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Problems of tax audits in the construction sector

R. One of the most common problems in the audits of construction projects is the moment of the sale by investors avoiding tax obligations and paying only the income tax of individuals in the amount of 10% of their income per sale. Meanwhile, considering this as a point of common abuse, the tax administration issued a circular to all local tax offices to register them as active taxpayers. Below is the 2003 document, not yet current but the problem and solution is the same.

1. Taxpayers in the “Investors” category in construction will be registered as VAT and income tax payers. In fact, this category of taxpayers will be subject to income tax since the sale of residential buildings is exempt from VAT. It is up to investors to choose their status, that is, whether they create a company and register in the commercial register or register with the court as a private business person. Regardless of their registration form, in fiscal terms they will be taxpayers of VAT (from which they are exempt) and income tax.

In the event that an investor or group of investors, identified and recognized by the Tax Agency wants to register, the taxpayer or group of taxpayers must provide the taxpayer with an authorization according to article 12 “Fiscal Representative” of the Law “On tax procedures in the Republic of Albania “. To avoid delays and abuses, in any case, the investor or group of investors (contracted parties) will be obliged to register for tax purposes at the same Local Tax Agency of the company that declares them investors, and all their activity will be documented. with this office.

2. During tax periods, careful monitoring of the amount of income tax that investors must pay must be carried out. To do this, they must take into account the available surface of the contracts and the profit obtained from the sale of apartments, that is, the difference between the cost of sale and the price. Minimum tax limits have already been established for these two items, that is, the average cost and the average selling price.

B. Another problem that appears in the audits of residential construction activities is the timing of the provision of technical services by non-resident specialists. Responses have been provided to various contractors on this specific case. Here we present the answer to a similar case, in which the foreign specialist is an Italian resident.

If the “double taxation agreement” is in force in your country of residence, the provisions of this agreement will apply in cases of technical services provided by non-resident contractors or companies. The first condition to be fulfilled within the framework of this agreement is that the company providing the technical service, etc. You must be a resident of the country with which the agreement has been finalized. In this case, the provisions of the agreement explain the tax rights of each country. Therefore, business income is taxed in the country of residence, except when the company operates in the other country through a permanent office, and only income attributed to this office / branch can be taxed in Albania.

For the specific case and in view of the current agreement with Italy, we explain below:

To avoid taxes on Italian companies that provide project services for the benefit of your company (resident in Albania), you must provide evidence and documents to confirm that the companies that provide such services to you are Italian residents (for example, certificates issued by the authorities Italian prosecutors). . You must provide proof that the service is performed entirely in Italy, that is, that the Italian companies have not had a permanent office / branch in Albania as specified in the Agreement and the Law “On Income Tax” and, in Consequently, they have not been obliged to pay taxes in Albania on the income attributed to this office.

According to the national legislation and the Agreement, for tax purposes, the Albanian tax administration has the right to make corrections to these payments when they are made between related persons and when they have been artificially increased to avoid taxes on their part. This means that in the case of transactions between related parties, the tax administration has the right not to recognize totally or partially as deductible costs the payments that your company has made for the benefit of Italian companies.

Another frequent problem is the treatment of some cases in terms of obligations in the construction phase and income tax in the construction of residential buildings and commercial premises in them for personal reasons by investors or owners at the time of sale. .

1. At the time of construction, the owner or investor must meet the following criteria:

– If the owner or investor has entered into a contract with a contractor for the construction of a residential building for personal purposes, the construction company, in the role of the contractor alone, carries out the work to completion. According to the instructions of the General Directorate of Taxes, a minimum VAT is applied to all residential construction projects per 1m2 of construction surface at the value of the respective period in the final inventory. This minimum VAT must be paid by the owner of the construction and after the use permit. This VAT in construction is in accordance with the tables by zones, available at the Tax Agency.

– In the event that taxpayers have not complied with the VAT and income tax parameters for a given construction time, the Tax Offices must require the respective company to pay the difference between the applicable minimum VAT / m2 and the VAT declared so far, as well as the respective profit. tax, in accordance with the instructions issued by the General Directorate of Taxes. If the owner declares that the final part of the work is carried out by him or by a third party, while the construction company has not declared any work carried out, the owners must pay the tax withheld to the Tax Agency, the difference between the minimum applicable VAT / m2 and the VAT declared so far. If another contractor takes over the work, that contractor must pay the difference in VAT and income tax for the current construction period, according to the parameters of the construction zones.

The following procedures apply with respect to tax at the time of sale:

2. When the investor or owner sells the property, it is required that:

– In the event that investors are registered with the Tax Agency as such, it is their legal right to request the corresponding payment of income tax on the sale of the residential building or business premises therein. However, the obligation of investors to register for residential buildings and commercial premises in them arises only when they carry out economic activity for the sale of residential buildings.

– In the event that investors have a contract with contractors for the construction of their personal residential buildings, the contracting company in the exclusive role of contractor must pay the respective VAT and income tax obligations at the construction stage.

– If the construction and use permit is in the name of owners who are also investors, they are responsible for the obligations that arise (income tax) after the construction project is completed and ready to be registered with the Office of Real Estate Registry.

Here are some cases related to the situation of investors or owners when a residential building must be registered with the Property Registry Office.

Case 1: When the investors (or group of investors) or owners do not sell any m² of the building or commercial premises in it:

– Regarding the income tax on the sale, the tax office will require investors and owners to present a certified document proving that the residential building is not for sale, but will be used for personal purposes.

– For the purposes of registering the work in the Property Registry Office, the tax office will issue a certificate, which requires the latter to block any transfer of this property to third parties.

Case 2: When investors (or group of investors) or owners are selling part of the m² surface of the building or commercial premises in it and are not registered:

Based on the Law “Income Tax”, in any case, the real income generated by the sale of surface will be taken into consideration for the calculation of income tax for investors or owners of land, construction and / or sale of surfaces destined to residence, commerce, production. gold service. The surfaces sold involve the surfaces consigned in the contracts of sale with the clients (surfaces assigned as compensation to the owners or common surfaces, when the latter are not specified in the contract).

The taxable sales gain on partial areas will be the difference between the sales income and the costs incurred for the partial sales. In such a case, the seller must register as an investor or group of investors with the tax office. The profit of the part sold will be minimally equal to the area sold multiplied by the difference between the minimum price for the respective area and the minimum cost provided for in the Agreement. In this case, natural persons who try to register their buildings as residential buildings are not obliged to register with the tax authorities, since they do not carry out economic activity.

If the residential buildings were built for sale and consequently profitable, individuals must pay the respective tax obligations for their activity for the buildings built during these years and pending registration in the Property Registry Office in 2005.

Case 3: When individuals or groups of individuals claim financing from the residential building and commercial premises in it, they are registered as corporate before the tax authorities:

With regard to income tax, the procedures will respect the instructions issued by the General Tax Directorate for local tax offices, which are related to income tax at the time of sale of the residential building and business premises in the same. In such cases, the Real Estate Registry Office can register the corresponding part in the name of the company (legal person). The Property Registry Office will calculate the “property transfer tax” for each m2 transferred by the company (investor or group of investors that creates the company). In each of the above cases, when the Property Registry Office is notified that any of the investors, some of them or all want to transfer all or part of the property they own, the Tax Office will calculate all the obligations missing taxes on income tax, along with penalties, and authorize the transfer of this property only after all tax obligations have been settled.


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