Albania: Changes to interest deductibility rules for corporate income tax purposes
Changes intended to align the rules in Albania with those recommended by the OECD
Changes intended to align the rules in Albania with those recommended by the OECD
The new income tax law—Law no. 29/2023 (dated 30 March 2023 and effective 1 January 2024)—includes changes to the deductibility of interest expense for corporate income tax purposes:
- Repeal of the existing thin capitalization rules
- Extension of interest limitation rules to debt received from all parties (related or unrelated)
The changes are intended to align the interest limitation rules in Albania with those recommended by the OECD in its 2015 BEPS Action 4 report.
The following new rules apply to the deductibility of interest for corporate income tax purposes:
- Average interest rate limitations: Interest as a result of loan or debt contracts with conditions that exceeds the 12-month average annual interest rate of the loans set by commercial banks, as officially published by the Bank of Albania, will not be regarded as deductible for any interest surpassing this average.
- Interest limitation rules: The interest that is deductible against the income from the activity in the tax year is limited to 30% of the company’s taxable earnings before interest income, tax, depreciation and amortization (EBITDA), and the limitation applies to interest expense arising on all loans and debt that a company has, regardless of whether the provider is a related or an unrelated party. Any deductible interest that is disallowed may be carried over and be deducted in the next five tax periods. Interest carried forward is not affected by changes of ownership of the company, which is another change compared to current law. The interest limitation rules are not applicable to banks, financial institutions and insurance institutions.
Read a November 2023 report prepared by the KPMG member firm in Albania
For more information on the new income tax law, read TaxNewsFlash:
- Changes to tax depreciation and inventory valuation methods
- Changes to expenses considered non-deductible for corporate income tax purposes
- Changes to corporate income tax
- Changes to taxation of individuals’ business income
- Special provisions and rules on taxation of investment income realized by individuals
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