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Confusion about the obligations of free professions / Tax will be prepaid this year, expenses (30%) will be deducted in 2025

2024-04-18 09:00:00, Ekonomi CNA

Confusion about the obligations of free professions / Tax will be prepaid this

The tax administration's calculations for the advance payment of the 2024 self-employment tax, supported by the declarations for 2023, which were sent to businesses on April 11, have added uncertainty and confusion to taxpayers.

In the new law "On income tax", a 30% deduction of fixed expenses is foreseen for the self-employed with an annual turnover of up to 10 million ALL.

Already with the calculations for the simplified tax prepayment by the tax administration, the 30% deduction of expenses is not taken into account, but only the expenses declared by the business.

Meanwhile, many subjects had taken for granted the recognition of 30% of expenses, as declared at the end of last year with the approval of the law and instructions.

Many professional services businesses have more mental work and therefore do not have deductible expenses, so they had "put their minds to sleep" on the percentage of expenses recognized by law, as they had been guided by their economists.

However, in the assessment notice of the regional tax directorates sent to businesses, it appears that the 15% tax rate for profit tax was calculated based on the income, expenses and profit declared by the entities themselves for 2023 that were included in the new regime, previously exempt from taxation.

"They have calculated the tax profit for the actual expenses declared in years. The 30% deduction of fixed expenses has not been taken into consideration. This situation will create a flood of complaints from businesses to the tax administration", claims accountant Sotiraq Dhamo.

As a result, for many professionals, the tax installments have turned out to be high. For example, a case of a lawyer, who declared 2.25 million ALL income for 2023, the tax installments for 9 months (from April to December) came to 37.5 thousand ALL per month, or 337 thousand ALL for 9 months (450 thousand lek for the whole year).

The effective annual tax rate for the business in question amounts to 19%. If the 30% deduction for expenses had been made, the lawyer would have paid about 30% less.

 

The deduction of business expenses will be made only at the end of 2024 and will be compensated in the tax that will be paid in 2025

In January of this year, after it was not possible to prepare the new income declaration form, the government approved a normative act in the new law "On income tax" which determines that the income declaration will be made according to the model of the old forms, i.e. the existing ones, but according to the new tax rates that start implementation from January 1, 2024 with the self-employed of free professions.

As a result, the declaration of income will be made according to the model of the old forms, i.e. the existing ones, but according to the new tax rates that start implementation from January 1, 2024 with the self-employed of free professions.

The deduction of fixed expenses is not provided for in the old declaration forms, on which the prepayment of tax is calculated. Sources from DPT explained to Monitor that their discount will be based on the applications of self-employed businesses at the end of 2024, after completing the form for choosing the special regime.

"For the self-employed without VAT with an annual turnover of up to 10 million ALL who will choose the special regime of recognition of fixed expenses 30% (which includes the annual income from the minimum wage, rent, electricity, water, etc.) will have to fill in at the end of the year, the form that has chosen the special regime of recognition of expenses.

On March 31, 2025, businesses will declare through new forms the statement of income and expenses for the year 2024. Based on the profit that will be released for the year 2024, compared to the advances that have been paid during the year, if the state compensates more or recognize it as paid profit. If the prepaid profit is less, the business will pay the remaining portion.

The declaration of income and expenses for the calculation of tax prepayment for 2024 by businesses was made according to the model of the existing forms. In December 2023, a few weeks before the entry into force of the "Income Tax" law, the government approved the Normative Act for its amendment.

The Normative Act determined that the declaration of income will be made according to the model of the old forms, i.e. the existing ones, but according to the new tax rates that start implementation from January 1, 2024 with the self-employed of free professions.

In the meantime, it remains unclear that in case a subject decides to close the activity in 2025, how will it be compensated for the tax it has paid excessively as a result of not deducting the expenses.

Accountants and businesses warned that the changes would further complicate business enforcement and impose additional costs. At that time, the Ministry of Finance and Economy also admitted that the change in the law for the use of the old forms for declaration of income, expenses and profit came from the failure to publish the new model of the forms.

So for this situation, until now the General Directorate of Taxation has clarified only the calculations of prepayment installments based on the declarations of businesses for the 2023 profit, without explaining the implementation of the procedure provided for in the law for the selection of the special regime of recognition of expenses.

"The calculation of preliminary installments for the year 2024 for all taxpayers registered before 31.12.2023 is based on the profit self-declared by the taxpayers in the annual tax return 23-A, for Income Tax (due until March 31, 2024) or Income Tax Simplified on Profit (due until February 10, 2024). The estimated value has been divided for the remaining period April-December 2024, in 9 installments.

- For taxpayers with the legal status of a Natural Person, the calculation of prepayments is carried out with the progressive rates: 15% up to the amount of profit 14 million ALL and 23% for any value of profit above 14 million ALL.

– For taxpayers with a different legal status than a natural person, regardless of their tax liability, the calculation of prepayments is carried out at the rate of 15% on the profit.

– For taxpayers who, during 2023, were partially registered with both Simplified Income Tax and Income Tax, the calculation will be performed on the total self-declared income in the 2 respective statements and the taxpayers will be notified in the account of of them in e-Filing, in relation to the preliminary installments", clarified the taxes yesterday.

In total, according to the Ministry of Finance and Economy, up to 29,000 self-employed businesses will be included in the new tax regime. MFE calculates that up to 90% of all businesses (divided according to 3 categories, such as: self-employed, natural persons and traders) are included in the band of annual income up to 14 million ALL per year that will be taxed at a rate of 15%.

The list of free professions published in the Official Gazette is divided into 26 types of activities, divided into 180 professions according to the type of activity.

Businesses are hoping that the new income tax law will be overturned by the Constitutional Court. At the end of March, the accountants have sent to the Constitutional Court the appeal for its overthrow, as it creates inequality between taxpayers. The appeal was filed with the Constitutional Court by the Institute of Chartered Accountants (IKM) and the Institute of Authorized Accounting Experts (IEKA). Allegations regarding constitutional violations are:

Violation of the principle of equality before the law;
Violation of the fundamental right to freedom of economic activity and profession;
Violation of the principle of the rule of law and legal security;
Violation of the principle of legal reserve in the tax field and the hierarchy of rates.

Lawyers are also organizing on social networks to take the complaint about the law to the Constitutional Court./ Monitor.al

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