5 TaxLawThe Kosovo tax system is a young system.The first state duties were introducedin 1999 by the implementationof a customs regulation. Since 2000, furthertaxes have been implemented continuously,e.g. municipal taxes. However, until now therehas been no integrated fiscal code governingall tax aspects, but rather several regulationsissued to cover the main taxes applicable inKosovo. Recently the government of Kosovohas approved a package of tax cuts which arevalid starting from 1 January 2009. Corporateincome tax was reduced to a flat-rate of 10%,VAT was increased to 16%.The regulations aim to strengthen the developmentof the economy and be generally consistentwith European standards.The most important taxes are:• corporate income tax,• personal income tax;• value added tax;• rent withholding tax;• custom duties;• excise tax;• municipal tax (immovable property taxand business licence fee); and• quarrying and mining tax.5.1 Fiscal NumberAll business organizations registered inKosovo must apply for, and receive, a fiscalnumber from Tax Administration of Kosovo-TAK before beginning any economic activity.Applications for the fiscal number must bemade to the applicable TAK regional officewithin 15 days after company registration.TAK may make an official visit to the businesslocation prior to issuing of a fiscal number.The visit must take place within 5 businessdays after receiving the application. TAKmust make a decision on whether to issue anumber, or not, within 10 days after receivingthe application.5.2 Corporate Income TaxOn 29 December 2009 the Kosovo Assemblyadopted the Law on Corporate IncomeTax (Law No. 03/L-162), which entered intoforce on 1 January, 2010. In the following it isreferred to this law.18
The following are subject to corporate incometax:• corporations or other business organizationsthat have the status of a legal personunder applicable law in Kosovo;• companies operating with public or sociallyowned assets;• organizations registered with UNMIK asnon-governmental organizations; and• permanent establishments in Kosovo ofnon-residents . Such permanent establishmentsinclude but are not limited to:plants, branch offices, representation offices,factories and construction sites. (Seesection 5.10 below.)The corporate income tax rate is as of 1 January2009 10 % of the profits (for further rules,see section 5.2.3). Certain revenues like somerevenues of non-governmental organizationswhere those organisations have the publicbenefit status certificate are exempted fromcorporate income tax.5.2.1 Deductible ItemsExpenses are considered deductible ifthey are incurred during the tax period whollyand exclusively in connection with conductingthe business activity.In particular, representation costs (advertisements,marketing) are partially deductible, upto 2% of the annual turnover, as are donationsmade for humanitarian, health, educational,religious, scientific, cultural, environmentaland sports purposes, up to 5% of the taxableincome before taxes.There is a cap on expenses that can be claimedfor the maintenance of vehicles. The tax authorityalso will not allow as an expense aninvoice from a company that is not registeredin Kosovo when it should be. The tax authorityalso does not easily recognize the validityof inter-company agreements, e.g. for servicesprovided by the parent company or headquarters.Expenses that are not deductible include, forexample, costs associated with the acquisitionof real estate, the acquisition of goods that canbe amortized, contributions to reserve funds/provisions, fines and the value added tax forwhich the taxpayer claims a deduction ofinput tax. Further, expenses which are €500or more are only deductible if paid by banktransfer and all expenses need the businessregistration number, fiscal number and fullname of the supplier and business registrationnumber, fiscal number and full name ofthe purchaser on the coupon or invoice. A listof all expenses over €500 with details of supplierand the nature of the expense must besubmitted by 31 March each year to the taxauthority.5.2.2 Losses CarriedForwardLosses may be carried forward and may besettled against future profits for seven consecutivefiscal years unless the owner changesby more than 50% in which case the loss is“terminated”. First, losses have to be settledagainst profits of the same category of income(horizontal loss adjustment). Currentlythere are no grouping provisions in Kosovothat would enable losses in one company tobe offset against the taxable profit in anothercompany in the same group.5.2.3 Corporate Assessmentsand PaymentsThe fiscal year corresponds to the calendaryear.Taxpayers are required to make quarterly advancepayments for the immediately precedingquarter to any authorized bank. These advancepayments have to be made on or before15 April, 15 July, 15 October and 15 Januaryof each year.Enterprises with an annual turnover of lessthan EUR 50,000 can be taxed either on anactual profit basis (i.e. after deducting expensesas above) or a presumptive tax basis (basedon turnover).The turnover basis applies if the taxpayer doesnot opt for taxation on the actual profit basisand its turnover is less than EUR 50,000.These enterprises pay three percent (3%) ofeach quarter‘s gross income, if the income isgenerated from trade, transport, agriculturaland similar commercial activities and fivepercent (5%) of each quarter’s gross income,if the income is generated from services, professional,vocational, entertainment and similaractivities. In any case the enterprises mustpay no less than thirty seven euros and fiftycents (€37.50) per quarter. The turnover basisoption is not available to branches of foreigncompanies.19
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