Expenses paid or incurred in relation to business activities are deductible for CIT purposes.
Business representation expenses with elements of entertainment cannot exceed 1% of annual gross income. Bad debt expenses are allowable under certain conditions. Business travel expenses are allowable if documented properly.
Expenses that are subject to withholding tax (WHT) on rent (such as payments for lease) are only CIT deductible if the corresponding WHT is paid by 31 March of the period following that in which they were incurred, at the latest.
Depreciation and amortisation
Depreciation expenses are calculated via the straight-line method, depending on the category of asset concerned. For buildings, the rate is 5%; for vehicles, furniture, and equipment, the rate is 20%; and for plant and machinery, the rate is 10%.
Amortisation expenses are allowed in accordance with the useful life of the intangible asset, but, at most, 20 years if not specified.
No specific tax provisions cover the treatment of goodwill.
Only expenses incurred in the current tax period reported can be deducted.
Interest expenses are deductible, provided that such expenses have been paid or incurred in relation to business activities and any WHT due has been paid on or before 31 March of the year following that in which interest expense arose.
A bad debt shall be considered an expense if it meets all of the following conditions:
- The amount that corresponds to the debt has previously been included in income.
- The debt is written off in the taxpayer‘s books as worthless for accounting purposes.
- There is no dispute of the legal validity of the debt.
- At least six months of the debt term have been exceeded.
- There is adequate evidence of substantial attempts made by the taxpayer to collect the debt (i.e. including final decision of a competent court certifying that the debt is uncollectible).
- Payment has not been received in whole or in part and has been declared as uncollectable thus initiating procedures with judicial bodies.
- For the amount up to EUR 500 treated as a bad debt, there shall not be required the initiation of procedures at judicial bodies.
- Uncollected amount shall not be considered as bad debt if:
- transactions with the same debtor have been repeated after the announcement of bad debt, excluding public services
- bad debt is between the related parties
- there is no sufficient evidence that there were substantial attempts made to collect debt, including any applicable action to maximise the debt collection, or
- the obligation for payment is 24 months overdue.
Contributions made by a taxpayer in the form of donations or sponsorship for humanitarian, health, education, religious, scientific, cultural, environmental protection, and sports in accordance with the CIT law are considered as contributions given for public interest and are allowed as a deduction up to a maximum of 10% of taxable income, computed before these contributions are deducted.
An additional 10% deduction may be applicable if prescribed so by other laws pertaining to sponsorships of certain activities.
Taxpayers making contributions to sports have the right to deduct up to 30% of CIT; meanwhile, those contributing to youth and culture will be granted a deduction of up to 20% similarly from CIT.
A taxpayer who claims a deduction in respect of charitable contributions made during the tax period shall furnish receipts signed and stamped by the beneficiaries of the charitable contributions, confirming the purpose of those donations, the amounts of the donations, and the times when the donations were made.
A charitable contribution deduction can only be claimed by a taxpayer who pays tax on an accrual or real income basis.
Pension contributions are deductible up to the limit of 15% of gross salary.
Bribes, kickbacks, and illegal payments
Bribes, kickbacks, and illegal payments are non-deductible for tax purposes.
Fines and penalties
Fines and other tax-related sanctions are non-deductible expenses.
Income taxes, VAT, and excise duties are non-deductible expenses.
Other significant items
Provision expenses are only allowable for banks and insurance companies as per the rules prescribed by the Central Bank of Kosovo and only up to 80% of the statutory provision expenses.
Net operating losses
Tax losses can be carried forward for up to four consecutive tax years. However, restrictions may apply in cases of change of business or change of ownership; if the business changes its type of business organisation or has an ownership change of more than 50%, the tax loss is not allowed to be carried forward.
Carryback loss provisions are not allowable.
Payments to foreign affiliates
Payments to foreign affiliates are subject to WHT at 5% if they represent services provided with physical presence in Kosovo by the affiliate, unless tax relief is requested in accordance with the local legislation or any DTT in place. These payments are tax deductible if they are properly documented and incurred for business purposes only.
Payments to foreign affiliates made for the purpose of transferring profits may be subject to revaluation by the tax authorities. Any transactions/payments made to foreign affiliates shall be performed on an arm’s-length basis.