Tax on Transfer of Real Estate in Albania - Introduction
The Ministry of Finance and the State Cadaster Agency recently issued an important joint instruction titled "On Income Tax from the Transfer of Real Estate," which was officially published on January 17, 2024.
This instruction aims to provide clarity on the application of capital gains tax arising from real estate transactions, particularly focusing on differentiating the tax obligations of individuals and entities engaged in the sale of real estate.
For Tax-Registered Legal Entities and Individuals
Entities and individuals conducting real estate sales as part of their business operations are exempt from personal income tax on these transactions. Instead, they are subject to:
- The local real estate transfer tax, as per law no. 9632/2006 "On Local Taxes System."
- Corporate income tax or personal business income tax on sale revenues, as dictated by law no. 29/2023 “On Income Tax.”
For Non-Tax-Registered Individuals
Individuals not registered as taxpayers will incur a 15% personal income tax on the capital gains from real estate transfers.
The capital gain is calculated as the positive difference between the sale and purchase prices of the property. In instances where the sale results in a loss, the capital gain is considered zero.
Definition and Calculation of Capital Gains
The instruction defines "act of transfer of real estate" to include sales, exchanges, donations, inheritances, and ownership waivers.
The sale price for tax purposes is the higher of the agreed transaction price or the reference price set by the Council of Ministers.
Additionally, a 1% annual depreciation from the date of ownership acquisition applies to the reference prices, capped at 30%.
For buildings (excluding apartments and constructions legalized post-facto) with depreciation over 50%, the tax value must be assessed by licensed real estate appraisers, and this value is recognized for the specific transaction by the State Cadaster Agency.
Tax Payment and Registration
Real estate transfers must be registered with the State Cadaster Agency post-tax payment by the seller.
In cases of donation, inheritance, or property renunciation, the tax is paid by the recipient before registration. Documentation proving tax payment is required for registration.
Tax Exemptions
Exemptions are available for:
- Donations and inheritances to direct relatives and dependents.
- Donations and inheritances to non-direct relatives or individuals up to certain thresholds for movable and immovable properties.
- Property transfers stemming from compulsory co-ownership as per law no. 7501 "On the land."
Implications and Next Steps
This instruction underscores the government's commitment to ensuring transparency and fairness in the real estate market, particularly by imposing tax obligations that reflect the nature of the transaction and the parties involved.
Real estate owners, potential buyers, and legal heirs should familiarize themselves with these new regulations to ensure compliance and make informed decisions regarding property transactions.
Tax on Transfer of Real Estate in Albania - Conclusion
Entities and individuals involved in real estate transactions should consult with legal and tax professionals to navigate these changes effectively and align their transaction strategies with the new regulatory framework.
Final thoughts
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