Business Income Tax
Residency – Personal Income Tax from Business
Business Income
Calculation of Taxable Profit from Business According to Documents
Expenses for the purpose of:
Generating profit and in the interest of the business
Maintaining and securing income.
Expenses are documented by the taxpayer and are not subject to any limitation prescribed by this law
Rules for determining taxable profit according to Chapter IV for corporate tax.
Allowed Deductions – Business Income
An individual is both employed (employment income) and registered as a sole proprietor (business income)
How often can they request personal deductions?
If only once, should personal deductions be applied in DIVA or in the business income declaration?
Can full personal deductions for the year be applied even if they did not work 12 months or were not active 12 months?
Where should deductions for private pension funds be applied: DIVA or business income declaration?
Where should deductions for children under 18 years be applied: DIVA or business income declaration?
Where should deductions for children's education be applied: DIVA or business income declaration?
For these and other questions, please contact us and we will assist you with any clarification.
Special Regime – Presumed Expenses
Tax Rate
Traders, self-employed individuals, and entities with gross income up to 14 million ALL per year will benefit from a 0% personal income tax rate, applied until December 31, 2029. This 0% tax rate does not apply to self-employed individuals and entities providing professional services. The analytical list of professional services will be determined by a Council of Ministers Decision (VKM).
| Traders | Gross income over 14 million ALL per year | From 1.1.2024
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| Self-Employed / Entities | a. Gross income over 14 million ALL per year, or b. Offer professional services (list via VKM, regardless of income) |
| Traders | Gross income up to 14 million ALL per year | From 1.1.2024 to 31.12.2029 0% |
| Self-Employed / Entities | a. Gross income up to 14 million ALL per year, or b. Do not offer professional services (list via VKM) |
Transition from Self-Employed to “Employee”
Declaration in the business income declaration by the self-employed.
Does not apply when 100% of income comes from non-residents or entities without a permanent establishment in Albania.
Comparison of Personal Income Tax Schemes for Business
Net Taxable Base
Self-employed / Professional services
Income: 9,000,000 ALL
Expenses: 4,000,000 ALL
Method: Documented expenses
Clients: Many
Status: Married with one child
Income: 9,000,000 ALL
Expenses: – 4,000,000 ALL
Personal deduction: – 360,000 ALL
Child deduction: – 48,000 ALL
Taxable Base: 4,592,000 ALL
Tax: 4,592,000 * 15% = 688,800 ALL
Net Presumed Taxable Base
Self-employed / Professional services
Income: 9,000,000 ALL
Expenses: 4,000,000 ALL
Method: Presumed expenses
Clients: Many
Status: Married with one child
Income: 9,000,000 ALL
Expenses: – 2,700,000 ALL
Personal deduction: – 360,000 ALL
Child deduction: – 0 ALL
Taxable Base: 5,940,000 ALL
Tax: 5,940,000 * 15% = 891,000 ALL
Gross Taxable Base
Self-employed / Professional services
Income: 9,000,000 ALL
Expenses: 4,000,000 ALL
Method: Documented expenses
Clients: One
Status: Married with one child
Income: 9,000,000 ALL
Expenses: – 0 ALL
Personal deduction: – 360,000 ALL
Child deduction: – 48,000 ALL
Taxable Base: 8,592,000 ALL
Tax: (8,592,000 – 2,040,000) * 23% + 2,040,000 * 13% = 1,772,160 ALL
Unknown Expenses
Costs of purchasing and improving land and construction sites.
Costs of purchase, improvement, renovation, and reconstruction of depreciable assets.
Depreciation expenses according to accounting rules.
Interest paid exceeding the 12-month average interest rate published by the Bank of Albania (except loans from microcredit institutions).
Fines and penalties.
Expenses for creating or increasing provisions, reserves, or other special funds.
Depreciation
Depreciation according to the accounting plan is deductible for personal income tax purposes.
Depreciation for fixed assets not used in business activity is not deductible.
Inventory
Inventory for business use must be recorded and valued according to accounting rules.
Excess or shortage of inventory is recognized as income or expense only if properly documented.
Bad Debt
Uncollectible receivables can be deducted only if written off in accounting records.
Provisioning for bad debts is limited to actual losses documented.
Prepayments
Prepaid expenses are deductible in the period in which they relate.
Advance payments for goods or services must be documented and matched with the period of benefit.
Carryforward of Losses
Losses from business activity can be carried forward for up to 5 years.
Only losses documented in accounting records and approved by tax authorities are allowed.
Business Income Declaration
Taxpayers must submit an annual business income declaration.
The declaration includes all income, expenses, deductions, and credits for the fiscal year.
It must be filed electronically through the tax authority portal.
Credit for Overpaid Tax
Any overpaid personal income tax can be carried forward as a credit against future tax liabilities.
Taxpayers can request a refund if the credit exceeds future liabilities.
Documentation – Personal Income Tax
All business income and expenses must be supported by proper accounting records and invoices.
Receipts, contracts, and other relevant documents must be retained for at least 5 years.
Reporting Obligations – Personal Income
Annual declaration of business income and any related tax payments.
Monthly or quarterly reporting may be required for withholding taxes, VAT, or other obligations.
Compliance with deadlines ensures avoidance of fines and interest charges.