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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 didnt 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 its a Courts order, if the insolvency procedure started, if the company was inactive for more than a year and didnt register this or if the date sta ted 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 its a General Meetings 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 companys 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, liquidators 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 companys liabilities. The shareholder receives a liquidators 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 liquidators distribution is not a dividend under the ordinary tax definition. A liquidators 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).

Law. Tax. Transparency

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.