Applicable local taxes
The Albanian tax and construction legal framework has undergone major changes in recent years. The main law which regulates construction activities is the Law on Territory Planning (8405/1998, as amended). This law determines the procedures to be followed and the requirements that must be fulfilled in order to obtain a construction permit. The new Law on Territory Planning (10119/2009) will repeal Law 8405/1998, but its effective date has been delayed (for further details please see "New planning framework in limbo: what's next?").
One of the requirements set out in Law 8405/1998 for obtaining a construction permit consists of the payment by the constructor of construction-related taxes (ie, the tax on financing of urban planning studies by local government authorities). Moreover, in addition to the urban planning tax determined by Law 8405/1998, a further tax on the impact of new construction projects on infrastructure is applicable under the Law on Local Taxes (9632/2006, as amended).
Local taxes collected under these laws are managed and used by the municipality of the city or commune where the construction project is located.
Tax on financing of urban planning studies
According to Law 8405/1998, before obtaining a construction permit applicants must pay the local authority a tax equal to 1% of the value of the investment for the construction project, which is determined according to the estimation of works to be conducted. Such funds are used to finance urban studies by the local government. The applicant will be granted the construction permit no later than one day after submission of the document proving that such tax has been paid.
If the tax is not paid within 30 days of notification of the tax obligation, a penalty of 0.2% a day is applicable for a period of up to 60 days. If the tax is not paid within this period, the penalty increases to 1% a day for an additional 30 days. If the applicant fails to pay the relevant tax within this extended period, the territory planning council may cancel the approved construction permit.
Law 10097/2009, amending Law 8405/1998, reduces the urban study tax rate for infrastructure projects related to the construction of national roads, harbours, airports, tunnels, dams and infrastructure in the energy sector. Under such amendment, the urban study tax rate for such infrastructure projects is 0.1% of the value of the investment (calculated based on the estimation of works to be conducted, including the cost of machinery and equipment).
However, the urban study tax for infrastructure projects must cover the actual cost to local government entities of supporting the studies related to such infrastructure projects (except in cases where other laws provide otherwise).
Infrastructure impact tax for new construction
Under Law 9632/2006, the infrastructure impact tax is based on the value of the investment to be made by the contractor implementing the construction works, which is also the taxable party.
Article 27 of Law 9632/2006 provides for a municipality construction tax known as the infrastructure impact tax to be levied on new construction works. According to Article 27(1), the basis for this tax is the value of the investment to be executed. The classification of new investments and their relevant values are identified based on the legislation regulating the issue of the construction permit. Moreover, Article 27(2) provides that the infrastructure tax for new constructions ranges from 1% to 3% of the value of the investment. In Tirana, municipality the tax is levied at a rate of between 2% and 4% of the value of the investment. The tax is calculated on the estimation of works to be conducted pursuant to the approved project. The local government entities specify the amount of the tax based on the category of construction work.
Law 10073/2009, amending Law 9632/2006, has reduced the rate at which the infrastructure impact tax is levied for infrastructure projects for the construction of national roads, harbours, airports, tunnels, dams and energy infrastructure.
Based on the amendment, the infrastructure impact tax rate for these projects is 0.1% of the value of the investment (calculated based on the actual estimation of works to be conducted, including the cost of machinery and equipment).
Law 10119/2009, replacing Law 8405/1998, does not set down any tax-related provisions. Therefore, on the effective date of Law 10119/2009, the urban study tax will be repealed automatically, unless it is reintroduced by a separate legal initiative.
For further information on this topic please contact Brunila Leskaj at Hoxha Memi & Hoxha by telephone (+355 4 227 4558), fax (+355 4 224 4047) or email ([email protected]).