Albanian Subsidiary vs Foreign-Company Branch

Tax, liability and compliance considerations for investors in 2026

Who this guide is for: CFOs, founders, tax managers and foreign investors planning business activity in Albania.

Quick answer: A subsidiary is usually worth considering where separate legal identity, local ownership arrangements and separation of business liabilities are priorities. A branch can suit a foreign company that wants to operate directly in Albania and accepts responsibility for the branch’s obligations. Both require proper registration, accounting and tax compliance. A permanent establishment (PE) is a tax concept arising from the facts of an activity; it is not a lighter legal structure that an investor can simply elect.

The right structure depends on who will contract with customers, where people will work, how the business will be financed and how profits will be used. Project duration matters, but it does not decide the issue by itself. This guide separates the legal choice between a subsidiary and a branch from the tax question of whether a foreign business has created a PE. References are to Albanian rules and official guidance reviewed on 16 October 2026.

1. Start with three different concepts

An Albanian subsidiary, commonly a limited liability company (SHPK), is a separate legal entity owned by the foreign investor. It enters into contracts, owns assets and incurs liabilities in its own name. Shareholder liability is generally limited, subject to legal exceptions and any guarantees or other commitments given by the parent. [1]

A branch of a foreign company is a registered extension of that company. It does not provide the same legal separation: the foreign company remains responsible for obligations arising through the branch, including commercial obligations, not only taxes. A branch can hire staff and carry on local business; those functions are not exclusive advantages of a subsidiary. [1–2]

A permanent establishment determines when Albania can tax profits attributable to a foreign enterprise’s presence under domestic law and, where applicable, a double tax treaty. A commercial branch will normally constitute a PE, but a PE can also arise through an office, a qualifying project or an agent before the foreign company has completed registration. Instruction No. 26, section 5.4.1, directs a non-resident creating a PE to register it as a foreign-company branch with the National Business Centre (QKB). [3–4]

An investor should therefore make two assessments: which legal structure fits the business, and what tax obligations arise from the activities actually undertaken.

2. Subsidiary and branch: practical comparison

The table summarises general rules. Sector licensing, the parent’s jurisdiction, treaty eligibility and the actual operating model can change the result. [1–5]

3. When can an unintended PE arise?

Article 5 of Law No. 29/2023 defines the domestic PE tests. An applicable tax treaty may restrict Albania’s taxing rights or provide a different threshold, so both must be examined. The OECD Model is useful background, but it does not replace the actual law and treaty. [3]

Fixed business premises. An office, workshop or other fixed place through which the foreign enterprise conducts business can create a PE. A short contract or the absence of an incorporated company does not automatically prevent this outcome.

Construction and installation projects. The domestic rule covers specified construction, installation, assembly and related supervisory activities lasting more than six months in aggregate within any twelve-month period. A treaty may provide a different rule. The six-month threshold is not a general exemption for every form of business presence.

Services. The domestic law also contains a service PE rule, including consultancy supplied through employees or other individuals, where the specified activities continue for the same person or a related person for more than six months in aggregate within any twelve-month period.

Agents. Exposure is not limited to someone who formally signs contracts. The domestic test also addresses a person who habitually plays the principal role leading to contracts routinely concluded without material modification by the foreign enterprise. The independent-agent exception depends on the actual relationship and activities.

The law contains further provisions, including rules for certain natural-resource and insurance activities, exclusions for qualifying activities and rules preventing artificial fragmentation. These require separate assessment where relevant. [3, Article 5]

Three practical examples

Remote working, a website or sales to Albanian customers should not be treated as automatic proof of a PE. Equally, contractual restrictions on authority will not resolve exposure if everyday conduct contradicts them.

Owning an Albanian subsidiary does not, by itself, create a PE for its foreign parent. However, the parent’s own activities, access to premises and use of agents must still be assessed separately. [3, Article 5(8)]

4. Corporate tax: compare taxable profits, not just rates

The standard corporate income tax rate is 15%. A resident subsidiary is generally taxable on worldwide taxable income, with relief where available. A non-resident is taxable on income attributable to its Albanian PE and, separately, on other Albanian-source income falling within domestic rules, subject to treaty limitations. [3, Articles 2, 28 and 41]

Article 69 contains transitional reliefs, including a 0% income tax rate through 31 December 2029 for qualifying taxpayers with annual gross income up to ALL 14 million. Eligibility, the relevant turnover measure and sector-specific provisions must be checked for the particular operation. A small-business example should not automatically apply 15% without addressing that regime. [3, Article 69]

Even where both structures face 15%, their taxable profits need not be identical. Deductibility, financing, related-party pricing and PE attribution can produce different results.

Head-office costs deserve particular attention

A branch should not assume that an allocation of group overheads is automatically deductible. Section 5.4.1 of Instruction No. 26 describes branch expenses while excluding transfers of parent expenses or allocations of general administrative expenditure under that domestic guidance. The applicable treaty’s profit-attribution and expense provisions must also be examined. [4]

For a subsidiary, a management-fee invoice likewise does not, by itself, establish deductibility. The business must support the service, business purpose, amount and applicable transfer-pricing treatment, and assess any withholding and VAT consequences.

5. Dividends, branch transfers and other cross-border payments

An Albanian subsidiary’s dividend to its foreign shareholder generally attracts 8% domestic withholding tax, subject to any applicable exemption or treaty reduction. Interest and royalties paid to non-residents are generally subject to 15% domestic withholding, with statutory exceptions and treaty relief where applicable. Certain other payments also fall within the withholding rules. [3, Articles 58–59]

A branch and its head office are parts of the same legal person. A transfer of the branch’s after-tax profit to head office must therefore be distinguished from a dividend paid by a separate subsidiary to its shareholder. Instruction No. 26 expressly allows the branch’s after-tax profit to be transferred to the non-resident that established it. The subsidiary’s 8% dividend rate should not simply be copied onto every branch remittance. Identify the nature of the transfer, relevant domestic provisions and treaty treatment before calculating tax. [4, section 5.4.1]

Treaty relief is not automatic merely because a treaty exists. Residence, beneficial ownership where relevant, ownership or holding-period conditions, anti-abuse provisions and the required application documents must be considered. The parent-country tax treatment and available foreign tax credits or exemptions also belong in the model.

Illustrative calculation

Assume a subsidiary has annual revenue of ALL 50 million and taxable profit of ALL 5 million, is subject to the standard rate and distributes all after-tax profit to a foreign corporate shareholder. Assume no treaty reduction or other exemption.

If a branch had the same taxable profit and standard rate, its corporate income tax would also be ALL 750,000. Its profit transfer requires the separate analysis described above. This illustration excludes parent-country taxes, differences in deductions, VAT and financing; it does not establish which structure has the lowest total cost.

6. VAT, payroll and fiscalization

VAT depends on the transaction

Albania’s standard VAT rate is 20%. The general registration threshold for resident businesses is ALL 10 million, but exceptions and non-resident rules mean that this is not a universal safe harbour. Determine the place of supply, the person liable to account for VAT and whether reverse charge, registration or a tax representative is required. An income-tax PE and a fixed establishment for VAT purposes are separate concepts. [6]

Neither a subsidiary nor a branch automatically obtains full input VAT recovery. Recovery depends on the use of purchases for qualifying transactions, valid documentation and statutory restrictions. Exempt or mixed activities may restrict recovery. A foreign business may also have VAT obligations without an income-tax PE. [6–7]

Payroll follows the employment arrangements

Both structures must address payroll withholding and social and health contributions when acting as an employer in Albania. For internationally mobile staff, employment terms, tax residence, treaty provisions and applicable social-security arrangements require review. A dependent agent for PE purposes is not automatically an employee for payroll purposes.

Fiscalization is an established obligation

Albania’s fiscalization system was rolled out in phases during 2021 under Law No. 87/2019. Businesses should configure their invoicing and reporting processes for the transactions within scope. Fiscalization and electronic invoicing are related, but the required process depends on the transaction category. [8]

Digital records can help the tax administration identify inconsistencies between declared activities, invoices and other information. They do not themselves create a PE or establish that branches are inherently higher-risk than subsidiaries. The practical objective is consistent contracts, records, declarations and actual conduct.

7. Registration, reporting and the real cost of compliance

Both structures require a registration and implementation plan. QKB’s requirements differ: a subsidiary needs incorporation documents, while a branch requires documentation on the foreign company and its decision to establish the branch. Foreign corporate shareholders also bring additional documentation requirements for a subsidiary. Translation and authentication requirements should be checked before submission. [2]

After registration, confirm the NUIS/NIPT and tax responsibilities, applicable beneficial-ownership filings, banking arrangements, licences, VAT and payroll obligations, accounting processes and fiscalization setup. A successful registration does not mean every operational requirement has been completed.

Both structures need accounting records and applicable financial reporting. Branch status is not a general exemption from financial statements or statutory filing obligations. Audit requirements must be assessed under the applicable legislation and sector rules rather than inferred from the subsidiary/branch label. [4–5]

The annual income tax return is generally due by 31 March of the following year. VAT, payroll, withholding, tax instalments and registry filings have their own schedules. Transfer-pricing documentation and the annual controlled-transactions notification are distinct obligations, with their own scope and thresholds. [3, Articles 37 and 63]

Build a comparable budget

Obtain quotations for the same activity, staffing and transaction assumptions. Separate office rent, working capital and share capital from professional fees and official charges. There is no reliable universal rule that a branch costs less to establish or maintain. A hypothetical penalty allowance should not be used to make one structure appear systematically preferable.

8. A practical decision framework

Consider a subsidiary where the business needs separate legal identity, local equity partners, a distinct governance structure, separation of liabilities or a future sale of shares. A subsidiary may fit a continuing local operation, but its tax advantage must be demonstrated rather than assumed.

Consider a branch where the foreign company intends to perform contracts directly, wants the Albanian operation within the same legal entity and accepts direct responsibility for its obligations. A defined project can fit this model, but branches are not limited to short-term activity and still require substantive compliance.

Assess direct cross-border activity separately where the intended presence is limited. A conclusion that no PE arises must follow from the facts, domestic law and any applicable treaty. It does not automatically remove withholding, VAT, employment, licensing or registration questions.

Conclusion and implementation checklist

Choose the legal structure that fits the commercial model, then test its tax consequences in Albania and the parent’s jurisdiction. Legal separation, profit attribution, financing, profit extraction and compliance all matter. Neither a subsidiary nor a branch is universally cheaper or safer.

Before starting operations:

1. Map the contracts, people, premises, assets and activities that will be located in Albania.
2. Review the domestic PE tests and the specific treaty, including project and service-duration rules.
3. Compare liability, taxable profits, deductions, profit extraction and parent-country treatment under both structures.
4. Complete the required registration, licensing and beneficial-ownership steps within their applicable deadlines.
5. Assess VAT and payroll independently of the income-tax PE conclusion.
6. Establish accounting, fiscalization and filing responsibilities before the relevant transactions begin.
7. Document related-party dealings and branch/head-office allocations from the outset.
8. Reassess the position when contracts, project duration, staffing or agent authority change.

General information:

This article was produced by Global Law Experts for general information purposes and does not constitute individual tax or legal advice. The appropriate treatment depends on the specific facts, applicable Albanian legislation and any relevant double tax treaty.

For tailored guidance on investing in Albania, business establishment and Albanian tax compliance, contact Q-Lever. Q-Lever connects foreign investors and businesses with experts in its professional community for tax advisory, accounting and business structuring in Albania.

Legal references and official guidance

[1] Law No. 9901, dated 14 April 2008, “On Entrepreneurs and Commercial Companies”, as amended: legal personality, branches and limited liability companies. QKB legislation: https://qkb.gov.al/legjislacioni/legjislacioni-per-tregtaret-dhe-shoqerite-tregtare/

[2] QKB, “Dokumentacioni shoqërues”: registration documentation for companies with foreign shareholders and branches of foreign companies. https://qkb.gov.al/info-rt/dokumentacioni-rt/

[3] Law No. 29/2023, “On Income Tax”, consolidated text including Law No. 81/2025. In particular Articles 2, 5, 28, 32–37, 41, 58–59, 63 and 69. https://www.tatime.gov.al/shkarko.php?id=14530

[4] General Instruction No. 26, dated 8 September 2023, “On Income Tax”, as amended; particularly section 5.4.1 on PE registration, expenses and transfer of after-tax profit. https://www.tatime.gov.al/shkarko.php?id=14596

[5] Law No. 25/2018, “On Accounting and Financial Statements”, as amended; applicable reporting requirements and commencement provisions should be considered together with business-registration and audit legislation. https://www.tatime.gov.al/shkarko.php?id=14670

[6] Law No. 92/2014, “On Value Added Tax in the Republic of Albania”, as amended, and implementing acts: https://www.tatime.gov.al/c/6/71/tatimi-mbi-vleren-e-shtuar . DPT practical guidance on registration and deduction: https://www.tatime.gov.al/c/4/96/110/tatimi-mbi-vleren-e-shtuar

[7] DPT, “Regjistrimi i Tatimpaguesit”, including VAT tax representatives: https://www.tatime.gov.al/d/8/222/437/1099/regjistrimi-i-tatimpaguesit

[8] Law No. 87/2019, “On the Invoice and Turnover Monitoring System”, as amended, and DPT fiscalization guidance: https://www.tatime.gov.al/c/424/fiskalizimi . Historical rollout evidence: https://www.tatime.gov.al/d/424/493/0/1671/fiskalizimi-ne-shifra-1-janar-21-shtator-2021