New law on corporate income tax (CIT)
In July 2019, Kosovo introduced a new law on CIT, which entered into force in August 2019.
The key changes resulting from the new law are summarised below:
Change of taxation method for insurance and re-insurance activities
The previous taxation method of 5% of gross premiums collected during a tax period for insurance and re-insurance activities has been amended to the conventional taxation method of CIT being levied on taxable profits at the rate of 10%.
Recognition of loan loss, technical, and mathematical provisions
The new law foresees the recognition of provision expenses for banks, micro-finance institutions, and non-bank financial institutions as follows:
- Banks, micro-finance institutions, and non-bank financial institutions licensed by the Central Bank of Kosovo (CBK) are entitled to recognise as deductible expenses the provision for expected losses from loans of up to 80% of the amount determined by a sub-legal act issued by the CBK. All other provisions not foreseen by the CBK are not allowed as deductible expenses
- Insurance and re-insurance financial institutions licensed by the CBK are entitled to recognise the deductible expenses for technical and mathematical reserves of up to 80% of the amount determined by the Law on Insurances and sub-legal acts issued by the CBK.
Allowable deductions for sponsorships in sports, youth, and culture
Taxpayers making contributions to sports have the right to get a tax credit of up to 30% of CIT, and those contributing to youth and culture will be granted a deduction of up to 20% of CIT (if combined contributions in both sports and youth & culture, a maximum allowance of 30% is provided).
Shorter tax loss carryforward period
Tax losses can be carried forward up to four consecutive tax periods, as opposed to the previous law, which allowed for a carryforward period of up to six consecutive tax periods.
Lowered threshold to register for CIT
The requirements to maintain books and records, and consequently the obligation for tax reporting based on accrued income, is applicable for any taxpayer with annual gross income from economic activities of 30,000 euros (EUR) or higher, decreased from the EUR 50,000 threshold as per the previous law.
Reduced withholding tax (WHT) rate on special categories
WHT on gross payments for any taxpayer making payments to non-business individuals, farmers, and collectors of recycled materials, forest fruits, and medicinal plans is reduced from 3% to 1%.
Revised transfer pricing provisions
As opposed to the previous law, which favoured the comparable uncontrolled price method against other methods, the new law states that the selection of a transfer pricing method should be based on its appropriateness and other relevant criteria (in line with the Organisation for Economic Co-operation and Development [OECD] Transfer Pricing Guidelines).