On 1 January 2019, Albania’s Income Tax Act was amended with respect to imposition of new rules on the indirect transfer of ownership of assets situated in Albania.
The new rules deal with the taxation of gains arising from such indirect asset transfers.
An indirect transfer occurs when an Albanian company owning assets in Albania decides to sell said assets to a third party, but such third party merely purchases the shares/quota in the Albanian company holding the assets or in any of its direct or indirect shareholders.
The new provisions of the Albanian Income Tax Act states as follows:
If during a tax period the direct and/or indirect ownership of a legal entity’s share capital, quotas, or voting rights changes by more than 20% [….], the legal entity is treated as if it was selling a proportionate share of all of its assets immediately before the change. The legal person is treated as a) the recipient of the proceeds of the sale, which is equal to the proportionate share of the market value of the asset at that time; and b) re-acquiring of the asset for the same value. Paragraph 1 applies in cases when the legal entity has, for the preceding three years, realized an average turnover of ALL 500 million. [approx. 4.1m euro].
Significance.
The new provisions further stipulate that any increase in value of the assets held by an Albanian company will be subject to taxation. A company affected by such a taxable change of ownership must give Albanian tax notice within 45 days.
Notification not only mandates disclosure as to terms of a transaction, the sale proceeds, etc., but also whether there is any direct or indirect change of ownership in excess of 10% (notwithstanding such a low threshold is not taxable).
Henceforth, gains on indirect transfers of assets situated in Albania are now subject to Albanian taxation by either taxing the Albanian company holding the asset itself, or from the gain accrued from the transferred shares.