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All small business owners will pay personal income tax

2022-05-28 08:22:13Biznes SHKRUAR NGA REDAKSIA VOX

All small business owners will pay personal income tax

The Ministry of Finance has drafted a new preliminary draft law on income tax.

The final draft will be ready by the end of next week and consultations with stakeholders will begin. According to Finance, there will be significant changes in the business taxation scheme from this preliminary variant.

The draft has aroused much controversy in the business from the beginning, as it has created a lot of uncertainty about how the self-employed will be taxed.

In the final version, the maximum tax rate for income from employment has remained at 23%, from 28% that increased the rate in the previous draft for income from employment over ALL 2 million per month.

The draft is clear in treating the income of the liberal professions as income from employment, excluding from the zero income tax rate taxpayers who provide professional services. The analytical list of professional services will be determined by a Decision of the Council of Ministers.

(i) commercial and self-employed individuals, and;

(ii) entities with incomes up to ALL 14 million per year,

The 0% income tax rate will be applied by the end of 202X. The 0% income tax rate will not apply to the taxpayers mentioned in letters (i) and (ii) above, who provide professional services. The analytical list of professional services is determined by a Decision of the Council of Ministers.

But, while the income tax rate for commercial and self-employed individuals, as well as entities with incomes up to ALL 14 million per year, remains zero, Article 24 of the law provides that it will also tax business income, leaving it evasive of who and how will be taxed. Whereas in the old law it was specified that the Table for personal income tax was for income from employment.

1) Income from employment and income from business for commercial individuals and the self-employed are taxed at the following rates:

Meanwhile, although Article 69 of the new draft specifies that the income tax rate for entities up to 14 million ALL is zero, Article 14 recognizes the right of the commercial or self-employed individual does not exceed [10,000,000] million ALL per year, they have the right to deduct from the business income, the assumed expenses in a single amount, from 35-90%, without keeping records in the accounting.

Special regime for commercial and self-employed individuals

1) If the turnover of the commercial or self-employed individual does not exceed [10,000,000] Million Lekë per year, they are entitled from the business income, to deduct the assumed expenses in a single amount as follows, without keeping records in accounting.

a) 60% of income for production activities;

b) 90% of revenues for wholesale trade activities;

c) 70% of revenues for retail trade activities of goods and individual transport;

d) 60% of income for activities of bars, restaurants, discos, etc., of this nature;

e) 50% of income for service activities, handicraft and craft activities

f) 35% of income for self-employed individuals.

The activities according to this paragraph are determined by a Decision of the Council of Ministers, based on the Code of Economic Activities.

The Ministry of Finance has not yet clarified why commercial or self-employed individuals (other than the liberal professions) are entitled to these expenses, when the income tax for them is zero!

Article 13 stipulates that the income of a natural person from any business activity of any kind, including any activity of self-employed or commercial individuals. As a result, from the interpretation of the law, according to experts, it results that although businesses will continue to have zero income tax, in fact everyone will pay personal income tax, as will be deducted the expenses recognized under Article 14. After deducting these expenses, the owners of all businesses in the country will pay 13% for the annual income up to 2.4 million ALL and for the income over 2.4 million ALL, the tax will be 23%.

1) Income from business includes, but is not limited to, income under paragraphs "a" to "j" below, unless defined as employment income under Article 12 [Employment income] of this law:

a. Income of a natural person from any business activity of any kind, including any activity of self-employed or commercial individuals.

b. Interest income, dividends and royalties which are effectively related to the business.

c. Revenue from the sale of securities, which are effectively business-related.

d. Income from renting a business, regardless of whether the lease includes all or part of the tangible or intangible assets.

e. Proceeds from the sale of any business assets and liabilities, including the sale of the entire business.

f. Income from agricultural or livestock production.

g. Capital gain realized from the transfer of business assets and liabilities to a business reorganization, as defined in Article 46 [Applicable rules on business reorganizations] of this Law.

h. Gifts, financing or subsidies received by a person in connection with his business.

i. Any kind of service fee.

j. Capital gains from the revaluation of Business assets when these assets are given as an in-kind contribution to a company's capital, whether in its incorporation or capital increase.

2) Annual taxable income from business, is defined as the total amount of business income, less the relevant expenses documented and incurred for the purpose of earning, maintaining and securing income. The annual taxable income of the business must be calculated in accordance with Part 4 of this law./monitor


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