On 1 January 2019, a significant amendment to the Albanian Income Tax Act came into force introducing new rules on the indirect transfer of ownership of assets situated in Albania.
The new rules deal with the taxation of gains arising from indirect transfers of ownership in assets situated in Albania. An indirect transfer occurs when an Albanian company owning an asset located in Albania intends to sell it to a third party, but such third party purchases the shares/quota in the Albanian company holding the asset or in any of its direct or indirect shareholders. The new provision 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." (note: this is approx. EUR 4.1 million).
Thus, under the new provision, any increase in value of the assets held by the Albanian company will be subject to taxation. A company affected by such a taxable change of ownership must give the tax authority notice within 45 days. The notice must contain details of the parties involved, the terms of the transaction, the sale proceeds, etc. Furthermore, this abovementioned notification requirement is also mandatory for a company that suffers a direct or indirect change of ownership of 10% or more of its capital or its voting rights (even though this is not taxable).
In addition, the definition of "Albanian sourced income" was also expanded by including:
- Income from rights to extract natural resources from Albania (including income from information pertaining to such rights); and
- Income from the alienation of natural resources (including rights or information pertaining to such rights), and shares or comparable interests (deriving their value from the property, rights or information being sold/transferred). However, the amendment includes also an express limitation, which provides that shares or comparable interests must derive at least 50% of their value from the property, rights or information in question.
In conclusion, gains on indirect transfers of assets situated in Albania are now subject to Albanian taxation, by either taxing the Albanian company holding the asset, or the gain from the transferred shares, if the gain is mainly attributed to the Albanian asset.