Investment in Kosovo 2017 | 41

Investment in Kosovo 2017

KPMG in Kosovo kpmg.com/al

Edition 2017 Investment in Kosovo 2017 | 3 Preface

Investment in Kosovo is one of a series of booklets published by KPMG member firms to provide information to those considering investing or doing business internationally.

Every care has been taken to ensure that the information presented in this publication is correct and reflects the situation as of March 2017 unless otherwise stated. Its purpose is to provide general guidelines on investment and business in Kosovo. As the economic situation in the country continues to undergo changes, further advice should be sought before making any specific decisions.

For further information on matters discussed in this publication, please contact Heris Jani, Managing Director.

KPMG Albania Shpk Kosovo Branch

6 Pashko Vasa Str. 10 000 Pristina Kosovo Tel: +381 38 246 771 Fax: +381 38 246 772 kpmg.com/al

General Information...... 7

Geography and climate...... 7

Population and language...... 7

Infrastructure...... 7

Travel...... 7

Visa system for foreigners traveling to Kosovo...... 8

Airport...... 8

Currency...... 8

Labor Force...... 8

Political system...... 9

Economy...... 9

Macroeconomic trends...... 9

Fiscal indicators...... 10

Trade...... 11

Foreign investment...... 12

Opportunities for International Investors...... 14

Privatization and investment opportunities...... 14

Agriculture...... 15

Energy/power generation...... 15

Tourism...... 16

Mining sector...... 17

Telecommunications and post...... 17

Banking and finance...... 18

Other financial intermediaries...... 18

Business Environment...... 19

Business entities...... 19

Individual business...... 19

Overall partnership...... 19

Limited partnership...... 20

Limited liability company...... 20

Joint-stock company...... 20

Foreign business organization...... 21

Business Registry...... 21

Accounting and Auditing...... 22

Accounting: regulations and requirements...... 22

Auditing: requirements...... 23

Taxation...... 24

General...... 24

Corporate income tax...... 24

Depreciation...... 25

Amortization...... 26

Income exempt from corporate income tax...... 26

Withholding tax...... 26

Losses carried forward...... 27

Relief from tax: foreign tax credits...... 27

Anti-avoidance measures...... 27

Transfer pricing...... 27

Special treatment of insurance companies...... 27

Taxation of individuals...... 27

Personal income tax...... 27

Tax rates...... 28

Pension contributions...... 28

Health insurance contributions...... 28

Local taxes...... 28

Value added tax...... 28

Deduction of input VAT...... 29

Refund of VAT...... 29

Customs duties and customs code...... 29

Excise taxes...... 30

Stabilization and Association Agreement...... 30

Double Tax Treaties...... 30

Employment Regulations...... 32

Legislation...... 32

Employment contracts...... 32

Termination of employment contracts...... 32

Working hours...... 32

Holidays...... 33

Government Control...... 34

Public procurement...... 34

Competition law...... 35

Environmental laws...... 35

Protection of intellectual property rights...... 35

Supervision of the Central Bank of Kosovo over the activities of banks and other financial institutions...... 35

Insurance...... 37

Pension funds...... 37

Appendix A: Important links...... 38

Geography and climate The climate in Kosovo is mostly continental. Kosovo is located in Southeast Europe, on The geographic location of the country is the Balkan Peninsula and encompasses the reason for its large annual temperature 10,877 square kilometers. The country range. The summer temperature highs is bordered by the Republic of Serbia in can reach +38°C (100°F), and the winter the north and east, the Former Yugoslav temperatures can be as low as –20°C (–4°F). Republic of Macedonia in the south, the Kosovo experiences warm summers and Republic of Albania in the southwest and cold and snowy winters. Montenegro in the northwest. Population and language The terrain is mostly mountainous and Kosovo has an estimated population of the highest peak is Gjeravica at 1.8 million and its capital, Pristina, has a 2,656 meters (8,714ft) above sea level. The population of some 210,000 inhabitants, Sharr Mountains are located in the south according to the latest statistics published and southeast bordering the Republic of by the Kosovo Agency of Statistics in Macedonia and the Kopaonik Mountains June 2015. Ethnic Albanians make up the are located in the north. The central region majority of the population (92%) while of Drenica and the eastern part of Kosovo, the largest minority is represented by known as Gollak or Gallap, are largely hilly Serbians. Other minority groups include areas. There are two main plains in the Bosnians, Turks, Roma, Gorans, Ashkali and country. Rrafshi i Dukagjinit basin is located Egyptians. Kosovo has one of the youngest in the west and the Plain of Kosovo lies populations in Europe with an estimated in the east. The low hill area of Drenica 40% of its citizens below the age of 20. is between the two basins. The Plain of The main religions are Muslim, Serbian Kosovo is on average higher than the plain Orthodox and Roman Catholic. of Rrafshi i Dukagjinit by about 100 meters (328ft). Kosovo has two official languages – Albanian and Serbian. Turkish, Bosnian and The numerous landscapes and other tourist Roma languages have the status of official attractions, two of the most prominent languages in certain municipalities. being the Rugova Canyon and the Gadime Cave, make Kosovo a destination worth Infrastructure visiting.

Kosovo is in the Central European time Travel zone and hence is one hour ahead of Skopje and Tirana are one and a half Greenwich Mean Time (GMT). hours and three and a half hours by road,

© 2017 KPMG Albania Shpk Kosovo Branch, a branch of KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8 | Investment in Kosovo 2017 respectively, from Pristina. Additionally, alone. If foreigners stay in Kosovo for more there are regular bus lines from these two than 90 days in a year, they must apply for cities to Pristina. a residence permit. This will facilitate their entry into and exit out of Kosovo. There are bus connections from Belgrade and Nis to Pristina and Prizren and from all Airport major towns in Serbia to the northern parts of Kosovo. Pristina International Airport Adem Jashari is the only civilian airport in Kosovo. It As Serbia does not currently recognize takes a 20-minute drive from Pristina to Kosovo, travellers will not be given a get there. Many recognized European Serbian exit stamp if they enter Kosovo airlines operate via it including: Adria from Serbia. In addition, if the Serbian Airways, Austrian Airlines, Croatia Airlines, authorities find any Kosovo stamps in the Edelweiss Air, EasyJet, Germania, travellers’ passports, the stamps will be Germanwings, Hamburg International, crossed out, although it is unlikely that Helvetic Airways, Norwegian Air Shuttle, travellers will be denied entry because of Pegasus Airlines, Scandinavian Airlines, them. However, if one lives in or intends Swiss International Air Lines, TUIfly, Turkish to travel frequently to Serbia, it has been Airlines and Wizz Air. suggested to obtain matching pairs of entry and exit stamps; this means backtracking The Airport has direct flights to: Basel, and leaving Serbia via a recognized border Berlin, Budapest, Copenhagen, Dusseldorf, checkpoint, such as Belgrade Airport. Geneva, Hamburg, Hannover, Istanbul, Ljubljana, London, Munich, Stuttgart, Visa system for foreigners traveling to Vienna, Zagreb and Zurich. Airlines and Kosovo flight destinations are liable to change, Kosovo is relatively easy to access and a often depending on the season. valid passport is required. Before traveling to Kosovo, foreigners need to be informed Currency whether they need a visa to enter it. The euro was declared the official currency of Kosovo from 1 January 2002. This Citizens of countries such as Albania, was undertaken to replace the previous Australia, Canada, European Union (EU) widespread use of the German mark which Member States, USA, South Africa, and had been the measurement currency in the Turkey do not need a visa. However, country before 2002. Today, the euro is the Kosovo is starting to implement a stricter visa regime. Individuals are required to most widely used currency in Kosovo with register with the police if they are present the Serbian dinar still in circulation in the in the country for more than 90 days and Serbian enclaves. to prove to the border police at the time of entry that they have a legitimate reason to Labor Force enter Kosovo. According to Law The unemployment rate in Kosovo is No. 04/L-219 on Foreigners, a foreigner estimated to be 27.5%, according to shall not engage in paid employment in the the latest available statistics from the Republic of Kosovo on the basis of a visa Kosovo 2016 Labor Force Survey carried

© 2017 KPMG Albania Shpk Kosovo Branch, a branch of KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Kosovo 2017 | 9 out by the Kosovo Agency of Statistics. of local government is the municipality. Unemployment is higher among youth and Currently, there are 38 municipalities women. The situation is not expected to established in Kosovo. improve quickly given that Kosovo has the The judicial system consists of the youngest population in Europe and these Constitutional Court, the Supreme Court, individuals enter the labor market each year the Appeal Court and the District Court. finding limited employment options. On Kosovo’s Constitution provides that the the other hand, the labor market offers a Supreme Court of Kosovo is the highest work force with varied skills and levels of judicial authority. The Kosovo Judicial education and training. Council elects a Chair and Vice Chair from An important component of Kosovo life and its members, both for a term of three the labor market is migration. Traditionally, years. Elections to these offices do not migration has been very high, which in turn extend the mandate of the members of the has alleviated some of the labor market Kosovo Judicial Council. pressures. Another positive influence from The European Union Rule of Law Mission, migration is the fact that returning migrants EULEX, is acting to strengthen Kosovo’s bring to the local market their experience institutions, judicial authorities and law and skills gained abroad. enforcement agencies. Following the Political system Kosovo War in 1999, KFOR, a military force under NATO command, is working with The Assembly of Kosovo has 120 seats Kosovo’s authorities to provide security and all members serve a four-year term. within the country. Currently, the seats are held as follows: the Democratic Party of Kosovo has Economy 36 seats, the Democratic League of Kosovo has 33 seats, the Group Vetevendosje has Macroeconomic trends 16 seats, the Alliance for the Future of Global economic activity recovered during Kosovo has 8 seats, the Srpska List Party 2015. The euro area was characterized has 11 seats, the Initiative for Kosovo Party by an expansion of economic activity has 6 seats, and remaining 10 seats are supported by domestic demand which is held by minority groups and non-affiliated largely attributed to the positive impact individuals. of the quantitative easing program of The Head of State is the President of the the European Central Bank (ECB). This Republic of Kosovo who, according to the expansion reflected positively on the Constitution of the country, is elected by economic development of the Western the Assembly for a five-year term. Balkan countries. In April 2016, Kosovo’s Assembly elected Kosovo’s economy experienced another Hashim Thaci as President. year of economic growth in 2015. It was The President proposes to the Assembly a supported by increased domestic demand, candidate for Prime Minister, who is finally but the high reliance on the import of approved by the Assembly. In accordance goods had a negative impact on the with Kosovo’s Constitution, the basic unit economic growth rate. In 2015, Kosovo

© 2017 KPMG Albania Shpk Kosovo Branch, a branch of KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 10 | Investment in Kosovo 2017 registered a real gross domestic product In 2016, the Central Bank of Kosovo (GDP) increase of 3.5% according to forecasts a growth rate of 3.2% which estimates of the Central Bank of Kosovo is expected to be supported by private (CBK) which are higher compared to the consumption and investment growth. The previous period. Kosovo’s GDP per capita increase in domestic demand will further marked a slight increase in 2015 reaching drive the current account deficit which will EUR 3,126 compared to EUR 3,023 in 2014. have a negative impact on the economic It still continues to be lower than in other growth. countries in the region such as Albania, Serbia and Bosnia and Herzegovina. Fiscal indicators Developments in the fiscal sector during In 2015, the general level of prices in the first 9 months of 2016 marked a Kosovo as reflected by the consumer price positive rate of revenues. According to index (CPI) recorded deflation of 0.5%, CBK, budget revenues until September compared to inflation of 0.4% in 2014. 2016 reached a net value of EUR 1.20 billion One of the main contributors to the overall whereas budget expenditures reached a decline in prices in Kosovo during 2015 was value of EUR 1.11 billion. Consequently, the decrease of prices of transportation Kosovo’s budget registered a positive services that consequently resulted from balance of approximately EUR 89.1 million, the drop in oil prices. compared to the positive balance of The added value from manufacturing EUR 6.3 million for same period in the sectors in the country remained low prior year. during 2015; thus, the country’s economy With regard to the structure of revenues, continued to face imbalances against the both border income and domestic income external sector. The growth in internal were characterized by an increase in value. demand went on to a further increase in As per CBK, the border revenues reached a imports translated into the increase of net value of EUR 768 million, representing current account deficit. an annual increase of 14%, while revenues

Economic data

2011 2012 2013 2014 2015 2016(e)

GDP at current prices in EUR million 4,815 5,058 5,327 5,568 5,730 5,939

Real GDP growth rate in % 4.40 2.80 3.4 1. 2 3.5 3.2

GDP per capita in EUR 2,672 2,799 2,935 3,023 3,126 3,213

Inflation rate in % 7.30 2.50 1.80 0.4 (0.5) 0.60

Current account in EUR million (658) (380) (339) (438) (541) (594)

Source: Central Bank Annual Report 2015, Macroeconomic Development Report no.4, 2016, IMF Country Report no. 16/22, Kosovo Agency of Statistics

Note: (e) for estimate

© 2017 KPMG Albania Shpk Kosovo Branch, a branch of KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Kosovo 2017 | 11 from domestic taxes reached a net value of increase of 4% which is the result of EUR 270.9 million, or an annual increase of the implementation of the collective 21%. With regard to revenues from taxes, agreement. both direct and indirect tax revenues were The stock of public debt reached characterized by an upward movement, EUR 842.1 million or 17% higher than representing 20% and 15% annual the same period in the prior year. As a increase respectively. percentage of GDP, public debt represents Budget expenditures increased by 7% in 14.3% of GDP, up from 12.5%. The the 9 months of 2016 compared to the increase in public debt is mainly attributed same period in the previous year. According to the growth of domestic debt of 34.5% to the Ministry of Finance of Kosovo, this while external debt moved slightly upwards increase is attributed to the high rate of by only 0.3%. Taking into the account execution of capital expenditures, followed the fiscal regulation which provides that by an increase in the category of subsidies the highest level of general debt may not and transfers and an increase in the exceed 40% of GDP, this is considered a salaries category. relatively low level of debt for the 9 months ended September 2016. Capital investments, which represent approximately 21.3% of the total Trade expenditures, marked the highest According to the Kosovo Agency of growth of 11%. The expenditures in road Statistics (KAS), the negative trade balance construction continued the ascending in Kosovo deteriorated in 2016 as it was trend. An increase of 10% of expenditures influenced by the high dependence on in subsidies and transfer is attributed to imports and the low level of exports. the rise in contributory pensions, upturn in payments of social assistance and the As per estimates of the Kosovo Agency commencement of payments of benefits of Statistics, the deficit of goods account for war veterans. Government expenditures amounted to EUR 2.5 billion in 2016 on wages and salaries marked an which is an increase of 7.4% compared to

Kosovo Government budget overview

EUR million 2011 2012 2013 2014 2015 2016*

Revenue 1,302 1,537 1,356 1,370 1,460 1,199

Expenses (1,386) (1,466) (1,490) (1,500) (1,570) (1,110)

Budget (deficit)/surplus (84) 71 (135) (130) (110) 89

Source: Ministry of Finance of Kosovo 9 months financial reports 2016, Central Bank of Kosovo (CBK), CBK Quarterly Assessment of the Economy No.16, QIII/2016

* 9 months ended September 2016

Trade balance

EUR million 2010 2011 2012 2013 2014 2015 2016(e)

Exports 296 319 276 294 325 325 310

Imports 2,158 2,492 2,508 2,449 2,538 2,635 2,790

Trade balance (1,862) (2,173) (2,232) (2,155) (2,214) (2,310) (2,480)

Coverage ratio 14% 13% 11% 12% 13% 12% 11%

Source: Kosovo Agency of Statistics

Note: Coverage ratio is computed as export over imports ratio, (e) for estimate

FDI in Kosovo during 2011-2016 is Law No. 04/L-220 on Foreign Investment. predominantly concentrated in the Its purpose is to protect, promote and following economic sectors with respective encourage foreign investments in the averages: real estate with 56.3%, Republic of Kosovo. This law also provides construction with 12.7% and the financial foreign investors with a set of fundamental sector with 12.7%, followed by the trade rights and guarantees and, as such, it plays sector with 4.5% of the total FDI. a significant role in attracting and protecting foreign investments. In January 2014, the Assembly of the Republic of Kosovo approved

Foreign direct investments by sectors 350 300 250 200 150

EUR million 100 50 0 -50 2011 2012 2013 2014 2015 2016 Real estate Construction Financial services Trade Other services Industry Others Source: Central Bank of Kosovo

Foreign direct investments by country

EUR million 2011 2012 2013 2014 2015 2016

Top five countries

Switzerland 31 44 42 38 73 62

Turkey 35 66 89 20 55 35

United Kingdom 80 14 11 (40) 27 33

Germany 67 50 22 29 45 29

Albania 11 5 19 20 40 29

Total top five countries 224 178 182 69 240 187

Other countries 161 51 98 83 69 48

Total 384 229 280 151 309 235

Source: CBK monthly statistics bulletin, January 2017, no. 185

Privatization and investment Several sectors present good investment opportunities opportunities to take advantage of the The privatization process is administered young population, the growing economy by the Privatization Agency of Kosovo and the fairly untapped natural resources of (PAK). PAK has been established as an the country. independent public body which manages The Government of Kosovo decided to the privatization of so-called socially-owned amend its tax policies in order to provide enterprises (SOEs). As reported by PAK, tax incentives for new investments; for from June 2012 to December 2015, example, depending on the size of the 1,286 sale contracts were finalized; of investment, 0% corporate income and them, 763 resulted from the “spin-off” value added tax rates may be applied. The privatization method and 523 from the decision will begin to be implemented once liquidation privatization method. Most of the respective administrative instruction the SOEs subject to privatization operated is signed by the Minister of Finance. The in the agriculture sector with a share of time frame for these incentives has been 21.3%, followed by trading companies with extended from 3 to 4 years for investments a share of 11.5%. ranging from EUR 2 to 5 million, and from 1 to 3 years for investments under During the period from June 2012 to EUR 2 million. December 2015, the total revenue from privatization through spin-off was In addition, the Assembly of the Republic EUR 573 million whilst revenue from the of Kosovo has approved Law No. 05/L-079 sale of SOEs through liquidation was on Strategic Investments in the Republic of EUR 87 million. In 2013, 136 contracts Kosovo. This law aims to facilitate, attract, (liquidation 105, spin-off 31) were and create the necessary conditions completed, while in 2014, in total for the implementation of strategic 145 contracts were completed. During investments in Kosovo. It also regulates the 2015, PAK did not execute any asset sale administrative procedures and the criteria due to the lack of Board of Directors. for evaluation, selection and supervision of The total amount of the sales proceeds strategic projects, as well as administrative during the entire process (June 2002 – procedures for granting the use of the December 2015) is EUR 660,223,469. property of the Republic of Kosovo with the

© 2017 KPMG Albania Shpk Kosovo Branch, a branch of KPMG Albania Shpk, an Albanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Investment in Kosovo 2017 | 15 aim of implementing strategic investment Corporation J.S.C. (KEK) is the sole projects. power corporation in Kosovo for energy production. Currently, the local energy Agriculture production is realized by two thermal Agriculture has traditionally been an power plants, Kosova A and Kosova B, with important economic activity in Kosovo. an installed capacity of 800 MW and 678 In fact, as reported by the World Bank, MW, respectively. As per data from the it previously accounted for as much as a Energy Regulatory Office of Kosovo, both quarter of the total domestic output, while thermal power plants contributed 97% of the total energy produced in 2015. it significantly decreased in recent times, to less than 20%. In addition, average In addition, the hydropower plant (HPP) of agricultural land per person is around Ujman with an installed capacity of 35 MW 0.15–0.18 hectares, less than half the EU and other small distributive hydropower average. plants with a total installed capacity of 10.84 MW account for the remaining The dissolution of state-owned agricultural energy production. enterprises has significantly fragmented the farm structure and has led to a decline In November 2015, Kosovo launched a in arable land and irrigation, which results project to build a coal-fired power plant, in lower agricultural production and Kosova e Re, with an installed capacity subsequent economic losses. In any case, of 450 MW. The new thermal power about 53% of the total surface area of the will be built by the US power company country is considered to be arable land. Contour Global. It is expected that around 10,000 jobs would be created during the There is a substantial scope for future construction of the plant which would investments in this sector and ample employ 500 people once it comes on opportunities for marketing products, stream. The project received support both domestically and abroad, given the from the World Bank and the European limited investor attention it has received Union. The construction is expected to be to date. Recent studies from the Kosovo completed in 2020-2021. The project cost is Agency of Statistics indicate that some estimated to be approximately 140,000–150,000 people are employed EUR 1.1 billion. in agriculture. The development of the agriculture sector would also present KEK has been unbundled into production additional opportunities for investments in named KEK J.S.C. (Kosovo Energy the food processing industry, horticulture Corporation), transmission named KOSTT sector (i.e. production of fruits and J.S.C. and a distribution and supply division vegetables), and livestock subsector. named KEDS (Kosovo Energy Distribution Services JSC). In 2012, the Government Energy/power generation of Kosovo privatized KEDS through an international tender, which was won by the Energy production is largely based on consortium Çalik Holding & Limak from thermal power plants utilizing coal (lignite) Turkey. and to a smaller extent hydropower generation. The Kosovo Energy

Following the privatization, in line with legal demand. In this regard, investments in requirements, the electricity distribution the energy sector are needed. Similarly, business was unbundled from the supply the neighboring country Albania is faced business. The result is that Kosovo with problems in the energy sector as well Electricity Supply Company J.S.C. (KESCO) due to the high dependency on the water was established from January 2015. It is reserves in the country. the only public supplier of electricity in Kosovo and is responsible for customer Tourism contracts, purchases, sales and the supply The country’s natural resources include of electricity. Meanwhile, KEDS continues mountains, lakes, and rivers and represent to operate as the distribution system tourism opportunities. Kosovo’s potential in operator. This separation was in anticipation tourism is closely related to the country’s of the liberalization of the energy sector in geographical position. The mountainous Kosovo. south offers good opportunities for The mandatory targets of energy winter tourism and the most important production from renewably energy sites are the Mountains of Sharr, Cursed sources (RES) for Kosovo until 2020 Mountains where Brezovica and Rugova were determined based on decision are distinguished as skiing and recreational No. D/2012/04/MC-EnC issued by centers, Luboteni Peak, and Gjeravica Peak the Ministerial Council of the Energy which is the highest peak in Kosovo. Community (EC). According to this In April 2015, Kosovo’s Trade and Industry decision, 25% of the final energy Ministry signed a contract with a French consumption must be from RES. As consortium, which includes several a result, the Ministry of Economic international and local companies for Development of Kosovo issued the development of Brezovica. The total administrative instruction No. 01.2013 on amount expected to be invested is around 31 January 2013 where it sets yearly and EUR 410 million over the next 17 years long-term targets of energy consumption to make Brezovica one of the largest from RES. Furthermore, the Energy mountain resorts in the Balkans. Regulatory Office amended the Rule on Support Scheme (on support of generation In addition, the wellness tourism has of electricity from Renewable Energy a great potential for development. The Sources and Methodology for calculation of numerous thermal springs are renowned feed-in tariffs for Solar Energy-Photovoltaic) in the region for their healing effects and in November 2014 and, consequently, on the most famous ones are Kllokoti spa and 23 December 2014, issued decision V-673- Peja spa. 2014 defining feed-in tariffs for electricity There are also plentiful religious and generated from RES. other sites of cultural and historical value Two of the main problems for the energy providing good prospects to develop sector in Kosovo remain the high level cultural tourism. of technical and commercial losses and the level of energy production which is insufficient to cover the increasing energy

Mining sector Monaco (+377), Slovenia (+386) and Serbia Kosovo has vast mineable quantities of (+381), will continue to be used. lignite, lead-zinc-silver, nickel, chrome, Kosovo Telecom (KT) J.S.C. provides a aluminum, magnesium and a wide variety wide range of mobile and fixed telephony of construction materials. services, including internet and TV Lignite is of high importance to Kosovo. services. According to the Ministry of Mining and The fixed telecommunications unit is a Energy, at 14,700 megatons, Kosovo licensed network and service provider possesses the world’s fifth largest proven of fixed telecommunications services reserves of lignite. Lignite is deposited to retail and business customers in the across the Kosovo Basin, Dukagjin and territory of the Republic of Kosovo. The Drenica Basins, although mining has so far fixed telecommunications unit began been restricted mostly to the Kosovo Basin. to provide internet services in 2001. A mobile telephony unit is operated under Meanwhile, lead, zinc, and silver mining the brand name “Vala” and it is a GSM have proved popular. These mining mobile operating unit licensed for provision activities have been based on a series of mobile telecommunications services in of nine mines, five of which comprise Kosovo. today’s Trepca Complex. Active mining in these five mines ceased at the beginning KT has approximately 2,400 employees and of the Serbian-Kosovo conflict and offers the Government of the Republic of Kosovo very good investment opportunities. In holds 100% of its shares. fact, Trepca is a frequently discussed In 2008, Z-Mobile was licensed to carry privatization topic. However, its sale is out mobile telecommunication services, complicated due to ownership problems. functioning as a virtual operator using the In 2016, the Assembly of the Republic of network of PTK. Kosovo approved Law No. 05/L-120 on Trepca. Its purpose is to establish a legal During 2014 and 2015, KT invested infrastructure which aims to achieve a more than EUR 100 million in upgrading sustainable economic development as a the network to support 3G and 4G prerequisite for the revitalization of Trepca technologies. As a result, approximately as an enterprise of special importance 1 million customers of Vala have benefited which is vital to the social wellbeing of its from this. employees and the general public interest. IPKO Telecommunications LLC (IPKO), a subsidiary of Telekom Slovenia, is one of Telecommunications and post the main companies in the information On 15 December 2016, the International technology and communication sector Communication Union (ITU) allocated to in Kosovo and offers services in mobile Kosovo its own telephone code +383. The communications, fixed telephony, digital new code will be used by all mobile and cable television, internet services, as well fixed telephony operators. Until the full as media. IPKO is the first mobile operator implementation of the code, the current which offered fast-speed mobile internet dialing codes of the three providers, 3.75G network in Kosovo.

Kujtesa Net LTD is an internet services microfinance institution and which are and cable TV provider which is also licensed by the CBK to engage in activities located in Kosovo. It is ranked as the third specified in the Banking Law. telecommunication provider in the country. Pursuant to the Banking Law, the Central Postal services in Kosovo are provided by Bank of Kosovo determines the rules of Post of Kosovo J.S.C., a publicly owned licensing, supervision and functioning for enterprise, and many other international microfinance and non-banking financial companies which operate in Kosovo such institutions, taking into consideration the as UPS, TNT, Fedex and DHL. specifics of their financial activity.

There are ten banks operating in Kosovo: Banking and finance Bank for Business, Banka Kombetare The banking and financial system structure Tregtare – Kosovo Branch, Economic Bank, in Kosovo consists of commercial banks, Komercijalna Banka ad Beograd – Mitrovica branches of foreign banks, microfinance Branch, NLB Prishtina, Procredit Bank, institutions, non-banking financial Raiffeisen Bank, Turkiye Is Bankasi, Turkiye institutions, foreign exchange offices and Cumhuriyeti Ziraat Bankasi A.S. Kosovo money transfer agencies. Branch and TEB SH.A.

Pursuant to the Banking Law, a Kosovo Foreign banks dominate the market both bank must be established in the legal form in terms of the number of banks and their of a joint-stock company issuing shares share of the total banking sector assets. with a fully paid-up minimum registered capital of EUR 7 million. Banking activities Other financial intermediaries in Kosovo may be performed only upon In addition to commercial banks, obtaining a bank license, issued by the microfinance institutions (MFIs) represent Central Bank of Kosovo. another important lending source in A foreign bank registered in another Kosovo. Currently, there are 14 MFIs country may perform banking activities in operation. The main beneficiaries of in Kosovo only upon opening a branch in MFI loans are small enterprises and Kosovo and obtaining a license issued by households. the CBK. Other financial intermediaries in Kosovo Microfinance institutions are legal entities are exchange offices and money transfer organized as either a non-governmental agencies. organization (NGO) under the NGO Law or as a joint-stock company under the Law on Business Organizations which provides, as its primary business, loans and a limited number of financial services to micro and small legal entities, low-income households and low-income persons.

Non-banking financial institutions are legal entities which are neither a bank nor a

Business entities an individual business. Even though an According to Law No. 02/L-123 of the individual business is not a legal entity, it Assembly of Kosovo dated 27 September may contract, hold property and sue or be 2007, the business entities which may be sued in its own name or in the name of its registered with the Business Registry in owner. Kosovo are: To register an individual business, the • Individual business owner must sign and submit to the Registry a form containing information • Overall partnership about the organization and the purpose of • Limited partnership the business as well as the written consent of the registered agent to serve in such a • Limited liability company capacity. • Joint-stock company. Overall partnership Apart from the above entities, foreign entities may also register through a branch An overall partnership is a business office in Kosovo. Since the branch has no organization which comes into existence separate legal personality, its rights and as a result of an association of two or obligations pertain to the parent company. more persons and/or companies for the purpose of engaging in business, either Any non-resident person who is subject by registration or by conducting business to taxation in accordance with the tax without being registered with the Registry. legislation of the Republic of Kosovo must appoint a fiscal representative These persons are considered to be overall prior to starting any economic activity partners. Every overall partner is, and all in the Republic of Kosovo. The fiscal overall partners are, jointly and severally representative must register with the Tax liable for all debts and other obligations Administration of Kosovo within five days incurred by, or imposed by law or contract of being named. on, the overall partnership. Such liability is unlimited. Individual business An overall partnership is not a legal entity. A person owning an individual business, Nevertheless, it has the right to contract, whether registered or unregistered, hold property and sue or be sued in its own has unlimited personal liability for all name. debts and other obligations incurred by, or imposed by law or contract on such

To register an overall partnership, an Foreign entities are permitted to own and overall partner or a person authorized by participate in a limited liability company. them signs and submits to the Registry A limited liability company may come into an “overall partnership memorandum” existence only upon registration with the providing information about the Registry. To establish and register a limited organization and the purpose of the liability company, a founder must sign business as well as the written consent and submit to the Registry the statute of of the registered agent to serve in such a the limited liability company, which must capacity. contain information about the organization and purpose of the business, a copy of the Limited partnership company’s bylaws and the written consent A limited partnership is a partnership of the registered agent to serve in such a having one or more partners with unlimited capacity. liability and one or more partners who are liable only to the extent of their Joint-stock company contributions to the limited partnership. A joint-stock company is a legal entity A limited partnership is not a legal entity. which is owned by its shareholders but is Nevertheless, it has the right to contract, legally separate and distinct from them. hold property and sue or be sued in its own A shareholder of a joint-stock company is name. not a co-owner of, and has no transferable A limited partnership is created only upon interest in any property or assets of such the registration of its limited partnership a company. A joint-stock company may memorandum with the Registry along with have a sole shareholder. The shares of a a copy of the company’s bylaws and the joint-stock company may be transferred by written consent of the registered agent the owner(s) without the approval of other to serve in such a capacity. The limited shareholders or the company. The initial partnership memorandum is the founding capital of a joint-stock company must be at and constitutive document of a limited least EUR 10,000. partnership. A joint-stock company may come into existence only by registering with the Limited liability company Registry. To register and establish a joint- A limited liability company is a legal entity stock company, a founder must sign and which is legally separate and distinct from submit to the Registry the charter of the its owners. An owner of a limited liability joint-stock company, which must contain company is not a co-owner of, and has no information about the organization and the transferable interest in, the property owned purpose of the business, a copy of the by the limited liability company. The shares company’s bylaws and the written consent of a limited liability company are distributed of the registered agent to serve in such a only to its founders and the company capacity. cannot conduct a public offering of its shares. The initial capital of a limited liability company must be at least EUR 1,000.

Foreign business organization although many of them are now out of date A foreign business organization, as defined and not accepted by the Registry. in the Law on Business Organizations, The Business Registry is responsible for: may engage in business activity in Kosovo to the same extent as a local • Registration of new companies business organization. It has to register • Registration of trade names with the Registry as a “foreign business • Registration of branches of foreign organization” and comply with the companies requirements of the Law. • Receipt of annual financial statements A foreign business organization is subject and business reports of limited liability to registration if it, or any agent, employee companies and joint-stock companies. or representative acting on its behalf, engages in any type of business activity in Kosovo. A foreign business organization is not required by the law to register in the Registry if its business activity is exclusively limited to exporting to Kosovo of products or services that are imported by a consumer or purchaser established or residing in Kosovo.

To establish a branch, an authorized person of the foreign business organization must sign and submit a standard application form, a “foreign business organization memorandum” containing information and details about the organization, capital structure and purpose of the parent company, structure and purpose of the branch, and the registration certificate of the foreign organization in the jurisdiction of incorporation.

Business Registry The Business Registry is a central register which maintains the records of all registered companies.

Each registered company can be found online by entering the company name or business ID number on http://www.arbk.org/arbk/. Application forms are also available on this website,

Accounting: regulations and The Law defines business organizations as requirements medium if they fulfill two of the following Accounting and financial reporting for three criteria: financial institutions is regulated by the • Net annual turnover higher than Central Bank of Kosovo. All financial EUR 2 million but less than institutions are required to report EUR 4 million audited financial statements prepared in accordance with the International Financial • Gross assets at balance sheet date Reporting Standards (IFRS) no later than higher than EUR 1 million and less than 30 April of the following year. EUR 2 million

On 29 July 2011, the Assembly of the • Average number of employees during Republic of Kosovo passed Law No. 04/L- the financial year higher than 10 but 014 on Accounting, Financial Reporting and smaller than 50. Audit (“the Law”), which is applicable for The Law also prescribes punitive measures all Kosovo entities which are not regulated against business organizations which fail to by the Central Bank of Kosovo. comply with the requirements of this Law.

Based on this Law, large business All entities must prepare financial organizations and all business organizations statements at least annually. Together with registered as limited liability companies the financial statements, entities must file or joint-stock companies in Kosovo must their annual corporate income tax return apply IFRS, including interpretations, with the tax authorities by 31 March of the recommendations and guidance issued subsequent year. by the International Accounting Standard Board, which are to be approved by the In October 2014, Administrative Instruction Kosovo Financial Reporting Council. No. 02/2014, “Applying IFRS for medium and small commercial companies” entered The Law defines business organizations as into force. Accordingly, financial statements large if they fulfill two out of three criteria: of small and medium commercial • Net annual turnover higher than companies are to be prepared in conformity EUR 4 million with the IFRS for small and medium undertakings published by the International • Gross assets at balance sheet date Accounting Standards Board and adopted higher than EUR 2 million by Kosovo Financial Reporting Council. • Average number of employees during Commercial companies must apply the the financial year higher than 50. IFRS for small and medium enterprises

The Instruction clarifies also the approach Medium enterprises are obliged to have to changing the classification from one their financial statements (either individual category to another for the purpose of or consolidated) audited by audit firms or accounting, financial reporting and audit statutory auditors licensed by the KFRC. (i.e. large enterprise, small and medium Small enterprises are not obliged to have enterprise or micro enterprise). An entity their financial statements audited. can change its classification only after 2 years from the initial categorization, even Audited financial statements of large and if the entity fulfills the conditions to be medium-sized business organizations classified in another category in the second must be submitted to and published with year following the initial classification. the KFRC and a copy submitted to the Ministry of Trade and Industry no later than The Instruction clarifies that all entities 30 April and 30 June of the following year that fulfill the criteria for small and medium for standalone and consolidated financial enterprises shall apply IFRS for SMEs, statements, respectively. despite their legal form. The application of IFRS for SMEs is mandatory starting from 1 January 2015.

General The tax year in Kosovo is the calendar The tax system in Kosovo has been year. Corporations conducting business in established during the last decade and is Kosovo are subject to CIT at a rate of 10%. still being developed. The first legislative The following entities are subject to CIT: act to introduce an independent Kosovo tax system was the UNMIK Regulation on • Corporations or other business Tax Administration and Procedures which organizations which have the status of entered into force in 2000. Since then, an legal entities under the applicable law important goal of the Kosovo legislators in Kosovo has been to harmonize the system with • Business organizations operating with EU legislation. publicly or socially owned assets

The Kosovo tax legislation provides for the • Organizations registered as NGOs under following taxes: the Regulation on the Registration • Corporate income tax (CIT) and Operation of Non-Governmental Organizations in Kosovo • Personal income tax (PIT) • Permanent establishments in Kosovo of • Value added tax (VAT) non-resident persons.

• Withholding tax (WHT) Kosovo residents are considered to • Custom duties comprise: corporations, groups of corporations or organizations established • Excise tax in Kosovo or which have their place of • Local taxes. effective management in Kosovo. Kosovo resident corporations are subject to Corporate income tax CIT on their worldwide income, whereas non- Law No. 05/L-029 on Corporate Income Tax resident entities are subject to tax only on the became effective on 1 September 2015. It income derived from the Kosovo source. replaced Law No. 03/L-162 on Corporate Taxpayers with an annual gross income Income Tax introduced on 1 February (revenue) of EUR 50,000 or less may 2010, and Law No. 04 / L-103 on amending choose to be taxed either on an actual and supplementing Law No. 03/L-162 on income basis or on a presumptive tax basis Corporate Income Tax introduced on and have to pay: 30 May 2012. • 3% of each quarterly gross income from trade, transportation, agricultural

or similar businesses but not less than • Value added tax for which the taxpayer EUR 37.50 per quarter claims a rebate or credit for input tax

• 9% of their annual gross income • Any loss from the sale or exchange of deriving from the provision of services, property between related persons vocational, entertainment and similar • Benefits in nature in the form of meals activities but not less than EUR 37.50 and transport tickets, unless organized per quarter by the taxpayer themselves • 10% of the net rental income for • Pension contributions above the the quarter, reduced by any amount maximum amount allowed by the withheld during that quarter. Kosovo Pension Law (i.e. exceeding However, such taxpayers can choose to be 15% of the gross monthly salary) taxed on the basis of 10% of their actual • Contributions made for humanitarian, taxable income (gross income minus health, education, religious, scientific, deductible expenses) by submitting a form cultural, environmental protection and to the tax authorities. In such a case, the sports purposes, which exceed 5% of taxpayers need to prepare the related the taxable income financial statements and submit them to the tax authorities on an annual basis. • Expenses for presents, other than those having the name and logo of The corporate income tax is applied to the business, which are part of the the income as calculated in the financial representation expenses statements and adjusted for tax purposes. In determining the taxable income, • Representation expenses which exceed expenses are deductible only if they 1% of the total gross income are incurred wholly and exclusively in • Expenses on rents of apartments connection with the economic activity. serving for accommodation and lodging Some expenses are designated as non- of resident and non-resident employees, deductible in the Kosovo Law on Corporate regardless of the terms of contract of Income Tax, including: employment or service

• Cost of land acquisition and improvement • Contributions to reserve funds

• Cost of acquisition, improvement, • Expenses which are not properly backed renewal and reconstruction of assets up by supporting documents. which are depreciated or amortized

• Fines, penalties, costs and interest Depreciation related to them Entities may set depreciation rates for assets in accordance with their accounting • Bad debts which do not meet certain policies, while under the provisions of the conditions as provided for by the Law Law on Corporate Income Tax, maximum • Income tax paid and accrued and any annual rates allowed for tax purposes interest or penalty incurred for late are specified according to a separate tax payment depreciation schedule.

The straight-line method is applied for: used exclusively for their public benefit purposes • Buildings and other constructed structures which are depreciated at a • Income of the Central Bank of Kosovo 5% rate and of entitled and duly authorized international inter-governmental financial • Automobiles and light trucks, heavy institutions operating in Kosovo transport vehicles, other heavy vehicles, computer peripherals and other data • Dividends received by resident and non- processing devices, office furniture resident taxpayers and equipment, and others which are • Interest on financial instruments which depreciated at a 20% rate are issued or guaranteed by a public • Plant and machinery, rolling stock and authority of Kosovo paid out to resident locomotives used for rail transport, or non-resident taxpayers airplanes, ships, perennial plants and • Income of eligible religious institutions trees used for viniculture or production of Kosovo of fruits and all other tangible assets not included in the first or second category • Income from a contractor or are depreciated at a 10% rate. subcontractor, other than a local contractor, generated from contracts for the supply of goods and services Amortization to the United Nations, the Specialized Expenditures on intangible assets which Agencies of the United Nations, KFOR have a limited useful life such as patents, and the International Atomic Energy copyrights, licenses, contracts and Agency franchises are deductible in the form of amortization charges. • Income of a contractor or a subcontractor but other than a local The straight-line method is applied as a contractor generated from contracts method of amortization and the allowance with foreign governments, their organs is based on the useful life of the asset and agencies, the EU and its specialized as determined by the legal agreement agencies, the World Bank, the IMF and governing the acquisition and use of the other international inter-governmental intangible asset. organizations for the supply of goods or services in support of the programs and Income exempt from corporate income projects in Kosovo. tax The following income is exempt from Withholding tax corporate income tax: Under Kosovo’s tax legislation, Kosovo tax residents are obliged to withhold tax on the • The income of organizations registered following payments made to residents and under the Regulation on the Registration non-residents: and Operation of Non-Governmental Organizations granted public benefit • 10% withholding tax on interest status to the extent that the income is payments

• 10% withholding tax on royalties arm’s length. Discussions are underway to introduce in Kosovo TP rules on reporting of • 9% withholding tax on rental payments the controlled transaction and preparation • 10% withholding tax on lottery winnings of local TP files. and gambling. Special treatment of insurance Under Kosovo’s tax legislation, Kosovo tax companies residents are obliged to withhold tax on the following payments made to non-residents: Companies, whose activity is the insurance or reinsurance of life, property, or other • 5% withholding tax on income paid risks, pay tax at a 5% rate of the gross to non-resident entertainers for their premiums accrued during the tax period, activity exercised in Kosovo instead of corporate income tax. • 5% withholding tax on income paid to non-residents for services performed in Taxation of individuals Kosovo. Personal income tax

Losses carried forward Under Law No. 05/L-028 on Personal Income Tax effective from 1 September Losses may be carried forward and may 2015, Kosovo tax residents comprise: be settled against future income for six all individuals who (i) have their principal consecutive fiscal years. The losses have residence in Kosovo or (ii) are physically to be settled according to the “first loss present in Kosovo for more than 183 days before the last one” principle. in any 12-month period of time, and all entities, individual business enterprises Relief from tax: foreign tax credits and partnerships which are established According to the tax legislation provisions, in Kosovo or have their place of effective income taxes paid abroad by residents management in Kosovo. are credited to the tax balance due in Kosovo up to the maximum amount of tax Kosovo resident individuals, individual payable in Kosovo. Non-residents with a business enterprises and partnerships are permanent establishment in Kosovo can subject to personal income tax on their obtain an official document from Kosovo’s worldwide income, whereas non-resident tax administration, certifying the amount of individuals, individual business enterprises taxes they have paid, so this can be used and partnerships are subject to tax only on to obtain a credit if permitted by the foreign income derived from a Kosovo source. tax authority. Personal income tax is levied on the following categories of income: Anti-avoidance measures: transfer pricing • Wages There are transfer pricing (TP) provisions in • Business activities Kosovo which allow the tax authorities to • Rents adjust taxable income if the transactions between related parties are not made at • The use of intangible property

• Interest minimum level of 5%. The maximum level allowed is 15% of the gross monthly salary. • Capital gains Under Kosovo legislation, foreign • Lottery winnings and winnings in games individuals are not required to pay pension of chance contributions. • Pensions Health insurance contributions • Any other income which increases the taxpayer’s net worth. The Assembly of Kosovo approved Law No. 04/L-249 on Health Insurance in Tax rates April 2014 which regulates the public health insurance system. Accordingly, The personal income tax rate system the mandatory health insurance premium is a progressive tax system with a 10% for employees and employers is 7% of maximum tax rate. For each tax period, the gross income shared equally by the personal income tax is charged at the employer and the employee (i.e. 3.5% following rates: each). The start date for the collection of Personal income tax premiums will be separately confirmed by (annual taxable income in EUR) the Kosovo Government. 0 – 960 0% Local taxes 961 – 3,000 4% of the amount over Local taxes are regulated by Law 03/L-049 EUR 960 on Local Government Finance. 3,001– 5,400 EUR 81.6 + 8% of the amount over Municipalities may impose the following EUR 3,000 taxes and fees: 5,401 and over EUR 273.6 + 10% of • Tax on immovable properties situated in the amount over their territory EUR 5,400 • An annual fee for business activity

Taxes must be withheld by employers on a • An annual fee for professional business monthly basis. • An annual motor vehicle fee

Taxpayers who receive income other • Construction permits and demolition than wages, dividends, interest, lottery, fees gambling, or income from intangible property are required to prepare an annual • Other fees in relation to services tax return for personal income tax by provided by the municipalities. 31 March of the following year. Value added tax Pension contributions The Kosovo Parliament approved Law As per Law No. 04/L-101 on Pension Funds No. 05/L-037 on Value Added Tax which is of Kosovo, the employer and employee effective from 1 September 2015. Based must pay pension contributions at a on this Law, all individuals, legal, public and

• Supply of goods or services with a Refund of VAT turnover exceeding EUR 30,000 within If a taxpayer incurs a surplus of input VAT a calendar year. The registration must in over output VAT, they may ask for a refund any event occur within 15 calendar days of surplus input VAT if: of exceeding the turnover. • The VAT return for the last month of a VAT is levied on (i) supplies of goods or consecutive three-month period reflects services with a place of supply in Kosovo, an amount of VAT credit that exceeds (ii) import of goods into Kosovo. The current EUR 3,000 and VAT rate applicable in Kosovo is 18% which • The taxpayer was in credit at the end is applied on domestic transactions and of each tax period (for VAT purposes imports of goods. In addition, a reduced the tax period is considered to be the VAT rate of 8% is applied to the supply of month) of a consecutive three-month certain goods and services (as well as their period and that all VAT returns and all import), such as water, utilities and certain other tax returns for all past tax periods food products. have been submitted on time.

Certain supplies are considered VAT In case of export, a refund may be claimed exempt without the right to credit the input after each tax period, provided that the VAT (e.g. the supply of financial services, following conditions are met: the supply of medical care services and education services). • The amount of VAT credit exceeds EUR 3,000 at the end of the tax period Certain supplies are considered VAT (one month), and exempt with the right to credit the input VAT (e.g. the supply of services related • The taxpayer complies with all to international transport and supply of applicable and VAT provisions, and services outside the territory of Kosovo). • All VAT returns and other tax returns for The taxable value of a taxable supply in all the past periods (months) have been submitted. Kosovo is the total consideration payable for that supply. For imports, the taxable Starting from 1 March 2017, tax value is the customs value plus customs reimbursements requests for VAT shall be duties, excise taxes and other charges made through the respective electronic tax levied in customs. declaration forms.

Deduction of input VAT Customs duties and customs code The Kosovo VAT Law allows the Customs duties are regulated by Code recoverability of all input VAT on domestic No. 03/L-109, Customs and Excise Code

According to Law No. 04/L-163, the Stabilization and Association Agreement following goods are exempt from customs The Stabilization and Association duties: Agreement (SAA) is an international • Exports agreement signed between Kosovo and the European Union whose purpose is to • Goods imported by foreign diplomatic, establish contractual relations between consular missions and their personnel both parties. (except for local personnel) The SAA between Kosovo and EU became • Goods imported by UNMIK, KFOR, the effective on 1 April 2016. United Nations High Commissioner for Based on the SAA, the gradual Refugees (UNHCR), the International development of the free trade zone Committee of the Red Cross (ICRC) or between Kosovo and EU is enabled within by donors having contracts with UNMIK 10 years. According to the agreement, • Goods used for humanitarian purposes certain products, as set out in a list, originating from one of the contracting • Goods used for agricultural production parties’ countries may benefit from a and some listed raw materials for heavy reduction in customs duties when imported industry, and in Kosovo. • Pharmaceutical products. Double Tax Treaties The tariff nomenclature provides for a customs rate of 10% for all goods imported Kosovo has several Double Tax Treaties into Kosovo. (DTTs) with other countries. They have been signed either directly by the Republic Kosovo is a member of the Central of Kosovo following the declaration European Free Trade Agreement (CEFTA) of independence or signed by Former together with Albania, Bosnia and Yugoslavia and accepted by the Republic Herzegovina, Macedonia, Moldova, of Kosovo. The treaties provide for tax Montenegro and Serbia. benefits to resident of the respective country. Currently, Kosovo has DTTs in Excise taxes force with: Law No. 03/L-112 on Excise Tax in Kosovo • Albania (amended by Law No. 03/L-220) contains a • Belgium list of goods subject to excise tax and their corresponding excise rates. • Finland

• Germany

• Hungary

• Macedonia

• Netherlands

• Slovenia

• United Kingdom

Recently, Kosovo has also signed a Double Tax Treaty with Croatia. However, it has not entered into force yet.

There are no specific internal rules in Kosovo on the implementation of the DTTs in force.

According to Law No. 03/L-071 on Tax Administration and Procedures, if the existing tax laws relating to the international juridical double taxation of income and capital of persons in the Republic of Kosovo do not address such taxation, the principles of the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income and on Capital apply in order to avoid double taxation of such income and capital.

Legislation Termination of employment Relations between employers and contracts employees in Kosovo are governed by According to the Kosovo Labor Law, the the provisions of Law No. 03/L-212 on the process of termination of employment Labor Law in Kosovo dated 1 November contracts differs based on the type of the 2010. contract.

The Kosovo labor law has three priorities: In case of termination of an employment contract with an unlimited period, the • Employment regulation parties notify each other through written • Industrial relations notice of:

• Workplace safety. • 7 days during the probation period of six months Employment regulations govern individual employment contracts, including flexibility • 30 calendar days during the first six of hiring through part-time and fixed-term months to two years of employment contracts, conditions of employment • 45 calendar days during the first two encompassing the maximum number years up to 10 years of employment of working hours per day or per week, premiums for overtime work, paid annual • 60 calendar days if the employee has leave and the minimum wage. They worked for the entity for more than also regulate release of staff, including 10 years. grounds for dismissal, notification rules for However, for all types of contracts, dismissal, priority rules for dismissal and immediate termination can occur at any severance pay. time for justifiable reasons. It is also possible that both parties may agree to Employment contracts terminate the employment contract by Generally, labor relations in Kosovo, as mutual agreement. well as the rights and obligations of the employers and employees, are set out in Working hours employment contracts. The Kosovo Labor Law provides that the An employment contract must be normal workday must not exceed eight concluded in writing. The first six months hours per day or 40 hours per week. For of employment can qualify as a probation employees who are less than 18 years old, period, which can be reduced or removed by the normal workday must not exceed means of a written or collective agreement. 30 hours per week.

Every working hour taking place during the Other paid holidays interval from 10:00 pm to 6:00 am entitles The legislation establishes other paid employees to an extra payment added to leaves of one to five days for the cases their salary, which cannot be lower than a of marriage, death of immediate family 30% increase of the regular hourly rate. members, child birth, and blood donation.

If the normal workday is exceeded or the When an employee is not able to work circumstances require extra hours of work, because of sickness, the employer must an employee may perform overtime work. pay the employee 100% of their wage for This overtime work must be paid with a a period up to 20 days of work within bonus of 30% added to the regular rate or one year. may be compensated with holidays. A full- time employee can only work up to eight Public holidays supplementary hours per week. Kosovo’s Government has set a number of The overtime performed on weekends public holidays on certain days during the or official holidays is remunerated with year while religious holidays are subject to a bonus of no less than 50% added change every year. The following holidays to the hourly rate or with time off that are applicable for 2017: corresponds to the duration of the extra 1 and 2 January – New Year’s holidays hours. 7 January – Orthodox Christmas Holidays 17 February – Independence Day

Annual holidays 9 April – Constitution Day Employees are entitled to not less than 16 April – Catholic and Orthodox Easter four calendar weeks of annual leave during a year of work. 1May * – Labor Day

For each five years of work an employee is 9 May – Europe Day entitled to one more day of annual leave. 25 June* – Bajram Day Mothers with children up to three years of 1 September* – Bajram Day age and single parents as well as persons with disabilities are entitled to additional 25 December – Christmas two days off. * Subject to change every year Unused annual leave is not compensated in When public holidays fall on a Saturday or a money, unless the employment relationship Sunday, Monday is considered a holiday. of an employee is about to expire.

The periods of temporary disability to work are considered working time.

Public procurement or authorization is required within the Public procurement in Kosovo is subject to framework of a PPP. In addition, this Law Law No. 04/L-042 on Public Procurement does not apply to service contracts or in Kosovo and Law No. 04/L-045 on Public works contracts, as defined in the Law on Private Partnerships. Public Procurement and to the privatization or divestiture of public infrastructure or The purpose of the Law on Public public owned enterprises pursuant to Law Procurement is to ensure the most on Public Owned Enterprises. efficient, cost-effective, transparent and fair use of public funds and public resources in For matters not covered by this Law, Kosovo by establishing the requirements the provisions of the Law on Public and rules which are to be observed, the Procurement are applied. procedures to be followed, the rights In the Law, a PPP is defined as any to be respected, and the obligations to contractual of institutional cooperation be performed by persons, economic between one or more public authorities operators, undertakings, contracting and one or more private partners whereby authorities, work concessionaires, the private partner: and public bodies conducting, or involved, participating or interested in, a • Provides a public service or a public procurement activity involving or relating to infrastructure on behalf of the public the use of such funds and/or resources. authority

The Law on Public Private Partnerships was • Assumes financial, technical, approved on 21 October 2011. The purpose construction and operational risks, of this law was to establish the legal including demand and/or availability framework for public private-partnerships risks, in connection with the provision (PPP), including procedures for the award of the public service or the public of a PPP, the content and structure of a PPP infrastructure Agreement and the institutional framework • Receives a benefit for providing public responsible for the management and service or public infrastructure in development of PPP in the Republic of the form of (i) payment by the public Kosovo. authority, (ii) charges or fees to be This Law does not apply to the granting collected by the private partner or of licenses, permits or authorizations by (iii) a combination of such payment and a public authority, except to the extent such charges or fees. that the issuance of a license, permit

A PPP may be implemented through The Kosovo Competition Authority is either a contractual or institutional form. assigned by this Law to control competition A contractual PPP may be in the form in the relevant market. of a concession or a public contract. An institutional PPP may be established Environmental laws by a municipality in an existing publicly There are Laws on Environment Protection, owned enterprise whose sole purpose Air Protection, Waste and Water. is the performance of a public service or public infrastructure. The private partner The purpose of the Law on Environment may become partner of such PPP through Protection and the other laws above is to acquisition of shares owned by such promote the establishment of a healthy municipality. The private partner may environment for the population of Kosovo participate either in the management of by aligning the environmental standards such publicly owned enterprise, or in the with those of the European Union. provision of the public service or public infrastructure. Protection of intellectual property rights In certain cases, the approval by the The Law on Trademarks governs Government and the Assembly of Kosovo trademarks in accordance with the is required for the acquisition of shares requirements of international conventions in an existing publicly owned enterprise and EU law and practices. Trademarks are owned by the Republic of Kosovo. registered and thus protected for a period The law does not currently provide for a of 10 years. Under certain preconditions, maximum duration of a PPP. registration may be renewed for a further 10-year period. Competition law The Law on Industrial Design provides for The Kosovo competition protection industrial designs and their protection, the system is governed by Law No. 03/L-229 right to profit and the scope of protection. on Protection of Competition dated An industrial design is protected for a 7 October 2010 (“Competition Law” or period of five years. This protection may be “the Law”). Its main purpose is to define extended for a period of five years, and for the rules and measures for protection a maximum of 25 years upon registration. of free and effective competition in the market, including organization of the There is also a Law on Patents and a Law Competition Authority and procedures on Copyright Protection which is modeled concerning implementation of this Law. closely on the relevant EU legislation.

The Law applies for all forms of prevention, Supervision of the Central Bank of limitation or abuse of competition by Kosovo over the activities of banks enterprises within the territory of Kosovo, and other financial institutions or outside Kosovo, if those actions are Pursuant to Law No. 04/L-093 on Banks, believed to have an impact in Kosovo. Microfinance Institutions and Non-banking

Financial Institutions (“Banking Law”), oversight of a deposit insurance the Central Bank of Kosovo (CBK) is the scheme, conducting market operations, licensing and supervising authority for and providing emergency liquidity banks, microfinance institutions, non- • Regulate, license, register and banking financial institutions, foreign supervise financial institutions exchange offices and money transfer agencies. The CBK exercises supervision • Promote and oversee safe, sound over compliance of the activities of banks and efficient payment, clearing and and financial institutions with the rules securities settlement systems established by the Banking Law and the • Maintain an appropriate supply of regulatory framework of the CBK. banknotes and coins in Kosovo Licenses for banking activities are issued • Hold and manage the international by the CBK. In order to perform services, reserves the financial institutions are obliged to obtain licenses from the CBK for the • Collect and produce statistics performance of their activities. • Contribute to achieving and maintaining The CBK was established according to domestic price stability Law No. 03/L-074 dated 5 June 2008 on • Inform the Assembly, Government and the Central Bank of the Republic of Kosovo the public at large about its policies, which was revoked and replaced by Law tasks and operations No. 03/L-209 dated 22 July 2010. The CBK’s legal independence and main duties are • Act as banker, financial advisor and provided for in a separate article of the fiscal agent for the Government and Constitution. The CBK’s main objectives to any other public bodies and public are to: organizations of Kosovo

• Foster and maintain a stable financial • Cooperate with and participate in system, including a safe, sound and international councils and organizations efficient payment system concerning matters which are within its fields of competence and • Contribute to achieving and maintaining domestic price stability • Carry out any ancillary activities incidental to the exercise of its tasks. • Support the general economic policies of the Government The CBK is exclusively responsible for the regulation, licensing, registration and • Act in accordance with the principle supervision of banks and other financial of an open market economy with institutions as further specified in the free competition, favoring an efficient relevant Laws. allocation of resources. The staff of the CBK, and other qualified Pursuant to the above objectives, the CBK’s persons appointed by the Executive Board, main tasks as per Law No.03/L-209 are to: may visit the offices of financial institutions • Determine and implement a financial to examine such accounts, books, system stability policy, including documents and other records, to obtain

The CBK established the Credit Registry to The total premiums received by insurance collect and provide information to facilitate companies in 2016 reached reduced risks of lending and to improve EUR 83.5 million as at 30 September 2016 access to credit while ensuring maximum (2015: EUR 80.0 million), which represents protection of personal data. Credit an annual increase of 4.4% compared to reporting is mandatory for all financial 2015. The activities of insurance companies institutions operating in Kosovo. continue to be concentrated mainly in third party liability policies, which generate All financial institutions are required to file 56% of all premiums, while the remaining with the Credit Registry all information on premiums mainly related to border their credits and credit products, borrower insurance policies and other voluntary repayment history, and guarantees. CBK insurance. regulations and operational instructions provide for details on compliance, The increase in premiums received was penalties, credit reports, and borrower followed by an increase in claims paid of rights. Information about mortgages, 4.9% (2015: increase of 18.7%), which in pledges and other collateral can be 2016 reached EUR 38.6 million compared additionally reported to the Credit Registry. to EUR 36.8 million in 2015. The ratio between claims paid and premiums Insurance received in 2016 reached 46.3%, as Pursuant to Law No. 05/L-045 on compared to the 2015 ratio of 46.0%. Insurance (“Insurance Law”), the Central The insurance sector was characterized by Bank of Kosovo (CBK) is the licensing a loss of EUR 23.9 million in 2016 which is and supervising authority for insurance a deterioration as compared to the previous companies, reinsurance companies and year’s loss of EUR 7.7 million. intermediary companies in insurance activities. The CBK exercises supervision Pension funds over the compliance of the activities Kosovo Pension Saving Funds continued of insurance companies with the rules to grow in both assets and net return on established by the Insurance Law and the investments during 2016. Kosovo’s pension regulatory framework of the CBK. system assets, most of which are managed At the end of 2015, there were 15 insurance by the Kosovo Pension Savings Trust, companies operating in Kosovo, of which amounted to EUR 1,425.4 million in 2016 12 offer non-life insurance products, while (2015: EUR 1,240 million), representing an the other three offer only life insurance annual growth of 15.2%. products. Eleven are foreign owned Of the total pension assets of Kosovo insurance companies, while the remaining Pension Savings Trust, approximately three are locally owned. 8.10% (2015: 10.5%) were invested in The total assets of the insurance sector in Kosovo as of 30 September 2016, while the Kosovo amounted to EUR 162.1 million as rest invested out of the country.

Important Links

Websites of institutions in Kosovo

Assembly of Kosovo http://www.assembly-kosova.org/

Office of the Prime Minister of Kosovo http://www.kryeministri-ks.net

Ministry of Trade and Industry http://www.mti-ks.org/

Ministry of Finance http://mf.rks-gov.net/

Ministry of Economic Development http://mzhe.rks-gov.net

Ministry of Education, Science and Technology http://masht.rks-gov.net/

Ministry of Agriculture, Forestry and Rural Development http://www.mbpzhr-ks.net

Ministry of Labor and Social Welfare http://mpms.rks-gov.net

Ministry of Infrastructure http://mi-ks.net/

Ministry of Environment and Spatial Planning http://mmph-rks.org/

Ministry of Public Administration http://map.rks-gov.net

Central Bank of the Republic of Kosovo http://www.bqk-kos.org

Independent Commission for Mines and Minerals http://www.kosovo-mining.org/

Kosovo Registry of Business Organizations and Trade Names http://www.arbk.org/

Kosovo Trust Agency http://www.kta-kosovo.org/

Society of Certified Accountants and Auditors of Kosovo http://www.scaak.org/

Kosovo Pension Savings Trust http://online.trusti.org

Websites of international institutions in Kosovo

EULEX Kosovo - European Union Rule of Law Mission in Kosovo http://www.eulex-kosovo.eu

UNMIK, United Nations Mission in Kosovo http://www.unmikonline.org/

European Union Office in Kosovo http://eeas.europa.eu/delegations/kosovo/index_en.htm

World Bank – Kosovo http://www.worldbank.org/en/country/kosovo

European Agency for Reconstruction http://ec.europa.eu/enlargement/archives/ear/kosovo/kosovo.htm

UNDP, United Nations Development Programme – Kosovo http://www.ks.undp.org/

Organization for Security and Co-operation in Europe (OSCE) Mission in Kosovo http://www.osce.org/kosovo

United States Agency for International Development, Pristina Office http://transition.usaid.gov/kosovo/eng/

KPMG in Kosovo

6 Pashko Vasa Str. 10 000 Pristina Kosovo Telephone: +381 38 246 771

Fax: +381 38 246 772 kpmg.com/al

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.