ECONOMIC ACTIVITY OF NPOs

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

NPOs, as part of their non-profit 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[1].

Read on for 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.

UMF no.6, dated 30.01.2015 “On value added tax in the Republic of Albania”, as amended.

[1]Article 2, II, point 3 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”, as amended, expressly provides: “Supplies carried out by non-profit organizations must not compete with the profitable commercial sector. The amount of income from the economic activity of the organization as its secondary activity, carried out by these organizations for the purposes of the non-profit activity for which they were created, collected during the calendar year, should not exceed 20% of the total annual income of the organization. The notion of “general income” sums up all the financial resources of the organization, including income from supplies and operating subsidies”.

If the NPO exercises economic activity, should it issue a tax invoice?

NPOs are considered “taxable persons” when they perform non-profit economic activity, and as such, have the obligation to issue tax invoices in the case that they perform non-profit economic activity. The NPO also issues tax invoices for any financing, donation or grant it receives in the framework of the non-economic non-profit activity.

For further information, read below:

Instruction no.24, dated 02.09.2008 “On tax procedures in the Republic of Albania “, as amended.

When is triggered the NPO's obligation to be equipped with fiscal cash machine?

If the NPO provides goods and services for which payments are not made through bank transfers but in cash (within the relevant limits for the cash transactions), the NPO has the obligation to install and use of the fiscal equipment (fiscal cash registers), for the registration of any cash payments and the obligation to issue tax coupons.

Read for more: Instruction no.24, dated 02.09.2008 “On tax procedures in the Republic of Albania “, as amended.

Are NPOs entitled to participate in public tenders?

NPOs, like any other legal entity, have the right to participate in the tendering procedures and procurement of grants, in contracting and sales with state bodies for public services, goods and public assets, as well as for the transfer of public services and related assets from the public sector to the non-profit organizations, in accordance with the scope of activity of the NPO, including the relevant permit/license (if any), and after checking the scope of procurement and compatibility with the formal fact whether the NPO performs non-economic activities only or also economic activities non-profit along with the non-profit non-economic activity.

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

If the annual turnover of the NPO exceeds the VAT registration limit of ALL 10 million, the NPO, like any other taxable person, must declare and pay the relevant due VAT calculated following the relevant requirements of the VAT legislation.

Like any taxable entity, NPOs have the right to claim VAT reimbursement in the course of their economic activity, if they simultaneously meet the relevant criteria provided in the VAT law:

has a VAT credit surplus for 3 (three) consecutive months.
the amount of VAT required must exceed 400,000 ALL.

Read on for more

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

When are NPOs exempted from VAT?

NPOs are exempt from VAT for certain economic activities considered as “activities of public interest”, and for supplies which as for any other entity are exempt from VAT (i.e. when the NPO performs non-profit economic activities).

In order to benefit from the exemption from VAT for the “activities of public interest”, NPOs must meet the 3 (three) following criteria:

NPO decision-making bodies should not have interests directly related to the organization’s activity;
The non-economic activity of the NPO should prevail significantly in relation to the rest of the activities.The incomes generated from economic activity cannot exceed 20% of the non-profit organization’s annual income;
Products or services provided by the NPOs should not compete with the for-profit sector;
NPOs that meet these criteria must submit to the relevant Regional Tax Office a request for exemption from VAT together with the list of required documents,. The decision on exemption from VAT is approved and signed by the General Director of the General Tax Directorate, for a period of 3 (three) years, with the right of renewal. For non-profit organizations that register for the first time, the VAT exemption authorization is valid for 1 (one) year, with the right of renewal. For the renewal of the authorization for VAT exemption, the same procedure, conditions and criteria are followed as in the case of obtaining the authorization for the first time.

Read for more: VKM 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 or donations exempt from VAT?

Any NPO that receives payments as grants from donors for the purposes of the non-profit 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 uses the payment to implement the purpose of its non-profit activity, then these amounts received are not subject to VAT.

Read for more: Law no.92/2014 “On Value Added Tax in the Republic of Albania”, as amended.