Albania: Tax Implications of the Fiscal Representative Concept

One of the most discussed tax issues in Albania currently concerns the appointment of a fiscal representative in cases when services related to immovable property in Albania are provided by non-residents to resident companies in Albania.

Legislation.
Based on the current legislation, if a foreign company provides services in relation to immovable properties located within the territory of Albania, the non-resident supplier is required to appoint a tax representative for VAT purposes in Albania in order to invoice such services. According to an explanatory note of the Albanian tax administration this applies even in cases when the foreign company has already established a local branch. Furthermore, based on the current legislation, if a non-resident has failed to pay its related tax liabilities (VAT, CIT, etc), the resident recipient of the services may be held responsible.

Penalties.
Considering the above, since November 2011, the tax administration has penalized resident companies for having received invoices from non-residents and not from their appointed fiscal representatives for services related to immovable properties located in Albania. The majority of these penalties concerned cost allocations that parent companies/head offices have charged their subsidiaries/branches in Albania. These costs have been included in the accounts of the resident entities in Albania and then charged to their customers with VAT, ensuring that there is no “leakage” of VAT in the process. Therefore, the need for a fiscal representative is questionable. In most cases, there has been no economic damage caused to the government; nevertheless, the government has held resident companies liable for VAT calculated on the invoices received from non-residents, applying the same (100%) penalties as for tax evasion. In addition, the tax administration has not made any differences in relation to the legal structure and the relationship between the non-resident company and its subsidiary/branch in Albania.

Outlook.
In accordance with the Albanian legislation, the supply of services is considered as a taxable supply if it is provided within the scope of an independent economic activity (independent supplier and independent beneficiary) and against payment. A branch of a foreign entity is not a separate legal entity and has the same “legal personality” as its parent company. As such, services provided by the head office to its branch shall not be subject to VAT in Albania. This approach is also held by the European Court of Justice on the interpretation of the VAT Council Directive (2006/112/EC) whereby “the parent company of a permanent establishment (branch), which has no legal independence from the parent company located in a foreign country will not be treated as a taxable individual for the services it provides to the branch only because of the allocation of costs to the branch”.

Olindo Shehu
oshehu@deloitteCE.com
                                                                
                                                           
                                                     
                                                          
                                                                                                             
                                                                                                                 
Barbara Krüglstein
bkrueglstein@deloitte.at

 

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