The Council of Ministers has approved amendments to the law on donations and sponsorships, which aims to increase funding for sport, art and culture through business support. The initiative provides for the amendment of Article 5 and the addition of two new articles, 5/1 and 5/2, to the existing law. These define the mechanisms for benefiting from tax incentives, the necessary documentation, and the right of sponsors to appeal decisions of the tax administration.
According to the proposal, for entities, individuals or legal persons, that pay profit tax, the sponsored amount will be recognized as a deductible expense, to the extent provided by law. Meanwhile, sponsorships in art, culture and sport will benefit from a special tax regime. Specifically, the new Article 5/1 provides that the sponsored amount for public activities in these three fields be deducted directly from the tax liability payable to the tax administration, up to a maximum limit of 30% of the profit tax for the previous fiscal year.
The incentive will also extend to in-kind sponsorships, with a special deduction mechanism of up to 30% of the value of the profit tax to be paid, according to the financial result of the following year. The benefit will be conditional on the preparation, filing and approval of financial statements, in accordance with the legislation in force.
Another element provided for in the draft amendment is the tax treatment of sponsorship income for beneficiaries. According to the proposal, this income will be tax-exempt and will not be included in the financial result for the purpose of classifying the taxpayer by tax brackets during the duration of the contract. The specific measures and criteria for receiving the incentives will be determined by decision of the Council of Ministers, on the proposal of the minister responsible for culture and sport, while respecting the maximum limit of 30% set in the law.
Right of appeal for sponsors is provided for
The draft amendment introduces a new mechanism for protecting the rights of sponsors. Article 5/2 provides that, if the tax administration refuses to grant the incentives, the sponsor has the right to file an administrative appeal with the General Directorate of Taxes within 30 days of notification of the decision. The possibility of pursuing further administrative and judicial appeal procedures, in accordance with the relevant legislation, is provided for. Benefiting from the scheme will also be conditional on documentation of the sponsorship. Sponsoring entities will be required to submit to the tax authorities a copy of the sponsorship contract, a report on the use of the sponsored amount, and other supporting documentation required by tax legislation.
Differentiation between sectors and European standards
The explanatory report emphasizes that the special regime for art, culture and sport does not seek to limit the ability of organizations and entities operating in other fields of public interest to receive sponsorships under the general rules of the law. In this context, fields such as democracy, the rule of law, good governance, transparency and public accountability are also mentioned. The report argues that the tax differentiation is based on the specific characteristics of art, culture and sport, as well as their contribution to cultural heritage, education, social inclusion, youth development and the international promotion of Albania.
The initiative also refers to the recommendations of the European Commission and the joint guidelines of the OSCE/ODIHR and the Venice Commission on freedom of association, according to which states must guarantee an enabling legal and fiscal environment for civil society organizations.
One of the principles emphasized in the report is that tax incentives must be applied without discrimination against entities that meet the same conditions. Political positions, advocacy, monitoring or critical activities, and the relationships of beneficiaries with public authorities must not serve as criteria for granting or refusing the benefit. Through these changes, the aim is to create a more encouraging mechanism for private financing of activities of public interest, diversify funding sources, and increase legal certainty for sponsors and beneficiaries.