Tax Obligations for Non-Profit Organizations (NGOs) in Albania: What You Need to Know in 2025

 

 

 

In Albania, non-profit organizations play an essential role in social, cultural, and community development. Despite not pursuing profit, NGOs remain legal entities subject to a number of fiscal and administrative obligations. Misinterpreting even a single rule can lead to penalties, funding rejections, or project interruptions.
This article outlines the key tax considerations NGOs must understand to operate compliantly and efficiently in 2025.

1. Why It Is Important for NGOs to Know Their Fiscal Obligations

Although NGOs do not have commercial purposes, they must still comply with Albania’s fiscal legislation. Proper tax management is essential for:

  • ensuring transparency toward donors,

  • avoiding administrative penalties,

  • preventing issues during audits,

  • guaranteeing the smooth implementation of projects.

For NGOs, tax compliance is not simply a legal requirement  it directly impacts organizational credibility and access to funding.

2. Do NGOs Pay Corporate Income Tax?

Non-profit organizations in Albania are exempt from Corporate Income Tax only for their non-profit activities.

However, the tax becomes applicable if the organization:

  • carries out economic activities (e.g., selling services or products, renting property, organizing paid events),

  • generates income not directly related to its mission,

  • provides services similar to those offered by private-sector companies.

In these circumstances, the income is considered taxable, and the NGO must pay Corporate Income Tax as any commercial entity would.
This remains one of the most common areas of misunderstanding among NGOs.

3. VAT (TVSH) for NGOs: When Does the Obligation Arise?

A widespread misconception is that NGOs are automatically exempt from VAT.
In reality, an NGO must register for VAT if it:

  • exceeds the annual turnover threshold defined by law,

  • provides services or supplies in exchange for payment,

  • implements projects compensated financially.

What about grants?

  • Grants are not considered taxable supplies, so they are not subject to VAT.

  • However, VAT paid on grant-related expenses is generally non-refundable, unless the project falls under specific EU-funded mechanisms that provide VAT exemptions or reimbursements.

Many donors now require NGOs to prove that VAT has been handled correctly during the project cycle. Incorrect VAT treatment can lead to the rejection of expenses a significant risk for donor-funded operations.

4. Financial Documentation and Reporting Requirements

NGOs must maintain accurate and compliant financial documentation, including:

  • annual financial statements,

  • journal book and general ledger,

  • donor-specific financial reports,

  • project-based expense tracking,

  • tax documentation for employee salaries and service contracts.

If the organization’s annual turnover exceeds the legal threshold, a mandatory independent audit must be performed and submitted to the National Business Center (QKB).

5. Withholding Tax and Employment Rules for NGOs

NGOs with employees must comply with all labor and tax obligations, including:

  • social and health insurance contributions,

  • payroll taxes,

  • withholding tax for contracted services,

  • proper employment or service contracts under the Labor Code and Civil Code.

A frequent and costly mistake is misclassifying employees as service providers, which can lead to penalties, back payments of contributions, and legal consequences.

6. The Most Common and Costly Mistakes NGOs Make

NGOs in Albania often face compliance issues due to:

  • undeclared or improperly declared economic income,

  • failure to register for VAT when legally required,

  • incomplete reporting to donors,

  • discrepancies between project accounting and tax accounting,

  • improperly prepared or delayed financial statements.

These errors may result in tax penalties and can jeopardize donor relationships and future funding opportunities.

7. Conclusion: Why Professional Support Is Essential

In an environment where NGOs must balance legal compliance with project delivery, professional financial and tax support becomes indispensable.

HLB Albania assists NGOs in:

  • dedicated accounting and bookkeeping,

  • tax declarations and compliance,

  • VAT assessment and management,

  • financial structuring of donor-funded projects,

  • preparation of financial reports for international donors,

  • conducting and preparing for audits.

Accurate and compliant fiscal management is key to ensuring the sustainability, transparency, and credibility of every non-profit organization operating in Albania.