Double Tax Treaties new compliance procedure

The Ministry of Finance has approved a new Instruction no.11 dated 23 July 2024 on the Implementation of Treaties on Avoidance of the Double Taxation and Prevention of Fiscal Evasion (DTT) which repeals the previous instruction applied for more than 20 years in Albania.

The provisions of the new instruction regulate the criteria and procedures of implementing the provisions of the DTTs in force. Compared to the previous instruction, the new one brings some simplified procedures regarding the application and submission of the supporting documentation to be provided and based on which are granted the benefits according to a specific DTT.

Same as stipulated in the Albanian Constitution, the new instruction clarifies that the provisions of the DTT are part of domestic legislation, and the DTT provisions prevail over the domestic tax legislation.

The tax treatment of a specific transaction covered by a DTT is always done based on the DTT provisions. In addition, whenever the other contracting state, party of a DTT in force with Albania, has signed the multilateral convention (MLI) for the implementation of the measures related with tax agreements for the prevention of base erosion and profit shifting (BEPS), the provisions of the MLI convention are taken into consideration as well. If there are difficulties in interpretation and application of a specific provisions of a DTT, then the Commentaries of the Organization for Economic Cooperation and Development (OECD) or the one of United Nations Organization (UN) are required to be consulted depending on the model used for drafting that specific DTT. The Instruction provides also the model of the DTT used by Albania, however it may vary depending on the negotiation process of a new DTT.

The provisions of a specific DTT are applied by the taxpayers registered in Albania and are controlled by the tax administration. In order to apply the provisions of a specific DTT, the Albanian registered taxpayer should prove by means of documentation the transactions performed and submit relevant documentation to the authorities as per the deadlines specified in the Tax Procedures Law. The new procedure envisaged in the instruction distinct that the procedure to be followed does not mean a request for approval of the DTT, but instead is just the notification of the taxpayer for application of the specific DTT provisions. The Albanian registered taxpayer is responsible for the implementation of both domestic legislation and DTT in concern, and the accuracy of the implementation of the tax legislation remains under the discretion of the tax audit structures of the tax administration. The General Directorate of Taxes should monitor the notifications filed by the taxpayers and classify the risk based on regularity and timely filing of the documentation. The taxpayers classified as "low risk" are notified within 30 days to the Regional Tax Office in the same way as those classified as "high risk". However, for the high-risk taxpayers, the General Directorate of Taxes provides further information related to the findings of non-compliance and instructs for the tax audit to be exercised by the Regional Tax Office. 

The Albanian taxpayer should prove the application of the DTT provisions by filing electronically the following documents: 

• DTT application form (prepared in 3 identical copies, whereby one of them is filed with the Albanian tax authorities)
• Service contracts in the original language prepared, unless the authorities may request the translation in Albanian language or additional written clarifications with regard to the terms and conditions of the contract. If there is no contract signed between parties, the applicant should specify:
  • type of the service
  • duration of service provided
  • method of delivery of the service i.e. remotely or with physical presence (in such case details on the presence of the personnel providing the service should be provided)
  • details of the payments for copyright, trademarks, licenses, etc. in case of mixed supplies
• Tax Residence Certificate of the foreign taxpayer part of the transaction (translated into the Albanian language
• Analytical list including the foreign invoices (including invoice number, date, description) 
• Analytical list including the payments of invoices (including information on the bank, date of payment or details of other forms of settlement/offset agreed between parties)

The DTT application form and the related documentation must be uploaded to the e-tax system not later than the end of the following year in which the provisions of the DTT were implemented. If the e-tax system does not allow the electronic upload of the documentation, or in case there are technical issues, then the taxpayer may submit the required documentation in hard copy accompanied by a written request and a digital storage medium (CD) to the General Directorate of Taxes. Failure to upload the data and related documentation within the deadline is subject to a penalty of ALL 10,000 which is applied for each month of delay and for a period up to 24 months. If the documentation is not submitted even after the elapse of 24 months, then the taxpayer losses the right of implementing and benefiting from the DTT provisions and should pay the outstanding tax or the difference between the tax due and the reduced rate paid (if that was the case). In addition, the taxpayer should pay also the penalties and interest for late payment of the tax due.

Albanian registered taxpayers having a Unique Taxpayer Identification Number (UTIN/NIPT) issued by the National Business Center may apply to obtain a Tax Residence Certificate in the governmental portal of electronic services e-Albania. Individuals being tax residents in Albania should apply with the Genera Directorate of Taxes by submitting in hard copy the following documents:

• A written request specifying the tax period the certificate is needed
• Copy of the Annual Personal Income Tax Return (if the conditions for completion of the return are met)
• Copy of the employment contract (if being employed)
• Copy of the ownership of the property where the individual is living or rental contract
• Certification issued by the State Police evidencing the days of entry and exit from Albania proving that the individual has been present in Albania for more than 183 days

Documentation proving that the individual is a state official in an Albanian embassy or consular office or other institution as a representative of Albanian state. 

The instruction provides for new format of the DTT application form, which is more detailed and comprehensive compared to the previous one. The use of the new DTT template becomes mandatory from the date of entry into force of the new instruction. Differently from the previous practice, the DTT form may be completed only by the payer of the income if the beneficiary of the income does not agree to complete the beneficiary statement included in the DTT template. However, in any case the Tax Residence Certificate of the beneficiary of the income should be provided together with other supporting documents.

The format of the Tax Residence Certificate issued to individuals or entities being tax residents in Albania remains the same with no substantial changes.

Instruction no. 11 dated 23.07.2024 is published in the Official Gazette no. 133/2024 and has entered into force on 02.08.2024. 

For information

Sonila Selmani
Senior Manager, Tax
Tel: +355 (4) 2274 524