Kosovo is a parliamentary republic and a potential candidate for EU membership. It declared independence on February 17, 2008 and signed the Stabilization Association Agreement (SAA) in October 2015.
Kosovo's economy has shown progress in transitioning to a market-based system and maintaining macroeconomic stability, but it is still highly dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora - located mainly in Germany, Switzerland, and the Nordic countries - are estimated to account for about 17% of GDP and international donor assistance accounts for approximately 10% of GDP. With international assistance, Kosovo has been able to privatize a majority of its state-owned enterprises. However, while the rate of economic growth in the recent years has been considerable and satisfactory despite the world economic crisis – averaging 3.3% annualy since 2009 – subsequently resulting in lowering the overall poverty levels, they nonetheless could be even higher. Under the SAA, Kosovo — which gets approximately 58% of government revenue from tariffs on imports — is required to phase out tariffs on EU goods over the next seven years. Kosovo represent a good investment destination, especially in the sectors of information technology and communications, food processing and packaging, mining and metal processing, energy, textile, leather and wood processing
EU-facilitated normalization process with Serbia is on-going, which led to implementation of a number of agreements including the one on freedom of movement, telecommunications and energy distribution. The normalization process with Serbia should lead to signing of the legally binding agreement between the two sides that will fully regulate their relations. Kosovo is a member of the World Bank, International Monetary Fund, the European Bank for Reconstruction and Development, and the Council of Europe Development Bank.
The business environment in the Republic of Kosovo is becoming one of the most competitive in the region. An excellent tax system, abundance of natural resources, quick and easy business registration methods, a transparent law on foreign investments, Law on strategic investments, are just a few advantages making this country an attractive and friendly environment for foreign investors.
The Republic of Kosovo is distinguished as the country with the greatest opportunities for investment in the Balkans, hence a strong reason appealing at international investors as a primary place for their investments.
The Republic of Kosovo has been nurturing an attractive business climate by offering investment incentives in the form of more favorable tax regimes compared to other EU countries, bilateral double-taxation and multilateral trade agreements, cheap and effective labour force. Kosovo has generally strived to achieve a high level of foreign trade liberalization through being a signatory of five trade agreements – EFTA, CEFTA, SAA (Stabilisation and Association Agreement) with EU member-states, Turkey and Ukraine. Furthermore, it signed agreements for the avoidance of double taxation and investment protection treaties with many European countries.
The Stabilization and Association Agreement guarantees the alignment of national legislation with EU laws, while conditions for investment and business are becoming recognizable and predictable for foreign investors.
1. Investment laws – Kosovar legislation related to investment is comprised of the Law no. 04/L-220 on Foreign Investment (“Law on Foreign Investment”) and Law no. 05/L-079 on Strategic Investments (“Law on Strategic Investments”) laws and bilateral and multilateral international treaties aim to enhance the investment environment in the Republic of Kosovo and provide equal treatment for foreign and domestic investors. The legislation puts foreign companies on roughly the same ground, while Kosovo consistently provides support and treatment to foreign investors among other methods of attraction. The Government also provides numerous incentives, such as tax breaks and subsidies, to attract foreign investments. A new law has come into effect in Kosovo aiming to stimulate and attract investments. Called the Law on Strategic Investments in the Republic of Kosovo, its primary function is to limit or dispense with the unpleasantries of bureaucratic procedures involved in larger-scale investments that fall into the scope of “strategic investments”. Law on Foreign Investment, ensures equal treatment for local and foreign investors, such as non-discriminatory treatment, constant protection and security, compensation in case of nationalization and expropriation, including the payment of interest, compensation in case of a violation of the applicable law and international law attributable to Kosovo, freely transferable and otherwise unrestricted use of income, protection against retroactive application of laws etc. Foreign investors are allowed to invest directly in all industry and business sectors except those limited by law. Investment in the production of weaponry and narcotics is subject to Government approval. Investors in some sectors such as banking, financial services, and insurance must meet certain licensing requirements that apply equally to both domestic and foreign investors.
2. Corporate law - Foreign investors wishing to establish a business presence in Kosovo have an opportunity to incorporate a branch office or representative office of the foreign company. In general, a business presence in Kosovo can be established within 1 working day. There are 5 forms of business entities: Individual Business, General Partnership, Limited Partnership, Limited Liability Company or Joint Stock Company.
3. Tax regime - The tax policy in Kosovo is oriented towards simple regulations that ensure a broad tax basis and prevent tax evasion. Taxes differ based on type of business and annual turnover. The tax administration applies three main tax regimens: Value Added Tax (VAT) in Kosovo is the lowest in the region. Value Added Tax (Law No. 05/L-37) applies to all importers and businesses with an annual turnover exceeding EUR 30,000. VAT rate is 8% for basic products (services and food baskets) and 18% for other products. VAT will be reimbursed fully to exporters for exported goods. Corporate Income Tax (CIT) is 10% of the taxable income by (i) business organizations that are legal entities (Corporations); (ii) non-governmental organizations; and (iii) non-residents with permanent establishments in Kosovo. Personal Income Tax (PIT) (Law No. 05/L-028) is applied to natural persons who receive personal income from Kosovo sources and foreign incomes of Kosovar citizens. Personal Income tax rate is up to 10 % (Progressive tax). This type of tax is applied on incomes from wages, business, rent, interest, real estate, etc. Tax rates for personal income from wages are normally progressive based on the level of earned salary and lower rates in the region and countries of EU.
4. Free trade regime - Kosovo is a member of the Central European Free Trade Agreement (CEFTA) and has signed Free-Trade Agreements (FTA) with Albania, North Macedonia, Croatia, Bosnia-Herzegovina, and Turkey. The Stabilization and Association Agreement aimed at liberalizing trade with the EU entered into force in April 2016. Additionally, Kosovo has signed double taxation treaties with Albania, Macedonia, Slovenia, Turkey, the United Arab Emirates, and the United Kingdom. Older treaties with Hungary, Netherlands, Germany, Finland, and Belgium from the time of the former Yugoslavia still apply to Kosovo.
5. Labour Law - The Kosovar Law No.03/L –212 on Labour and other labour legislation regulates the relations between employees and employers by individual agreements and collective agreements. The Labour Law is generally in line with international labour standards and as such applies to both domestic and foreign investments equally. Employment contracts in Kosovo may be concluded for: (i) an unspecified period; (ii) a specified period; and (iii) specific tasks. The procedure for obtaining residency and work permits as well as temporary residence are regulated by the Law on Foreigners issued by the Ministry of Labour and Social Welfare.
6. Visa regime - Kosovo grants visa-free entry to EU member countries and most signatories of the Schengen Agreement, and residence in them for up to 90 days within a 6-months period. It also grants visa-free entry to many additional countries – Albania, Andorra, Antigua and Barbuda, Argentina, Australia etc.
7. Kosovo Law No. 04 /L–042 on Public Procurement in Republic of Kosovo - The concept of long-term co-operation between a public and a private partner in order to provide finance, construction, reconstruction, operation or maintenance of infrastructure and other facilities of public interest, and to provide services of public interest was introduced by the previous Law on Concessions and Other Types of Public-Private Partnership in 2008, and was refined and further regulated by the Law on Concessions and Public-Private Partnership in 2012.
|Member of CEFTA and multiple Free-Trade Agreements|
|Subsidies for investors|
|Low tax rates|
|Wide range of DTTs|
|Flexible labor regulations|
There are three economic zones in Kosovo. Zones are established upon the request of the municipality to the Ministry of Trade and Industry, and are administered by the municipality. Business organisations or business associations can also submit request for establishment to the ministry or to the municipality.
Types of incentives in Kosovo
|Incentives||Awarded aid||Eligibility criteria||Condition for use of aid||Length of incentives||Zone specific|
|Deferred VAT payment on selected plant machinery.||Deferred payment of VAT on imports of selected plant machinery.||Yes||Import plant equipment and machinery.||Up to 6 months||No|
|Additional 10% deduction on heavy equipment.||Additional deduction allowance of 10% on top of normal depreciation of the cost of acquisition of heavy equipment (production lines for plant and machinery) and heavy transport vehicles.||Only permitted for “heavy” equipment and vehicles. Applicable for new assets or assets first placed in service in Kosovo. Only allowable on assets first used up to 31 December 2012 (note, both income tax usage period is extended to 31 December 2014).||Acquisition of equipment and vehicles under the category.||n/a||No|
|No customs duty on machinery and raw material.||Exemption from custom duties on machinery and raw material.||The Law on 0% duties was in the Parliament in 2013 – before these incentives were provided based on UNMIK Regulation NO. 2007/31 PART C.||The exempt material must be aimed at manufacturing.||n/a||No|
|No fees on business registration (Municipality of Suhareka).||Exemption from fees of businesses registration that are involved in production.||Manufacturing businesses.||Business must be located in Suhareka.||n/a||No|
|Free use of municipal land in Peja.||Free use of municipal land for business activities.||No specific criteria.||Conduct a new business.||Up to 30 years||No|
Law No. 04/L-159 on economic zones, in Official Gazette of the Republic of Kosova No. 6 / 12 March 2013. The law establishes the economic zones, and is the base for drafting the national plan for economic zones, deciding site of economic zones, way of use of economic zones, promotion of economic zones, and establishment of national council for economic zones.
|Global Competitiveness Index||/|
|Ease of doing business||RANK 57|
|Starting Business rank||RANK 13|
|Global logistics report||/|
|EU - 27||0.209||0.205||0.207||0.213||0.216|
We would advise to the Government to improve inter-border flow of goods and people (customs procedures, police and customs border systems).
We see the region to remain being interesting for labor-intensive investments if no bigger political turmoil occurs.