Withholding tax and Double Tax Treaties applications

The new Law no. 29/2023 "On Income Tax" dated 30 March 2023, effective starting from 1 January 2024, introduces important changes in the way withholding tax (WHT) is levied. Additionally, some changes have been introduced in the Law on Tax Procedures which relate to the Double Tax Treaties (DTT) application procedures, deadlines and applicable penalties pertaining to them.

One of the most important changes introduced by the new Law on Income Tax relates to the fact that it differentiates between payments made to registered persons (i.e. local entities) and payments made to non-registered persons (individuals or foreign entities). The following payments are subject to WHT when they are paid to non-registered persons:

• Dividends 
• Interests, unless the interest paid to a foreign entity relates to Eurobond interest issued by Albania 
• Royalties 
• Gambling winnings 
• Rent payments 
• Payment for services, unless services were physically received abroad 
• Insurance services
• Board membership payments
• Payments for construction, installation and supervision
• Payments made to actors, athletes and artists, including intermediaries

The above list remains somewhat the same compared to the previous Law, however now based on the new provisions, entities are to withhold tax even for some payments made to other entities registered in Albania (provided that these entities are not exempt for the purposes of this Law). These payments include:

• Dividend payments, provided that they are not subject to the participation exemption; 
• Interest payments, unless the interest is being paid to a bank or financial Institution; 
• Royalties; 
• Gambling winnings;

The new Law provides a clearer definition of the WHT Agent. Depending on the type of transaction, the Agent is vested with the responsibility of withholding, reporting, and paying tax on behalf of the recipient of the income.

Another important change brought by the new Law relates to the payment of services provided by individuals which are not registered for tax purposes which are subject to 15% tax rate and are to be declared now through the payroll declarations.

WHT rates remain unchanged. Standard WHT at 15% rate will continue to apply for any type of payment subject to WHT and the reduced WHT at 8% rate will apply to dividends only.

WHT tax return format during 2024 will be prepared based on the same format used in 2023, while the new WHT return format as per the new legal provisions is expected to be adopted from January 2025 and onwards.

Changes to the Law on Tax Procedures which affect the DTT application process have been also introduced and became effective starting from 1 January 2024. Previously, entities had the opportunity to submit DTT applications within 2 years from the date of payment of a certain invoice or income. With the changes introduced, the DTT applications should be submitted within the next year from the year of payment, regardless of when the payment has been made in the start or the end of the previous year. Therefore, DTT application for a payment made during 2024 must be submitted for approval with the tax authorities not later than 31 December 2025.

Failure to submit the DTT application within the next calendar year will be subject to a penalty of ALL 10,000 for every month of delay, up to a period of 24 months. After 24 months, entities lose the right to benefit from the DTT provisions.

Within the first half of 2024, it is expected that the Minister of Finance issue an instruction on the list of the documentation supporting any DTT application filed for approval with the tax authorities.

For information

Endri Lito 
Manager, Tax
Tel: +355 (4) 2274 524