R. One of the most common problems in construction project audits is the time of sale by investors avoiding tax obligations and only paying personal income tax in the amount of 10% of their income from the sale. Meanwhile, considering this a common abuse point, the tax administration issued a circular to all local tax offices to register them as active taxpayers. Below is the document from 2003, not yet valid but the problem and the solution is the same.

1. Taxpayers in the “Investors” category in construction will be registered as VAT and Profit Tax taxpayers. In fact, this category of taxpayers will be subject to income tax since the sale of residential buildings is exempt from VAT. It is up to investors to choose their status, that is, whether they create a company and register with the business registry or register with the courts as a private business individual. Regardless of their form of registration, in tax terms they will be VAT taxpayers (from which they are exempt) and income tax.

In the event that an investor or a group of investors, identified and recognized by the Tax Agency, wishes to register, the taxpayer or group of taxpayers must grant the taxpayer an authorization in accordance with article 12 “Tax Representative” of the Law “On Procedures prosecutors in the Republic of Albania”. To avoid delays and abuses, in all cases, the investor or group of investors (contracted parties) will be obliged to register for tax purposes in the same Local Tax Office as the company that declares them as investors, and all their exercise. with this office.

2. During tax periods, the amount of income tax payable by investors must be carefully monitored. To do this, they must take into account the available area of ​​the contracts and the profit obtained from the sale of apartments, that is, the difference between the cost and the sale price. Minimum fiscal limits have already been established for these two elements, that is, average cost and average sale price.

B. Another problem that appears in audits of residential construction activities is the timing of the provision of technical services by non-resident specialists. Several contractors have received responses regarding this specific case. Below we present the answer to a similar case, in which the foreign specialist is resident in Italy.

If the “Double Taxation Agreement” is in force in your countries of residence, the provisions of this agreement will apply in cases of provision of technical services performed by contractors or non-resident companies. The first condition to be met within the framework of this agreement is that the company that provides the technical service, etc. must be resident in the country with which the agreement has been formalized. In such a case, the provisions of the agreement explain the tax rights of each country. Therefore, business income is taxed in the country of residence, except when the company conducts business in the other country through a permanent office, and only income attributed to this office/branch can be taxed in Albania.

For the specific case and in view of the current agreement with Italy, we explain below:

To avoid taxation of Italian companies that provide project services for the benefit of your company (resident in Albania), you must provide evidence and documents to confirm that the companies that provide you with such services are resident in Italy (for example, certificates issued by the Italian tax authorities). You must provide proof that the service is performed entirely in Italy, that is, that the Italian companies have not had a permanent office/branch in Albania as specified in the Agreement and the Law “On Income Tax” and, in Consequently, they have not been required to pay taxes in Albania on income attributed to this office.

Based on national legislation and the Agreement, for tax purposes, the Albanian tax administration is entitled to make corrections to these payments when they are made between related persons and when they have been artificially increased to avoid tax on their part. This means that, in the case of transactions between related parties, the tax administration has the right not to fully or partially recognize as deductible costs the payments that your company has made for the benefit of Italian companies.

Another frequent problem is the treatment of some cases in terms of obligations in the construction phase and tax on profits in the construction of residential buildings and commercial premises in them for personal reasons by investors or owners at the time of the sale.

1. At the time of construction, the owner or investor must meet the following criteria:
– If the owner or investor has entered into a contract with a contractor for the construction of a residential building for personal purposes, the construction company in the role of only the contractor carries out the work to completion. In accordance with the instruction of the General Directorate of Taxes, a minimum VAT is applied to all housing construction projects per 1m2 of construction surface at the value of the respective period in the final inventory. This minimum VAT must be paid by the holder of the construction permit and subsequent use. This VAT on construction is in accordance with the tables by area, available at the Tax Agency

– In the event that taxpayers have failed to comply with the VAT and income tax parameters for a certain moment of construction, the Tax Administrations must require the respective company to pay the difference between the minimum applicable VAT/m2 and the VAT declared up to that moment, as well as the respective profit. tax, in accordance with the instructions issued by the General Tax Directorate. If the owner declares that the final part of the work is carried out by him or a third party, while the construction company has not declared any work executed, the owners must pay the Treasury as withholding the difference between the minimum applicable VAT/m2 and VAT declared so far. If another contractor takes over the work, that contractor must pay the difference of VAT and income tax for the current construction period, according to the parameters of the construction zones.

The following procedures apply with respect to tax at the time of sale:

2. At the time of the sale of the property by the investor or owner, it is required that:
– In the event that investors are registered with the Tax Agency as such, it is their legal right to request the corresponding payment for income tax on the sale of the residential building or commercial premises in it. However, the obligation of investors to register residential buildings and commercial premises in them arises only when they carry out the economic activity of selling residential buildings.
– In the event that investors have a contract with contractors for the construction of their personal residential buildings, the contractor company in its exclusive capacity as contractors must pay the respective obligations of VAT and income tax in the construction stage.
– If the construction and use permit is in the name of owners who are also investors, they are responsible for the obligations that arise (income tax) after the construction project is finished and ready to be registered with the Office of Real Estate Registry.

Below we present some cases related to the position of investors or owners at the time of registering a residential building in the Real Estate Registry.

Case 1: When the investors (or group of investors) or landowners are not selling any m² of the building or commercial space in it:
– In relation to the tax on profits on the sale, the Treasury will require investors and owners to present a certified document that proves that the residential building is not for sale, but that it will be used for personal purposes.
– For the purposes of registering the property in the Real Estate Registry, the Tax Agency will issue a certificate, which obliges the latter to block any transfer of this property to third parties.

Case 2: When investors (or group of investors) or owners sell part of the surface area of ​​the building or commercial space in it and are not registered:

Based on the “Income Tax” Law, in all cases, the real income generated by the alienation of surface will be taken into consideration for the calculation of the income tax of investors or owners, building and/or alienating areas for housing, commerce, production, service of gold. Sold surfaces imply surfaces declared in sales contracts with clients (surfaces ceded as compensation to the owners or common surfaces, when the latter are not specified in the contract).

The taxable profit for sales of partial surfaces will be the difference between the income from sales and the costs incurred for partial sales. In such a case, the seller must register as an investor or group of investors with the tax office. The profit on the part sold will be at least equal to the area sold multiplied by the difference between the minimum price of the respective area and the minimum cost provided for in the Contract. In such a case, people who try to register their buildings as residential buildings are not required to register with the tax authorities, since they do not carry out any economic activity.

If the residential buildings were built for sale and consequently for profit, individuals will be required to pay the respective tax obligations for their activity for the buildings built during these years and pending registration at the Real Estate Registry Office in the year 2005.

Case 3: When people or groups of people claim financing for part of the residential building and the commercial premises in it are registered as a legal entity with the tax authorities:

With regard to income tax, the procedures will comply with the instructions issued by the General Directorate of Taxes for local tax offices, which refer to income tax at the time of the sale of the residential building and commercial premises in it. In such cases, the Real Estate Registry Office can register the corresponding part in the name of the legal person. The Real Estate Registry Office will calculate the “property transfer tax” for each m2 transferred by the company (investor or group of investors that make up the company). In each of the above cases, when the Real Estate Registry Office is notified that any of the investors, some of them or all of them want to transfer all or part of the property they own, the Treasury will calculate all the missing tax liabilities in the income tax, along with penalties, and authorizing the transfer of this property only after all tax liabilities have been settled.