The Constitutional Court of Albania, the sole authority responsible for ruling on the constitutionality of acts and laws, has partially overturned the law on taxing freelance professions. The law, drafted by the Albanian government, faced opposition from interest groups and has been struck down today.
According to the legal provisions, from January 1st of this year, a progressive tax with rates of 15% and 23% for the self-employed, individuals, and service providers in freelance professions was implemented.
Businesses are required to prepay between 600 and 1,000 euros per month in taxes for 2024, based on the declared income and expenses for 2023. Accountants and lawyers assessed that not only was the legal content of the evaluations incorrect, but also the calculation for the tax prepayment installments.
Under these circumstances, after hearing the parties involved, the Constitutional Court decided to partially overturn this law.
“The freedom of economic activity is violated due to non-compliance with the principle of legal certainty, in terms of legitimate expectations and the clarity of the norm, as well as the principle of proportionality. The court reached this conclusion considering the tax scheme, particularly the fact that the 15% tax obligation for this category of taxpayers was implemented immediately without giving them time to adapt to the new tax scheme,” stated the court’s chairwoman, Holta Zaçaj.
The new law was set to be implemented in two phases. After deducting expenses, the profits of the self-employed, individuals, and service providers in freelance professions would be taxed at rates of 15% and 23% starting January 1, 2024. Meanwhile, other small businesses would continue to have zero tax until December 31, 2029.
Due to the unequal tax treatment imposed on different business categories, the annulment of Article 69, which exempts other businesses from taxation, and the list of services in freelance professions included in the new tax were demanded.
The income tax law was approved by Parliament in March 2023 and published in the Official Gazette in December. It encompasses 26 types of activities, ranging from IT services, accounting, lawyers, teachers, doctors, real estate, news agencies, employment agencies, sports, and tour operators.
In total, according to the Ministry of Finance and Economy, up to 29,000 businesses in freelance professions are included in the new tax regime.
The Ministry of Finance and Economy estimated that up to 90% of the total businesses (divided into three categories: self-employed, individuals, and traders) fall within the annual income bracket of up to 14 million leks per year and are taxed at a rate of 15%.
Opposition MPs and representatives of freelance professional groups affected by this law, including accountants and lawyers, argued in the session that the law creates inequality and discrimination before the law for the various categories to be taxed by these changes, thereby creating legal uncertainty.