Natural persons will pay 23% tax for profit over 14 million ALL, equate to LLC and JSC

All natural persons who for the tax year 2024 have made a tax profit over 14 million ALL, from March 31, 2025 will pay 23% tax for ALL 14 million.

This means that if a natural person has made a tax profit of ALL 20 million, they will pay 15% for profit up to ALL 14 million and 23% for the remainder of ALL 6 million. This new form of calculation automatically increases the tax that natural persons must pay that tax profits over 14 million ALL per year.

Previously, natural persons with profits at these levels pay 15% profit tax for the entire amount. (In the present case, 15% of 20 million ALL).

In this way, the profit tax on the physical personal that declares profits over 14 million ALL per year equates to those of limited liability companies and anonymous companies, paying 15% profit tax and then 8% for the profit they distribute as a dividend. (In fact, since natural persons do not distribute dividends, they will be forced to pay 23% for the entire amount over 14 million ALL, unlike KPS and JSCs that may not distribute dividends, or distribute part of the profit as dividend).

According to the data of the Directorate General of Taxation, there are less than 400 taxpayers of natural persons making net profit over ALL 14 million and included in this tax scheme up to 23%.

A personalized message was sent to these entities.

“The Tax Administration tells you that, since you are a natural person and you have made for 2024 a tax profit over 14 million ALL, you must keep in mind the calculation of business income tax, in accordance with Article 24, paragraph 2, of Law No. 29/2023“ On Income Tax ”.

According to the Directorate General of Taxation, this change is based on Article 24, paragraph 2, of Law no. 29/2023 “On Income Tax”, and brings a progressive tax system on the annual net profit of these individuals. The new tax regime will apply to natural persons who have made over 14 million lek net profit for 2024, while tax will be paid from March 2025.

Point 2 of Article 24 of the Law provides that taxable net income (ie, profit after deduction of permitted expenses) for natural persons will be taxed with progressive rates, such as: for the annual tax base (net profit) up to 14,000,000 ALL will be 15% and over 14,000,000 ALL will be 23%.

How will the tax be calculated?

According to the tax administration’s explanations, this means that only the profit portion that exceeds the limit of ALL 14 million is taxed by 23%. The share of ALL 14 million is taxed at 15%.

It is important to understand that the new tax does not apply to gross income (total sales or lap), but on net profit, which is calculated as:

Net profit = total income – permitted expenses

eXAMPLES

If a person has ALL 14,000,001 income and 1 lek expense, profit is 14,000,000 ALL, it will be taxed at 15%.

Only when profit exceeds ALL 14 million will the 23% rate apply to the additional amount.

Natural persons who generate annual income (turnover or sale) up to ALL 14 million receive exemption from profit tax by 2029.

Example How is the tax on profit over 14 million lek

Based on Instruction no. 26, dated 8.9.2023 on income tax (amended by Instruction No. 4, dated 4.2.22025

Point 24. Tax rate

24.2

For the annual business income, for which the tax base is a taxable net income, namely the difference of income minus deductible expenses, the progressive norms are implemented, as follows:

a) 15% for taxable net income (taxable profit) up to ALL 14,000,000 per one tax year;

b) 23% for each additional money of taxable net income (taxable profit) over 14,000,000 ALL per year.

24.3 If a trade or self -employed natural person, after deducting from gross income, any deductible expense and any discount permitted under Article 22 of the law, declares a taxable taxable profit at 12,000,000 ALL, the tax that will pay will be 12,000,000 x 15% = 1,800.000 ALL.

24.4 If a trade or self -employed natural person, as the gross income has deducted any deductible expense and any discount permitted, according to Article 22 of the law, declares taxable profit 20,000,000 ALL, the tax to pay will be: 14,000,000 x 15 % + 6,000,000 x 23 % = 2.100.000 + 1.380.000 = 3.480.000.

So, the tax that the taxpayer will pay, for a taxable profit of ALL 20,000,000 will be ALL 3,480,000.

Previously this business paid a profit tax of ALL 3 million (15%*20 million ALL), so in the present case it will pay 480 thousand more, with an increase of 1.6%.