Legal and tax toolbox

• Limited Liability Company

Capital requirements: There is no requirement for an initial capital when incorporating an LLC in Kosovo. Additionally, no proof of payment of initial founding capital needs to be provided.

• Joint Stock Company

Capital requirements: The Initial founding capital of Joint Stock Companies is EUR 10,000.00.

• Foreign Business Organization
• Limited Partnership
• General Partnership
• Personal Business Enterprise

 Incorporation requirements (registration, capital and management requirements)

General and limited partnerships are not that common in Kosovo due to the unlimited liability of shareholders for the debts of the company, whereas the incorporation procedure for joint stock company is rather complex and time-consuming and requires minimum share capital in the amount of EUR 10,000, which also makes this legal form rarely used in practice.

The limited liability company is by far the most common used legal form in practice. This is due to the rather straightforward incorporation procedure, no requirements in relation to the share capital of the company, and the fact that the shareholders are not liable for the debts of the company (except in specific circumstances, e.g. if there are grounds for the piercing of the corporate veil). For this reason, below are outlined incorporation requirements and permitted activities related to the limited liability companies.

The initial registration procedure of a new business in Kosovo is comprised of submitting the necessary specific documentation for the different type of business to the relevant authority i.e. the Kosovo Business Registration Agency (“KBRA”), including submitting the specific application form by the applicant or authorized representative, and accompanying documents. For a company to become operational, there are a few other registrations and formalities that have to be made following the registration – opening of a bank account. Required time for post-registration procedures is approximately two weeks (provided all the documents are collected in a timely manner).

There are no applicable fees when registering a new business, though subsequent amendments are subject to fees in accordance with the applicable administrative instruction.

Permitted activities

A business may be established and registered for any lawful purpose and may engage in any lawful activity provided with the relevant list of activities provided. If a business is established and registered for the conduct of an activity that is subject to a license or permit requirement established by another primary normative act, the registration of such business shall not constitute or be interpreted as constituting any kind of authorization for such a business to engage in such activity. It shall be the sole responsibility of the business, after registration, to identify, apply for and obtain any and all required permits and licenses from the responsible public authority before engaging in the concerned activity. A list of permitted activities may be found here.

A business may engage in all legally permitted activities, but its predominant business activity (taken from an exhaustive list of business activities provided by Kosovo laws) must be defined in the Memorandum of Association and registered with the Kosovo companies’ registry. There are certain activities (e.g. financial services and insurance services), that may only be performed by an entity incorporated in a certain legal form (e.g. joint-stock company), and certain activities (e.g. trade in poisonous goods, medicines or weapons) that may be subject to licensing requirements.

The Law on Foreign Investment provides for non-discriminatory treatment, constant protection and security, compensation in case of nationalization and expropriation, including payment of interest, compensation in case of violation of applicable law and international law attributable to Kosovo, freely, transferable and otherwise unrestricted use of income, protection against retroactive application of laws, legal or non-legal actions.

The new Law on Strategic Investments in Kosovo, which was promulgated in February 2017, aims 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”. The status of a strategic investments is given to those endeavors which contribute to the crucial economic and social development and economic growth, employment, introduction of new technologies, increase of competition, export or growth of welfare and living conditions.

Bilateral agreements are concluded with numerous countries with regard to investment protection, such as: USA, Austria, Turkey, Albania, Switzerland, Belgium, Luxemburg, United Arab Emirates and Macedonia. These agreements provide for investment protection and security, free funds transfer, free profit and dividends repatriation, protection against retroactive application of laws as well as protection from expropriation.

Incentives

Carrying forward of losses

Based on the Law No. 05/L-029 on Corporate Income Tax (“Law on Corporate Income Tax”), tax and capital losses can be carried forward for up to six successive tax periods, and shall be available as a deduction against any income in those years.

Avoiding double taxation

Based on the Law on Corporate Income Tax (No.03/L-16), a resident taxpayer who receives income from business activities outside of Kosovo through a permanent establishment outside of Kosovo, and who pays tax on that income to any state, shall be allowed a tax credit under this regulation in an amount equal to the amount of tax paid to such state.

Any tax credit under the present section is limited to the amount of tax that would be paid under this regulation on the income made in such state.

Any applicable bilateral agreement on the avoidance of double taxation shall supersede the provisions above.

Customs

In order to promote local production, the new Kosovo Customs and Excise Code No. 03/L- 109 applies a reduced rate of zero percent customs duty on the import and export of certain capital goods, raw materials, agricultural production inputs, and services.

Investment guarantees

The Multilateral Investment Guarantee Agency (“MIGA”) (a member of the World Bank Group) guarantees investments in Kosovo up to the value of EUR 20,000,000.

The US Overseas Private Investment Corporation (OPIC) also provides political risk insurance for foreign investors in Kosovo.

The Regulation MOF-CBK No. 01/2014 for the Primary and Secondary Market of Government Securities of the Republic of Kosovo (“Regulation”) regulates the manner and procedure of issuing and trading of Government securities on the primary and secondary market. The Central Bank of Kosovo maintains, records, trades and settles all Government security transactions through an electronical system, which includes the initial electronic auction sales at the primary auction, electronic trading and the central securities depository.

Concepts related to insider trading, market manipulation and director dealings are underdeveloped and are not applied in practice considering the lack of a stock exchange in Kosovo. As a rule, these types of actions can be treated as criminal activity and prosecuted by the prosecution authorities.

Agency agreements

Appointment

In order to appoint an agent, the agent and the principal conclude an agency agreement in writing. The agent can also request the principal to give him a proxy.

The principal is allowed to hire more agents for the same kind of work on the same territory. However, once the agent enters into an agency agreement with one principal, it cannot represent another principal for the same kind of work on the same territory without the consent of the first principal.

Remuneration

The principal is obliged to pay the agent a fee (commission) for the contracts that were concluded with its mediation during the term of the agency agreement, as well as for the contracts concluded by the agent in the name and on behalf of the principal, if it had authorization to do so. Also, it has to pay the agent a fee for all contracts it concluded directly with clients that were found by the agent for the principal. If the parties agreed that the agent will have exclusive right of representation on a certain territory or with a certain group of clients, than the principal must pay the agent a fee for all contracts it concluded without the mediation of the agent on that territory or with a client from that group. 

If the principal concludes a contract in a reasonable time after the termination of the agency agreement as a consequence of acts taken by the agent before the termination, the agent has a right to receive compensation.

In exceptional cases, the agent can give a written guarantee that the third party shall fulfil its obligations from the contract concluded between the third party and the agent acting in the name and on behalf of the principal. In that case, the agent has a right to a special fee (del credere commission).

The right of remuneration is gained when the principal fulfils, or had to fulfil its obligation under the contract concluded with the third party.

The agent loses the right to a commission if the contract between the principal and the third party is not fulfilled for reasons that are not on the side of the principal.

Termination

Unless otherwise agreed, the agency agreement is concluded for an indefinite term. If it is concluded for a fixed term, then is shall be terminated upon its expiration. If the agreement is for an indefinite term, each party may terminate it by sending a written notice to the other party while respecting the following notice periods:

• One month for each year of the duration of the contract;
• If the contract lasted more than five years, the notice period is six months;
• The parties cannot agree on a shorter notice period, but if they agree on a longer term, it must apply to both parties.

Each party may terminate the agency agreement without a notice period due to serious reasons, in particular because of failure to fulfil the contractual obligations or due to changed circumstances.

Mandatory rules

The agent may not request or receive a fulfilment of its principal’s claim if it does not have a special authorization for it.

The agent has the flowing obligations:

• To take care of the principal’s interests and to act in accordance with the principle of good faith and with the care of a good businessman;
• To take all necessary acts in order to mediate or conclude legal matters for which it is authorized, adhering to the reasonable instructions of the principal;
• To inform the principal about relevant market situations and the acts related to the concluded or the possible contracts;
• To keep the principal’s business secrets that are connected with the contracted work;
• To return all objects to the principal after the termination of the agency agreement.

On the other hand, the principal’s obligations are the following:

• To act in accordance with the principle of good faith and with the care of a good businessman;
• At his own expense to make available all documentation to the agent if it is necessary for the agreed work;
• To give the agent all necessary information and inform him about its decisions connected with the contracts that the agent concludes in his name and on his behalf;
• To pay the agreed fee (commission).

The parties can agree in writing that after the termination of the agency agreement the agent cannot perform partially or fully an agency activity on the same territory, with the same clients or regarding the same products that the agency agreement between them referred to. That provision would be valid only for two years after the termination of the agreement.

Distribution agreements

Kosovo does not have laws regulating distributor agreements, except for dental products, where a contract with a licensed distributor is required. Any local agent or distributorship relationship should be clearly defined, stipulated by contract, and contain an alternative dispute resolution clause. Agreements should also be registered with local courts in case of a legal disagreement.

Choice of dispute resolution forum

Party autonomy is also a criteria for determination of the dispute resolution forum. The parties can explicitly or implicitly agree that the dispute between them shall be resolved by a competent court (choice of court agreement) or an arbitration tribunal (arbitration agreement). The parties can enter into this type of agreements before the dispute has arisen in the form of a contract provision, or after its appearance.

Award procedure

Unless otherwise determined with special provisions of the PPL for using different procurement procedures, a contracting authority shall select and use open or restricted procedure when conducting procurement activities leading to the award of a public contract. Pursuant to relevant legislation the award criteria are the following: that the contract shall be awarded to the economic operator submitting the lowest-priced tender; or that the contract shall be awarded to the economic operator submitting the most economically advantageous tender. The following procedures are used by Contracting Authorities for awarding contracts: open procedure, restricted procedure, design contest, negotiated procedure after publication of a contract notice, negotiated procedure without publication of a contract notice, procedure for price quotations, and minimal value procedure.

Privatization

According to the PPL, the tender for privatization of publicly owned enterprises procedure shall be opened in accordance with the Public Procurement Law.

The Privatization Agency of Kosovo (“Agency”) is an independent public institution of the Republic of Kosovo exercising its functions and responsibilities with full autonomy in compliance to the Law on Agency, Operational Policies of the Agency, Rules of Tender and other applicable legal and sub normative acts in the Republic of Kosovo. The Agency has the mandate to administer Enterprises and assets as stipulated by the Law on Agency including the right to sell, transform and/or their liquidation. The Agency enjoys full juridical personality and may sue or be sued in a court procedure any other similar procedure.

Sale structure and bid statement

The Agency shall establish the subsidiary on behalf of the SOE and shall keep it in trust for the SOE, subsidiary’s issued share capital. As an integral part of the tender, the Agency shall perform the sale of subsidiary’ issued share capital, on behalf of the SOE whilst tendered items shall be transferred to the subsidiary for a definite time. The Subsidiary or tendered item shall be tendered for sale through public auction in compliance to procedures set out in Rules of Tender. There shall be one bidding round and these rules stipulate procedures that govern the tender including method whereby potential bidder may be registered as eligible bidder, information and documents to be included in the bid, highest bid identification and method to proceed with the sale of subsidiary or tendered item to the potential winning bidder. In order to consider a bid, the bidder must be in accordance to Rules of Tender. Bidders’ participation at any moment of the tender or through submitting the bid, the bidder complies and undertakes in compliance with these rules of tender. Upon submitting a bid, the bidder must emphasize what subsidiary or tendered item he is competing and must submit the bid price.

Sale is performed in accordance to the highest bid price

The Agency shall sell the subsidiary or tendered items only with highest bid price. Highest bidder shall have the right to buy the subsidiary or tendered items only by highest bid price. If for any reason the sale does not proceed with the highest bidder, the second highest bidder by complying to these rules of tender shall have the opportunity, but is not obliged to purchase the subsidiary or tendered items with highest bid price. If for any reason the sale does not proceed with the second highest bidder, the third highest bidder by complying to these rules of tender shall have the opportunity, but is not obliged to purchase the subsidiary or tendered items with highest bid price.

Tender schedule

The Agency shall designate the tender schedule. Bidders must consult the tender schedule and obtain information regarding terms and dates set by it and comply with them during the tender process.

In fact, the Law on PPP foresees the participation of consortia for the purpose of qualifying as bidders for specific projects. The two articles dedicated to the participation of consortia in special projects outline briefly some conditions for qualification. It states that each member of a consortium may participate, either directly or indirectly, in only one consortium at a time. When considering the qualifications of bidding consortia, the Public Authority shall consider the capabilities and levels of participation of each of the consortium members and assess whether the combined qualifications of the consortium members are adequate to meet the needs of all phases of the project.

Air transit visa (A): is issued for air transit at the airport of the Republic of Kosovo for citizens of countries for which the Government of the Republic of Kosovo has determined such a regime. The multi-entry air transit visa (A) is issued for a maximum term of six months and it is issued for one, two or more transit passages through the international air transit zone.

Entry visa (B): is issued for transit through the territory of the Republic of Kosovo, while the term of the visa should be in accordance with the time needed for transit. The multi entry transit visa (B) is issued for a maximum term of six months and it is issued for one, two or more transits.

Entry visa (C): is issued for purposes of residence in the territory of the Republic of Kosovo for a determined time, but no more than 90 days for each period of six-months. Multi-entry visas are issued for periods of validity from six months to five years.

Entry visa (D): is issued when the diplomatic or consular mission receives confirmation by the Ministry of Internal Affairs that a person fulfils the conditions to receive a residence permit in the Republic of Kosovo. Entry visa (D) is issued for one single entry and its validity is three months.

Residency

The types of residence in the Republic of Kosovo are: - short term residence - temporary residence and - permanent residence. Short Term Residence means the residing of a foreign national for up to three (3) months within a period of six (6) months without a visa or with a visa when required.

Temporary Residence Permit

Temporary residence is granted to a foreign national who wishes to reside in the Republic of Kosovo for purposes of: 1. family reunification; 2. secondary education or higher education; 3. scientific research; 4. humanitarian reasons including refugees, persons under subsidiary protection and victims of human trafficking or victims of smuggling of migrants and foreign nationals who have expressed willingness to cooperate with the competent authorities; 5. work; and 6. employment of posted employee. The temporary residence permit is issued for a one (1) year period.

Work permit

Natural persons, who are not citizens of Kosovo, when willing to work in Kosovo for a timeframe of more than three (3) months, shall be granted a work permit issued by the Ministry of Labour and Social Welfare.

Minimum employment terms

The minimum employment terms set forth by law which are required to be considered by employers before concluding employment relationships with employees are: (i) a minimum age of 18 (eighteen) years. However, in this respect when an employee is employed for easy labour which does not present a risk to either health or development and such a work is not prohibited by any law or sub legal acts, the LoL allows an employment relationship with persons older than 15 (fifteen) years’ old; (ii) a minimum wage which will be defined annually by the Government of Kosovo based on the proposal of the Social-Economic Council; (iii) an obligation to report employees to the Kosovo Tax Administration (KTA), and to other authorised institutions for managing and administering obligatory pension schemes; and (iv) safety measures.

Termination

Employment contracts in Kosovo may be concluded for: (i) an unspecified period; (ii) a specified period; and (iii) specific tasks. A contract for a specified task may not be longer than 120 (one hundred and twenty) days within a year. The period for giving notice to an employee by the employer for termination of an employment relationship depends on the duration of the contract. When an employment contract is concluded for an unspecified period, in the case of the termination of the contract by the employer, the following periods of prior notice shall be taken into consideration:

• From 6 (six) months up to 2 (two) years of employment: 30 (thirty) calendar days.
• From 2 (two) up to 10 (ten) years of employment: 45 (forty-five) calendar days.
• Above 10 (ten) years of employment: 60 (sixty) calendar days.

In the cases when the employment contract is concluded for a specified period, for the prior notice for termination of employment relationships, the employer shall give the employee prior notice of at least 30 (thirty) calendar days. The decision for termination of an employment relationship by the employer is mandatory to be issued in written form and to contain also the grounds for the termination.

Restrictive covenants

The employee may be bound by a post-termination non-compete provision in the employment agreement that can be justified only if the employee has been in contact with business secrets of the employer the dissemination or use of which may seriously damage the employer.

• Intellectual Property Office of Kosovo (IPO): National centre for the protection of intellectual property and providing of strategic information concerning intellectual capital, is the state body relevant for the registration of trademarks under the Ministry of Trade and Industry (kipa.rks-gov.net/).
• Basic Court Pristina: Competent for handling cases of trademark infringement involving parties where at least one is a legal entity (gjyqesori-rks.org/sq/courts/page/index/124).
• Customs Administration: State authority under the Ministry of Finance appointed to monitor state borders for goods used for trademark infringement (dogana.rks-gov.net/).
• Sector for intellectual property IPR (dogana.rks-gov.net/en/per-biznese/dpi/).

Application

In Kosovo, any natural or legal person is eligible to for the registration of a mark granting them trademark protection. Foreign applicants enjoy the same rights regarding trademark protection as domestic applicants, provided that such rights derive from international treaties or principles of reciprocity. Foreign applicants however need to be represented in proceedings before the IPO either by a professional representative such as a registered IP representative or a lawyer.

Under the Kosovo Law on Trademarks, any mark that is used to distinguish goods and services in trade and that may be graphically presented can be granted trademark protection. Marks subject to protection may comprise the following: words, slogans, letters, numbers, images, drawings, combinations of colours, three-dimensional shapes, and combinations of such marks and of graphically presentable musical notes.

Trademark application procedure commences by filing of the application for trademark registration to the IPO, either via post office or directly at the IPO premises. Application, containing duly filled form, valid power of attorney (should it be filed via legal representative), graphic representation of the mark (if the application is for a mark with a figurative element), complete list of relevant goods and services under the Nice Classification of Goods and Services, and proof of payment of administrative fees, will be entered into the register of applications, where the note of a filing number, date and the time of the receipt will be given by the IPO. The filing date is also a priority date.

Registration

Benefits of registering a trademark are multiple, but the main benefit lies in the protection it grants. Thus, the trademark holder has the exclusive right to use the trademark for goods and/or services to which it relates, and to prohibit others from an unauthorised use of an identical or similar mark for marking identical or similar goods or services on the market, should such use be likely to cause confusion in commerce. Additionally, the Trademark Law specifically governs that, in the event of intentional infringement of a trademark, the injured party may, instead of simply being remunerated pecuniary damage, request from the infringing party compensation of up to three times the usual licence fee it would have obtained for the use of the infringed trademark.

The trademark registration procedure, where a mark is not found to be in opposition to any other previously registered trademark, usually takes somewhere from six to twelve months, thereby comprising any potential examination reports rendered by the IPO leading to the extension of the procedure.

However, should there be a parallel court procedure initiated for the infringement involving a filed mark, the registration procedure might be extended to several years as the registration procedure would be suspended until the decision is rendered in the court proceedings.

The average total cost for the registration proceedings excluding any potential additional costs for responses to the examination report amounts to approximately EUR 160.

The examination report of the registration procedure consists of formal requirements and of material conditions for the trademark registration.

Formal examination consists of verifying the validity of the filed trademark application (consisting of the trademark application form, the mark claimed, list of goods and services to which the mark applies, and power of attorney, should the applicant be represented by someone). Should the examiner find that an application is improper, he/she will notify the applicant by dispatching an examination report to him specifying the irregularities noted and inviting the applicant to remedy the deficiencies. If the applicant fails to remedy the deficiencies in the application within the time limit assigned, or if he/she fails to pay adequate administrative fee for remedying such deficiencies, the examiner will issue a procedural order rejecting the application.

Material examination takes place once the application is found formally to be in order. Such procedure aims at examining the existence of any potential conflicts with other previously registered trademarks. If there are objections, the IPO will notify the applicant of this in writing, asserting the reasons for which the mark cannot be registered and requesting from the applicant to submit its comments within the specified time limit of 60 days. If the applicant fails to act upon the IPO’s request, or if it does but the IPO nevertheless finds that the mark may not be registrable, it will reject the application.

The trademark lasts for 10 years as of the date of filing of the application for registration, and is indefinitely renewable for further 10-year periods upon payment of prescribed administrative fees.

Enforcement:

Enforcement of IP rights and particularly trademarks are performed on several different levels.

As is the case in other jurisdictions of the former Yugoslavia, border control mechanisms are available via Customs Administration, allowing for trademark holders, applicants or exclusive licence holders to file a demand for trademark protection at the state borders. Acting upon rights holders’ request, or ex officio, the authorities are empowered to temporally seize all goods that are either the object or means of an IP rights infringement, whenever there is prima facie evidence establishing that an IP right has been infringed. Following the seizures, the customs officers notify without delay the rights holders, the IPO (if it is necessary to obtain relevant information) and any other interested parties (if any such parties are known) about the measures taken.

The notification is crucial as it includes an invitation to the holder of the IP rights to initiate the proceedings for protection of its rights in the court proceedings and to inform the customs authorities about such proceedings or of the preliminary injunction issued by the court.

Court proceedings, as additional means of enforcement, are initiated by filing a complaint with the competent court. The infringement complaint is usually filed with a demand for preliminary injunction. After receiving such a complaint, the court quickly decides on preliminary injunction. Furthermore, before rendering the final decision on the complaint, the court schedules a hearing to receive the statements of the parties. The judge will schedule as many hearings as is deemed necessary before rendering a decision.

Immovable assets

Ownership of immovable property is officially obtained upon registering the said ownership with the competent MCO.

In order to register ownership over an immovable property a party need to submit the standard form application for registration of ownership to the competent MCO with the supporting documentation, which includes:

• Property sheet proving that the property is registered in the ownership of the transferor;
• Copy of excerpts of transferor and transferee;
• Payment of property tax certificate issued from the Municipal Property Tax Office;
• Legal basis for registration of transfer of ownership of immovable assets;
• Proof of payment of administrative charge (amount dependents on the value of the asset in question, but cannot be lower than EUR 10);
• Power of attorney authorizing the person submitting the documentation (notarized);
• Immovable property money transfer stamp issued by the Finance and Property Directorate (if applicable);
• Approval statement for the money transfer issued by the Financial Intelligence Unit in accordance with anti-money laundry and terrorist financing legislation (if applicable).

The above documents need to be provided in original. In case the documentation is not in one of the two official languages in Kosovo (Albanian and Serbian), the documents need to be accompanied by an Albanian or Serbian translation by a certified translator as well as notary public verification of such translation. In case the document is issued by a foreign authority or verified by a foreign notary public and apostil might also be required.

The following documents can serve as a legal basis for registration of transfer of ownership of immovable assets:

1. contract for transfer of immovable property rights certified before a notary public;
2. final court decision;
3. decision of state administrative body;
4. privatization decision or contract for issued by the Kosovo Privatization Agency;
5. decision by the Commission for the Reconstruction of Cadastre;
6. decision by the Commission for the Regulation of Lands; or
7. other document if so stipulated by other laws.

Movable assets

The acquiring of ownership of movable property is done by concluding an agreement between the transferor and transferee and passing of the asset’s possession.

Registration of the ownership acquisition with a public registry might also be required for certain types of movable assets (e.g. motor vehicles).

(i) The incorporation documents of the business organization, i.e.: a. agreement of the branch; b. agreement and charter for a limited liability company. (ii) Photocopy of director(s) passport(s); (iii) Business Registration Certificate and the Information about Business (i.e. documents issued by the KBRA). The presence of the director(s) in the Bank for the opening of the account is mandatory. Once having completed registration with the KBRA and opening a bank account in Kosovo, the business organization has to register with the Tax Administration of Kosovo (‘TAK’) to obtain the Fiscal Number Certificate and VAT Certificate.

• to conduct the ordinary business activities of the company and
• to sign an agreement or other document on behalf of the company and in the company’s name if the signing of such agreement or document is reasonably related to or necessary for the conduct of the normal and customary business activities of the company. Any such act by a managing director is binding on the company unless
• the charter of the company prescribes that some or all of the managing directors shall represent the company jointly.

Upon the conclusion of the transactions on behalf of the company, the managing directors are required to adhere to the restrictions prescribed by the charter of the company or established by the shareholders or the board of directors. A restriction on the right of representation does not apply with regard to third persons. Any person, including a managing director, who knowingly purports to act on behalf of the Limited Liability Company in violation of the obligations set forth by the company’s charter is personally liable for all damages caused to the company from these actions.

Fiduciary duties

In exercising his rights, duties and responsibilities, a managing director shall act in fairness, loyalty and full care in due account of the interests of the company.

The duty of loyalty and care shall include, but will not be limited to, the duty to: (i) not use the property of the company for his own personal needs; (ii) not disclose confidential information of the company and not to use company confidential information for his own personal gain; (iii) not abuse with his position within the company with a view of personal gain to the detriment of that company; (iv) not acquire for own gain the business opportunities of the company; (v) not engage in commercial competition with the company; or (vi)  serve only the interests of the company in all transactions in which the person has personal interest.

If a managing director acts contrary to the fiduciary duties and responsibilities, he is liable to compensate the damages to the company caused by such infringement, and repay any personal profit that he or any other affiliated persons may have acquired by such action.

Don’ts

Personal liability of directors - Any owner of a company has the right to file a complaint with the Court in the owner’s own name and on the owner’s own behalf, or in the company’s name and on the company’s behalf, against a managing director to enforce any rights the owner or the company may have against a managing director for violating his/her duties to the owner or the company. 115.2 If the owner is seeking the enforcement of the company’s rights against a managing director, all damages awarded against the managing director shall be the property of the company. If the Court finds that the complaint was validly filed, the Court shall award in favour of the complaining owner and against the managing director the owner’s reasonable expenses. Such reasonable expenses shall include the legal fees incurred by the owner in connection with the preparation, filing and prosecution of the complaint.

Non-competition – A managing director of a company shall not directly or indirectly engage, participate or have an interest in any business activity that is in competition with the company. The prohibition of the first sentence includes, but is not limited to, the managing director’s involvement as an employee, consultant, contractor, general partner, manager, director or controlling owner or shareholder of another business organization that engages in a business activity that is in competition with the company.

Criminal liability of legal entities and directors

Criminal liability of Legal Entities and Directors are prescribed with the Criminal Code No. 06/L-074 of the Republic of Kosovo and Law No. 04/L-030 On Liability of Legal Persons for Criminal Offences.

According to the above laws, a legal person is liable for the criminal offence of the responsible person, who has committed a criminal offence, acting on behalf of the legal person within his or her authorizations, with purpose to gain benefit or has caused damages for that legal person. The liability of legal person exists even when the actions of the legal person were in contradiction with the business policies or the orders of the legal person.

• Legal persons, who are liable for criminal offences, may be imposed the following security measures:
  • prohibition of work or certain functions;
  • confiscation of assets;
  • confiscation of material benefit;
  • publication of the judgment.
• Prohibition to conduct activities and certain works may be imposed;
• Security measures of confiscation of assets has to deal with assets that were used or served for purpose to commit a criminal offence, which may be confiscated from the legal person, if he or she is the owner of these assets.
• Assets provided from paragraph 1. of this Article may be confiscated also in cases when they are not owned by a legal person- the perpetrator of the criminal offence, if it is required by the interest to protect the life and body of persons, security of movement, other economic interests or for moral reasons, provided if the rights of the third person for the compensation of damage are not damaged.
• The law may necessarily impose a protection measure of confiscation of asset;
• Security measures – confiscation of proceeds of crime;
• The court may impose the security measure of publication of the judgment, if it considers that it would be useful for the public to know what the judgment is, especially if the publication of the judgment would contribute to the elimination of the endangerment to life or the health of persons or to protect the security of movement or any other economic interest; and
• The court shall decide according to the gravity of the criminal offence and the need to inform the public, if the judgment is publicized in press, television or radio or through information means also if the reasoning of the judgment shall be publicized fully or in extracts, provided if the manner of publication shall enable the notification of all persons that have an interest in the publication of the judgment.

Benefits and exemptions

VAT (Value Added Tax)

Almost all imports are subject to the Value Added Tax of 16% on the duty-paid value of the imported goods. However, certain goods are exempt from the VAT, whether either imported into Kosovo, or produced in Kosovo. TARIK indicates whether VAT is not collected on the importation of specific goods.

Excise Tax

Articles 234 to 249 of the Customs Code provide the authority for the levying of Excise Tax on certain products.

Excise taxes are collected on certain luxury goods and a few other products. Click on this link to see the products that are subject to excise taxes.

Duty and/or VAT Exempt Goods

Some goods are exempt from customs duties and or VAT, such as certain agricultural products, as well as:

• "Public interest" exemptions. Medical & health services, welfare & social security services, educational services, media services, religious organization services and certain printed materials.
• Other exemptions on activities. Financial services, gambling, and sale/rental of residential accommodation. While insurance is also mentioned in this article, the exemption on insurance does not apply until 1 January 2015
• Exemptions on importation. The main ones are donor project imports and selected agricultural items (as outlined above). Please note that these exemptions are currently due to expire on 31 December 2012.
• Other exemptions in relation to importation. Medicines/pharmaceuticals, goods imported as part of personal luggage, goods brought in by persons who have lived outside Kosovo for more than 12 months, and goods inherited by a Kosovo resident from a deceased relative outside Kosovo (with exclusions for tobacco and alcohol products).
• Exemptions on exportation. This covers general exports as well as goods exported with personal luggage.
• Exemptions related to international transport.
• Exemptions related to certain transactions treated as exports. The main ones being supplies of goods or services under diplomatic and consular arrangements, to NATO/KFOR and to international and inter-governmental organizations, the irrigation of farming land and supplies of agricultural items (as listed above) in the period up until 31 December 2012.
• Exemptions for the supply of services by intermediaries.
• Customs warehouse and similar arrangements.

Suppliers of exempt goods and services covered above, are able to claim input VAT on their purchases/imports related to those exempt supplies (which means that, for example, large exporters will be entitled to VAT refunds), whereas suppliers of exempt goods and services covered by from “Public interest” to “Other exceptions” above, cannot claim back input VAT on their purchases/imports related to those exempt supplies (meaning in many cases an apportionment is necessary of the amount of input VAT that can be claimed).

In April 2016, Kosovo implemented a Stabilization and Association Agreement (SAA), which lifted customs duties on over 1044 agricultural and 487 fishery imports from the EU. Under the same agreement, customs tariffs on industrial imports will be phased out gradually over a period of 10 years.

The rate of customs import duty is zero on goods which originate in the territory of a country that is a party to the Central European Free Trade Agreement (CEFTA).

Most rates of import duty on goods which originate outside of CEFTA 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. TARIK provides detailed information on import duty rates, VAT rates, and excise tax rates (if any), as well as any required certificates or licenses that pertain to all imported goods.

VAT Regime

The main tax in Kosovo is the Value Added Tax VAT which is paid for goods and services. The fixed rate of this tax is 18% for all goods regardless of their origin and of 0% for goods dedicated for export. Businesses that have annual turnover of EUR 30,000  must register for VAT.

In terms of import the period for VAT payment is 6 months and it is collected at administrative borders of Kosovo.

Double taxation treaties

Kosovo has Double Taxation Agreements with the following countries: Albania, Belgium, Finland, Germany, Hungary, North Macedonia, Slovenia, The Netherlands, Turkey, Malta, Austria, Luxembourg, Switzerland, Czech Republic, Croatia, United Arab Emirates and the United Kingdom.

Capital gains

The Corporate Income Tax Law indicates the rules applicable to capital gains. As a general rule, capital gains and losses are treated as ordinary income/losses from economic activity. Capital gains are not recognized for fixed assets which are depreciated in a pool and purchased prior to 1 January 2010. There is no participation exemption for capital gains, nor is there any special relief for reinvestment. There is also no withholding tax on the proceeds of selling a direct or indirect interest in local assets/shares.

Local Branch/Subsidiary

There are no taxes payable upon the formation of a subsidiary. Branches are taxed only on the taxable income from a Kosovo source of income. The taxable income is determined in the same manner as for resident companies.  Taxable income of branches is subject to Corporate Income Tax at the same rate of 10%.

Cross-border payments

Although there is no withholding tax on dividends distributed from a Kosovo-resident company, there is a 10% withholding tax on royalties paid by a Kosovo company to a non-resident.

The Corporate Income Tax Law provides that the prices between related parties should be set at open market value. Such value should be determined under the uncontrolled price method, and when this is not possible, under the resale price method or the cost-plus method.  Additional rules are provided for by an administrative instruction.

Classification according to size:

Accounting regulation bodies: Ministry of Finance, Kosovo Council for Financial Reporting (KCFR)

Accounting report currency and language: Accounting registers are maintained in the official language of the Republic of Kosovo as stipulated by the Constitution of the Republic of Kosovo (Albanian and Serbian), whereas the currency used is Euro.

Reporting periods: Financial Statements must be submitted annually.

Timeline of submission: The financial statement of the Business Organizations have to be submitted and published in KCRF no later than 30 April of the following year. Consolidated financial statements have to be audited in accordance with International standards on auditing and shall be submitted to KCFR and no later than 30 of June of the following year. 

Professional accountancy bodies: Society of Certified Accountants and Auditors in Kosovo (SCAAK)

Certification and auditing: All large and medium entities must have their financial statements audited. All statutory audits shall be carried out in accordance with ISA and related interpretations, guidance and pronouncements issued by the IAASB and approved by the KCFR. KCFR reviews ISA after they have been translated into Albanian and approves for application in the jurisdiction. As of 2017, the 2015 IAASB Handbook is being applied. During 2016, the Society of Certified Accountants and Auditors of Kosovo (SCAAK) has translated and disseminated to its members the latest revised ISA related to audit opinion (ISA 700, 701, 705, 706, 720) as published by IAASB. Audits must be conducted by auditors approved to carry out statutory audits by the competent authorities as defined in the law. As of 2017, there are three licensed professional associations: Society of Certified Accountants and Auditors of Kosovo, Institute for Accounting, Auditing and Finance, and AAB Institute for Certified Accountants and Auditors.

Transfer pricing scope: Related party transactions that are covered by this Instruction include controlled transactions between Kosovo residents (including permanent establishments of non-residents in Kosovo) and non-residents, as well as all transactions between Kosovo residents (including permanent establishments of non-residents in Kosovo) and residents of certain low or no-tax jurisdiction.

Related party definition: ‘Related parties’ are considered to be persons having a special relationship that may materially affect the economic results of the transactions between them. Most common examples are:

• one person holds or controls 50% or more of the shares or voting rights in the other person’s company
• one person directly or indirectly controls the other person
• both persons are directly or indirectly controlled by a third person
• a person is a relative of the first, second or third degree as defined in the Kosovo Law on Inheritance;
• close family member.

A related person is considered to ‘effectively control’ business decisions of another person if:

• they hold or control 50% or more of the voting rights of another person who is a legal person
• they control the composition of the board of directors of another person who is a legal person
• they have the right to distribute 50% or more of the profits of another person, or
• the other person is a relative or a related party to a relative, and
• based on verified facts and circumstances, they control the business decisions of another person.

Transfer pricing methods: The recognized methods of calculation of such prices are based on OECD transfer pricing guidelines:

• Comparable Uncontrolled Price (CUP) method
• Cost plus method (method of cost plus gross margin)
• Resale Price Method (RPM)
• Transactional Net Margin Method (TNMM)
• Profit Split Method (PSM)
• Any other method by which is possible to determine the transaction price, based on the "arm's length".

No above method is preferred over another. This implies that taxpayers are allowed to choose methods to be used in determination of “arm’s length” prices and preparation of transfer pricing study. The method is chosen on the level of each type of transaction. Combining two or more methods is also allowed. However, the one that has been chosen must be practically applicable and should result eventually in reasonable estimate of effects in accordance with the “arm’s length” principle.  A simplified approach to determining arm’s length is applied in such cases to reduce the compliance cost to taxpayers and provide greater certainty for MNEs when offering such services to their group members. For such services, there is no need to prepare a transfer pricing study, but instead a profit mark-up to a maximum 7% on costs is allowable

Transfer pricing study: The study must be submitted in any of the official languages of Kosovo, although in exceptional cases the authorities may accept documentation prepared in English.

Who is obliged to prepare: Preparation of the study is mandatory for all entities conducting transactions with related parties (resident „mother company“ also has to prepare a Master file).

Submission dates: Transfer pricing documentation must be submitted to the Tax authorities within 30 days upon the request. However, taxpayers with controlled transactions exceeding EUR 300,000 within the reported fiscal period must submit a „notice on controlled transactions“ together with the CPT return.

Advance transfer Pricing Agreements (APA): Not applicable.

Thin capitalization: No local rules.

BEPS Actions – Implementation timeline

No timeline has been announced.

This law transposes the European legislation applicable for natural gas, such as the Directive No. 2009/73/EC concerning common rules for the internal market in natural gas; and the Regulation No. 715/2009/EC on conditions for access to the natural gas transmission networks. The Law lays the foundations of the legal and regulatory framework for the transmission, distribution, storage, and supply of natural gas and the operation of gas transmission and distribution systems. Currently, Kosovo is in the initial stage of the project named ALKOGAP – construction of Albania-Kosovo Gas Pipeline.

The oil sector is regulated by the Law No. 2004/5 on Trade with Petroleum and Petroleum Products, amended by the Law No. 03/L-138, that entered into force in 2009. This Law applies to the wholesale and retail supply, transport, and storage of petroleum and petroleum products. The Department for Petroleum Market Regulation, within the Ministry of Trade and Industry, operates in accordance with relevant provisions from the above-mentioned law and is responsible for the regulation of the respective activities in the oil sector in Kosovo. At the same time, the monitoring and oversight of the petroleum market is performed by the Market Inspectorate, which also operates within the Ministry of Trade and Industry.

A draft Law on the Trade with Petroleum and Bio-fuels is in the process of re-drafting, in order to fully transpose the respective European Directive – namely the Directive 2009/28/EC for promotion of the use of bio-fuels and the Minimal Oil Stock Directive 2009/119 /EC. Actually, this draft law is under approval procedures by the Government and the Parliament.

Kosovo has neither domestic reserves of crude oil nor capacities for refining it and therefore does not import crude oil. Kosovo is a net importer of petroleum products and produces only heavy fuel oil for heating from imported raw material amounting to approximately 30% of the consumption of heavy fuel oil for heating. There are four licensed production plants, which currently produce heavy fuel oil with less than 1% of sulphur content. Heavy fuel oil with less than 1% sulphur content is produced by mixing heavy fuel oil containing over 1% sulphur with light oils such as gasoline and kerosene.

Kosovo is almost 100% dependant on the import of oil products. The import of oil products originates from neighbouring countries. Kosovo does not possess a pipeline for crude oil nor for oil products. Oil products are imported 75% by road transportation and 25% by railroad.

In line with the above, the KOSTT (Transmission System Operator) has prepared, and Energy Regulatory Office (ERO) has approved, the Transmission Network Connection Charging Methodology (Methodology). The Methodology contains provisions for connecting generators from RES to respective grids. Regarding the promotion of energy from RES, the Ministry of Economic Development has adopted annual and long-term targets, regarding which the ERO has approved the feed-in tariff for wind, small hydropower plants, biomass and solar/photovoltaic. Power Purchase Agreements (PPAs) for electricity generated from RES have a duration of 10 years, except for electricity generated from solar/photovoltaic panels and wind pharms, for which the PPA shall have a duration of 12 years. The support scheme regime for renewables is in the process of amendment and consideration is given to the method of selecting the applied method (feed-in tariff, auction or tender).

Key authorities for the RES sector are:

• Energy Regulatory Office (ERO), an independent agency, responsible for the regulation of the energy market and authorization of energy activities (including RES);
• Ministry of Economic Development, responsible for energy sector strategy/policy (preparation), and issuing secondary legislation on energy activities, including RES;
• KOSTT - Transmission System Operator and Market Operator, responsible for planning, maintenance and operation of the electricity transmission system in Kosovo, and for ensuring open and non-discriminatory access for third parties.

In 2016, the ERO rendered a decision which has approved the following feed-in tariffs:

Feed-in Tariffs