Law. Tax. Transparency

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The legal procedure for the liquidation

of an Albanian Commercial Company

The procedure for the liquidation of an Albanian Company is described and specified in

Albanian commerce law. The law provides the standard procedure for the liquidation of an

Albanian Company.

A company that must be liquidated in Albania must follow the regulations of the Law No. 9901,

date 14.04.2008 of Entrepreneurs and Companies. This law is also regulating the status, the

managing, the founding and the reorganization of the four forms of business accepted by the

Albanian Economy: the limited liability company, the joint stock company, the general

partnership and the limited partnership.

The General Partnership may be dissolved if: the date of partnership has expired, if one of the

partners has decided so, if a Court took this decision, if a bankruptcy procedure is opened

against it or if it has an inactive status for more than two years and didn’t register it.

A Limited Partnership in Albania is not subject of dissolution in case the limited partners dies or

withdraw from the partnership. If a general partner is taking this decision, if the Court decides

so, if a bankruptcy procedure is opened against a general partner than the limited partnership

may be dissolved.

A Limited Liability Company in Albania may be dissolved if the General Meeting of the

Shareholders decided so, if it’s a Court’s order, if the insolvency procedure started, if the

company was inactive for more than a year and didn’t register this or if the date stated in the

Articles of Association has expired.

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The registration of the dissolution must be made by the managing persons of the company (if

it’s a General Meeting’s decision) or by Court on the National Registration Center.

Joint Stock Company liquidation in Albania must also be registered in the National Registration

Center and the reasons are the same as in the case of a limited liability company’s liquidation. A

general meeting of the Shareholders may decide to liquidate the company or a Court can take

this decision. Another reason may be the expiration of the date from the Articles of Association,

or a period of inactivity longer than 2 years, not registered.

A company may be placed into voluntary liquidation for a variety of legal, commercial and

taxation reasons. With careful planning and execution a voluntary liquidation can produce

significant tax advantages. Failure to plan and execute carefully can result in significant

amounts of unnecessary tax being paid. The primary tax advantages of liquidation relate to the

definition of dividends for tax purposes. If we consider the case that is not voluntary liquidation

case, the distribution of company profits or capital gains to shareholders will be taxable as

dividends. Broadly, liquidator’s distributions employ a much narrower definition of dividends

for tax purposes, and consequently provide greater opportunity for tax effective capital

distributions to shareholders.

The basic role of the liquidator is to distribute the assets to shareholders after meeting the

company’s liabilities. The shareholder receives a liquidator’s distribution in connection with the

cancellation of their shares in the company. This receipt in the hands of the shareholder is

distinctly capital in nature.

A liquidator’s distribution is not a dividend under the ordinary tax definition. A liquidator’s

distribution is deemed to be a dividend if it is sourced from profits. Profit may include;

ordinary income (income according to ordinary concepts);

statutory income (assessable income that is not ordinary income);

assessable capital gains (calculated without reference to indexation or capital losses).

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The ability of the liquidator to identify and specifically determine the composition of the

distribution can be critical from a tax perspective.

The standard procedure

The liquidation procedure starts with a resolution of the Meeting of Shareholders to dissolve

the company and to liquidate its assets/liabilities. In the same shareholders resolution the

directors are dismissed, the liquidator(s) is appointed, and a custodian for the corporate books

and records of the company is appointed. It is common that in the same resolution the former

directors are discharged from their corporate liabilities. In the event that the company has a

Supervisory Board, this body should approve the shareholders' resolution to dissolve the

company.

The resolution to dissolve and liquidate must be registered with the Trade Register of the

National Registration Center.

As from the moment of the dissolution, the Albanian words "likujdimi" should be added to all

publications, letters and announcements of or by the company.

The liquidator prepares a final account of the liquidation, and if there are multiple shareholders

a plan of distribution. The plan of distribution describes the way the company's assets and

liabilities are divided between the parties entitled thereto. If there is only one shareholder the

plan of distribution is not necessary. The final account and the plan of distribution must be

deposited at the company's office, if such office still exists, and must be filed with the Trade

Register of the National Registration Center.

The liquidator must publish a notice in a nationally distributed daily newspaper, stating where

the final account and the plan of distribution have been deposited for public inspection. Upon

publication of such notice in the newspaper a two-month waiting period commences, during

which any interested party may institute opposition against the final account and/or the plan of

distribution. After expiration of the two-month waiting period, the actual distribution of the

liquidation proceeds may take place, unless objections were raised.

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Upon termination of the winding-up procedure, the company's books and records must remain

stored with the custodian for a period of seven years.

The Trade Register of the National Registration Center must be notified of the termination of

the liquidation procedure, and of the name and address of the custodian of the corporate

books and records.

Should it appear after the liquidation has been completed that there still remains an asset to be

liquidated, or that a creditor or beneficiary has not yet been taken into account, then the

liquidation may be "reopened" by a decision of the Court. In such case the company "revives",

but solely for the purpose of re-liquidating the balance; to the extent that the beneficiaries

have received too much, the liquidator is authorized to reclaim the balance already distributed.

The Albanian tax implications of the liquidation of a company

A liquidating dividend is a type of dividend payment made to shareholders. Unlike other types

of dividends, the payment is generated by utilizing assets other than income derived from

earnings. In some cases, assets may be sold and the cash generated from those transactions

used to issue the payments to shareholders. This means of supplying dividend payments to

shareholders is rarely used, except in situations where the business is preparing to shut down

or liquidate, or a temporary issue with cash flow has developed.

Since a liquidating dividend is not paid out of the earnings generated by the business during a

specific period, the transaction is considered a return of capital rather than a return on profits.

This creates a situation where the issuer of the dividend payment does not have to pay taxes on

the total amount of dividends paid from the capital, since those payments were funded using

assets that presumably were taxed previously. The decision to cover the dividend payments

from existing capital assets rather than earnings is not left up solely to the discretion of the

company. Many tax agencies have specific regulations that require companies to document

that the flow of earnings is insufficient to manage the current dividend payments due to

shareholders in order to claim that the payments are tax-exempt.

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For Albanian tax purposes the liquidation of a commercial company is treated like a deemed

sale: the assets/liabilities of the company must be revaluated at their fair market value at the

moment of liquidation and a subsequent gain or loss must be included in the company's taxable

profits in the year of liquidation.

To the extent the participation exemption applies, a gain or loss on the shares in qualifying

subsidiaries is tax exempt.

Accumulated tax losses or tax credits will usually vaporize upon liquidation.

The liquidation distribution (after revaluation) in excess of paid in capital qualifies as a dividend

and may as such be subject to Dutch dividend withholding tax. The Albanian dividend

withholding tax rate is 10% (2013), but may be lower by virtue of applicable tax double treaties.

For an up to date overview of dividend withholding tax rates under applicable tax treaties you

should see the proper tax treaty which country belong the company.

To the extent the paid in capital originates from a share for share acquisition of shares in

Albanian companies, the repayment of capital may be subject to Albanian dividend withholding

tax (so-called tainted capital).

The revaluation of loans and receivables my result in taxable currency exchange profits (even if

non-realized).

The liquidation of a commercial company implies the end of the fiscal life of a company. After

the liquidation process is completed the commercial company must be deregistered with the

Albanian tax authorities. For Albanian tax purposes liquidation is final when the liquidation

procedure is completed and the company has no assets or liabilities left. This implies that the

last book year for tax purposes usually ends later than the financial book year (which typically

ends when the shareholders resolution with the decision to liquidate is adopted).

Depending on the specific situation one of the following alternatives may give a better

outcome.

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The first way is the legal merger instead of liquidation (with possible deferral of taxation of

hidden capital gains and avoidance of a taxable dividend);

The second way is the sale as a company (no dividend withholding tax levy over positive

reserves);

The third way is the conversion into another legal form (like a tax exempt portfolio investment

company);

This is all about a brief explanation about the rules and procedures for the liquidation of a

company “voluntary winding up”.

AL-Tax can do for you

Advice on tax implications of liquidation

Coordinate the liquidation procedure

Arrange for deregistration

Take care of final tax compliance

Filing final tax returns

We have advised many clients on possible scenarios for the liquidation of a commercial company and/or assisted them with the actual liquidation. If you are interested in our services please feel f to contact us at altax@consultant.com.