After three years of hiccups, Competition Authority members have been selected and are ready to assume their positions and begin work. Due to the lack of a decision-making body, no decisions have been issued or investigations conducted by the authority since 2013. The authority is one of the youngest of its kind in the region and thus has a significant lack of practice providing guidance on how competition rules should be implemented.
The Central Bank of Kosovo has approved the Regulation on Mortgage Lending, which establishes requirements and standards for mortgage loans. The regulation will soon enter into force and will apply to all credit-issuing financial institutions licensed by the Central Bank. Financial institutions must establish policies regarding mortgage loans which incorporate the requirements set out in the regulation.
Parliament has adopted the Law on Anti-dumping and Countervailing Measures in order to comply fully with international practice in the field. The new law sets out the rules and procedures for imposing anti-dumping measures on imports that are subject to dumping and countervailing measures to protect local industry and national interests.
The government recently approved Administrative Instruction 4/2014, which defines the travel expenses imposed on transporting imported goods. The instruction aims to avoid the disparity between the import of goods and their clearance at Customs and to establish transport costs. The instruction also sets out specific guidelines and rules for road, maritime, railway and air transport.
Kosovo has made significant progress on the road to economic development and prosperity. However, it is still an underdeveloped country, rated as a large-scale informal economy. This makes Kosovo vulnerable to corruption and terrorist activity. Law 03/196 sets out the measures and procedures to prevent money laundering and terrorist financing.
Amendments to the Competition Act have introduced some significant changes in competition policy, focusing primarily on merger control. The changes include the lowering of the worldwide jurisdictional threshold for a mandatory merger filing and the introduction of a fine for responsible individuals in an infringing company.
The Kosovo Parliament recently passed a new Law on Economic Zones, which replaces the previous Law on Economic Zones. Economic zones aim to stimulate and encourage investment, attract private investment, promote economic development, create job opportunities and generate income, and increase competition between businesses.
Parliament has approved the Law on Customs Measures for Protection of IP Rights and its administrative instruction, which determine the procedures and measures that Customs must undertake when goods are suspected of or found to infringe IP rights. This legislation provides the rights and obligations of the rights holder in cases when goods are found to infringe IP rights.
In Kosovo, excise tax is governed by the Customs and Excise Code. It is levied on products released for consumption in Kosovo and is controlled and managed by Customs. Under the code, certain products are exempt from excise tax and certain organisations and entities enjoy relief from such tax.
The Law on Safeguarding Measures on Imports sets out the principles and procedures relating to the application of safeguarding measures where a product being imported into Kosovo in large quantities may cause or threaten to cause serious damage to local producers of similar or identical goods, or may cause irregularities that could damage the economic status of the relevant sector in Kosovo.
Under the Customs and Excise Law, in certain circumstances goods may be exported or released into circulation in Kosovo free of export or import duties, respectively. Although the law contains detailed provisions setting out the conditions for such exemptions, taxpayers still often raise complaints towards the customs authorities, especially as regards exemptions for goods in the process of importation.
Parties which import goods into Kosovo must observe the rules and methods laid down in the Customs and Excise Code in order to calculate customs duties. Duties are calculated based on the customs value of imported goods according to the Harmonised Commodity Description and Coding System, as advocated by the World Customs Organisation. A 10% customs tariff is added to the customs value of the imported goods.
There is little practice with regard to the tax treatment of bad debts in Kosovo. The Corporate Income Tax Law provides for expenses that are either non-deductible for tax purposes or deductible under certain conditions or within certain limits. Bad debts fall into the second category. Bad debts are tax deductible when certain cumulative conditions are met.
Many foreign legal entities that do business in Kosovo may wish to establish a representative office in the jurisdiction. However, the lack of legislative provisions on representative offices, and the strict interpretation of provisions on branches and permanent establishments by the Kosovo Tax Administration, have created confusion among foreign entities regarding the status of such offices.
In the past few years, Kosovo and several European countries have enacted double taxation treaties that were signed by the former Yugoslavia. The president of Kosovo has signed the respective decrees for the approval of these agreements, including agreements with the United Kingdom, Germany and Belgium.
Since September 2011, accounting, financial reporting requirements, audit requirements, qualifications for professional accountants, licensing of individual auditors and audit firms in Kosovo have been governed by new legislation. The new law has also established the Financial Reporting Council – a body that is similar to the Board on Standards for Financial Reporting.
When related persons are transacting with each other, they must take into consideration Article 27 of the Corporate Income Tax Law, which deals with transfer pricing. The price applied by them will be examined by the tax authorities; therefore, in order to avoid reassessments and penalties, the legal requirements must be fulfilled.
The Corporate Income Tax Law, which recently entered into force, has introduced for the first time a withholding tax on certain payments made to non-resident taxpayers. Previously, the legislation did not provide clear provisions for the taxation of non-residents without a permanent establishment in Kosovo that rendered services in Kosovo. The interpretations of the tax authorities were thus inconsistent.
The Ministry of Economy and Finance has issued an administrative instruction providing further details and clarifications regarding the deductibility of taxable income and expenses for the purposes of calculating corporate income tax. The instruction sets down three methods to be used to determine the cost of goods, and makes provision for taxpayers engaged in long-term construction contracts.
Over the past few years the corporate income tax legislation has been amended several times. It is now governed by the Corporate Income Tax Law. In terms of company taxation, the law sets a corporate income tax rate of 10% of the taxable profit. In regard to cross-border taxation, it states that tax paid by Kosovo residents for business activities abroad should be considered as a tax credit in Kosovo.