Double Tax Treaties (DTTs) are agreements between two countries designed to prevent individuals and businesses from being taxed twice on the same income. For Albania, these treaties are important in international trade and investment as they provide tax relief and promote economic cooperation.
Albania’s Approach to Double Taxation
Albania has established a network of Double Tax Treaties with numerous countries worldwide.
As of 2024, Albania has signed 46 DTTs, of which 42 are already in force. These agreements allocate taxing rights between Albania and its treaty partners, ensuring that income is taxed only once, either in the source country or the country of residence.
Key Features of Albania’s Double Tax Treaties
- Elimination of Double Taxation: DTTs typically allow taxpayers to claim a credit for taxes paid in the source country against their tax liability in Albania, effectively reducing the overall tax burden.
- Reduced Withholding Tax Rates: These treaties often lower withholding tax rates on dividends, interest, and royalties, making cross-border transactions more attractive. For instance, the DTT with the Netherlands specifies that the withholding tax on dividends is 0% if the foreign shareholders own at least 50% of the share capital, 5% if the shareholders own 25% of the share capital, and 15% in other cases.
- Dispute Resolution Mechanisms: DTTs usually include provisions for resolving disputes between tax authorities, providing a clear process for addressing tax-related conflicts.
- Exchange of Information: To combat tax evasion, DTTs facilitate the exchange of tax information between countries, ensuring transparency and compliance.
Benefits of Double Tax Treaties for Albania
- Attracting Foreign Investment: By offering favourable tax conditions, Albania becomes a more appealing destination for foreign investors.
- Enhancing Economic Relations: DTTs strengthen economic ties between Albania and its treaty partners, promoting trade and investment flows.
- Protecting Against Tax Disputes: Clear tax rules and dispute resolution mechanisms reduce the risk of tax-related conflicts, providing certainty for businesses and individuals.
Recent Developments
As of January 2025, Albania continues to expand its network of Double Tax Treaties (DTTs), negotiating new agreements and updating existing ones to align with international tax standards.
Notably, changes to the law regarding DTT application procedures, deadlines, and penalties were introduced, effective from January 1, 2024. Previously, entities could submit DTT applications within two years from the date of payment for a particular invoice or income. With the recent changes, applications must now be submitted within the same calendar year of payment.
For example, DTT applications for payments made in 2024 must be submitted by December 31, 2025. Failure to meet this deadline will result in a penalty of ALL 10,000 for each month of delay, up to a maximum of 24 months. After 24 months, entities lose the right to benefit from the DTT provisions.
Conclusion
Double Tax Treaties have an impact on Albania’s tax system, offering significant advantages to taxpayers and the economy. Knowing these treaties allows individuals and businesses to manage their tax obligations and benefit from the favourable conditions they provide.
