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ESTABLISHMENT AND REGISTRATION OF NPOS

Who can create an NPO?

The Constitution of the Republic of Albania guarantees everyone’s right to be organizes collectively for any lawful purpose. According to Law No. 8788 dated 07.05.2001 “On non-profit organizations”, the article 46, point 1 and 2, the registration of organizations or associations in court is done according to the procedure provided by law.

What are the main forms of organization of an NPO?

There are three forms of organization of an NPO: Association, Foundation and Center.

Read more:
→ Law No. 8788, dated 7.5.2001 “On non-profit organizations”.

Is Social Enterprise a form of organization of NPOs?

No, social enterprise is not a separate form of organization of NPOs, and as such it is not registered as a separate entity. Social enterprise is a state-given status, according to the criteria set by Law No. 65/2016 09.06.2016 “For social enterprises in the Republic of Albania” The status is recognized by order of the Minister responsible for social affairs.

What documents are needed to establish an NPO?

Pursuant to Law No. 8788, dated 7.5.2001 “On non-profit organizations”, the main documents necessary for registration are the Establishment Act and the Statute, which must specify the decision-making and executive bodies, in the form of the organization chosen.

Where to register the NPO?

Non-profit organizations, once established, must register at the Tirana Court of First Instance, in accordance with the conditions and procedures provided by law to be subsequently registered with the tax administration. Registration with the tax authorities and equipment with the Tax Identification Number Certificate (NIPT) is done by submitting it to the regional tax office where the NPO activity will take place.

What documentation is needed to register an NPO to the Tax Administration?

The documentation to be submitted for registration to Tax Administration, according to the Law No.9920, dated 19.05.2008 “On tax procedures in the Republic of Albania” amended, is as follows:

  • Notarized Court Decision, Statute and Establishment Act;
  • Photocopy of the ID or Passport of the administrator or legal representative;
  • Headquarters ownership data (lease or ownership act);
  • The registration form (filled by the applicant).

Upon receipt of the Tax Registration Number Certificate (NIPT), to the NPO is provided the password that will serve for online declarations.

Read more on the registration here

Is the process of establishing and registering an NPO costly?

Yes, it bears some costs. The cost range from ALL 7,000 to ALL 30,000 (including printing, notarization, travel, labour costs, etc).

Can changes be made to NPO documents after it has been registered? What changes should be made to the responsible authorities?

Changes made by Court Decision are:

  • Headquarters address;
  • Executives (board / administrator);
  • Name;
  • Legal form.

Changes that are made to Tax Administration are:

  • Reflection of changes made by Court Decision;
  • Opening / closing of secondary addresses and issuance of relevant certificates;
  • Changing tax responsibilities (addition / removal).

Read more Formulari i Ndryshimeve.

If the organization has no activity, can it switch to inactive status?

If the NPO does not declare for a period of more than 12 consecutive months or has decided to terminate its activity for a period of more than 12 months or indefinitely, shall pass to inactive status.

How is transition to inactive status made?

The inactive status of NPOs is made at the request of the entity or by the Tax Administration when the legal requirements are met, specified as following:

  • Upon request of the entity – when the NGO decides to terminate the activity for a period longer than 12 months or indefinitely;
  • By the Tax Administration in case the entity submits declarations of inactivity (with zero) or when it does not declare for a period of more than 12 consecutive months.

For the entire period that the entity is in the “Inactive” status, it is not obliged to submit tax Declarations (the generation of statements is automatically stopped).

How is the NPO reactivated?

Reactivation of the taxpayer is done when:

  • Required by the NPO for reasons of resuming activity;
  • If the Tax Administration field structures find out that the NPO is Active.

In cases when the NPO is active while in the “Inactive” status, it is penalized by the Tax Administration according to the provisions of Law No. 9920, dated 19.05.2008 “On tax procedures in the Republic of Albania” amended.

What are the steps for deregistration an NPO?

The steps to deregistration for an NPO are as follows:

  • The NPO applies to the Court to initiate the deregistration procedure;
  • After receiving the notification from the court, the Tax Administration verifies the taxpayer’s situation regarding its compliance with legal obligations (declarations and payments);
  • Tax Administration notifies the Court of the above (confirms or opposes deregistration).

TAX LIABILITIES FOR NPOs

What are the types of tax liabilities for an NPO?

The tax liabilities for an NPO are:

• Social security contributions are an obligation for every employee and employer. They are paid partly by the employer and partly by the employee, as required by law (Read more the Related Documents);

• Health insurance contributions are an obligation for every employee and employer. Even this kind of tax is paid partly by the employer and partly by the employee as required by law (Read more the Related Documents);

• Employment Income Tax (part of personal income tax), is withheld for the purpose of earning income from salaries and bonuses arising from employment relationships (Read more of Law No. 8438, dated 28.12.1998 “On income tax”, amended);

• Value Added Tax: The NPO is obliged to register for VAT in case it carries out economic, taxable activity, supplies goods or provides paid (fee-for) services according to the provisions of DCM No. 953, dated 29.12.2014 “On the Implementing Provisions of Law no. 92/2014, “On Value Added Tax in the Republic of Albania”;

• Income tax: NPOs are required to register with the tax liability for Income Tax if they carry out economic activity and realize taxable income according to the provisions of Law No. 8438, dated 28.12.1998 “On income tax”, amended;

• Withholding tax is related to taxing the personal income of individuals. Mostly, this tax payment technique applies to withholding tax for payments related to services of various kinds performed by third parties, not registered with the tax authorities, in the capacity of the trader. Such may be: payment for rented premises, benefits of membership in a supervisory council, etc. (Read more of Law No. 8438, dated 28.12.1998 “On income tax” amended)

How to make the tax declaration?

All tax declarations are made ONLY electronically.

What are the types of tax declarations, the frequency and deadlines for filing them?

Do newly registered NPOs have the obligation to prepare and submit financial statements?

Regardless of when registered during a calendar year, it is required to submit the financial statements that make up the balance sheet by March 31 of the following year.

What is the individual income statement, when it is completed and by whom?

The Annual Income Statement is completed by the individual who is required to file no later than April 30 of the following year. Individuals are required to complete and submit the Annual Individual Income Statement if they generate gross annual income from all sources (within and outside the Republic of Albania), in the aggregate amount over ALL 2 million.
The individual has the obligation to complete and submit in person the individual annual statement of personal income, but also has the right to appoint his legal representative to complete or submit his statement.

Are there penalties for failing to comply with tax liability filing deadlines?

Failure to declare and pay tax dues on time is penalized according to the provisions of Law No. 9920, dated 19.05.2008 “On tax procedures in the Republic of Albania” amended.

FINANCIAL STATEMENTS AND ACCOUNTING STANDARDS FOR NPOS

Which are the financial statements for NPOs?

Based on Law No. 25/2018 dated 10.05.2018 “On accounting and financial statements” , the financial statements for NPOs are:

  • Statement of financial position;
  • Statement of activities;
  • Cash Flow Statement;
  • Notes to the financial statements.

Is there a difference in reporting between small and large NPOs?

NPOs with an asset or income figure of more than ALL 5 million apply accrual accounting and prepare all financial statements under paragraph 25 of the “National Accounting Standard for NPOs”.  NPOs that do not meet these criteria apply cash accounting and build only the cash flow statement accompanied by explanatory notes on the type of activities or services they offer.

Is it mandatory for an NPO to certify its financial statements by a certified accountant or audit firm?

According to Law No. 10 091, dated 5.3.2009 “On the legal audit, organization of the profession of the registered accounting expert and the certified accountant” NPOs are not obliged to perform statutory audit of their annual financial statements.

Do NPOs have a legal obligation to publish financial statements?

Starting from January 1st 2019, with the entry into force of the Law Nr.25/2018 “On accounting and financial statements” all NPOs in excess of ALL 30 million in assets or income in the financial statements, are obliged to publish their financial statements on their official website.

ECONOMIC ACTIVITY OF NPOS

Can NPOs carry out economic activity? If yes, is there a limit?

NPOs, as part of their activity, can carry out economic activity. Economic activity should NOT be the primary activity of NPOs (non-economic activity should prevail). The annual income from economic activity should not exceed 20% of the total annual income.

Read more:
→ Law No. 92/2014 “On value added tax in the Republic of Albania”, as amended.
→ DCM No. 953, dated 29.12.2014, On the implementing provisions of Law No. 92/2014, “On value added tax in the Republic of Albania” as amended.

If the NPO carry out an economic activity, should it issue a tax receipt?

Like any other entity that conducts economic activity, NPOs are considered a “taxable person” and as such have the obligation to issue tax invoices if they carry out economic activity. Link

Read more:
→ Instruction No.24, dated 02.09.2008, “On tax procedures in the Republic of Albania”.

When does the NPO's obligation to have the cash register arise?

If the NPO circulates goods and services for which payments are not made through the bank but in cash, the obligation arises to install and operate the fiscal system through the use of fiscal equipment (fiscal cash register) for the registration of cash payments and compulsory issuance of tax voucher.

Read more:
→ Instruction No.24, dated 02.09.2008, “On tax procedures in the Republic of Albania”.

Are NPOs entitled to participate in public tenders?

NPOs, like any other legal entity, have the right to participate in the tendering and procurement processes of grants, contracting and sales transactions by state bodies of public services, goods and public assets, as well as the transfer of public services and related public sector assets to non-profit organizations.

Are NPOs subject to VAT law and if so is VAT refunded?

If the annual turnover of the NPO exceeds the limit of 2 million ALL, they are obliged to register for tax liability for VAT according to the law of tax procedures amended in 2018. Like any taxable person, NPOs have the right to claim VAT reimbursement for their economic activity, if they meet both criteria set forth in the VAT law:

  • has a VAT credit surplus for three consecutive months.
  • the amount of VAT required must exceed 400,000 ALL.

Read more:
→ Law No. 92/2014 “On value added tax in the Republic of Albania”, as amended.

When NPOs are exempt from VAT?

NPOs have the right to benefit from the exemption of VAT for certain economic activities considered as “activities of public interest”. To benefit from the VAT exemption, NPOs must meet three criteria:

  • NPO decision-making bodies should not have interests directly related to the organization’s activity;
  • The non-economic activity of the organization should prevail significantly in relation to the rest of the activities.The economic activity cannot exceed 20% of the non-profit organization’s annual income;
  • Products or services provided by NPOs should not compete with the non-profit sector. NPOs that meet these criteria must submit a request together with the list of required documents at the relevant Regional Tax Directorate for VAT exemption. The decision to exempt from VAT is approved and signed by the General Director of Tax Administration, for a period of three years, with the right of renewal.

Read more:
→ DCM No. 953, dated 29.12.2014 On the implementing provisions of Law No. 92/2014, “On value added tax in the Republic of Albania”, as amended.

Are grants exempt from VAT?

Any NPO that receives payments as grants from donors for the purposes of the non-profit’s activity, in accordance with the law on non-profit organizations and in return for such payments, does not make a supply of goods or services to the donor, but use the payment to realize the purpose of its nonprofit activity, then these amounts received are not in the scope of VAT application.

Read more:
→ Law No. 92/2014 “On value added tax in the Republic of Albania”, as amended.