The new Law no. 29/2023 dated “On Income Tax” is introducing special provisions and rules on taxation of investment income realized by individuals. In the following issue, KPMG in Albania has summarized the main changes to the taxation of investment income to be effective starting from 1 January 2024.
Taxable investment income
Based on the provisions of the new Law on Income Tax, the following categories of income shall be considered as investment income (to the extent they are not categorized as business income):
- Interest, dividends and royalties
- Capital gains deriving from the alienation of financial instruments and other securities
- Capital gains deriving from the investment made in a life insurance plan
- Return from investment made in a private pension scheme
- Capital gains deriving from the alienation of immovable property
- Income from the rental of immovable property
- Income from mining of virtual assets
- Income deriving from transactions with virtual assets
Any individual earning income from one or more categories of investments as listed above is subject to 15% personal income tax, except from the income deriving from dividends which is taxed at 8% rate. In case family members make joint investment, the investment income is reportable and consequently the tax is paid by the family member having the highest annual taxable income in the year of reporting.
Exempt investment income
Besides the taxable investment income, the new Law specifies the following categories of investment income to be considered as exempt from taxation:
- Income from the alienation of movable properties, except for the alienation of vehicles, airplanes and ships in case they are sold within 12 months from the moment of purchase.
- Income from the transfer of the right of ownership of agricultural land when the legal successor continues to use the land for the same purpose and activity.
- Interest and capital gain income deriving from Eurobonds issued by the Republic of Albania when the beneficiary is a non-resident natural person.
Taxation of financial instruments and securities
Taxable income deriving from the alienation of financial securities or instruments is determined as the difference between the sale and purchase price of the alienated assets. For taxation purposes under the alienation of the securities is included also the contribution in kind invested as initial capital or capital increase. Any incurred expenses which are directly related with the purchase and sale of financial instruments or securities are included in the purchase and sale price and cannot be added or subtracted respectively.
For financial instruments or securities which are listed in a stock exchange, the purchase and sale price is determined using the trading documentation of the day when the securities are sold. In case financial instruments or securities are acquired by inheritance or donation, the acquisition price for tax purposes is the taxable value of the securities or financial instruments donated or inherited at the time of acquisition.
If the taxpayer incurs a loss from the alienation of a particular financial instrument or security, such la oss can be offset against taxable investment income from other financial instruments or securities during the same tax year.
Taxation of virtual assets
Virtual assets are defined by the Law as digital representation of a value that can be deposited, traded or transferred in digital form, and that can be used for payment or investment purposes, including but not limited to cryptocurrencies. This definition does not include the digital representation of currencies issued or guaranteed by central banks or a public authority.
Taxable income deriving from the alienation of virtual assets is determined as a difference between sale value and purchase value of the virtual assets. If in a certain year the taxpayer incurs a loss position from the transactions with virtual assets, then the taxable income is considered to be zero.
Taxation of capital gains deriving from the alienation of immovable property
The capital gains deriving from the alienation/sale of immovable properties is determined as a difference between sale and acquisition price of the property. The tax is applied on capital gains realized from such transactions and it is due by the seller before the change of the ownership is registered in the immovable property register.
When the alienated immovable property is acquired by inheritance or donation, or in cased of waiver of ownership, the purchase price is equal to the taxable value calculated based on the regulations in force at the time the property is donated or inherited. The new Law provides for detailed taxation rules for the inherited or donated property (whether movable, immovable or in cash). In addition, specific exemptions apply when the inheritance or donation is done between closed family members, legal inheritance regulated as per the Albanian Civil Code or when the donated or inherited immovable/movable properties have a value of less than ALL 5 million or ALL 1 million respectively.
For the purposes of taxation, the sale price of an immovable property is estimated to be the highest between the sale price specified in the contract and the reference price as determined by the legal acts in force applicable for immovable properties. In case the taxpayer results in a loss position from the sale of the immovable property, the taxable income of such transaction is considered to be zero.
Taxation of return from investments in private pension schemes
When a member of a pension fund fulfils the condition for benefiting the private pension, he or she is entitled to choose between receiving an immediate payment of the value of the assets in his/her pension fund account or receive monthly periodic payments corresponding to this value. Payments received by the member of the pension fund on a monthly basis are taxed only for the capital gain realized from the investment in the pension fund. While earlier withdrawals (in the form of a lump sum amount) are taxed for the total value of withdrawn assets, including contributions.
In case individual savings that have been previously taxed are invested in a pension fund, the tax calculated on capital gains realized by the investment is reduced by 10% of the tax liability to be paid.
The personal income tax on investment income can be (i) withheld by the payer of the income when the latter is a registered taxpayer, (ii) paid at the moment of the transaction by the beneficiary of the income as regulated by the specific legislation (e.g. transfer of ownership of immovable property between individuals) or in absence of such situations, (iii) the tax becomes due with the submission of the Annual Personal Income Tax Return. In any case, provided that the individual is subject to completion and submission of the Annual Personal Income Tax Return, he/she would be obliged to report therein any investment income received during the tax year and the respective tax liability paid or to be paid.
Annual Personal Income Tax Return is due for individuals realizing an annual gross income from all sources which exceeds ALL 1,200,000 or for individuals who have earned personal income exceeding ALL 50,000 and which is not taxed during the year. The deadline for submission of the Annual Personal Income Tax return is 31 March of the following year (previously 30 April).