Tax Guide for US Expats Living and Working in Albania
Who Is Liable For Income Taxes in Albania
Individuals who are resident in Albania are subject to tax on their worldwide income. Nonresidents are subject to tax on income derived from Albania sources only.
The following individuals are considered resident for tax purposes in Albania:
- Individuals who have a permanent residence, family or vital interests in Albania.
- Albanian citizens serving in a consular, diplomatic or similar position outside Albania.
- Individuals who reside in Albania consecutively or non-consecutively for at least 183 days during a tax year, regardless of their nationality or country of vital interests. The calculation of the residence period in Albania includes all of the days of physical presence, including holidays.
Residents of the countries with which Albania has entered into double tax treaties regarding income and capital may benefit from the provisions in such treaties.
Income subject to tax. Individuals are subject to tax on the following types of income:
- Employment income
- Self-employment income
- Dividends
- Interest from bank deposits and securities
- Royalties
- Income from rentals and leases of real property and loans
- Income derived from transfers of ownership rights over immovable property
- Income derived from transfers of quotas and shares
- Income derived from gambling and other games of chance
- Other income
These categories of income are described below.
Employment income. Employed persons are subject to income tax on remuneration and all benefits received from employment.
Employment income includes the following:
- Salaries, wages, allowances, bonuses, and other remuneration and benefits granted for services rendered in a public office or in private employment
- Directors’ fees
Self-employment income. Self-employed individuals must register as individuals with the Commercial Register for tax purposes. Income derived by individuals from independent professional services and self-employment activities that generate more than ALL 2 million are subject to tax at a rate of 10%. The tax base equals the difference between total gross income and total deductible expenses.
Small businesses that generate annual turnover of up to ALL 2 million are subject to a fixed tax obligation that varies according to the type of business activity and the location of the business.
The following table provides the annual small business tax rates for businesses located in the municipalities of Durres and Tirana.
Type of activity Tax (ALL)
Retail sales 45,000
Wholesale 45,000
Production 33,000
Services 25,000
Independent professional
services and self-employment 38,000
Mobile sales (sales by
ambulatory merchants) 8,000
Dividends. Dividends received by individual shareholders or partners in commercial companies are subject to tax.
Amounts received for decreases in the total of participation quotas or capital withdrawals by partners or owners of initial capital are considered dividends received and are taxed to the extent that the amounts are paid out of the company’s capitalized profits and not from contributions in cash or in kind by the owners.
Interest from bank deposits or securities. Bank interest and interest on securities, other than interest generated from government treasury bills or other securities, issued before the law “On income tax” entered into force in 1999, are included in taxable income.
Royalties. Royalties (intellectual ownership payments) are considered to be income generated from the use of, or the right to use, literature, artistic or scientific works, including movies, tapes, radio records, patents, trademarks, sketches or models, designs, secret formulas, technological processes and industrial, commercial or scientific information.
Income from rentals and leases of real property and loans. Income from rentals and leases of real property and loans includes any periodic compensation in cash or in kind that an individual generates from the leasing of real estate and lending of replaceable items (for example, funds).
Income derived from transfers of ownership rights over immovable property. The taxation of income derived from transfers of ownership rights over immovable property is discussed in Capital gains. Income derived from transfers of quotas or shares . The taxation of income derived from transfers of participation quotas or capital shares is discussed in Capital gains.
Income derived from gambling and other games of chance. The payer of income from gambling and other games of chance must withhold a 10% tax and remit it to the tax authorities within 24 hours after making the payment.
Other income. Other forms of income include all types of income that are not identified in the categories mentioned above. This category includes the following:
- Income from sponsoring (for example, individuals not registered with tax bodies receive sponsoring from different sources and use the sponsorship for artistic or sports activities).
- Income from professional activities, including teaching, training and publishing articles in newspapers if the beneficiary is not registered with tax bodies and if such activities are of a temporary or secondary character.
- Income realized from collecting and selling metals.
- Cash contributions to share capital. Such contributions are taxable if they have not yet been taxed or if no sufficient evidence exists that they originate from sources that are excluded from the scope of Albanian taxation or that they are exempt from tax for other reasons.
Exempt income. The following types of income are exempt from personal income tax:
- Income received from obligatory and voluntary schemes for life, social and health insurance and allowances for families or individuals with no or low income.
- Awards up to the limit specified in the law, regardless of the source of the payment.
- Allowances received for diseases or disasters, up to 20% of the annual employment income earned by the recipient of the allowances.
- Benefits in cash or in kind granted to former landowners as remuneration for the dispossession required by the government for the public interest. This exemption must be proven by legal documentation explaining the nature of the income.
- Compensation for damages received from insurance companies.
- Income in kind, such as food (antidotal), received from businesses that are allowed to pay such income under the law.
- Income excluded by international agreements approved by the Albanian parliament.
- Indemnities received by former political prisoners.
Taxation of employer-provided stock options. No specific rules in Albania govern the tax treatment of employer-provided stock options. Stock options are subject to personal income tax at the moment of exercise.
Capital gains
Transfers of ownership rights over immovable property. Capital gains derived from disposals of real estate are subject to tax. The tax base equals the amount by which the sale price exceeds the acquisition cost. For real estate transfers, the sale price taken into account may not be less than the “reference price” for such property. For this purpose, the “reference price” is the objective value per meter in the relevant area, as indicated in the reference table published by the Albanian Institute of Statistics for the main Albanian cities.
Transfers of quotas or shares. Capital gains derived from transfers of participation quotas or capital shares include income from sales of quotas owned by partners in businesses or partnerships, income from sales of shares and income from sales or liquidations of businesses. The tax base is equal to the following:
- Shares: difference between the sales value of the shares and nominal value or the purchase value
- Capital participation quotas: difference between the sales value and nominal value or the purchase value
- Liquidation: difference between the sales value or liquidation value of a business and book value
Capital losses. Capital losses are not deductible for tax purposes.
Deductible expenses. In general, the gross amount of income is subject to tax and deductions do not apply.
Other types of income. Albanian resident entities, government institutions and other specified entities must withhold a 10% tax from all other types of income. This tax is considered to be a final tax. For a discussion of the types of income subject to tax in Albania, see Income subject to tax. An individual must file a personal income tax return for any income that has not been taxed at source, including self-employment income, income from rentals and leases of real property and loans, royalties and foreign-source income.
B. Other taxes
Annual Real Estate Tax. Annual Real Estate Tax (ARET) is imposed annually on all completed buildings based on the area in square meters of the building for each floor of the building above and below the ground. The annual tax ranges from ALL 5 to ALL 200 per square meter, depending on the municipality where the property is located. The annual tax is ALL 200 per square meter for buildings located in the municipalities of Durres and Tirana.
Tax on hotel accommodation. The tax on hotel accommodation equals 5% of the accommodation price and is payable in the municipality or the commune by the fifth day of the following month.
Annual registration tax on vehicles. Annual registration tax on vehicles is levied at a rate of ALL 600 to ALL 8,000 per year.
Tax on environment and waste control. The tax on environment and waste disposal is determined at the municipality level. It is payable by individuals and legal entities residing or performing economic activity in the municipality.
C. Social security
Employers and employees contribute to a social security fund a percentage over the calculated monthly salary. The total contribution is 27.9%, of which 16.7% is paid by the employer, and 11.2% is paid by the employee. The contribution consists of a social security contribution of 24.5% and a health security contribution of 3.4%. The contribution is calculated on the monthly salary, from a minimum amount of ALL 18,000 to a maximum amount of ALL 84,100. The contribution must be paid to the tax authorities by the 20th day of the following month.
Self-employed persons must pay a contribution of 30% calculated on the amount exceeding the minimum amount of salary, which is ALL 16,820.
To learn more about the history, culture, economy and other information about Albania
We have been preparing US income tax returns for US Citizens and permanent residents living in Albania for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Albania and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Albania, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Albania.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email