being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for VAT in that jurisdiction where it has customers that are not taxable persons. In Kosovo, the VAT law provides for the application of the use and enjoyment rules as a deviation from the main rules for determining the place of supply of services. These rules apply to services such as advertising, telecommunication and broadcasting, regardless of whether they are provided to taxable or nontaxable persons (i.e., business-to-business [B2B] and business-to-consumer [B2C]).
Transfer of a going concern. Normally the sale of the assets of a VAT-registered or VAT-registrable business will be subject to VAT at the appropriate rate. However, a transfer of a business as a going concern (TOGC) may be outside the scope of the tax under certain conditions. A TOGC is the sale of a business or part of a business capable of separate operation including assets. Where the sale meets the conditions, the supply is treated as outside the scope of VAT. In Kosovo, a TOGC is treated as outside the scope of VAT where the following conditions are met:
• A group of assets forming part of a business activity is transferred.
• The transfer is performed between two taxable persons (i.e., B2B).
• The transferee ensures the continuity of the business activity.
Transactions between related parties. In Kosovo, for a transaction between related parties, the value for VAT purposes is calculated at market value. The market value is defined as the consideration that an independent buyer shall be willing to pay for the supply of goods or services under open market conditions. If no comparable values are available, the market value can be determined as follows:
• For supplies of goods, an amount not less than the purchase price or the acquisition costs at the moment of the supply.
• For supply of services, an amount not less than the full costs incurred for performing the services.
C. Who is liable
Any person (entity or individual) who independently carries out any economic activity in a regular or non-regular manner, whatever the purpose or results of that economic activity, is liable to VAT.
Taxable activities also include “the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis.”
A taxable person established in Kosovo is obliged to register for VAT purposes and charge VAT when its annual turnover within a calendar year exceeds the threshold of EUR30,000. Any supply made by the taxable person after the threshold is exceeded must be subject to VAT. In this case, the taxable person is required to apply for VAT registration within 15 days after exceeding the threshold. Consequently, the part of the supply that exceeded the threshold will be taken into account for purposes of VAT in the first tax period after registration.
Every person who meets all the conditions of the definition of a taxable person in Kosovo but does not exceed the VAT registration threshold may voluntarily register for VAT. Persons involved in import or export activities and fixed establishments of nonresident persons must register for VAT regardless of the amount of turnover from the commencement of an economic activity in Kosovo.
Exemption from registration. The VAT law in Kosovo does not contain any provision for exemption from registration.
Voluntary registration and small businesses. Persons may voluntarily apply for VAT registration regardless of their turnover and must remain registered for a minimum of one year after the registration year.
Group registration. Group VAT registration is not allowed in Kosovo.
Fixed establishment. In Kosovo, there is no legal definition of a fixed establishment for VAT purposes. However, the same rules that apply for direct taxes should be followed. As such, a fixed establishment would be considered a place of management, branch, office, factory, workshop, assembly site, construction site, mine, quarry, probe, oil or gas well, or other place of exploitation of natural resources, or another place through which a person carries out all or part of the economic activity on the territory of the country.
Non-established businesses. A “non-established business” is a business that does not have a fixed establishment in Kosovo. No VAT registration threshold applies to taxable supplies made in Kosovo by a non-established business.
A non-established business must register for VAT in Kosovo by appointing a VAT representative if it engages in any of the following taxable supplies:
• Supply of goods located in Kosovo at the time of supply
• Supply of certain services to nontaxable persons in Kosovo, such as digital services and services related to an immovable property located in Kosovo
• Import and export activities in Kosovo
Tax representatives. A non-established business must appoint a resident VAT representative to register for VAT purposes in Kosovo regardless of the amount of turnover unless the reversecharge mechanism applies. The VAT representative may act on behalf of the taxable person for all purposes related to VAT and is jointly and severally liable for compliance with all VAT obligations of the non-established business.
If the recipient of the services supplied in Kosovo is a nontaxable person or a taxable non-registered person, the supplier of the service should also appoint a VAT representative to pay VAT in Kosovo.
Where the non-established business does not appoint a VAT representative in Kosovo, the nontaxable person or the taxable non-registered person that is the recipient of the supplies will be liable for the VAT liabilities and penalties.
Reverse charge. The reverse-charge mechanism applies to supplies of services made by nonestablished business to taxable persons in Kosovo. A non-established business is not required to register for VAT if all its supplies in Kosovo fall under the reverse-charge mechanism.
Domestic reverse charge. A domestic reverse charge applies in Kosovo for supplies of construction work (including repair, cleaning, maintenance, alteration and demolition services in relation to immovable property). Effectively, any supplies that are in line with the Law on Construction in Kosovo and are equipped with the relevant construction permits by the competent bodies are covered by this provision.
Digital economy. Kosovo follows the destination principle regarding cross-border digital services supplied to nontaxable persons in Kosovo. The place of supply of cross-border digital services to nontaxable persons is the place where the nontaxable person is established or where it has its permanent address or usually resides.
Nonresident providers of electronically supplied services for B2C supplies are required to register and account for VAT in Kosovo. This is done by appointing a VAT representative in Kosovo to account for and pay the VAT liability. No VAT registration threshold applies.
The Minister of Finance may permit the use of a special scheme by any non-established taxable person in Kosovo supplying electronic services to a nontaxable person who is established in Kosovo or who has its permanent address or usually resides in Kosovo (i.e., B2C supplies). The information that the non-established taxable person must provide to the Tax Administration of Kosovo
• Medical equipment, ambulances, aids and other medical devices to facilitate activity or treat a disability for exclusive use by the disabled, including the repair of such goods and supply with children’s vehicle seats
The term “exempt supplies” refers to supplies of goods and services that are not liable to VAT and that do not qualify for input tax deduction.
Examples of exempt supplies of goods and services
• Hospital services and medical care
• Education
• Health insurance, life insurance, reinsurance and related services performed by insurance brokers and agents
• Financial services
• Welfare services
• Betting, lotteries and other forms of gambling
• Supply of land or land on which a building or house stands
• The supply of houses, apartments or other accommodations used for residential purpose, including garages and basements
• Leasing of immovable property
Option to tax for exempt supplies. The option to tax exempt supplies is not available in Kosovo.
E. Time of supply
The time when VAT becomes due (or a chargeable event occurs) is called the “time of supply.” VAT is due when one of the following events occurs:
• Supply of goods or services
• Issuance of an invoice in respect of a supply of goods or services before the goods or services are supplied
• Receipt of advance payment before the goods or services are delivered
Special rules apply to continuous supplies of goods or services, which are considered as being completed at intervals of one month. Long-term contracts including long-term construction contracts and long-term installation contracts must be regarded as completed at regular intervals but at least at the end of each calendar year.
Deposits and prepayments. When the payment is to be made or is made on account before the goods and services are supplied, VAT must become chargeable when payment is received.
In the case of any amount paid or retained in form of a guaranteed deposit in relation to the performance of a supply of goods or service, VAT must become chargeable at the time the deposit is received. If the amount of the deposit is returned to the customer, then the necessary adjustment should be made for VAT purposes.
Exemption from the above is granted to the guarantees deposited in a bank deposit account or to a third party, without the right of use. In such case, VAT must become chargeable at the time the deposit guarantee is executed.
Continuous supplies of services. Supplies of goods and services performed on a continuous basis, within a period of time, including construction operations, must be deemed to have been made in the same month in which the invoice is issued.
Goods sent on approval for sale or return. There are no special time of supply rules in Kosovo for supplies of goods sent on approval for sale or return. As such, the general time of supply rules apply (as outlined above).
Reverse-charge services. The VAT is due on the reverse-charge services in the month when the foreign invoice is received by the customer in Kosovo. VAT is not due until the invoice is issued.
Leased assets. In cases of leased assets, the VAT becomes due at the time when the periodic monthly payments are invoiced to the lessee. In cases of a financial lease, the VAT becomes due at the time of each periodic payment and at the time of final payment for the sale of the asset if the option to buy the leased assets is exercised.
Imported goods. In the case of imported machinery and equipment, either new or secondhand that is used for business purposes and that fall under the Kosovo “Harmonized Nomenclature of Goods System,” the VAT is due at the time of import. However, payment of the VAT due may be postponed for a period of a maximum of 12 months from date of the import, provided that the VAT is declared as postponed import VAT in the VAT return and several conditions are met from the taxable person.
F. Recovery of VAT by taxable persons
A taxable person may recover input tax, which is the VAT charged on taxable goods and services supplied to the person for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is the VAT charged on supplies that he makes.
Input tax includes VAT charged on goods and services supplied in Kosovo, VAT paid on imports of goods and VAT applied to reverse-charge services.
The time limit for a taxable person to reclaim input tax in Kosovo is six years. The taxable person’s right to claim a VAT refund or offset the VAT credit with output tax expires six years from the date such tax was paid.
Nondeductible input tax. Generally, input tax may not be recovered on purchases of goods or services that are not used for business purposes.
The following list provides examples of items of expenditure for which input tax is not deductible.
Examples of items for which input tax is nondeductible
• Expenditure on yachts and boats intended for sport and recreation, private aircraft, cars and motorcycles used not for business purposes and fuels, lubricants, spare parts and services closely linked thereto
• Expenditure as regards cars used for both private and business purposes, with the right to deduct input tax limited to 50%
• Expenditure for representation, which must include costs for entertainment and amusement during business or social contacts, food costs including drinks and accommodation costs
• Expenditure for immovable property forming part of a taxable person’s business assets that is used for both business and private purposes of the taxable person, used for its personnel, or used generally for nonbusiness purposes, with the right to deduct the VAT only to the extent that this property is used for business purposes of the taxable person
Examples of items for which input tax is deductible (if related to a taxable business use)
• Employee expenses
• Business use of phones
• Hotel accommodation
Partial exemption. If a supply of a good or service is used partly for purposes of taxable supplies and partly for exempt supplies, the taxable person may not deduct input tax in full. This situation is known as “partial exemption.” The calculation of the amount of input tax that may be recovered is made on a pro rata basis by using the following formula:
Amount of relevant input tax x Turnover enabling VAT credit
Total annual turnover
Where new legislation outlines that the taxable person carrying the VAT credit from the first VAT period of the previous year has the right to request for VAT refund regardless of the VAT credit amount if all the VAT returns and returns of other taxes for all the previous tax periods have been submitted. The taxable person must file a “request for refund” form with the relevant tax office. The tax office must verify the fulfillment of the refund conditions and approve the refund within 60 days. Interest is applicable after exceeding the 60-day period if no reason for delay exists.
The Minister of Economy and Finance must issue a relevant regulation to determine alternative procedures for refunding VAT to persons not required to submit VAT returns, to persons who cease their economic activity, and to taxable persons and customers who are not established in Kosovo.
Pre-registration costs. Input tax incurred on pre-registration costs in Kosovo is not recoverable.
Bad debts. Taxable persons who have not received partial or total payment for a taxable supply may claim VAT charged in respect of that supply after initiating court procedures for the recognition of the bad debt for amounts above EUR500.
The VAT deduction must be allowed in each tax period after the debt becomes a bad debt and may start no sooner than six months after closing the tax period for which VAT has been applied in respect of the supply. The procedures for the writing-off of the bad debt should be initiated within 24 months from the payment due date, otherwise the non-collected payment will not be considered as bad debt.
Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in Kosovo.
G. Recovery of VAT by non-established businesses
Input tax incurred by non-established businesses that are not registered for VAT in Kosovo is not recoverable.
H. Invoicing
VAT invoices. A Kosovan taxable person must issue invoices for all taxable supplies made, including exports. A VAT invoice is necessary to support a claim for input tax deduction or a refund. To qualify as valid, an invoice should comply with the requirements set out in the Kosovan VAT law. There are no requirements regarding the language of the invoice; however, for inspection purposes, the VAT authorities may ask for a translation of the invoice into an official language of Kosovo (Albanian and Serbian).
Credit notes. A VAT credit note may be used to reduce the VAT charged on a supply of goods or services; a debit note may be used to increase the amount of VAT. Tax credit and debit notes must be cross-referenced to the original VAT invoice.
Electronic invoicing. Electronic invoicing is allowed in Kosovo, but not mandatory.
Scope of electronic invoicing. For B2B, B2C and business-to-government (B2G) supplies, electronic invoicing is allowed but not mandatory in Kosovo. There is no threshold beyond which taxable persons are required to adopt electronic invoicing in Kosovo. The requirements related to electronic invoicing are the same as those for paper invoicing.
The Kosovan VAT law permits electronic issue of invoices subject to acceptance by the recipient. The authenticity of the origin and the integrity of their content must be guaranteed by means of advanced electronic signature or by means of electronic data interchange EDI as defined by European arrangements and recommendations.
Note: electronic invoicing is not often used in practice in Kosovo due to the lack of secure platforms for data interchange.
Simplified VAT invoices. Taxable persons can issue summary invoices if they carry out several separate supplies of goods or services during a tax period that corresponds to a calendar month.
Simplified VAT invoices can only be issued where the supply is equal to or less than EUR500 and is made to nontaxable persons. The Tax Procedures Instruction stipulates that a taxable person must issue an invoice to a nontaxable person before the 15th day of the month following the month in which any of the following chargeable event occurs:
• The supply of goods or services to another taxable person takes place.
• The payment is performed before the goods or services are supplied.
• A continuous supply of goods (such as electricity) or service (such as a fixed telephone line) takes place, in which case the continuous supply is considered to take place in monthly intervals.
The businesses that are neither registered for VAT, nor required to be registered for VAT, issue an invoice without VAT and have no right to benefit from VAT or charge VAT.
Self-billing. Self-billing is allowed in Kosovo. The customer can bill themselves on behalf of the supplier for supplies of goods or services received by a taxable person if a previous agreement is in place between both parties and provided that the goods/service provider accepts the invoice issued on its behalf.
Proof of exports. All persons are required to obtain an export certificate prior to undertaking any export activities. Each export certificate will have a unique serial number.
Exports of goods must be verified and documented with customs export documentation, as provided in the relevant legislation. Moreover, invoices related to an export sale should contain the legislative reference on export of goods in it.
Foreign currency invoices. Invoices may be issued in any currency, provided the taxable amount and the amount of VAT due is expressed in the domestic currency, which is the euro (EUR). If the taxable amount of a transaction, other than the importation of goods, is expressed in a foreign currency, the conversion of this amount into the domestic currency (euros) must be the latest selling rate as defined by the Central Bank of Kosovo recorded at the time VAT becomes chargeable. If the value and factors used to determine the taxable amount on importation are expressed in a foreign currency, the conversion of this amount into euros must be made by applying the exchange rate determined in accordance with the Customs regulations governing the calculation of the value for customs purposes.
Supplies to nontaxable persons. When a taxable person makes a supply of goods or services to private consumers, the taxable person issues a coupon from an electronic device instead of a fiscal invoice. However, if the private consumer performs economic activities, it can request to the taxable person to issue a fiscal invoice.
Records. In Kosovo, examples of what records must be held for VAT purposes include all the information contained in invoices, coupons, debit or credit notes, or in other documents serving the same purposes. Such information must be recorded in the books and records to be kept by the taxable person. All documents must be kept in chronological order and must be cross-referenced to each other if they refer to the same taxable event.
In Kosovo, VAT books and records can be kept outside of the country. While there are no provisions in the Kosovo VAT law about where records must be held, in practice, records may be held in or outside of Kosovo. A taxable person must inform TAK of where its records are held. TAK must have access to where the records are held. All records must also be made available to TAK
Correcting errors in previous returns. The taxable person can submit a new amended tax return in cases when it notices that the original submitted tax return is not correct. The taxable person can amend the returns of the last three years with the condition that this return has not been a subject of assessment from the tax authorities.
Digital tax administration. There are no transactional reporting requirements in Kosovo.
J. Penalties
Penalties for late registration. Every person who has not applied for registration in due time must be registered by TAK with retroactive effect as of the date the threshold was exceeded and must be liable for the VAT retroactively, plus an administrative penalty, if failure to register is due to negligence. The penalty equals 15% or 25% of the VAT due, depending on whether the taxable supplies made prior to registration were less or more than EUR10,000. In addition, default interest is applicable.
Penalties for late payment and filings. Late filing of VAT return is subject to a penalty of EUR150.
Late, incorrect or incomplete filing of VAT ledgers, is subject to a penalty of EUR150 for each ledger up to a maximum of EUR3,000.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.
Penalties for errors. Failure to issue a VAT invoice or issuance of an inaccurate invoice that results in a decrease of the VAT due, or an increase of the VAT credit must be subject to a penalty of 15% of the VAT amount where this was due to the negligence of the taxable person. The penalty will increase to 25% in the case of a failure to issue an invoice for a taxable supply greater than EUR1,000 or for issuing an incorrect invoice that is more than EUR500 above or below the amount that should have been included in the invoice of the taxable person. In addition, default interest is applicable. Erroneous completion of a tax filing or a tax refund claim is subject to a penalty of 15% of the undeclared tax liability or the excess tax refund claimed where such understatement or overstatements is 10% or less of the VAT due, or 25% where the understatement or overstatements is more than 10% of the VAT due. In addition, interest is applicable.
The late notification or failure to notify the tax authorities of changes to a taxable person’s VAT registration details can result in a EUR150 administrative penalty. In addition, if the changes turn the taxable person’s status from a non-registered business for VAT to a business that needs to be registered for VAT purposes, the following administrative penalties apply:
• 15% of the VAT due on those supplies, if failure to register is due to negligence of the person making taxable sales of less than EUR10,000.
• 25% of the VAT due on those supplies, if failure to register is due to negligence of the person making taxable sales of more than EUR10,000.
For further details, see the subsection Changes to VAT registration details above.
Failure to install fiscal registers and issue fiscal coupons is subject to penalties ranging from EUR150 to EUR3,000 respectively, depending on the taxpayer’s turnover. Repeated offenses may result in the closure of the economic activity.
Penalties for fraud. Taxable persons who commit criminal offenses are penalized under the Criminal Code. These offenses relate to certain situations, including, but not limited to, the following:
• Taxable persons willfully evade partially or entirely the payment of taxes or gain unwarranted tax refunds or tax credits.
• Taxable persons provide false information relevant for the collection of taxes.
• Taxable persons act as a member of a group formed for the purpose of repeatedly committing tax evasion.