VAT, GST and Sales Tax in Kosovo

Summary

Name of the tax Value-added tax (VAT)
Local name Tatimi mbi Vleren e Shtuar (TVSH)
Date introduced 31-May-01
Trading bloc membership Customs-free access to the EU market based on the EU Autonomous Trade Preference (ATP) Regime; Central European Free Trade Agreement
Administered by Tax Administration of Kosovo (TAK)
VAT rates
Standard 18%
Reduced 8%
Other Exempt with credit and exempt
VAT number format 1234567890
VAT return periods Monthly
Registration thresholds
Supply of domestic goods Annual turnover of EUR30,000
Exporters and importers Subject to registration regardless of turnover
Recovery of VAT by non-established businesses No, as relevant regulation to determine the refund procedure is still pending.

Scope of the tax

VAT applies to the following transactions:

  • The supply of goods and services performed by a taxable per­son in Kosovo
  • Importation of goods in Kosovo, regardless of the status of the importer
  • Services supplied to taxable persons in Kosovo by service pro­viders whose place of business is outside Kosovo
  • Certain supplies of services rendered by service providers whose place of business is outside Kosovo to nontaxable per­sons in Kosovo, such as digital services and services related to an immovable property located in Kosovo

Who is liable

Any person (entity or individual) who independently carries out any economic activity in a regular or non-regular manner, whatever the purpose or results of that economic activity, is liable to VAT.

Taxable activities also include “the exploitation of tangible or intangible property for the purposes of obtaining income there­from on a continuing basis.”

A taxable person established in Kosovo is obliged to register for VAT purposes and charge VAT when his annual turnover within a calendar year exceeds the threshold of EUR30,000. Any supply made by the taxable person after the threshold is exceeded shall be subject to VAT. In this case, the taxable person is required to apply for VAT registration within 15 days after exceeding the threshold. Consequently, the part of the supply that exceeded the threshold will be taken into account for purposes of VAT in the first tax period after registration.

Every person who meets all conditions of the definition of tax­able person in Kosovo but does not exceed the VAT registration threshold may voluntarily register for VAT.

Persons involved in import or export activities and fixed estab­lishments of nonresident persons must register for VAT regard­less of the amount of turnover from the commencement of an economic activity in Kosovo.

VAT representatives. A non-established business must appoint a resident VAT representative to register for VAT purposes in Kosovo regardless of the amount of turnover, unless the reverse-charge mechanism applies. The VAT representative may act on behalf of the taxable person for all purposes related to VAT and is jointly and severally liable for compliance with all VAT obliga­tions of the non-established business.

Registration procedures. The application for registration cannot be done online. A person applying for VAT registration shall personally or through an authorized person submit the VAT reg­istration form with the respective regional office of TAK. The VAT registration application form, which is available online at the following link: http://www.atk-ks.org/wp-content/ uploads/2010/07/FRTVSH_en-US.pdf, must be accompanied by a copy of the business registration documents, the Certificate of the Fiscal Number and an official identification photo (passport, identity card, etc.).

The TAK determines whether to issue the VAT Registration Certificate or not within five working days from receipt of the application form, after ensuring that the information provided in the registration form is accurate and that the taxpayer has com­plied with all tax obligations.

Late-registration penalties. Every person who has not applied for registration in due time shall be registered by TAK with retroactive effect as of the date the threshold was exceeded and shall be liable for the VAT retroactively plus an administrative penalty, if failure to register is due to negligence. The penalty equals 15% or 25% of the VAT due, depending on whether the taxable supplies made prior to registration were less or more than EUR10,000. In addition, default interest is applicable.

Digital economy. Kosovo follows the destination principle with regard to cross-border digital services supplied to nontaxable persons in Kosovo. The place of supply of cross-border digital services to nontaxable persons is the place where the nontaxable person is established or where he has his permanent address or usually resides. Thus a foreign service supplier providing digital services to a nontaxable person in Kosovo should register for VAT purposes in Kosovo by appointing a VAT representative in the country to account for and pay the VAT liability.

Group registration. The Kosovan VAT law does not allow group registration.

Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Kosovo. No VAT registration threshold applies to taxable supplies made in Kosovo by a non-established business.

A non-established business must register for VAT in Kosovo by appointing a VAT representative if it engages in any of the follow­ing taxable supplies:

  • Supply of goods located in Kosovo at the time of supply
  • Supply of certain services to nontaxable persons in Kosovo, such as digital services and services related to an immovable property located in Kosovo
  • Import and export activities in Kosovo

Reverse charge. The reverse-charge mechanism applies to sup­plies of services made by non-established business to taxable persons in Kosovo. A non-established business is not required to register for VAT if all its supplies in Kosovo fall under the reverse-charge mechanism.

Deregistration. Every taxable person registered for VAT purposes may request to be deregistered if over the last calendar year the turnover fell below the VAT registration threshold. Taxable per­sons ceasing their economic activity are liable to request to be deregistered within 15 days from the termination of their activity. The TAK shall make a decision within two months after the request for deregistration has been made.

VAT rates

The term “taxable supplies” refers to supplies of goods and ser­vices and imports that are subject to VAT. Starting from 1 September 2015, the following VAT rates apply in Kosovo:

  • Standard rate: 18%
  • Reduced rate: 8%

The standard rate of VAT applies to all supplies of goods or ser­vices and imports, unless a specific measure allows a reduced rate or an exemption.

Examples of supplies of goods and services taxable at 8%

  • Water, except bottled water
  • Electricity, central heating, waste collection and other waste treatment
  • Grains such as barley, corn, maize varieties, oats, rye, rice and wheat
  • Products made from grain for human consumption
  • Oils made from grains or oilseeds for use in cooking for human consumption
  • Dairy and dairy products for human consumption
  • Salt appropriate for human consumption
  • Eggs for consumption
  • Textbooks and serial publications
  • Lending of books from libraries, including brochures, leaflets and similar printed materials; children’s picture books; drawing and coloring books; music printed texts and manuscripts; and maps, hydrographic charts and similar materials
  • Information technology equipment
  • Supply of medicines, pharmaceutical products, instruments, and medical and surgical devices
  • Medical equipment, ambulances, aids and other medical devices to facilitate activity or treat a disability for exclusive use by the disabled, including the repair of such goods and sup­plies

The standard rate of VAT applies to all supplies of goods and services, unless a provision of law introduces a reduced rate or a temporary higher rate for specific supplies of goods or services, which cannot be lower than 5% or higher than 21%.

The use of goods or services purchased or produced in the course of business activity for private purposes, or other nonbusiness purposes, or their disposal free of charge (other than goods for business use as samples or as gifts of small value) shall be treated as taxable supplies, to the extent the VAT on those sup­plies was deductible.

The term “exempt supplies” refers to supplies of goods and ser­vices that are not subject to VAT and that do not give rise to an input VAT deduction.

Some supplies are treated as “exempt with credit,” which means that no VAT is chargeable, but the supplier may recover the input VAT.

Examples of exempt supplies of goods and services without

VAT credit

  • Hospital services and medical care
  • Education
  • Health insurance, life insurance, reinsurance and related ser­vices performed by insurance brokers and agents
  • Financial services
  • Welfare services
  • Betting, lotteries and other forms of gambling
  • Supply of land
  • Leasing of immovable property

Examples of exempt supplies of goods and services with

VAT credit

  • Export of goods
  • International transport
  • Supplies under diplomatic and consular arrangements
  • The supply of goods or services to international and inter-gov­ernmental bodies
  • Supply of gold to the Central Bank of Kosovo
  • Related supply of services by intermediaries taking part in the above transactions

Option to tax for exempt supplies. Not applicable.

Time of supply

The time when VAT becomes due (or chargeable event occurs) is called the “time of supply.” VAT is due when one of the following events occurs:

  • Supply of goods or services
  • Issuance of an invoice in respect of a supply of goods or ser­vices before the goods or services are supplied
  • Receipt of advance payment before the goods or services are delivered

Special rules apply to continuous supplies of goods or services, which are considered as being completed at intervals of one month. Long-term contracts including long-term construction contracts and long-term installation contracts shall be regarded as completed at regular intervals but at least at the end of each cal­endar year.

Imported goods. The time of supply for imported goods is the date of importation or the date on which the goods exit a duty suspension regime.

Recovery of VAT by taxable persons

A taxable person may recover input tax, which is the VAT charged on taxable goods and services supplied to the person for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is the VAT charged on supplies that he makes.

Input tax includes VAT charged on goods and services supplied in Kosovo, VAT paid on imports of goods and VAT applied to reverse-charge services.

Nondeductible input tax. Generally input tax may not be recov­ered on purchases of goods or services that are not used for busi­ness purposes.

The following list provides some examples of items of expendi­ture for which input tax is not deductible.

Examples of items for which input tax is not deductible

  • Expenditure on yachts and boats intended for sport and recre­ation, private aircraft, cars and motorcycles used not for busi­ness purposes and fuels, lubricants, spare parts and services closely linked thereto
  • Expenditure as regards cars used for both private and business purposes, with the right to deduct input VAT limited to 50%
  • Expenditure for representation, which shall include costs for entertainment and amusement during business or social con­tacts, food costs including drinks and accommodation costs
  • Expenditure for immovable property forming part of a taxable person’s business assets that is used for both business and pri­vate purposes of the taxable person, used for his or her person­nel, or used generally for nonbusiness purposes, with the right to deduct the VAT only to the extent this property is used for business purposes of the taxable person

Partial exemption. If a supply of a good or service is used partly for purposes of taxable supplies and partly for exempt supplies, the taxable person may not deduct input tax in full. This situation is known as “partial exemption.” The calculation of the amount of input tax that may be recovered is made on a pro rata basis by using the following formula:

Amount of relevant input VAT x turnover enabling VAT credit

total annual turnover

Supplies of capital goods and the incidental supply of financial services are excluded from turnover for this purpose.

The pro rata of VAT shall be determined on an annual basis as a percentage, and shall be rounded up to the next whole number.

The pro rata VAT calculation is tentatively based on the preceding calendar year’s results. It must be adjusted by 31 January of the following year in case of differences between the provisional pro rata and the actual pro rata.

Taxable persons are invited to use a pro rata for each individual activity of their business separately, provided they maintain sepa­rate accounts for each individual activity and notify the tax authorities.

Capital goods. Capital goods are items of capital expenditure used for the production of other goods and services with a useful ser­vice life of one year or more and acquired for a cost price equal to or more than EUR1,000. Input tax is generally deducted in the VAT period in which the goods are acquired. If the business com­prises both taxable and exempt supplies and the capital goods do not serve only taxable supplies, the amount of input tax recovered depends on the taxable person’s partial exemption recovery posi­tion in the VAT year of acquisition. The amount of input tax recovered is adjusted over time if the taxable person’s pro rata changes during the adjustment period.

The capital goods adjustment applies to the following assets for the number of years indicated:

  • Immovable capital assets: 20 years
  • Movable capital assets: five years

The adjustment is applied each year following the year in which the goods were used for the first time, to a fraction of the total input tax (1/5 for movable capital goods and 1/10 for immovable capital goods).

The adjustment is not made if the value of the adjustment is less than 3% of the input VAT amount.

Write-off of bad debts. Taxable persons who have not received partial or total payment for a taxable supply may claim VAT charged in respect of that supply after initiating court procedures for the recognition of the bad debt for amounts above EUR500.

The VAT deduction shall be allowed in each tax period after the debt becomes a bad debt and may start no sooner than six months after closing the tax period for which VAT has been applied in respect of the supply.

Refunds. A taxpayer may claim a VAT refund if the following conditions are met simultaneously:

  • The taxpayer carried forward the relevant amount as a VAT credit balance for three consecutive months.
  • The amount of VAT credit balance exceeds EUR3,000 for three consecutive months.
  • The taxpayer submitted all VAT declarations and declarations of other taxes for all previous tax periods.
  • The taxpayer possesses sufficient documentation to prove the entitlement to the VAT reimbursement claim.

For exports, a refund may be claimed after each tax period pro­vided that the following conditions are met:

  • The amount of VAT credit exceeds EUR3,000 at the end of the tax period.
  • The taxable person has complied with all applicable customs and VAT provisions.
  • All VAT returns and other tax returns for all past periods have been duly submitted.
  • The taxpayer possesses sufficient documentation to prove the VAT reimbursement claim.

The taxpayer must file a request for refund form with the relevant tax office. The tax office must verify the fulfillment of the refund conditions and approve the refund within 60 days. Interest is applicable after exceeding the 60 days period if no reason for delay exists.

The Minister of Economy and Finance has to issue a relevant regulation to determine alternative procedures for refunding VAT to persons not required to submit VAT returns, to persons who cease their economic activity and to taxable persons and custom­ers who are not established in Kosovo.

Preregistration costs. A taxable person cannot recover any input VAT incurred on goods or services supplied to it before the reg­istration for VAT purposes.

Recovery of VAT by non-established businesses

Non-established businesses not registered for VAT in Kosovo may not recover Kosovo VAT incurred.

Invoicing

VAT invoices and credit notes. A Kosovan taxable person must issue invoices for all taxable supplies made, including exports. A VAT invoice is necessary to support a claim for input tax deduc­tion or a refund. In order to qualify as a valid invoice it should comply with the requirements set out in the Kosovan VAT law.

Taxable persons are allowed to issue summary invoices if they carry out several separate supplies of goods or services during a tax period that corresponds to a calendar month. A VAT credit note may be used to reduce the VAT charged on a supply of goods or services; a debit note may be used to increase the amount of VAT. Tax credit and debit notes must be cross-referenced to the original VAT invoice.

Electronic issuance of invoicing. The Kosovan VAT law permits electronic issue of invoices subject to acceptance by the recipient. The authenticity of the origin and the integrity of their content must be guaranteed by means of advanced electronic signature or by means of electronic data interchange EDI as defined by European arrangements and recommendations.

Foreign-currency invoices. Invoices may be issued in any curren­cy, provided that the taxable amount and the amount of VAT due is expressed in Euros. Where the taxable amount of a transaction, other than the importation of goods, is expressed in a foreign currency, the conversion of this amount into the domestic cur­rency Euro shall be the latest selling rate as defined by the Central Bank of Kosovo recorded at the time VAT becomes chargeable. Where the value and factors used to determine the taxable amount on importation are expressed in a foreign cur­rency, the conversion of this amount into euro shall be made by applying the exchange rate determined in accordance with the Customs regulations governing the calculation of the value for customs purposes.

Language. There are no requirements with regard to the language of the invoice. However, for inspection purposes, the VAT author­ities may ask for a translation of the invoice into an official lan­guage of Kosovo (Albanian, Serbian and English).

VAT returns and payments

VAT returns. The tax period is a calendar month. The taxable persons must submit the VAT returns and remit the VAT due not later than the 20th of the calendar month following the end of each tax period. For imports, VAT is payable upon importation.

For a taxpayer that is newly registered the first tax period begins on the date of the registration, as stated in the certificate of reg­istration. The last taxable period for a taxable person undergoing a deregistration procedure shall end on the date of the deregistra­tion having begun on the first day of that month.

For a taxable person against whom a liquidation or bankruptcy procedures is initiated the tax period shall begin on the day of the opening of the liquidation or bankruptcy procedures and shall end on the date of the decision on the conclusions of such procedures.

Special scheme for travel agencies. This scheme applies to trans­actions where the travel agency deals with customers in its own name and uses the supplies of other taxable persons in the provi­sion of travel services. The taxable amount and the price exclu­sive of VAT in respect of the single service provided by the travel agent shall be the travel agent’s margin, being the difference between the total amount, exclusive of VAT, to be paid by the traveler and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the traveler.

The special scheme does not apply to travel agencies that act only as intermediary, in which case the supplies and services of other taxable persons can be treated as disbursements.

Special arrangements applicable to secondhand goods, works of art, collector’s items and antiques: profit margin scheme and spe­cial arrangements for sales by public auction. The profit margin of the taxable dealer shall be equal to the difference between the selling price charged by the taxable dealer for the goods and the purchase price of these goods. The taxable amount in respect of the supply of secondhand goods, works of art, collector’s items and antiques shall be the profit margin made by the taxable dealer, less the amount of VAT relating to the profit margin.

The Minister of Finance may apply special provisions different from above in respect of the determination of the taxable amount of supplies of secondhand goods, works of art, collector’s items or antiques effected by an organizer of sales by public auction, acting in his or her own name, pursuant to a contract under which commission is payable on the sale of those goods by public auc­tion, on behalf of persons as will be determined with a sublegal act by the Minister of Finance. Special obligations shall be imposed on the organizer of the sale by public auction in respect of the issue of an invoice or a document in lieu to the purchaser as well as in respect of the content of such documents.

Flat rate scheme for farmers. This taxation scheme aims to offset the VAT charged on purchases of goods and services made by the flat rate farmers by adding an additional amount to the price of supply these farmers charge their customers (taxable persons). This is calculated as a percentage of the price and shall be called the Flat Rate Percentage, which will differ depending on the agriculture category. The Flat Rate Percentages shall be defined based on statistical, relevant and macroeconomic data that enable the calculation of the VAT refund for purchases made by flat rate farmers.

Special scheme for electronically supplied services. The Minister of Finance may permit by sub-legal act the use of this scheme by any non-established taxable person in Kosovo supplying elec­tronic services to a nontaxable person who is established in Kosovo or who has his or her permanent address or usually resides in Kosovo. The information that the non-established tax­able person must provide to TAK when they start taxable activity shall contain the following details: name; postal address; elec­tronic addresses, including websites; national tax number, if any; and a statement that the person is not identified for VAT pur­poses in Kosovo. The non-established taxable person shall notify TAK of any changes in the information provided.

Special scheme for investment gold. Special obligations exist for taxable persons trading in investment gold. The supply and importation of investment gold is an exempt supply with the right to opt for taxation. A taxable person making a subsequent supply of investment gold may deduct the input VAT incurred in respect of investment gold supplied to him or her by a person who opted for taxation. Taxable persons shall keep records of investment gold transactions and keep documentation for 10 years after the end of the year to which such documents refer, regardless of what is defined in the relevant law on tax administration and proce­dures.

Electronic filing and archiving. The TAK has developed the elec­tronic declaration system (EDI), which enables taxpayers to open an online account that will enable them to declare and pay their tax liabilities, including VAT. This system also enables any cor­rection of tax returns.

Annual returns. Not applicable.

Penalties

Kosovan law No. 03/L-222 dated 12 July 2010, “On Tax Administration and Procedures,” as amended provides for the penalties described below.

Taxable persons who make supplies without being registered shall be liable for the VAT due on those supplies plus an admin­istrative penalty, if failure to register is due to negligence of the person. The penalty equals 15% or 25% of the VAT due, depend­ing on whether the taxable supplies made prior to registration were less or more than EUR10,000. In addition, default interest is applicable.

Failure to issue a VAT invoice or issuance of an inaccurate invoice that results in a decrease of the VAT due or an increase of the VAT credit shall be subject to a penalty of 15% of the VAT amount where this was due to the negligence of the taxable per­son. The penalty will increase to 25% in case of failure to issue an invoice for a taxable supply in excess of EUR1,000 or issuing an incorrect invoice that is more than EUR500 above or below the amount that should have been included in the invoice of the taxable person. In addition, default interest is applicable.

Late filing of VAT 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. In addition, default interest is applicable.

Late payment of a tax obligation triggers a penalty amounting to 1% of tax due for each month or part of the month in delay up to maximum of 12 months. In addition, interest is applicable.

Erroneous completion of a tax filing or a tax refund claim is subject to a penalty of 15% of the undeclared tax liability or the excess tax refund claimed where such understatement or over­statements is 10% or less of the VAT due, or 25% where the understatement or overstatements is more than 10% of the VAT due. In addition, interest is applicable.

Criminal offenses carried out by taxpayers are penalized under the Criminal Code. These offenses relate to certain situations, including, but not limited to, the following:

  • Taxpayers willfully evade partially or entirely the payment of taxes or gain unwarranted tax refunds or tax credits
  • Taxpayers provide false information relevant for the collection of taxes
  • Taxpayers act as a member of a group formed for the purpose of repeatedly committing tax evasion