April 09 2010
Parliament has approved an amendment to the existing Value-Added Tax (VAT) Law (7928, April 27 1995, as amended) abolishing the legal provisions related to the export of services.
Before the recent amendment came into force, the VAT Law provided that the export of services is subject to VAT at a rate of 0%. In addition, the list of the VAT-exempt supplies did not include the supply of services performed out of Albania by Albanian taxpayers - thus, such services were not VAT exempt.
This legal provision was used by Albanian taxpayers (eg, companies and small entrepreneurs) as a legal basis to charge a 0% VAT on the value of the exported services. However, in many cases the tax authorities requested the taxpayers to charge VAT at a rate of 20% on the value of the exported services. The requirements for charging either 0% or 20% VAT were not made clear in the relevant legislation. The only clarification offered by the tax authorities related to consultancy services, provided that in order to charge the 0% VAT rate, the Albanian supplier of services should provide documentary evidence that the service receiver is located outside Albania (ie, is tax resident in another country). Otherwise, the service supplier was obliged to charge VAT at a rate of 20% for any service received by a foreign taxpayer. The legislation and the tax authorities provided no clarification related to the export of any other type of service. Therefore, in many cases, Albanian taxpayers that did not charge 20% VAT on the value of the exported services were subject to reassessment by the tax authorities and unjust VAT tax liabilities.
The recent amendment provides that services performed out of Albania by Albanian taxpayers are considered to be international services and are therefore VAT exempt - that is, the amendment includes international services in the list of VAT-exempt supplies. In addition, the amendment has also abrogated the provision stating that the export of services is subject to 0% VAT. The VAT Law, as amended, no longer contains any provision specifically related to the export of services. Therefore, where an Albanian taxpayer carries out in Albania a service for a non-Albanian entity, the Albanian taxpayer should charge VAT on the service at a rate of 20%. Albanian taxpayers no longer have legal grounds to charge 0% VAT on the value of exported services.
The amendment will have some consequences for Albanian companies (and foreign companies that operate in Albania) which are subject to corporate profit tax, particularly those companies whose core business is the export of services. Since February 27 2010 these companies must charge VAT at the rate of 20% on exported services, unless that service constitutes an international service (ie, is performed outside Albania).
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