  Import of goods and services that are related with the search and development phases of the hydrocarbures processes under the work done by the contractors and subcontractors that work for these processes.

•  Import of bloodstocks granted from different donors.

•  Import of goods from NATO in the framework of the operations according to the international agreements.

•  Import of military equipments/materials for the Army Forces granted from the places of the NATO alliance as well as partners.

In the new law No. 9332, Dated. 06.12.2004, “On some changes and amendments on the “VAT law” are amended as separated elements points “f” and “g”, points that are mentioned indirectly in the same article of the previous law for VAT.

4.8. Small importers

Exempt wholesales, the taxable persons, whose turnover does not exceed 8 million Lek for each calendar year, are not obliged to register for VAT. All taxable persons conducting imports and exports and equipped with NIPT for these purposes, but, within the country they declare and pay the local tax on small business and the simplified tax on profits.

4.9. Exports

VAT is applied with 0% for :

•  Goods that are exported from the territorry of the Republic of Albania;

•  Supplies of the services outside the territory of the Republic of Albania from a taxable person which the place of activity or rezidency is in Albania.;

•  Supply of goods and services regarding to the international transport of goods and passangers exept to the navy air seervices/sherbime navigacionale ajrore in the territorry of the Republic of Albania ;

•  Supply of goods and services in regard to the trade or iindustrial services in the sea.

4.10. Bills, data to be included in a tax bill

Bills are the basic documents for Value Added Tax. They determine the supplier's tax obligation and the sum of deductible tax, which the buyer registered in VAT is allowed to demand. (sea attached model in the Annex B).

A taxable supplier (even if the supply is exempted or with 0%) is obliged to issue an itemized tax bill to the person who receives the supply. The bill should contain:

•  Ordinal number;

•  Pre-printed serial number

•  Date of issue

•  Name, address, identification number of seller;

•  Name, address, identification number of buyer when he is:

•  A VAT taxable person and his fiscal code when he is not a VAT taxable person but a taxpayer of the tax on small business;

•  Name, address and NIPT of transporters, vehicle plate number and time of supply.

•  Detailed description of goods sold and services provided;

•  Price per unit without VAT;

•  Amount of goods sold or volume of services provided;

•  Total value of transaction without VAT;

•  VAT sum (if VAT is applied);

•  Total value with VAT

•  Labeling as supply exempted or with 0% (if it is respectively exempted or subject to tax at 0%).

4.11. Bad debt

When the supplier has not fully or partially received a payment for a supply made, we are dealing with a bad debt. In these cases the right to issue a bad debt bill arises:

•  After the debt becomes a bad debt. This begins 6 months after the tax period during which VAT has been applied.

•  After the seller has presented all the evidence required by the tax organ, which testify whether he has undertaken all appropriate actions to pay the bad debt.

In the case of a bad debt, the seller should issue a bad debt bill. This bill is issued in the same form as an ordinary bill. It has to show the words “bad debt”, the ordinal number of the first bill to which this debt relates, and to also show that the buyer's tax credit must decrease. This bill is used by the seller to decrease the VAT obligation , and by the buyer to decrease the VAT credit.

4.12. Keeping Value Added Tax Records

•  Purchase book

Purchase book is obligatory for all the taxable persons. On this book are recorded the bill's date of issue, ordinal number of bill, serial number printed by the printing-house or by the taxpayer when permissible, data from the import statement, name of buyer and his tax identification number.

•  Sales book

Sales book is obligatory for all taxable persons. On the sales book are recorded the bill's date of issue, ordinal number of bill, serial number printed by the printing house or by the tax-payer when permissible, and the date and number of the customs statement when goods are exported, name of costumer and his own identification number (if there is one). The total value of the transaction including VAT (if applicable) is also recorded in this book.

4.13. VAT Statement, Declaration and Payment

VAT Declaration is completed in two copies and is submitted by the taxable person to the bank (See Annex A). Tax payment is made with the bank, within 14 days after the completion of the tax period presented in the statement.

4.14. Tax Crediting

Creditable VAT (deductible) is the VAT sum that, a taxable person pays at the moment that he purchases goods or services within the country, as well as the VAT sum that he has paid for the imports made, provided that, these supplies serve only the taxable supplies this taxable person will make.

If the supplies received or the imports made serve the exempted supplies a taxable person can make, the crediting of paid VAT is not allowed for the supplies made to these purposes.

4.14.1. Partial Tax Crediting

If a certain supply of goods or services is partially used for the purpose of taxable supplies already made or to be made and partially for exempted supplies, only a part of tax crediting is allowed. The calculation of partial crediting is based on the percentage of crediting according to the formula.

Taxable turnover + exports

Percentage of crediting = __________________________________________

Taxable turnover + exports + exempted supplies

4.14.2. Taxable supplies and imports whose crediting are not allowed

Tax crediting is not allowed for:

•  All kinds of expenditures for petroleum except:

•  When the aim of the economic activity is the purchase of petroleum in order to sell it;

•  With an authorization in writing by the General Director of Tax Office, when the petroleum necessary to exercise industrial activity occupies a considerable place in the expenditures made by the taxable person;

•  Expenditures on travel and per diem, hotel accommodation and relaxing activities during the exercise of economic activity.

•  Expenditures on motorcars except:

•  When the aim of the economic activity is the purchase of the motorcars for the purpose of sellin g them;

•  When the use of cars is the only aim of the economic activity (e.g. renting, taxi service, ambulances).

4.15. Reimbursement

If the person pays the VAT for one taxable period which is bigger than the tax applied for that taxable period, the taxable person has the right to carry the remained sum for the next taxable period.

The person seeks the reimbursement of the VAT when:

•  Taxable person has carried the sum of VAT for which it should be reimbursed for 3 months in continuance. i ;

•  The reimbursement didn't exceed the sum of 400 000 leks.

4.16. Payable interests

When a taxable person does not pay the full sum of obligatory VAT within the date established by law, he is obliged to pay interests on the VAT overdue sum from the date this payment was due to the date when it is made.

Interest for the not paid VAT in the due date is calculated at 2% for the first month or one unit of it and 1% after the first month based on the sum of the unpaid tax in the date when interest is calculated. Interest is applied automatically and is removed only by law.

Ordinance No. 7, dated 19.01.2005 of the Minister of Finance determines the reduction of the interests for the unpaid VAT in the period determined from 5% (in the first month) and 2 percent (in the next months) to 2% (in the first month) and 1% (in the next months).

It is amended with the law No. 9332, Dated. 06.12.2004 “for some changes and amendaments on the VAT Law” approved with the new fiscal package.

Law N0. 9332, Dated. 06.12.2004, “On some changes and amendments in the law “On VAT” has determined a reduction of the period to 3 months. The period in the previous law was 6 months.

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