Tax Residency Criteria in Albania
In Albania, the determination of tax residency is governed by the Law on Income Tax (LIT). According to Article 2 of the LIT, an individual is considered a tax resident if they meet any of the following criteria:
- Physical presence in Albania for more than 183 days in a calendar year.
- Having a permanent home in Albania.
- Having the center of vital interests in Albania.
For entities, tax residency is determined based on their place of incorporation or management and control.
Impact of International Tax Treaties
Albania has entered into several double taxation agreements (DTAs) with other countries. These DTAs may modify or provide exceptions to the standard criteria for tax residency as defined in domestic law.
One of the key provisions in DTAs that relate to tax residency is the "tie-breaker" rule. This rule is used to determine the tax residency of an individual who is considered a resident of both Albania and the other treaty country under their respective domestic laws.
For example, the Albania-Italy DTA provides that an individual who is considered a resident of both Albania and Italy under their respective domestic laws will be deemed a resident of the country where they have a permanent home. If the individual has a permanent home in both countries, they will be deemed a resident of the country where they have the closest personal and economic ties.
Rationale and Objectives
The criteria for determining tax residency in Albania are designed to ensure that individuals and entities with significant ties to the country are subject to taxation on their worldwide income. This helps to prevent tax evasion and ensures that Albania receives its fair share of tax revenue.
The DTAs that Albania has entered into are intended to prevent double taxation and promote cross-border trade and investment. The tie-breaker rules in these DTAs help to ensure that individuals and entities are not subject to double taxation on their income.
If you are an individual or entity considering establishing tax residency in Albania, it is important to carefully review the criteria outlined above and consult with a tax professional to ensure that you are aware of any potential implications under both Albanian domestic law and any applicable DTAs.
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