How will income be declared and tax calculated for self-employed professionals?

2025-03-06 07:20:00, Ekonomi CNA

From January 1, 2025, self-employed professionals who earn 80% of a client's gross income will be required to declare and pay tax at the employment income rates of 13 and 23%.

For this category, the tax to be paid will be calculated for the 2025 tax period, while the declaration deadline is until March 2026.

The changes to the guidance distributed to businesses determine that the self-employed individual will declare income in the annual business declaration by completing the employment income section and not completing the business income section.

The rule under this paragraph also applies if the self-employed person has received any payment from any non-Albanian tax resident client.

Expenses are declared or, if annual income is up to 10 million lek, the self-employed person has the right to choose to recognize expenses a priori at the rate of 30%.

"A self-employed individual, given that he has an annual income of up to 10,000,000 lek, has the right to choose the special regime for recognizing deductible expenses.

This a priori deductible expense is 30% for self-employed individuals. In section 28 of the declaration, specifically this subject selects the "Yes" box for the a priori deduction of expenses," the instruction states.

They will also be calculated as expense deductions in the amount of 48 thousand lek per year when the employed individual has a child under the age of 18 and has the highest annual taxable income in the family.

As well as recognizing the deduction of expenses specified in point 22 of Article 22 of the Law "On Income Tax" which determines the deduction from the tax base "an amount of 360,000 lek if the annual income is over 720,000 lek, or an amount of 30,000 lek per month if the monthly income is over 60,000 lek".

The tax for the category of self-employed individuals who provide 80 or 90% of their gross income from 1 or 3 clients remained unchanged after the Constitutional Court's decision to overturn point 1 of article 69, which established the start of the 15% tax from January 1, 2030.

The 23% tax for businesses with income over 14 million lek per year also remained unchanged.

Point 12.8 is amended with the following content:

“12.8 If a self-employed person derives 80% of his income from a single client, or 90% of his income from fewer than 3 clients, for the purposes of calculating his tax liability on his annual net income (billed income minus deductible business expenses), the employment income tax rates will be applied (after deducting the amounts under Articles 22 and 23 of the Law).

For the purposes of implementing this point, the self-employed individual calculates whether the income meets the criteria provided for in letter "ç", point 1, of Article 12 and, if this income results according to these conditions, the declaration of income according to this paragraph will be made by the self-employed individual in his annual tax return.

The self-employed individual will declare income in the annual business declaration by completing the employment income section and will not complete the business income section.

The rule under this paragraph also applies if the self-employed person has received any payment from a non-Albanian tax resident client. This paragraph applies regardless of whether the self-employed person provides services alone or has unpaid family workers, or has employees.

example

Declaration for the year 2025 - Self-employed individual with the initials "AB" with economic code J6201 "Computer programming activities", results in that during the year 2025, there was gross income from the business in the amount of 4,000,000 lek.

Of this income, 3,280,000 lek of the total income was generated by the company with the initials "CD", while the remaining part of the tax income of 720,000 lek results from 5 other companies. The tax expenses of the self-employed individual for the year 2025 are 1,000,000 lek.

Other notes: Meanwhile, the self-employed individual has a child under the age of 18 and has the highest annual taxable income in the family.

How will the income of a self-employed individual be taxed: 82% (3,280,000 lekë/4,000,000 lekë) of business income result from 1 single client.

Given that the self-employed individual's income is 80% or more from a single client (letter c/i, point 1, of Article 12), then the taxable profit of the self-employed individual will be considered income from employment for the purpose of calculating tax liability.

Note

For the sole purpose of calculating the measure in % of the income earned by each client, the weight for the income earned by the client is considered the same as the weight for the gross income by the client.

How to make the declaration: The self-employed individual in his annual declaration "Form for declaration and payment of tax on personal income from business" will fill in sections 8/9 "Income from employment". After filling in sections 8 and 9, sections 10 to 21, which belong to income from business, are not filled in.

Calculation of tax on employment income: Taxable base = Taxable income–(tax deductions + tax expenses) *Note. A self-employed individual, given that he has an annual income of up to 10,000,000 lek, has the right to choose the special regime for recognizing deductible expenses.

This a priori deductible expense is 30% for self-employed individuals. In section 28 of the declaration, specifically this subject selects the “Yes” box for the a priori deduction of expenses. In the example presented, since the individual selects the a priori deduction of expenses, the deductible expenses will be: 30%*4,000,000 lekë=1,200,000 lekë.

Meanwhile, the taxpayer also benefits from deductions according to Article 22, point 1 of the law, specifically 360,000 lek according to the letter “c” and 1*48,000 lek according to the letter “ç”. Taxable base = 4,000,000 lek – (360,000 lek + 48,000 lek + 1,200,000) lek Taxable base = 2,392,000 lek

Calculated tax = 13% * 2,040,000 lek + 23% * 352,000 lek

Calculated tax = 346,160 lek

Referring to point “e”, of Article 69 of the law, for all taxpayers registered before December 31, 2023, who are subject to the simplified profit tax or profit tax, as well as for those who register for the first time in the following year, for the effect of the 2024 tax period, the tax forms and responsibilities will be used, according to Law No. 9632, dated 30.10.2006, “On the local tax system”, as amended, as well as Law No. 8438, dated 28.12.1998, “On income tax”, as amended. Consequently, the calculation, obligation and declaration will begin from January 1, 2025.”/ Monitor Magazine