For the second year of making quarterly advance payments and future years, no interest and penalties apply to taxpayers that calculate the advance payments based on the prior year tax liability increased by 10%.
For the first year of taxation on real income, if a taxpayer’s advance payments are insufficient (below 80% of the total tax liability, including the fourth quarter instalment) compared to the total tax liability at year-end, sanctions are applied only in the last quarter of the first year, based on the cumulative installment amounts compared with annual liability, as opposed to considering the last installment as an isolated payment.
For the second year of the business and the following years, taxpayers can pay tax without incurring interest and penalties by paying advance installments based on the prior year tax liability increased by 10%. As a result, taxpayers who make insufficient payments during the year are subject to penalties applied for each quarterly installment until the submission of the annual declaration or the deadline for submission of the annual declaration.
Late filing of the corporate income tax return is subject to a penalty of 5% of the tax due for each month of delay, capped at 25% of the unpaid tax liability.
Late filing of the corporate income tax return is subject to a penalty of EUR150.
Late payment of a tax liability results in default interest, determined by the Ministry of Finance at a rate higher than the interbank lending interest rate in Kosovo. Currently, the rate is set at 0,65% per month.
Erroneous completion of a tax filing or of a tax refund claim is subject to a penalty of 15% of the undeclared tax liability or the excess tax refund claimed if such understatement or overstatement is 10% or less of such tax, or to a 25% penalty if the understatement or overstatements is more than 10% of such tax.
Dividends. Dividends received by resident and nonresident companies are exempt from corporate income tax.
Foreign tax relief. Foreign direct tax on income and gains of a Kosovo resident company may be credited against the corporate tax on the same profits. The foreign tax relief cannot exceed the Kosovo corporate income tax charged on the same profits. If a company receives income from a country with which Kosovo has entered into a double tax treaty, other forms of foreign tax relief may apply, as stipulated in the provisions of the treaty.
C. Determination of trading income
General. For taxpayers with an annual turnover exceeding EUR30,000 and taxpayers that keep books and records, the assessment of trading income is based on the financial statements prepared in accordance with the generally accepted accounting principles; International Financial Reporting Standards for large, medium and small business organizations; and Kosovo Accounting Standards for microenterprises, subject to certain adjustments for tax purposes.
All necessary and reasonable expenses incurred wholly and exclusively for the business activity that are properly documented are deductible, including health insurance premiums paid on behalf of employees and their dependents, training expenses paid by employers related to employees’ work, and advertising and promotion costs, but excluding, among others, the following:
• Fines and penalties and interest related to them
• Tax losses from sales or exchanges of property between related persons
• Voluntary pension contributions made by employers above a maximum amount of 15% of an employee’s gross salary
• Costs regarding acquisitions of and improvements to land
• Expenses for presents (however, presents with the name and logo of the business are part of the expenses of representation and are allowed as tax-deductible expenses)
• Losses in specific weight or substance, damages, remains (leftovers or remnants) or surplus, and destruction or demolition during production, transport or storage, beyond certain norms
• Rent for apartments serving as accommodation and lodging of resident and nonresident employees, regardless of the terms of the contract of employment or service
• Benefits in kind in the form of meals and transport tickets, unless it is organized by the business
• Expenditure covered by grants, subsidies and donations, in compliance with regulations and earning criteria (regulations related to conditions for benefiting from the grant and criteria determined by the documents of the grant, subsidy or donations documents)
Other types of expenses may be deducted up to a ceiling. These expenses include, but are not limited to, the following:
• Representation costs are deductible up to a maximum of 1% of gross annual income.
• Contributions made for humanitarian, health, education, religious, scientific, cultural, environmental protection and sports purposes are deductible up to a maximum of 10% of taxable income before deducting such contributions.
Inventories. The inventory valuation rules stipulated in the accounting law also apply for tax purposes. Inventory is valued at historical cost, which is determined by using the weighted average, first-in, first-out (FIFO) or other specified methods. The method must be applied in the year in which it has been selected and for at least three additional tax periods. Changes in the method after such period are subject to an ad hoc ruling from the Kosovo tax administration.
Provisions. Companies may not deduct provisions, except for certain levels of provisions and special reserve funds of financial institutions as specified by the Central Bank of Kosovo.
Tax depreciation. Tangible property is depreciated separately for tax purposes using the straight-line method at the rates mentioned below.
Buildings and other constructed structures are depreciated at a rate of 5%.
Failure to timely submit transfer-pricing documentation or to submit the Annual Transaction Notice is subject to a penalty ranging from EUR125 to EUR2,500 for each failure to comply.
F. Treaty withholding tax rates
The table below provides the treaty withholding tax rates for illustrative purposes only. It does not reflect the various special provisions of individual treaties or the withholding tax regulations in domestic law.
(a) The lower rate applies if the beneficial owner of the dividends is a company (other than a partnership) that holds directly at least 25% of the capital of the payer. The higher rate applies to other dividends.
(b) Kosovo honors the treaties entered into by the former Republic of Yugoslavia with respect to these countries.
(c) The higher rate applies if the beneficial owner of the dividends is a pension scheme and if the dividends are paid out of income directly or indirectly from immovable property.
(d) The lower rate applies if the beneficial owner of the dividends is a company that holds directly at least 10% of the capital of the payer. The higher rate applies to other dividends.
Kosovo has signed double tax treaties with France, Italy and Lithuania, but these treaties are not yet effective.
Kosovo is negotiating a double tax treaty with Portugal.