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Kosovo

Country Name: Republic of Kosovo
Currency: Euro (EUR)
Primary Tax Authority: Tax Administration of Kosovo (Administrata Tatimore e Kosovës, ATK)
Key Legislation:

  • Law on Corporate Income Tax
  • Law on Personal Income Tax
  • Value Added Tax (VAT) Law
  • Customs and Excise Code
  • Law on Tax Procedures and Administration
  • Law on Foreign Investment

Fiscal Authority Allocation

Centralized Fiscal System:
Kosovo operates a centralized tax system, with the Tax Administration of Kosovo (ATK) responsible for administering and collecting taxes, including corporate income tax (CIT), personal income tax (PIT), value-added tax (VAT), and customs duties.

Corporate Income Tax (CIT)

Standard Rate: 10%
Kosovo imposes a corporate income tax rate of 10% on all resident companies and non-resident companies with a permanent establishment in the country. Companies are taxed on their worldwide income.

Corporate Forms and Taxation:

  1. Resident Companies: Taxed on worldwide income.
  2. Non-Resident Companies: Taxed only on Kosovo-sourced income.

Exemptions and Incentives:

  • Investment Incentives: The Law on Foreign Investment offers tax holidays, customs duty reductions, and VAT exemptions for companies investing in sectors such as agriculture, manufacturing, technology, and renewable energy.
  • Free Economic Zones: Kosovo has introduced free economic zones where companies may benefit from reduced CIT rates, VAT exemptions, and customs duty relief.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

Standard Rate: 18%
Kosovo imposes VAT at a standard rate of 18% on most goods and services. VAT applies to both domestic production and imports.

Reduced Rate: 8% for certain essential goods such as food, medicines, and water.
Exemptions: Healthcare, education, financial services, and exports are VAT-exempt. Exports are zero-rated, allowing businesses to claim VAT refunds on inputs used in producing export goods.

Personal Income Tax (PIT)

Progressive Rates:
Kosovo implements a progressive personal income tax system.

Tax Brackets for 2023:

  • Up to €960: 0%
  • €960 to €3,000: 4%
  • €3,001 to €5,400: 8%
  • Above €5,400: 10%

Non-Resident Tax Rate:
Non-residents are taxed on Kosovo-sourced income at a flat rate of 10%.

Deductions and Allowances:
Taxpayers can deduct social security contributions, pension contributions, healthcare costs, and charitable donations from their taxable income.

Additional Mandatory Contributions

Social Security Contributions:
Employers and employees must contribute to Kosovo’s social security system, which provides pensions, healthcare, and other social benefits.

  • Employer Contribution: 5% of gross salary.
  • Employee Contribution: 5% of gross salary.

Withholding Taxes

  • Dividends: 10% for both residents and non-residents
  • Interest: 10% for both residents and non-residents
  • Royalties: 10% for both residents and non-residents
    Kosovo imposes withholding taxes on payments to non-residents, including dividends, interest, and royalties. These rates may be reduced under Kosovo’s double taxation agreements (DTAs).

Transfer Pricing Rules

Kosovo follows the arm’s-length principle for related-party transactions. Companies must ensure that cross-border transactions between related entities are conducted at market value. Transfer pricing documentation is required for significant related-party transactions.

Special Tax Regimes

  • Free Economic Zones: Companies operating in Kosovo’s free economic zones enjoy tax holidays, VAT exemptions, and customs duty reductions for up to 10 years. These zones aim to attract foreign direct investment in sectors such as manufacturing, technology, and energy.
  • Investment Incentives: Kosovo offers tax holidays, reduced CIT rates, and customs duty exemptions for companies investing in priority sectors like agriculture, renewable energy, and manufacturing.

Other Taxes

  • Customs Duties: Kosovo applies customs duties on imported goods, with rates ranging from 0% to 10%, depending on the type of goods. Raw materials and essential goods often benefit from reduced or zero customs duties.
  • Excise Taxes: Excise taxes are levied on alcohol, tobacco, petroleum products, and luxury goods.
  • Property Tax: Municipalities in Kosovo levy property taxes based on the assessed value of land and buildings. The tax rate varies by municipality and type of property.

Double Taxation Agreements (DTAs)

Kosovo has signed double taxation agreements (DTAs) with several countries, including Albania, Germany, North Macedonia, and Turkey. These agreements aim to reduce withholding taxes on cross-border income and prevent double taxation.

Local Taxes

Local governments in Kosovo impose property taxes, business license fees, and other local levies. However, most major taxes, including CIT, PIT, and VAT, are centrally administered by the Tax Administration of Kosovo (ATK).

Compliance and Reporting

Annual Filing:
Corporate tax returns must be filed within three months following the end of the financial year. Personal income tax returns are generally due by March 31st. VAT returns are filed monthly or quarterly, depending on the size of the business.

Penalties for Late Filing:
Penalties for non-compliance or late filing include fines and interest on unpaid taxes. Kosovo imposes interest at 1.5% per month on overdue taxes, with additional penalties for tax evasion or underreporting.

Recent Developments

Digital Economy Focus:
Kosovo is focusing on fostering the digital economy, with tax incentives available for IT and tech startups. The government is also working on improving digital infrastructure and e-government services, including tax reporting.

Investment in Renewable Energy:
Kosovo is promoting investment in renewable energy sources, particularly solar and wind energy. Companies investing in renewable energy benefit from tax holidays, VAT exemptions, and customs duty reductions on imported equipment.

Public Sector Reforms:
The government of Kosovo is enhancing its tax administration and modernizing its regulatory framework in line with European Union standards, as part of Kosovo’s aspirations for EU membership.

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