Corporate tax in Kosovo

Summary

Corporate Income Tax Rate (%) 10 (a)
Capital Gains Tax Rate (%) 10
Branch Tax Rate (%) 10 (a)
Withholding Tax (%)
Dividends 0
Interest 0 / 10 (b)(c)
Royalties from Patents, Know-how, etc. 10 (c)
Rent 9 (c)
Gambling Gains 10 (c)
Payments to Nonbusiness Natural Persons,
Farmers, Agriculturists, Collectors of
Recycling Materials, and Payments for
Forest Fruits and Healing Plants
3 (c)(d)
Payments for Entertainment, Artistic or
Sporting Events
5 (e)
Income Earned from Agreements with Kosovo
Persons for Services Performed in Kosovo
5 (e)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0
Carryforward 6

a) Insurance institutions operating in Kosovo are subject to tax at a rate of 5% on the gross premiums accrued during the tax period.

b) Interest on financial instruments issued or guaranteed by a public authority of Kosovo are exempt from tax.

c) This withholding tax applies to payments to residents and nonresidents.

d) Under the corporate income tax law, a “nonbusiness natural person” is a natural person without a registered business activity.

e) This withholding tax applies to payments to nonresidents.

Taxes on corporate income and gains

Corporate income tax. Companies resident in Kosovo are compa­nies 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%.

Insurance institutions operating in Kosovo are subject to tax at a rate of 5% on the gross premiums accrued during the tax period.

Capital gains and losses. Capital gains derived from the disposal of capital assets, including real estate and shares, 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 permanent estab­lishment in Kosovo to which such capital gains are attributable 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 EUR50,000 that do not keep books and records must make the following quarterly payments:

  • Three percent of each quarter’s gross income from trade, trans­port, agriculture and similar economic activities, but not less than EUR37.50 per quarter
  • Five percent of each quarter’s gross income from professional, vocational and entertainment services and similar activities, but not less than EUR37.50 per quarter

Taxpayers with annual gross income from business activities in excess of EUR50,000 and taxpayers that keep books and records (including partnerships and groups of persons) must make the following advance payments for each calendar quarter:

  • For the first quarter, 25% of the total tax liability for the current tax period based on estimated taxable income, reduced by any amount of tax withheld
  • For the second and subsequent tax quarters, 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 EUR50,000 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. No penalty is applied if the difference between the amount due and the advance payments made is not greater that 10%.

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 inter­bank 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 overstate­ment 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 com­panies 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.

Determination of trading income

General. For taxpayers with an annual turnover exceeding EUR50,000 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 ex­clusively for the business activity that are properly documented are deductible, including health insurance premiums paid on be­half of employees and their dependents, training expenses paid by employers related to employees’ work, and advertising and pro­motion 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 (left­overs 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, reli­gious, 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 ac­counting law also apply for tax purposes. Inventory is valued at historical cost, which is determined by using the weighted aver­age, 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 mention­ed 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 draw­ings 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 capi­talized 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 six consecu­tive years. However, if a change in the type of business organiza­tion 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.

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; imposed on the
taxable value of the property; for residential
properties, the taxable value is the appraised
value of property after the principal residence
deduction amounting to EUR10,000
0.05 to 1
Mandatory social security contributions on
monthly salary paid by
Employer 5
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
Various

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. Kosovo corporate tax law contains transfer-pricing rules. Under these rules, the tax authorities may adjust the prices applied in transactions with related parties if they substanti­ate that the prices applied deviate from the arm’s-length standard. 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. Organisation for Economic Co-operation and Development transfer-pricing meth­ods are acceptable. However, the traditional transactional pricing methods are preferred over the transactional profit methods, which can be used only if the traditional methods are not the most appropriate ones and if the tax authorities approve the use of a transactional profit method.

Treaty withholding tax rates

The withholding tax rates in Kosovo’s tax treaties are shown in the following table.

  Dividends

%

Interest

%

Royalties

%

Albania 10 10 10
Belgium (b) 10 10 10
Finland (b) 5/10 (a) 0 10
Germany (b) 10 0 10
Hungary 0/5 (a) 0 0
Macedonia 0/5 (a) 10 10
Netherlands (b) 5/10 (a) 0 10
Slovenia 5/10 (a) 5 5
Turkey 5/10 (a) 10 10
       
United Kingdom (b) 5/10 (a) 10 10
Non-treaty countries 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.

Kosovo has signed a tax treaty with the Czech Republic, which has not yet been ratified by the Czech Republic.