Self-employed "obligation" to self-declaration - Draft law/ Rules for not being taxed as employees. Fiscal relief for some sectors
Self-employed people in Albania, whose income is provided by fewer than 3 clients, will be offered the opportunity to declare to the regional tax directorate in order to verify whether this income truly originates from business relationships or is income that, under normal conditions, would originate from employment relationships, but, in order to avoid taxes and reduce tax liabilities, the employee has been removed from the payroll and registered as a business.
The Ministry of Finance has drafted a draft law that brings changes to the law on withholding income tax, as during the practical implementation of this rule, complaints have been noted from individuals who exercise genuine business activity, despite the concentration of income on one or two clients.
Referring to the relevant relationship, in order to create a fairer tax system, this draft law provides for the definition of the self-employed status declaration, which lists additional criteria, so that, regardless of whether a natural person may have 80% of their income from a single client, or 90% from two clients, but at the same time the natural person exercises a genuine business relationship, then the natural person should not be penalized by this anti-avoidance rule, but further assessments should be made regarding entities that are actually tax evaders.
The criteria provided for in the declaration are mainly related to: the type of service and the nature of the employment relationship; the behavior of the self-employed person in the work environment; control over the work product and the factors of its generation, which will be self-declared by the self-employed person in the declaration of self-employment status.
Meanwhile, in continuation of the efforts to create an incentive tax framework in the field of sports, art and sponsorships, the draft law also provides for the addition of several fiscal incentives, which aim to encourage sponsorships in these fields, as well as the creation of stimulating conditions for foreign artists who develop activities in the territory of the Republic of Albania.
In this context, it is proposed: expanding the category of entities that benefit from recognition as a deductible expense to the extent of three times the sponsored amount, where the sponsored amount is recognized up to 5% of pre-tax profit. The categories that will be included, in addition to sports teams, will also include sports federations, Olympic committees, as well as high-level athletes who have won titles for merit in sports. In order to encourage the attraction of foreign artists to the country, it is proposed to exempt artists who are not citizens of the Republic of Albania from tax residency for a period of 24 months.
Also, this draft law proposes that, from the current 3%, deductible expenses related to research and development activities, aimed at obtaining new knowledge in the field of science and technology, as well as their application through innovation in products or services, be recognized up to 5% of pre-tax profit. This proposal aims to encourage the private sector to invest in research and development (R&D) through cooperation with scientific institutions and research organizations, making sponsorship in this field more attractive.
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