Author: Dallandyshe Xhaferri
In Albania, the taxation of freelancers, especially in the field of technology and consulting, has opened debates about the future of this sector. The law requires a profit tax on income, putting into question the continuity of many businesses.
When it is 1:15 a.m. in Albania, Albanian professionals who provide online IT Services for the United States of America have to work with the energy of a workshop located in Los Angeles, where the time is 30:XNUMX p.m. of the previous day. . One of the freelancers working independently for the international market is Artur Havalja.
The 27-year-old computer science graduate at the Faculty of Natural Sciences has been working as a Software Developer for private companies in the country for 5 years, and for two years he has been working full-time online as a software engineer for an American company.
"In the last 3 years I have my own office and team where we offer online IT Services for foreign clients internationally, in Europe and the USA",- says the 27-year-old.
Although he thought about leaving the country, the opportunity to work online for foreign clients has made him stay and develop his activity in Albania.
Havalja recalls for "Sinjalizo" that for digital professionals the 2019 pandemic was a good opportunity to spend all online activity, despite the challenges with international competition, with professionals who have received education in the best universities in the world.
"The geographical position became just a point on the map", - says Havalja as she points out that crossing border barriers turned into a professional improvement opportunity for digital professionals.
Shahin Veisi is another freelancer who has been providing Services in the technology field for three years.
"During this period, I collaborated with clients from different countries of the world, offering Services in the design and modeling of mechanical systems",- says Veizi.
However, the pandemic is not the only event that has affected the careers of freelancers in the country. With the entry into force of the new tax law for free professions, the activity of the computer program is included in the list of service of freelancers who have begun to be subject to the new tax system.
According to law that entered into force on January 1 of this year, the self-employed and natural persons of free professions will not be treated as small businesses with 0% tax, but they will be taxed at 15% rates for the band 0 to 14,000,000 ALL and are taxed at 23% when the profit is over ALL 14,000,000.
According to the official figures that the National Business Center gave to "Sinjalizo" in response to the request for information, it turns out that the number of "active natural persons", that is, who legally exercise their profession, is 190.
Any self-employed individual, commercial individual, as well as any individual who generates income from any source, including employees, inheritance, donation, etc., is recognized as a "natural person" by the Albanian state.
However, experts say that despite this definition in the law, the method of its implementation is not the same for all these economic subjects.
Artur Papajani, former Director General of Taxes, says for "Sinjalizo" that this law came as a necessity, but that it does not meet all expectations. Problems are encountered not only in its practical implementation, but also in the continuation of inequality in taxation.
"Although the 0% taxation was rightly 'avoided', again a significant group of businesses, natural commercial persons remains privileged, being exempted from taxation", - says Papajani, emphasizing that the tax rate for the self-employed is now 2-4 times higher than during the period before the tax for small businesses, when it was 5%.
"This economy puts almost all the free professions that were once called, or professional Services today, in a serious financial position. This is an unjustified increase in the sense of the minimal weight that this group occupies in the total collected income", - concludes Papajani.
During the parliamentary discussions of the law last year, according to the Ministry of Finance, 26 thousand free professionals were affected by it and the effect on the state budget will be 30 million euros, which is not even 1% of it.
Engineer Shahin Veisi points out that this rate of taxation is a burden for freelancers, who, although they do not support the practice of tax avoidance, have tried to find ways to reduce costs and avoid high taxes.
"Many of us are following different methods such as registering businesses abroad or using international bank accounts. However, these methods are complicated and often dangerous"- he says, while explaining how the new tax affects not only financial income, but also his activity.
"If we assume that my annual earnings are 20,000 euros, then I will have to pay 3,000 euros in taxes. This amount is significant and could reduce my earnings significantly. For some freelancers, this could mean a reduction in quality of life or the need to raise prices for clients, which could negatively impact competition," - says Weiss.
Meanwhile, Artur Havalja shows that attempts to avoid taxes have not been missed before by employees with higher than average salaries.
"The 0% tax for small businesses and freelancers has been a great help for all of us, but this is where the abuses of many employees and businesses arose, where after reaching an above-average salary, they passed as a 'natural person' for benefited from 0% taxation, but this is unfair for the rest of society", - says the 27-year-old, who adds that income-based taxation should be for all professionals, but the newly enacted law has some quirks.
"The tax is based on income, not on profits. As you know, a significant part of the income of a business is expenses. I don't think there is any business in the world that works at zero cost", - he says, while adding that another problem is the taxation based on the income that the free lobbyists had last year.
"War" in the Constitutional Court
For lawyer Lulzim Alushaj, who is also the initiator of the Law on Taxation of Free Professions in the Constitutional Court, taxation goes beyond 23% of net income.
"The logic of the advance payment of installments of the obligation on profit tax is unconstitutional, which, together with the non-recognition of expenses in the amount of 30% (for a part of these professions according to turnover), leads to full taxation without any deduction. For these reasons, the measure of the tax percentage is no longer 15 or 23%, but it is almost 50% of the value", - says Alushaj.
In the request of 660 pages supported by 151 professionals, the violation of the principle of equality before the law and non-discrimination is specified; violation of the freedom of economic activity and profession; the bias of entry into free professions and the importance of the continuity of regulated professions (or not), etc.
Among other things, according to the lawyer Alushaj, this request includes the artificial increase of service prices, as well as the reasoning on the retroactive effect of the Law.
Meanwhile, Artur Havalja emphasizes that it should be taken into account that the contracts of professionals with their clients are short-term.
"Most freelancers have short-term contracts, and it's not as stable as being employed somewhere. Therefore, taxation must be done from month to month, depending on the results achieved", - Havalja concludes.
Taxation of free professionals, "blow" for the middle class
Aigest Milo, the lawyer representing the Institute of Chartered Accountants and the Institute of Accounting Experts in the Constitutional Court for the repeal of the income tax law, tells "Sinjalizo" that the complaint of these two Institutes and the National Chamber of Advocacy will be examined on June 18.
Milo informs that the main arguments raised in the appeal addressed to the Constitutional Court are related, among other things, to the comparison of free professions with employees, different from other businesses.
"In the same way, the implementation of a different tax scheme for the self-employed, based only on the type of activity and not, as is the purpose of the law, on the level of income, directly affects the freedom of economic activity as in this way, the state becomes decisive in the choice of an individual to practice a certain profession", - points out Milo, while for the economy expert, Enriko Ceko, this law is a blow to the middle class of society.
"Professionals who work in a free state individually in society are in fact the most important part of the middle class in the country, and the most healthy and independent part of Albanian society", - says Ceko, adding that it is absolutely necessary for freelancers to ensure sufficient income to provide independent Services.
"These are the so-called gatekeepers in an economic system. If there are no gatekeepers, then there are no consultancy and supervision Services for entrepreneurial activities and activities that are carried out through the state budget", - says Ceko.
Another complaint addressed to the Constitution is the violation of the principle of legal certainty.
"The previous tax scheme, when it was decided in 2020, was promised to be kept in force until 2029, and based on this promise, which is also renewed in the parliamentary documentation at the time of the adoption of the law",- says lawyer Milo, adding that the law should, among other things, determine the criteria for taxation and the exemptions from it.
"In this particular case, the law has left a very wide range of action to the Council of Ministers, leaving it to its total discretion on what criteria the list of professions that will be subject to the new scheme will be formulated", - he says, adding that another reason to revolt is the publication of the list of professionals just a few days before the start of the implementation of the law, while it was already approved in March 2023.
For Enriko Ceko, the income tax will be associated not only with the lack of professionals, but also with the reduction of the quality of their work.
"I think that most of them will close their business and be listed as unemployed. They will look for work in the state and in the private sector, but their work will be valued much less, so they will work with lower quality, since quality is related to payment", - says Ceko, who, among other things, emphasizes that we may have a shortage of professionals who will provide various Services.
"There will be a shortage of professionals who will provide consulting, supervision and work approval Services, mainly for public procurements. This serves as a 'boomerang' for the government as well, since it has no where to find professionals to supervise the works and make the approval of the works so that these works are taken over by the local and central government",- concludes the economic expert.
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