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Individuals will pay 23% tax on profits over 14 million lekë, how will the calculation be done?

2025-05-28 08:05:08Biznes SHKRUAR NGA REDAKSIA VOX

All natural persons who have realized a taxable profit of over 14 million lekë for the 2024 tax year will pay 23% tax on the amount of 14 million lekë from March 31, 2025.

This means that if a natural person has made a taxable profit of 20 million lek, they will pay 15% on the profit up to 14 million lek and 23% on the remaining 6 million lek. This new form of calculation automatically increases the tax that natural persons who declare taxable profits over 14 million lek per year must pay.

Previously, individuals with profits at these levels paid a profit tax of 15% on the entire amount (in this case, 15% of 20 million lek).

In this way, the profit tax for individuals who declare profits over 14 million lek per year is equal to those of limited liability companies and joint stock companies, which pay 15% profit tax and then 8% for the part of the profit they distribute as dividends. (In fact, since individuals do not distribute dividends, they will be obliged to pay 23% for the entire amount over 14 million lek, unlike shpk and dsha that may not distribute dividends, or distribute part of the profit as dividends).

According to data from the General Directorate of Taxes, nationally there are less than 400 individual taxpayers who realize a net profit of over 14 million lek and are included in this tax scheme with a rate of up to 23%.

A personalized message has been sent to these entities by the tax administration.

"The Tax Administration informs you that, since you are a natural person and have realized a taxable profit of over 14 million lek for 2024, you should keep in mind the calculation of business income tax, in accordance with Article 24, point 2, of Law No. 29/2023 "On Income Tax".

According to the General Directorate of Taxes, this change is based on Article 24, point 2, of Law No. 29/2023 “On Income Tax”, and introduces a progressive tax system on the annual net profit of these individuals. The new tax regime will apply to individuals who have realized over 14 million lek net profit for 2024, while taxes will be paid from March 2025.

Point 2 of Article 24 of the law provides that net taxable income (i.e., profit after deducting allowed expenses) for natural persons will be taxed at progressive rates, as follows: for the annual tax base (net profit) up to 14,000,000 lek, the tax rate will be 15% and above 14,000,000 lek, the tax rate will be 23%.

How will the tax be calculated?

According to the tax administration's explanations, this means that only the portion of the profit that exceeds the limit of 14 million lek is taxed at 23%. The portion up to 14 million lek is taxed at 15%.

It is important to understand that the new tax is not applied on gross income (total sales or turnover), but on net profit, which is calculated as:

Net profit = Total income – Allowable expenses

eXAMPLES

If a person has 14,000,001 lek in income and 1 lek in expenses, the profit is 14,000,000 lek, which will be taxed at 15%.

Only when the profit exceeds 14 million lek, the 23% rate will be applied to the additional amount.

Individuals who generate annual income (turnover or sales) of up to 14 million lekë benefit from exemption from profit tax until 2029.

Example of how tax is calculated for profits over 14 million lekë

Based on Instruction No. 26, dated 8.9.2023 ON INCOME TAX (Amended by Instruction No. 4, dated 4.2.2025)

Item 24. Tax rate

24.2

For annual business income, for which the tax base is net taxable income, i.e. the difference between income minus deductible expenses, progressive rates apply, as follows:

a) 15% for net taxable income (taxable profit) up to 14,000,000 lek in a tax year;

b) 23% for each additional lek of net taxable income (taxable profit) above 14,000,000 lek per year.

24.3 If a commercial or self-employed natural person, after deducting from gross income any deductible expenses and any deductions allowed under Article 22 of the Law, declares annual taxable profit in the amount of 12,000,000 lek, the tax he will pay will be 12,000,000 x 15% = 1,800,000 lek.

24.4 If a commercial or self-employed natural person, after deducting from gross income any deductible expenses and any allowed deductions, according to Article 22 of the law, declares taxable profit of 20,000,000 lekë, the tax he will pay will be: 14,000,000 x 15% + 6,000,000 x 23 % = 2,100,000 + 1,380,000 = 3,480,000 lekë.

So, the tax that the taxpayer will pay for a taxable profit of 20,000,000 lek will be 3,480,000 lek.

Previously, this business paid a profit tax of 3 million lek (15% * 20 million lek), so in this case it will pay 480 thousand lek more, an increase of 1.6%./Monitor


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