LEGAL TAX CHANGES FROM JANUARY 1, 2025

 

 

 

Personal Income Tax

Law no. 29/2023 "On Income Tax," as amended, came into force on 18.05.2023 and has extended its effects since January 1, 2024, with some exceptions, which will be presented in this informational material.

This law aims to establish rules regarding:
a) income tax for individuals and entities;
b) income tax from inheritances, donations, and gambling winnings.

The tax year starts on January 1 and ends on December 31 of each calendar year.

PERSONAL INCOME TAX FOR INDIVIDUALS (SELF-EMPLOYED, TRADERS, AND AS DEFINED IN THE CIVIL CODE)

1. TAX RESIDENCY OF AN INDIVIDUAL

An individual is considered a resident taxpayer for personal income tax purposes if:
a) They have a permanent residence in the territory of the Republic of Albania during the tax year; or
b) They stay in the Republic of Albania for a total period of 183 days or more during the tax year. The day of exit and the day of entry into the country will be treated separately as days of presence in the country; or
c) They are a citizen of the Republic of Albania who, outside its territory, performs duties as an employee or an official of the Albanian government; or
d) They have a shop, professional office, factory, or another place where the individual carries out their activity in the Republic of Albania or has a habitual residence in Albania, except in cases where the individual has a permanent residence abroad for the entire tax year and does not have a permanent residence in Albania; or
e) They have their center of vital interests in Albania, meaning they have significant personal or economic ties to Albania.

A non-resident individual is taxed only on personal income sourced from the Republic of Albania.

2. CATEGORIES OF PERSONAL INCOME

The three taxable categories of personal income are:

  • Income from employment
  • Net business income
  • Investment income

For these three categories of personal income, which form the taxable base, tax rates apply separately to each category. Employment income is taxed progressively at 13% and 23%; net business income is taxed progressively at 15% and 23%; investment income is taxed at 8% on dividends and profit distributions and 15% on other investment income.

3. INCOME NOT SUBJECT TO PERSONAL INCOME TAX

The following types of income are exempt from personal income tax:
a) Income obtained from mandatory social and health insurance schemes;
b) Economic aid from public budgets for individuals with low or no income, as defined by applicable legislation;
c) Income exempted under international agreements ratified by the Albanian Parliament;
d) Financial compensation paid to property owners as a reward for expropriations made by the state for public interest or to former owners for past expropriations;
e) Financial compensation paid to former political prisoners and their heirs;
f) Rewards and prizes granted by state institutions for achievements in science, sports, or culture;
g) Scholarships for students and pupils;
h) Compensation obtained from court decisions, benefits from insurance contracts under the applicable law on insurance and reinsurance activities, and court cost compensations;
i) Income from grants and subsidies in agriculture and livestock funded by the state budget or other sources.

INCOME FROM EMPLOYMENT

Taxable income from employment is taxed at the following progressive rates from January 1, 2025:

Tax Base (Annual) Tax Rate
0 - 2,040,000 ALL 13%
Above 2,040,000 ALL 23%

Employment income includes:

  • Salaries, bonuses, and benefits arising from an employment relationship or similar arrangements, including employee transfer or secondment, regardless of whether these relationships are current, future, or past, where the taxpayer is required to follow the payer’s instructions to receive payment or compensation.
  • Director’s fees, remuneration as a member of a board of directors or other legal entity, and management rewards.
  • Compensation and benefits paid by a company to its partner for work performed for that company.
  • Payments made in cases of job loss or termination of employment relationships.

From January 1, 2024, the following rules apply:
a. If 80% or more of the income earned by a self-employed individual comes directly or indirectly from a single client, this income is considered employment income and is taxed at 13% or 23% according to the tax base.
b. If 90% or more of the total income earned by a self-employed individual comes from fewer than three clients, this income is also considered employment income and taxed at the same progressive rates.
c. If a self-employed individual provides services only to non-resident persons or entities without a permanent establishment in Albania, the income is considered business income, regardless of whether it is invoiced to one or two clients.
d. If employment income is paid to an employee through a non-resident employment agent in Albania, and the total paid amount includes the agent's commission fee, the employment income is considered at least 80% of the total paid amount.

NET TAXABLE INCOME (TAXABLE PROFIT) FROM BUSINESS FOR TRADERS AND SELF-EMPLOYED INDIVIDUALS

Taxable net income (taxable profit) from business for traders and self-employed individuals is taxed at the following progressive rates:

Annual Tax Base Tax Rate
0 – 14,000,000 ALL 15%
Above 14,000,000 ALL 23%

For self-employed individuals earning up to 14 million ALL annually, a 0% tax rate applies until December 31, 2029.
However, if income earned by a self-employed individual is:

  • 80% or more from a single client or
  • 90% or more from fewer than three clients,
    this income is considered employment income and taxed at 13% or 23%, effective January 1, 2024.

If a self-employed individual provides services only to non-residents or entities without a permanent establishment in Albania, the income is considered business income.

INVESTMENT INCOME

From January 1, 2024, investment income is taxed as follows:
a) Dividend income: 8%
b) Other investment income: 15%

Investment income includes:

  • Interest from savings deposits, current accounts, and bonds
  • Capital gains from the sale of company shares or securities
  • Royalties
  • Rental income
  • Gains from virtual assets or cryptocurrency transactions

TAX ON INHERITANCES, GIFTS, AND GAMBLING WINNINGS

Tax rate: 15%

  • This tax applies to both residents and non-residents who receive assets, gifts, or gambling winnings within Albania.
  • Exemptions apply to inheritances or gifts within first and second-degree family members, with some limits on non-family members.

PERSONAL INCOME TAX DECLARATION

Starting from 2025, individuals must file an annual tax return if they meet any of the following criteria:

  • Earn more than 1,200,000 ALL annually from all sources
  • Have more than one employer
  • Earn more than 50,000 ALL annually from untaxed sources

Deadline: March 31, 2025 (for 2024 income). Late filing incurs a 3,000 ALL fine plus interest for unpaid tax obligations.

DEDUCTIONS FROM TAXABLE BASE (EFFECTIVE FROM JANUARY 1, 2025)

  • 48,000 ALL per year per child under 18
  • Up to 100,000 ALL per year for children's education (only for incomes below 1.2 million ALL)

To claim deductions:

  • Proper documentation is required
  • The higher-earning family member must claim the deduction

These deductions apply starting January 1, 2025, and can be claimed in the 2025 tax return (due March 31, 2026).