Corporate Income Tax/ General Provisions on Profit Determination

 

 

 

Amortization

  1. For the determination of taxable income, amortization for fixed business assets is calculated and deducted by:

a) the owner of the business assets, except in cases specified in subparagraph "b" of this point;

b) the person bearing the risk of loss or damage to the assets, in cases of leased, usufruct, or other legally specified forms.

  1. Financial assets and intangible fixed assets that are not subject to consumption and wear, such as land, real estate, works of art, antiques, jewelry, precious metals, and stones, are not amortized.

  2. Costs related to the purchase, construction, or improvement of non-amortizable fixed assets are deductible in the tax year in which the fixed assets are alienated, provided that the income from the alienation is included in taxable income.

  3. Amortization in the year of acquisition or putting into use of the asset and in the year of withdrawal from use is calculated proportionally to the period of use during that year.

  4. Amortization of the costs of purchase or construction, as well as costs of improvement, renovation, and reconstruction of buildings, installations, and structures, serving for a period of more than 15 years, is calculated individually for each asset at a rate of 5% of these costs per tax year.

  5. Amortization of costs of non-physical assets is calculated individually using the straight-line method for each asset at a rate of 15% of these costs per tax year.

  6. Amortization for the following categories of assets is calculated individually using the straight-line method with percentages as follows:

a) computers, information systems, computer software products, and data storage devices at 25%;

b) all other assets of business activities at 20%.

  1. In each category described in point 7, the specified amortization percentage is applied based on the amortization base of the respective category.

  2. When an asset, as mentioned in points 5, 6, and 7, is withdrawn from use during a tax year, the remaining book value for tax purposes is deductible in that year, while potential proceeds from the withdrawal from use are included in taxable income.

  3. The amortization base is equal to the cost of acquisition or creation of the asset, plus the cost of reconstruction of the assets of the respective category during the tax year.

  4. The amortization base for 1+4 staff cars cannot exceed 50% of the purchase and reconstruction costs, including VAT. The total cost of a 1+4 car, which is amortized by 50%, cannot exceed 10,000,000 lek.

  5. In case the amortization base is a negative amount, this amount is added to taxable income, and the amortization base will be considered equal to zero.

  6. When the amortization base does not exceed 10,000 lek, the entire amortization base is considered a deductible expense.

  7. In cases of revaluation of business assets, amortization will not be allowed for the revalued amount.

Inventory Valuation

  1. The taxpayer must consistently use the same accounting method for inventory valuation, including inventory in process. The accounting method cannot be changed more than once every five tax years.

  2. Devaluation and revaluation of inventory, after the initial recognition, according to the provisions of the accounting and financial statements law, are not recognized for the effect of calculating taxable income. This rule also applies to financial assets and intangible assets.

  3. Inventory in process is amortized at a rate of 50% in the year of its purchase and at a rate of 50% in the following year.

Deductions for Bad Debt

  1. Deduction is allowed for a portion of the nominal value of any uncollectible receivable from an unrelated party, previously recognized as income, which remains unpaid and for which the taxpayer believes that the debt will not be fully or partially liquidated, and the taxpayer has taken the necessary steps to collect the bad debt, as determined in the minister's guidance responsible for finance, as follows:

a) up to 20% of bad debt when at the end of the tax year the bad debt is uncollectible for more than 6 months;

b) up to 40% of bad debt when at the end of the tax year the bad debt is uncollectible for more than 12 months;

c) up to 60% of bad debt when at the end of the tax year the bad debt is uncollectible for more than 24 months;

ç) up to 85% of bad debt when at the end of the tax year the bad debt is uncollectible for more than 36 months.

  1. Full deduction of bad debt is allowed if the following conditions are met simultaneously:

a) bad debt, previously included in income, is removed from the taxpayer's books, and

b) the taxpayer has taken all possible legal steps to collect the bad debt.

  1. When a deduction of bad debt has been applied previously to a claim that has been settled or not, the amount recovered must be added to taxable income in the year of recovery, except in cases where it may be transferred to a business reorganization process.

  2. This provision does not apply to financial institutions (including insurance companies).

Provision for Losses

  1. If taxable income results in a loss in a tax year, such a loss can be offset against taxable profits in the next five tax years, according to the principle of "first loss first."

  2. The provisions of point 1 of this article do not apply to losses incurred in the tax year and the previous years if there is a change in ownership exceeding 50% of shares, quotas, or voting rights, provided that this is accompanied by a change in activity. The Minister responsible for finance determines, by directive, the implementation of this article.