Shareholder Loans in Albania: Tax Rules, Interest and Required Documentation in 2026

 

 

 

Financing a company through shareholder loans is a common practice among businesses operating in Albania. Rather than increasing share capital or obtaining financing from banks, shareholders may provide funds directly to their companies to support daily operations, investments or business expansion.

However, although shareholder loans may offer financial flexibility, they also involve important accounting, tax and legal considerations.

Questions frequently arise regarding the deductibility of interest expenses, withholding tax obligations, interest-free loans, repayment procedures and the documentation required to demonstrate that the transaction represents a genuine loan.

This article outlines the principal rules governing loans between shareholders and companies in Albania in 2026.

1. What Is a Shareholder Loan?

A shareholder loan is a financing arrangement under which a shareholder provides funds to a company with the expectation that the company will repay the amount under agreed conditions.

Unlike an equity contribution, a shareholder loan generally creates a financial liability for the receiving company.

For example, a shareholder may lend ALL 5,000,000 to a company to finance the purchase of machinery or cover temporary working capital requirements.

The company records the amount as a liability rather than revenue, provided the transaction genuinely qualifies as a loan.

A shareholder loan may be structured with or without interest, depending on the contractual terms and applicable legal and tax requirements.

The distinction between debt and equity is particularly important because the two forms of financing have different accounting and tax consequences.

2. Are Shareholder Loans Taxable Income for the Company?

As a general principle, the receipt of genuine loan principal does not constitute taxable operating income.

When a shareholder transfers funds to a company under a valid loan arrangement, the company normally records:

  • An increase in available cash or bank balances.

  • A corresponding financial liability to the shareholder.

The loan principal is not ordinarily included in the company's taxable profit merely because the funds have been received.

Similarly, the subsequent repayment of principal generally represents the settlement of a liability rather than a tax-deductible business expense.

Practical Example

A shareholder provides a loan of ALL 3,000,000 to a company.

The company receives ALL 3,000,000 in its bank account and recognises an equivalent liability.

When the company later repays ALL 3,000,000, the repayment reduces the outstanding liability.

Provided the transaction is properly documented and reflects genuine financing, neither the initial receipt nor the principal repayment normally creates taxable operating income or a deductible operating expense.

Interest payments, if applicable, are treated separately.

3. Can Shareholder Loans Be Interest-Free?

Shareholders may consider providing financing to their companies without charging interest.

However, interest-free arrangements between related parties should be assessed carefully.

Albanian transfer pricing and income tax rules may require particular attention to transactions between related parties, especially where cross-border financing is involved.

Businesses should therefore consider whether the contractual conditions are commercially justifiable and consistent with applicable arm's-length requirements.

An interest-free loan should not automatically be treated as tax-neutral in every situation.

The tax consequences depend on the parties involved, their residence, the nature of the transaction and the relevant statutory provisions.

A written agreement should clearly specify that the loan is interest-free and establish the repayment obligations.

4. How Is Interest on Shareholder Loans Taxed?

When a shareholder loan carries interest, the company may incur financing expenses while the shareholder receives interest income.

The tax treatment depends on the status of the lender and the applicable legislation.

Interest Paid to an Individual Shareholder

Interest paid to an individual shareholder is generally subject to a 15% withholding tax in Albania, subject to the applicable legal provisions.

Where withholding applies, the company deducts the tax from the gross interest payment and remits it to the tax authorities.

Practical Example

A shareholder lends ALL 5,000,000 to a company at an annual interest rate of 5%.

Assuming the full principal remains outstanding throughout the year:

Description Amount
Loan principal ALL 5,000,000
Annual interest rate 5%
Gross annual interest ALL 250,000
Withholding tax (15%) ALL 37,500
Net interest paid to shareholder ALL 212,500

In this example, the shareholder receives ALL 212,500 in net interest, while ALL 37,500 is withheld and paid to the Tax Administration.

The company must also assess whether the ALL 250,000 interest expense qualifies for deduction when calculating its taxable profit.

Interest Paid to Foreign Shareholders

Interest paid to non-resident shareholders may also be subject to withholding tax.

The standard domestic withholding tax rate on interest is generally 15%.

However, where Albania has an applicable double taxation agreement with the shareholder's country of residence, a reduced rate or other treaty treatment may be available, subject to the relevant conditions and supporting documentation.

Companies with foreign shareholders should assess treaty eligibility before applying a reduced withholding rate.

5. Are Interest Expenses Tax-Deductible?

Interest expenses incurred on genuine business financing may be deductible for corporate income tax purposes, subject to statutory conditions and restrictions.

Law No. 29/2023 "On Income Tax", as amended, establishes rules governing interest deductibility.

A key provision limits the deduction of excess borrowing costs to 30% of the company's tax-adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA), subject to the applicable exclusions and implementation rules.

In addition, interest exceeding the relevant average banking-sector lending rate may be restricted for tax purposes.

These rules mean that a company cannot assume that every interest expense agreed with a shareholder is automatically deductible in full.

Practical Example

Assume a company has:

  • Tax-adjusted EBITDA: ALL 10,000,000.

  • Net borrowing costs subject to the limitation: ALL 4,000,000.

  • Maximum deductible amount under the 30% EBITDA limitation: ALL 3,000,000.

In this simplified scenario:

ALL 10,000,000 × 30% = ALL 3,000,000

The company would generally be permitted to deduct ALL 3,000,000 under this limitation.

The remaining ALL 1,000,000 would be restricted for the current tax period, assuming no exemption or other adjustment applies.

Under the relevant provisions, excess interest disallowed by this limitation may be carried forward for up to five years, subject to statutory requirements.

Other restrictions, including the reasonableness of the interest rate, must also be considered.

6. Transfer Pricing and Related-Party Financing

Shareholder loans frequently constitute related-party transactions.

This is particularly relevant when an Albanian company receives financing from a foreign parent company or another group entity.

Albanian transfer pricing rules require covered related-party transactions to comply with the arm's-length principle.

In practical terms, the financing arrangement should reflect conditions that independent parties would reasonably agree under comparable circumstances.

Relevant considerations may include:

  • The loan amount and currency.

  • The repayment period.

  • The borrower's financial position.

  • The agreed interest rate.

  • The existence of collateral or guarantees.

  • The commercial purpose of the financing.

Certain taxpayers must also comply with transfer pricing documentation and reporting obligations, including the Annual Controlled Transactions Notice where the applicable reporting thresholds and conditions are met.

Businesses should retain appropriate evidence supporting the commercial terms of related-party loans.

7. Can a Company Lend Money to Its Shareholders?

Loans may also be granted in the opposite direction, where a company provides financing to one of its shareholders.

However, these arrangements can create additional legal and tax risks.

A company must consider whether the transaction is permitted under the applicable company law provisions, whether it serves a legitimate commercial purpose and whether the repayment terms are properly established.

Special attention is required where a loan to a shareholder lacks a genuine repayment obligation or effectively represents a transfer of corporate funds for personal use.

In such cases, the authorities may examine whether the arrangement should be treated differently for tax purposes, potentially including a distribution of profits or another taxable benefit.

Companies should avoid treating withdrawals made by shareholders as ordinary loans without appropriate supporting documentation and a credible repayment arrangement.

8. What Documents Are Required for a Shareholder Loan?

Proper documentation is one of the most important elements of shareholder loan compliance.

Although the precise legal requirements depend on the transaction, companies should generally maintain the following documents:

Written Loan Agreement

The agreement should identify the lender and borrower and establish the principal amount, currency, repayment terms, interest rate and other relevant conditions.

Corporate Approvals

Relevant decisions of the shareholders, administrator or other competent corporate body should be documented where required by law or the company's governing documents.

Bank Transfer Evidence

Bank statements and payment confirmations should demonstrate the actual transfer of funds between the lender and the company.

Evidence of the Source of Funds

Businesses should be prepared to provide information supporting the legitimate origin of the funds where required under applicable tax, banking or anti-money-laundering rules.

Interest Calculation Schedule

Where interest is charged, the company should maintain supporting calculations showing the applicable rate, outstanding principal and accrued interest.

Repayment Records

Payments of principal and interest should be traceable and reconciled with the original agreement.

Accounting Documentation

The loan balance, accrued interest and repayments must be accurately recorded in the company's books and financial statements.

Appropriate documentation helps distinguish genuine loans from undocumented shareholder contributions or distributions.

9. What Happens if the Shareholder Loan Is Not Repaid?

A shareholder loan may remain outstanding for several years, depending on its contractual maturity.

However, an outstanding balance should not automatically be treated as a permanent financial obligation without reviewing the underlying agreement and commercial circumstances.

Where a shareholder formally waives repayment, converts the debt into equity or agrees to other restructuring arrangements, the company must assess the applicable accounting, tax and corporate law consequences.

Debt forgiveness and loan-to-equity conversions can produce different results depending on their legal structure.

Companies should obtain professional advice before making adjustments to outstanding shareholder loan balances.

10. Common Mistakes Businesses Should Avoid

The following practices can create accounting and tax risks:

  • Receiving shareholder funding without a written agreement.

  • Recording genuine loan principal as company revenue.

  • Treating principal repayments as deductible operating expenses.

  • Charging excessive interest without commercial justification.

  • Failing to withhold tax on taxable interest payments.

  • Ignoring transfer pricing obligations.

  • Maintaining shareholder loan balances that do not reconcile with bank records.

  • Using shareholder loan accounts to record personal expenditure.

  • Failing to document modifications or repayment extensions.

  • Converting loans into equity without assessing the applicable legal requirements.

Regular review of shareholder loan balances can help companies identify discrepancies before they become significant tax or financial reporting issues.

Shareholder loans can be a useful financing instrument for companies operating in Albania, particularly where businesses need additional working capital or investment funding.

However, these arrangements require careful attention to their contractual terms, tax treatment, interest deductibility, withholding tax obligations and supporting documentation.

The distinction between a genuine loan, an equity contribution and a distribution of profits is fundamental.

Businesses should ensure that shareholder financing arrangements are commercially justified, properly documented and accurately reflected in their accounting records.

How Can HLB Albania Help?

HLB Albania provides accounting, tax advisory, audit and financial consulting services to Albanian businesses and international investors.

Our professionals can assist companies with:

  • Reviewing shareholder loan agreements and their tax implications.

  • Assessing the deductibility of interest expenses.

  • Evaluating withholding tax obligations on interest payments.

  • Reviewing related-party financing and transfer pricing considerations.

  • Supporting the accounting treatment of shareholder loans.

  • Assessing loan restructuring and debt-to-equity conversions.

  • Strengthening documentation and compliance procedures.

Contact HLB Albania for professional guidance on shareholder financing, corporate taxation and financial reporting in Albania.

Legal References

  • Law No. 29/2023 "On Income Tax", as amended.

  • Law No. 9901/2008 "On Entrepreneurs and Commercial Companies", as amended.

  • Law No. 9920/2008 "On Tax Procedures in the Republic of Albania", as amended.

  • Applicable transfer pricing regulations and implementing instructions.

  • Applicable double taxation agreements concluded by the Republic of Albania.