Definitions

[Amendment] Market value is defined as the complete amount to be paid by the consumer at the same market rate in which the supply of goods and services occurs, under the conditions of equal competition, for the supplier under the prevailing market within Kosovo where the supply occurred, in order to obtain goods and services in question at the moment. When a comparison cannot be found, the market value can mean a) for goods, an amount not lower than purchasing price of goods or similar goods or cost at time of supply; b) for services, an amount not lower than the complete cost of the taxable person providing the service.

The previous CIT law did not provide for the method of determining market value when comparisons cannot be found.

Natural persons are also further defined as non-business natural persons (without a registered business activity) and business natural persons (with a registered business activity).

The definition of financial leasing no longer includes the conditions which determine a finance lease, such as a) if the lease exceeds 75% of the life of the asset; b) if there is a transfer of ownership at the end of the lease term; c) if there is an option to purchase the asset at the end of the lease term and d) if the discounted present value of lease payments exceeds 90% of the fair market value of the asset.

Exempt income

[Addition] Income exempt from CIT now includes income earned from grants, subsidies and donations, in compliance with relevant regulations and conditions.

Disallowed expenses

[Amendment] Tax losses from transactions between related persons cannot be deducted, except when the transaction is in compliance with the market value. The previous CIT law strictly disallowed the recognition of losses from related-party transactions.

[Addition] Disallowed expenses now also include:

  • Expenses for presents, other than those with the name and logo of the business, which are part of representation expenses
  • Losses in specific weight or substance, damages, remains, surplus, destructions or demolitions during production, transport and storage, beyond the norms set forth in a sub-legal act.
  • Benefits in nature in the form of meals and transport tickets, unless organized by the business
  • Rent expenses for apartments serving as accommodation and lodging for resident and non-resident employees, irrespective of contract or employment terms.
  • Expenses covered by grants, subsidies and donations, in compliance with relevant regulations and conditions

Allowable expenses

[Amendment] Training expenses inside and outside Kosovo paid by an employer for an employee related to his or her work will be allowable without limitations in the year in which such training expenses occur. The previous CIT law limited training expenses to an amount of EUR 1,000 per tax period per employee.

Allowable deductions for activities in the public interest

[Amendment] Contributions in the form of donations or sponsorship for humanitarian, health, education, religious scientific, cultural, environmental protection and spots are allowed as a deduction up to a maximum of 10% of taxable income computed before such contributions are deducted. In addition to this deduction, taxpayers that contribute to certain areas as prescribed by special laws can have an additional allowance of 10%.

The previous CIT law only provided for a deduction of charitable contributions at a maximum rate of 5% of taxable income before this deduction.

Costs for representation, advertising and promotion

[Amendment] Representation costs include costs that a business person incurs in organizing meetings, presentations, inaugurations and similar and are limited to 1% of annual gross income. Advertising and promotion costs however are fully deductible for tax purposes.

The previous CIT law limited representation expenses to only 50% of amounts invoiced and not exceeding 2% of gross annual income.

Bad debt expenses

[Amendment] Bad debt expenses are allowable if the below conditions are fulfilled:

  • Payment has not been received in whole or in part and declared uncollectable by initiating court procedures;
  • The debt is at least 6 months overdue
  • Amount that corresponds to debt has previously been included in income
  • There is no dispute on the legal validity of the debt
  • There is sufficient evidence that substantial attempts were made to collect such debt

Taxpayers must issue 'bad debt' invoices and for bad debts in amounts up to EUR 500, no initiation of legal procedures is required. Deductions for bad debt are made only for the amount uncollected. In case of collection, the amount received must be included in income of the tax period of collection.

Uncollected amounts are not considered bad debt if:

  • Transactions with the same debtor have been recurring after recognizing bad debt, except for public services
  • Bad debt is between related parties;
  • There is insufficient evidence that substantial efforts have been made to collect the debt, applicable action to optimize the debt collection.
  • The debt is 24 months or more overdue

In the case of banks, foreign bank branches and non-banking financial entities, write-off of bad debt is recognized as deductible if the following conditions are met:

  • 365 days following the submission of the request to commence proceedings with the executor, in cases where loans have been secured with personal or real estate
  • 365 days following the issuance of a court order for execution, in cases where loans have not been secured with personal or real estate

The previous CIT law did not foresee the EUR 500 threshold under which no initiation of court proceedings is required, as well as the 24 months statute of limitations and the recognition of bad debt for financial institutions.

Payments to related persons

[Amendment] Compensation or emoluments, interest, rent and other expenses paid to a related person are allowed as an expense in an amount equal to the market value.

The previous CIT law recognized expenses made as a result of related -party transactions in an amount equal to the minimum actual payment or the open market value.

Depreciation

[Amendment] Assets with a purchase price up to EUR 1,000 are allowed as a current expense, except when such assets function as part of one entirety and the value of such entirety is over EUR 1,000.

The previous CIT law did not provide the above exception when such assets function as part of an entirety.

Special allowance for new assets

[Amendment] The special allowance of 10% for the purchase of new assets or assets put into use in Kosovo for the first time is no longer constrained by economic activity previously limited from 2010 to 2012.

Amortization

[Addition] In cases when the useful life of an intangible asset is not determined, amortization expenses are allowed up to 20 years.

Tax losses

[Amendment] Tax loss carry forwards are decreased from 7 to 6 years.

Withholding tax on emoluments, pensions, interest, royalties and rents, lottery wins and gambling

[Amendment] Every employer is responsible of withholding tax from taxable salaries paid to his/her employees, including payments to non-business natural persons, for professional, technical, management, and financial services, payments for service contracts, actors' plays, musicians, athletes, agents etc.

In the previous CIT legislation, withholding tax on payments to non-business natural persons was not foreseen.

[Addition] Pensions paid from, or in the interest of Kosovo Pension Savings Fund or other fund as well as health insurance according to the Law on Health Insurance, will be subject to withholding tax by the payer of such pensions or health insurance in the rates foreseen by the applicable PIT legislation.

Withholding tax for special categories

[Addition] Each taxpayer making payments to non-business natural persons, farmers, agriculturists, collectors of recycled materials, fruits, plants and similar, is obliged to withhold tax at 3% of the gross payment made at the time of payment.

Withholding tax on certain payments for non-residents

[Amendment] Income earned by contracts or agreements, both written and oral, with persons or entities in Kosovo by a non-resident person or entity from services carried out in Kosovo is subject to withholding tax by the payer of the income at a rate of 5%, as long as the non-resident person or entity has no permanent establishment in Kosovo.

The previous CIT law required the application of such withholding tax only on payments to non-residents exceeding EUR 5,000 in any tax period.

Tax payments

[Addition] If taxpayers with annual gross income up to EUR 50,000 do not earn any income in a given quarter, no payment is required but the taxpayer will still be required to submit the quarterly instalment declaration.

[Amendment] Taxpayers will not be subject to any penalties or interest for quarterly payments of corporate income tax if the difference between the amount due in each instalment and the amount paid for each instalment is not greater than 20% of the actual amount due, or if after the taxpayer's first tax period, the amount paid in each instalment is at least 10% higher than 1/4th of the tax liability of the preceding tax period.

For taxpayers in their first tax period as a business, no penalties or interest will apply if the amount of quarterly advance payments, including the 4th quarter, is above 80% of the final tax liability for that period.

The previous CIT law provided for a difference of only 10% and quarterly advance payments above 90% of the final tax liability, respectively.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.