Draft Law “On Real Estate Tax”

By bogalaw journal Last updated Oct 20, 2023

On 03.08.2023, the Ministry of Finance and Economy submitted for public consultation the Draft Law “On Real Estate Tax” (the “Draft Law”).

The proposed draft aims to create a contemporary, effective, transparent, and sustainable system for levying taxes on real estate based on their market value with the goal of boosting the existing real estate tax revenue and simultaneously ensuring enhanced equity for taxpayers, while reducing administrative expenses related to tax management.

In order to accurately calculate the tax, the Draft Law presents a categorization of properties and a categorization of values. The latter is a subdivision under the property category and will be determined upon a decision of the Council of Ministers.

The properties are categorized as follow:

Agricultural-Livestock Property;
Woodland Property;
Residential Property;
Commercial Property;
Industrial Property;
State-Owned Property; and
Religious Property.

According to the Draft Law, the local authority of the specific jurisdiction where the property is located shall determine tax rates for each property category as outlined below:

The tax rate may vary within the range from 0.1% (zero-point one percent) to 0.2% (zero-point two percent) for all building units included in the category of residential properties;
The tax rate may vary within the range from 0.15% (zero-point fifteen percent) to 0.25% (zero-point twenty-five percent) for all building units included in the category of agricultural-livestock properties, commercial properties, or industrial property;
The tax rate may vary within the range from 0.1% (zero-point one percent) to 0.3% (zero-point three percent) for all parcels included in the category of agricultural-livestock property, woodland property, or residential property;
The tax rate may vary within the range from 0.15% (zero-point fifteen percent) to 0.3% (zero-point three percent) for all parcels included in the category of commercial property or industrial property;
The tax rate for unfinished buildings is 30% (thirty percent) of the tax rate of the respective building category.

The taxable base of the tax shall be the market value of the property, to be calculated based on the methodology that will be determined by a forthcoming decision of Council of Ministers.

The Draft Law introduces the possibility of a deduction from the value of the first residence for all individuals, in an amount equal to 50% (fifty percent) of the value of the first residence, but in any case, not exceeding the maximum threshold of the deduction determined in this Draft Law.

In cases of co-ownership, the co-owner shall have the right to deduction for the first residence in proportion to its designated share.

Furthermore, an individual who owns or possesses 2 (two) or more residential units will have the right to deduction for the first residence for only one of these building units, regardless of the fact that the building units may be located in different municipalities.

The Draft Law stipulates that the tax is paid by the owner of the property. If the property is not registered with the cadaster office, the tax is paid by the possessor.

To ensure conformity with an equitable taxation system, the Draft Law provides for a number of properties that will be exempted from taxation, as listed below:

State-owned properties (except for the properties that have been rented or used otherwise by private entities);
Religious properties;
Unfinished buildings, which as of November 30^th prior to the tax year, are under construction in accordance with the designated construction period stated in the building permit;
Accommodation structures “Four and Five-star Hotel/Resort, special status,” as defined in the tourism sector legislation, which are holders of a registered and internationally recognized “brand name”;
Residential units of buildings utilized by tenants under non-liberalized leases;
Residential units of buildings owned or possessed by a family head who receives financial assistance;
Residential units of buildings, owned or possessed by a family head who receives elderly, disability, or social pension, live solely or with dependents who are incapable of work;
Social housing units owned by local authorities;
Units of buildings that are cultural heritage assets under temporary or permanent protection.

The responsible authority for tax administration is the municipality of the jurisdiction in which the property is located. Also, the Draft Law provides for the responsibilities of General Directorate of Real Estate Tax and the Fiscal Cadaster that will operate based on a decision of the Council of Ministers.

Tax Collection, Enforcement Measures and Penalties

The municipality generates property tax invoices based on the information received from the fiscal cadaster’s information system, no later than January 31 of each tax year and sends them to taxpayers and/or debtors within 30 (thirty) calendar days from the last day of invoice generation.

The payment of the tax liability may include the amount of tax, fines, and late payment interest, and is paid in two equal installments, by June 30^th and September 30^th of the tax year.

In case of failure to pay, the municipal services are suspended as an enforcement measure until the tax liability is satisfied.

Additionally, the Draft Law stipulates that non-compliance with the obligation of self-declaration (for properties not registered with the cadaster), failure to pay the tax liability, or hindrance of on-site verification of real estate will result in a fine from 10% to 50% (fifty percent) of the tax calculated in the subsequent year, but in any case, not less than 2,000 (two thousand) Leke up to 5,000 (five thousand) Leke, contingent upon the nature of the violation.

Appeal Process

According to the provisions of the Draft Law, the taxpayer who reasonably believes that tax assessment is incorrect, may submit an appeal accompanied with the relevant documentation within April 30 of the corresponding tax year to the local tax authority near the municipality. The taxpayer may appeal the decision of the local tax authority before the Local Tax Appeal Structure near the Municipality within thirty (30) calendar days from receipt of the decision.

Upon the conclusion of the aforementioned procedure, and if not in agreement with the decision of the Local Tax Appeal Structure near the Municipality, the taxpayer has the right to file a claim with the competent administrative court.

The appeal does not suspend the obligation to pay tax liabilities.

Finally, the Draft Law provides that the new tax based on market value for building units shall be implemented in 2026, while for parcels it shall be implemented in 2028 (although a 50% tax reduction is provided for the first two years of implementation).