New law change benefits foreign companies

Tirana Times
By Tirana Times June 17, 2019 11:40

New law change benefits foreign companies

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  • To reduce the tax burden, which in 2014 was also aggravated by the higher profit tax, businesses began using some means within the law to avoid paying dividends. Many of the big companies have kept the profits undistributing for several years to avoid taxation and others have made fictitious additions to capital.

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TIRANA, June 13- A change in the fiscal package of 2019 which reduces dividend tax at 8 percent from 15 percent with retroactive effect even for previous years, remits large foreign businesses that run business in our country at least 70 million euros. The 10 most profitable companies in the country accumulated in 2017 98 billion lek (802.5 million euros) in undistributed profits and 29 billion lek (237.4 million euros) in reserves, with a total amount of around 128 billion lek (1 billion euros).

According to a special tax directive, for retained earnings realized in 2018 before including reserves and capitalized gains, these companies have time to pay the tax that belongs to retained earnings of 2017 and earlier until Sept. 30, 2019. For these undistributed profits will apply the 8 percent tax rate.

If these profits were distributed and taxed by 15 percent (as far as dividend tax was concerned by the end of 2018), the state budget would receive a sum of 150 million euros. However, with the reduction of the dividend tax to 8 percent from the distribution of these profits the state will receive only 80 million euros, while 70 million euros are amnestied.

The list of largest businesses by profit in 2017 shows that retained earnings were owned mainly by six foreign companies, dominated by mobile phone operators. Telekom has the biggest carry over with 44.2 billion lek (362.1 million euros) of undistributed profits and 23 billion lek (188.4 million euros) in reserves. Following, Vodafone Albania had the highest value of retained earnings with 15.8 billion lek (129.4 million euros) and 568 million lek (4.6 million euros) of reserves.

These two companies have been the most profitable in the country, reaching record-high profits of 200 million euros in 2008, as the profitability rate exceeded 50 percent. Then, with the growth of competition in the telecommunications market their profits halved resulting in losses in 2016-2017.

Raiffeisen Bank carried about 15.3 billion lek (125.3 million euros) of which 2.3 billion lek (18.8 million euros) was the reserve. Intesa SanPaolo Bank follows suit with about 10 billion lek (81.9 million euros) in retained earnings, with 831 million lek (6.8 million euros) in reserves. The National Commercial Bank ranks third with 7.8 billion lek (63.9 million euros) at the end of 2017 which is mainly the profit of the financial year. Tirana International Airport also carried 2.5 billion lek (20.4 million euros) profits.

Companies that worked as subcontractors in the TAP pipeline project, Spiecapag Albania and Spiecapag Transadriatica, accumulated respectively 3,5 and 1.2 billion lek (28.6 and 9.8 million euros) of carryovers, of which 1.5 billion lek (12.2 million euros) in Spiecapag Albania were reserves. Albchrome is another company with a carry-over of 2.4 billion lek (19.6 million euros), and APEX had a year profit of 1.5 billion lek (12.2 million euros).

According to a special Income Tax instruction for retained earnings realized in 2018 and earlier, including capitalized gains and losses, the 8 percent tax rate applies subject to the condition that firstly, the tax on retained earnings of 2017 and earlier, to be paid by Sept. 30, 2019, and secondly, the dividend payout for 2018 is paid by Aug. 20, 2019. If these conditions are not met, the taxpayer will pay a 15 percent dividend tax.

The increase in dividend tax from 10 to 15 percent in 2014 has spurred the evasion of this tax. In 2017, dividend income was only 178 million lek (1.4 million euros), down by 81 percent compared to 2013. To reduce the tax burden, which in 2014 was also aggravated by the higher profit tax, businesses began using some means within the law to avoid paying dividends. Many of the big companies have kept the profits undistributing for several years to avoid taxation and others have made fictitious additions to capital. That is why the Ministry of Finance decided to reduce the dividend tax to 8percent in the 2019 Fiscal Package.

Tirana Times
By Tirana Times June 17, 2019 11:40