Value-added tax (VAT)
The VAT law and system in Kosovo is based on the European Union (EU) Directive for VAT (Directive 2006/112/EC and its subsequent amendments). VAT legislation is regulated by Law No.05/L-037 ‘On Value Added Tax’ and the corresponding sub-legal acts. In addition, as a measure towards economic recovery from the adverse effects of COVID-19, a new Law no. 07/L-016 entered into force, which amends some of the provisions of the Law ‘On Value Added Tax’.
Registration for VAT
All taxable persons who import/export and taxable persons whose turnover is above EUR 30,000 within a calendar year are required to register for VAT.
Where turnover is less than the threshold, voluntary registration for VAT is possible.
VAT registration for foreign entities or persons not established in Kosovo should be completed from the beginning of their economic activity in Kosovo, regardless of the threshold. Nonetheless, this is not required of persons who make supplies for which the place of supply is considered to be Kosovo and the recipient is liable for the payment of VAT.
Object of taxation
VAT is levied on:
- supplies of goods or services with place of supply in Kosovo, and
- importation of goods.
The standard VAT rate is 18%.
A reduced rate of 8% applies to the following supplies:
- Supply of water, except bottled water.
- Supply of electricity, including transmission and distribution services, with 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, such as flour, pasta, bread, and similar products.
- Cooking oils made from grains or oilseeds for use in cooking for human consumption.
- Dairy and dairy products intended for human consumption.
- Salt used for human consumption.
- Eggs for consumption.
- Textbooks and serial publications.
- Supply, including lending, of books from libraries, including brochures, leaflets and similar printed materials, children's picture books, drawing and colouring books, music printed texts or manuscripts, maps, and hydro graphic charts, and similar.
- Information technology (IT) equipment.
- Supply of medicines, pharmaceutical products, instruments, and medical and surgical devices.
- Medical equipment, ambulances, aids, and other medical devices to facilitate or treat inability for exclusive use by the disabled, including the repair of such goods and supply of children’s vehicle seats.
- Live animals and poultry.
- Services provided in the HoReCa industry - namely hotels, restaurants, and catering (valid only until 31 December 2021 as measures towards economic recovery following the COVID-19 pandemic).
Chargeability of VAT
VAT generally becomes chargeable when the goods or services are supplied. Specific rules apply in cases where supply of goods or services occurs over a period of time, where successive payments are made, and in case of long-term contracts.
VAT becomes chargeable whichever of the following conditions is fulfilled first: payment is made, invoice is issued, or the supply of goods/services is carried out.
Taxable entities have the right to carry forward to following tax periods the VAT credit or to claim VAT refund if the following conditions are met:
- The taxable person is in VAT credit position for three consecutive months.
- At the end of the third month the amount of VAT credit exceeds EUR 3,000.
- All VAT and other tax returns for all past tax periods have been submitted.
While taxable persons that have exports may claim VAT refund on a monthly basis after each tax period if the following conditions are met:
- The amount of VAT credit exceeds EUR 3,000 at the end of the tax period.
- The taxable person complies with all applicable customs and VAT provisions.
- All VAT and other tax returns for all past tax periods have been submitted.
The Tax Administration of Kosovo (TAK) shall review the VAT refund claim request within a maximum of 30 to 60 days, while as per an internal decision of TAK, reimbursement claims shall be reviewed within 7 to 30 days (if no tax audit is initiated) based on the classification of the taxpayer (Category A, B, or C).
Invoices for supplies subject to VAT must always be issued by the 15th day of the month following that in which the chargeable event occurs, at the latest.
Place of supply of goods/services
Place of supply of goods or services is determined in line with the provisions set out in EU Directive 2006/112/EC on the Common System of Value Added Tax.
In respect of goods, special rules apply to establish the place of supply of goods with and without transport, on board ships, aircraft, or trains, and supply of natural gas and electricity through distribution systems.
In respect of services, there are two main rules: general and particular. The general rule defines the place of supply of services to a taxable person, which is where that person has established one’s business. Particular rules apply to specific services related to immovable property, passenger transport, restaurant and catering services, short-term rent of transportation equipment, and educational, cultural, artistic, or similar events.
For the supply of services to a non-taxable person, the general rule is that the place of supply is the place where the supplier has established one’s business. The particular rules for supplies to non-taxable persons apply to specific services as outlined above.
The place of supply of the following services to a non-taxable person established outside of Kosovo is the place where that person is established: transfers of copyrights, patents and similar rights; advertising services; consultancy, engineering, accounting, legal, and data processing services; banking, financial, and insurance transactions; supply of staff; hiring of movable tangible property (except transport); provision of access and transport or transmission through to natural gas and electricity distribution systems; telecommunication, radio, and television broadcasting services; and electronically supplied services.
Reverse charge is applied on supplies of goods and/or services that are supplied from a taxable person not established in Kosovo.
When the recipient of such services/goods is registered for VAT in Kosovo, the place of supply of such services/goods is considered to be Kosovo, and the recipient will be liable for paying the VAT.
In cases where the recipient is not registered for VAT in Kosovo, the supplier is liable to pay VAT and is obligated to register for VAT in Kosovo via a tax representative.
A special reverse-charge scheme is applicable for the supply of construction and construction-related works, as well as supplies where personnel is engaged in construction activities.
Similar to the regular reverse-charge mechanism, the person liable to pay the VAT on the supply is the recipient of the construction services.
With a new public decision, as of 1 January 2020, this rule does not apply in invoicing between the main contractor and the investor, and, in such cases, the contractor issues the invoice with VAT.
VAT exemptions without the right to deduction are applicable to activities in the public interest, welfare, education, culture, sports and religious activities, media, and public transportation. Other activities exempt from VAT include financial services, health and life insurance, insurance and reinsurance services related to agricultural crops (valid only until 31 December 2021 as a measure against COVID-19 economic impact), lottery, land, housing for residential purposes, etc.
VAT exemptions with the right to deduction include exports, international transport, intermediary services, and special customs arrangements. As per the Law on Economic Recovery, raw materials produced by Kosovo manufacturing businesses are exempt from VAT for both internal trade and exportation with the right to deduction. This is valid until 31 December 2021 as a measure against COVID-19 economic impact.
Importing of production lines and machinery for use in the production process, raw material used in the production process, as well as IT equipment, newspapers, and periodic publications, and equipment required for electronic and printed media benefit from VAT exemption (with crediting rights) on importation.
Supplying goods and services that are co-financed by donations from foreign governments and the Kosovo government and destined for projects with the public as the beneficiary are exempt from VAT (with deduction rights) if such exemption is foreseen between the parties and the participation from the Kosovo government is not more than 20%.
The right to deduct VAT
The right to deduct input VAT arises at the time when VAT becomes chargeable and such VAT is related to goods or services obtained for business purposes.
Input VAT is non-deductible for several goods/services, including the purchase of yachts, boats, private aircraft, cars, and motorcycles intended for recreation and used for non-business purposes, as well as representation costs related to entertainment during business or social contacts. A taxable person can, however, deduct input VAT on advertising expenses, meals, and transportation for personnel.
For cars used for both business and personal purposes, only 50% of input VAT can be deducted. The use of immovable property in the same manner allows VAT deductibility only up to the proportion of the property’s use for business purposes.
In case purchased goods and services are used to make both taxable and exempt supplies, VAT shall be deducted proportionally to the transactions for which VAT is deductible.
Monthly submission of VAT returns to the TAK and monthly payment of VAT are due by the 20th day of the month following the end of each tax period.
In addition, VAT records have to be kept for six years after the end of the tax period to which they relate.
Customs import duties
The rate of customs import duty is zero on goods that originate in the territory of a country that is a party to the Central European Free Trade Agreement (CEFTA), and for some goods imported from the European Union as per the provisions of the Stabilization and Association Agreement. A reduced customs rate is applicable for some goods imported from Turkey, which is subject to gradual reduction and will become zero in six or eight years, as foreseen by the Free Trade Agreement between Republic of Kosovo and Republic of Turkey.
Most rates of import duty on goods that originate outside of CEFTA/EU/Turkey are 10% ad valorem (10% of the price paid or payable for the imported goods); however, some imported goods are exempt from the payment of the 10% import duty. The Integrated Tariff Code of Kosovo (TARIK) provides detailed information on import duty rates, VAT rates, and excise tax rates (if any), as well as any required certificates or licences that pertain to all imported goods.
Excise tax is levied as a percentage of the value of the goods or represents a fixed amount per specified quantity. Excise tax in Kosovo is applicable on certain goods like beer, wines, alcohol, liquors, and other alcoholic beverages, cigarettes, other tobacco products, cars, petrol, diesel, etc.
For applicable excise taxes on these items, please see: https://gzk.rks-gov.net/ActDetail.aspx?ActID=2688
The property tax payable depends on the type of use of the property, on the area the property is located, and on the market value of the property. Property taxes are levied and collected at the municipal level.
Property tax rates also vary for each municipality. For the capital city of Pristina, the following rates are applicable based on the category of the real estate and activity undertaken:
|Buildings||Parcels of land|
The valuation of the property for property tax purposes (calculated in EUR/m2) depends on the location and type of property.
Transfer of immovable property is subject to a property transaction fee levied at the municipal level at EUR 150 per unit. One unit equals 100m² of residential/commercial building or 1 hectare of land.
There are no stamp taxes in Kosovo.
Entities are required to withhold personal income tax (PIT) from the gross salaries of their employees. Progressive tax rates ranging from 0 to 10% are applied to gross income.
Social security contributions
Both employer and employee are subject to compulsory pension contributions in Kosovo. The total compulsory contribution is 10%, where 5% represents the employee’s share (withheld from gross wages) and 5% the employer’s share.
Employers and employees may contribute additional pension contribution up to 30% (15% + 15%).
The compulsory pension contributions are deductible for CIT purposes of the employer, whereas voluntary contributions and those exceeding 15% of the annual salary are not deductible.
Other local taxes
Taxes are collected by the municipalities and vary on the activity and location of the business. Such taxes include vehicle tax, property tax, ecological tax, and advertising tax.