EY
Pashko Vasa 16/7 – Pejton 10000 Prishtina Kosovo
Principal Tax Contact
Milen Raikov
+359 (2) 817-7155 (resident in Sofia) Mobile: +359 (886) 183-933 Email: milen.raikov@bg.ey.com
Business Tax Services, Indirect Tax, and Tax Policy and Controversy Milen Raikov +359 (2) 817-7155 (resident in Sofia) Mobile: +359 (886) 183-933 Email: milen.raikov@bg.ey.com
Business Tax Advisory Anisa Jasini +355 (4) 241-9575 (resident in Tirana) Mobile: +355 (69) 403-1208 Email: anisa.jasini@al.ey.com Dairida Metalia +355 (4) 241-9575 (resident in Tirana) Mobile: +355 (69) 709-4630 Email: dairida.metalia@al.ey.com
Business Tax Services and Global Compliance and Reporting Gentian Tata +355 (4) 241-9575 (resident in Tirana) Mobile: +355 (69) 608-6468 Email: gentian.tata@al.ey.com
A. At a glance
Corporate Income Tax Rate (%)
Capital Gains Tax Rate
Branch Tax Rate (%)
Withholding Tax
Dividends
Interest
(a)(b)
Royalties from Patents, Know-how, etc.
Gambling Gains
Payments to Nonbusiness Natural Persons, Farmers, Agriculturists, Collectors of Recycling Materials, and Payments for Forest Fruits and Healing Plants
Payments for Entertainment, Artistic or Sporting Events
Income Earned from Agreements with Kosovo Persons for Services Performed in Kosovo
(b)
(b) Rent
(b)
(b)(c)
(d)
(d)(e) Branch Remittance Tax
Net Operating Losses (Years)
(a) Interest on financial instruments
by a public authority of
are exempt from
This withholding tax applies
or
and nonresidents.
(c) Under the corporate income tax law, a “nonbusiness natural person” is a natu ral person without a registered business activity. (d) This withholding tax applies to payments to nonresidents. (e) If the percentage of services performed in Kosovo does not exceed 10% of the total amount of the services, the services are not subject to withholding tax.
B. Taxes on corporate income and gains
Corporate income tax. Companies resident in Kosovo are compa nies that are established in Kosovo or have their place of effective management in Kosovo. Kosovo-resident companies are subject to corporate income tax on their worldwide income. Foreign companies are subject to tax on profits generated from activities performed through a permanent establishment in Kosovo and on income from Kosovo sources.
Rate of corporate income tax. The rate of corporate income tax in Kosovo is 10%.
Capital gains and losses. Capital gains derived from the disposal of capital assets, including real estate and securities, are subject to tax at the standard rate of 10%, together with operating income. Capital losses are deductible for tax purposes. Capital gains derived by a foreign company that does not have a perma nent establishment in Kosovo to which such capital gains are at tributable are not subject to tax in Kosovo.
Administration. The tax year is the calendar year.
Taxpayers must make quarterly advance payments of corporate income tax no later than 15 days after the close of each calendar quarter.
Taxpayers with annual gross income from business activities of up to EUR30,000 that do not keep books and records must make the following quarterly payments:
• 3% of each quarter’s gross income from trade, transport, agriculture and similar economic activities, but not less than EUR37.50 per quarter
• 9% of each quarter’s gross income from professional, voca tional and entertainment services and similar activities, but not less than EUR37.50 per quarter
• 10% of gross rental income for the quarter reduced by any amount withheld during the quarter
Taxpayers with annual gross income from business activities in excess of EUR30,000 and taxpayers that keep books and records (including partnerships and groups of persons) must make the following advance payments for each calendar quarter:
• One-fourth of the total tax liability for the current tax period based on estimated taxable income reduced by any amount with held during the quarter with respect to that income in accor dance with the relevant legislation on corporate income tax
• For the second and subsequent tax periods, one-fourth of 110% of the total tax liability for the tax period immediately preceding the current tax period, reduced by any amount of tax withheld
By 31 March, taxpayers with annual turnover in excess of EUR30,000 and taxpayers that keep books and records must file an annual tax return and pay the corporate tax due for the tax year, less advance payments made.
Taxpayers not complying with the filing and payment deadlines described above are subject to interest and penalties.
For the second year of making quarterly advance payments and future years, no interest and penalties apply to taxpayers that calculate the advance payments based on the prior year tax liabil ity increased by 10%.
For the first year of taxation on real income, if a taxpayer’s ad vance payments are insufficient (below 80% of the total tax liability, including the fourth quarter instalment) compared to the total tax liability at year-end, sanctions are applied only in the last quarter of the first year, based on the cumulative installment amounts compared with annual liability, as opposed to consider ing the last installment as an isolated payment.
For the second year of the business and the following years, tax payers can pay tax without incurring interest and penalties by paying advance installments based on the prior year tax liability increased by 10%. As a result, taxpayers who make insufficient payments during the year are subject to penalties applied for each quarterly installment until the submission of the annual declara tion or the deadline for submission of the annual declaration.
Late filing of the corporate income tax return is subject to a penalty of 5% of the tax due for each month of delay, capped at 25% of the unpaid tax liability.
Late payment of a tax liability results in a penalty amounting to 1% of tax due for each month or part of the month in delay, up to a maximum of 12 months.
The penalties do not apply cumulatively. Instead, the late payment penalty begins to apply to the extent that the unpaid liability is not paid by the time the late filing penalty reaches its ceiling.
In addition, interest may apply on such penalties if the underlying tax liability remains unpaid for more than 120 days. Such interest accrues at a rate that is 0.5 percentage point higher than the inter bank lending interest rate in Kosovo after a notice is issued to the taxpayer, starting from the first day of the month following the 120-day period.
Erroneous completion of a tax filing or of a tax refund claim is subject to a penalty of 15% of the undeclared tax liability or the excess tax refund claimed if such understatement or overstate ment is 10% or less of such tax, or to a 25% penalty if the understatement or overstatements is more than 10% of such tax.
Dividends. Dividends received by resident and nonresident com panies are exempt from corporate income tax.
Foreign tax relief. Foreign direct tax on income and gains of a Kosovo resident company may be credited against the corporate tax on the same profits. The foreign tax relief cannot exceed the Kosovo corporate income tax charged on the same profits. If a company receives income from a country with which Kosovo has entered into a double tax treaty, other forms of foreign tax relief may apply, as stipulated in the provisions of the treaty.
C. Determination of trading income
General. For taxpayers with an annual turnover exceeding EUR30,000 and taxpayers that keep books and records, the assessment of trading income is based on the financial statements prepared in accordance with the generally accepted accounting principles; International Financial Reporting Standards for large, medium and small business organizations; and Kosovo Accounting Standards for microenterprises, subject to certain adjustments for tax purposes.
All necessary and reasonable expenses incurred wholly and ex clusively for the business activity that are properly documented are deductible, including health insurance premiums paid on be half of employees and their dependents, training expenses paid by employers related to employees’ work, and advertising and pro motion costs, but excluding, among others, the following:
• Fines and penalties and interest related to them
• Tax losses from sales or exchanges of property between related persons
• Voluntary pension contributions made by employers above a maximum amount of 15% of an employee’s gross salary
• Costs regarding acquisitions of and improvements to land
• Expenses for presents (however, presents with the name and logo of the business are part of the expenses of representation and are allowed as tax-deductible expenses)
• Losses in specific weight or substance, damages, remains (left overs or remnants) or surplus, and destruction or demolition during production, transport or storage, beyond certain norms
• Rent for apartments serving as accommodation and lodging of resident and nonresident employees, regardless of the terms of the contract of employment or service
• Benefits in kind in the form of meals and transport tickets, unless it is organized by the business
• Expenditure covered by grants, subsidies and donations, in compliance with regulations and earning criteria (regulations related to conditions for benefiting from the grant and criteria determined by the documents of the grant, subsidy or donations documents)
Other types of expenses may be deducted up to a ceiling. These expenses include, but are not limited to, the following:
• Representation costs are deductible up to a maximum of 1% of gross annual income.
• Contributions made for humanitarian, health, education, reli gious, scientific, cultural, environmental protection and sports purposes are deductible up to a maximum of 10% of taxable income before deducting such contributions.
Inventories. The inventory valuation rules stipulated in the ac counting law also apply for tax purposes. Inventory is valued at historical cost, which is determined by using the weighted aver age, first-in, first-out (FIFO) or other specified methods. The method must be applied in the year in which it has been selected and for at least three additional tax periods. Changes in the method after such period are subject to an ad hoc ruling from the Kosovo tax administration.
Provisions. Companies may not deduct provisions, except for certain levels of provisions and special reserve funds of financial institutions as specified by the Central Bank of Kosovo.
Tax depreciation. Tangible property is depreciated separately for tax purposes using the straight-line method at the rates men tioned below.
Buildings and other constructed structures are depreciated at a rate of 5%.
Vehicles, computers and information systems, office furniture and equipment, instruments and livestock are depreciated at a rate of 20%.
Plant and machinery, trains, airplanes, ships, trees and all other tangible assets are depreciated at a rate of 10%.
Acquisition costs for assets amounting up to EUR1,000 are deducted in full from business income in the current year, unless the asset functions as part of one entirety and the value of the entirety is over EUR1,000.
Intangible assets, including patents, copyrights, licenses for draw ings and models, contracts, and franchises, are amortized for tax purposes using the straight-line method over the useful life of the asset. If the useful life cannot be determined, the amortization expenses are allowed for 20 years.
Exploration and development costs incurred for the extraction of natural resources and interest attributable to such costs are capi talized and amortized at the following coefficient:
Amortization =
Quantity of minerals extracted during the year coefficient Total estimated quantity in deposit
Relief for losses. Losses may be carried forward for four consecu tive years. However, if a change in the type of business organiza tion occurs or a change in the ownership of the company of more than 50% occurs, the remaining losses are forfeited. Loss carry backs are not allowed.
Groups of companies. Each company forming part of a group must file a separate return. The law does not provide for consolidated tax returns or other group relief.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate (%)
Value-added tax; exempt supplies include supply of land, welfare, financial services and insurance
Standard rate 18
Reduced rate 8
Exports of goods and international transport 0
Real estate property tax
Residential and commercial properties; the taxable value is the appraised value of the property after the principal residence deduction amounting to EUR150,000
Nature of tax Rate (%)
Agricultural properties 0.15 to 0.5
Forest units’ properties 0.15 to 0.3
Industrial properties 0.15 to 0.8
Mandatory social security contributions on monthly salary paid by
Employer
Employee 5
Excise duties imposed on specified goods (tobacco products, natural mineral and non-carbonated water, alcoholic beverages, petrol, diesel, kerosene, fuels, lubricants, gas, cars and other motor vehicles, used tires, electric bulbs, and plastic bags); the tax is calculated as a specific amount per unit
E. Miscellaneous matters
Foreign-exchange controls. Kosovo has a free foreign-exchange market. Since 2002, the euro (EUR) has been the official currency in Kosovo. All entities must properly document all of their money transfers to comply with the regulations of the Central Bank of Kosovo. No limits are imposed on the amount of foreign currency that may be brought into Kosovo. Hard-currency earnings may be repatriated after the deduction of any withholding tax.
Transfer pricing. New transfer-pricing rules, which are aligned with the Organisation for Economic Co-operation and Development (OECD) transfer-pricing guidelines, entered into force through Administrative Instruction MF – No. 02/2017 on Transfer Pricing, which was issued by the Ministry of Finance on 28 July 2017. The preferred method is the uncontrolled price method. If this method cannot be used, taxpayers may use the resale price method, cost-plus method and, in certain circum stances, the transactional net margin method and profit-split method. The acceptance of the transfer-pricing method by the tax authorities depends on whether the method is supported by appropriate transfer-pricing documentation.
Only cross-border controlled transactions are subject to the transfer-pricing rules. Consequently, domestic transactions are not subject to the rules. Controlled transactions are considered to be transactions between related parties, dealings between a per manent establishment and its head office, and transactions with entities resident in tax-haven jurisdictions. Two persons are con sidered related parties if any of the following circumstances exist:
• One person holds or controls 50% or more of the shares or vot ing rights in the other person’s company
• One person directly or indirectly controls the other person
• Both persons are directly or indirectly controlled by a third person
• Persons are relatives of the first, second and third row, as specified by the Law on Heritage of Kosovo
Taxpayers are required to submit by 31 March of the following year a Controlled Transaction Notice, which lists the intercom pany transactions and the transfer-pricing methods applied to
these transactions, if their controlled transactions exceed in aggregate EUR300,000.
Taxpayers must maintain sufficient supporting documentation to show that the prices applied in transactions with related parties are in line with the arm’s-length principle and to justify the transfer-pricing method used in determining such prices. The documentation must be made available within 30 days after it is requested by the Tax Administration of Kosovo.
Failure to timely submit transfer-pricing documentation or to submit the Annual Transaction Notice is subject to a penalty ranging from EUR125 to EUR2,500 for each failure to comply.
F. Treaty withholding tax rates
The table below provides the treaty withholding tax rates for illustrative purposes only. It does not reflect the various special provisions of individual treaties or the withholding tax regula tions in domestic law.
Dividends Interest Royalties
% % %
Albania 0 10 10 Austria 0/15 (a) 10 0
Belgium (b) 10/15 (a) 15 10 Croatia 5/10 (a) 5 5 Finland (b) 5/15 (a) 0 10 Germany (b) 15 0 10 Hungary 0/5 (a) 0 0 Latvia 0/10 0/10 0/5 Luxembourg 0/10 (d) 5 0 Malta 0/10 (d) 5 0 North Macedonia 0/5 (a) 10 10 Saudi Arabia 0/5 5 5/10 Slovenia 5/10 (a) 5 5 Switzerland 5/15 (a) 5 0 Turkey 5/10 (a) 10 10 United Arab Emirates 5 5 0
United Kingdom 0/15 (c) 0 0 Non-treaty jurisdictions 0 10 10
(a) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 25% of the capital of the payer. The higher rate applies to other dividends.
(b) Kosovo honors the treaties entered into by the former Republic of Yugoslavia with respect to these countries.
(c) The higher rate applies if the beneficial owner of the dividends is a pension scheme and if the dividends are paid out of income directly or indirectly from immovable property.
(d) The lower rate applies if the beneficial owner of the dividends is a company that holds directly at least 10% of the capital of the payer. The higher rate applies to other dividends.
Kosovo has signed double tax treaties with the Czech Republic, Lithuania and the Netherlands, but these treaties are not yet effective.
Kosovo is negotiating double tax treaties with Ireland, Italy and Portugal.