Kosovo’s tax system is based on a comprehensive framework that includes tax treaties, laws, and administrative guidelines related to corporate income tax rules. A country’s tax rates can attract investments because lower taxes mean higher profits for businesses. In this regard, Kosovo’s very low taxes make it an ideal place for investment. This article will offer a summary of the most important information regarding the corporate income tax rate in Kosovo.
Corporate Tax Residency in Kosovo
A legal entity is considered a resident in Kosovo for tax purposes if its main office or effective management is in Kosovo. A Permanent Establishment arises if a business operates in Kosovo through a fixed location for over six months in a 12-month period, including places like offices, factories, or natural resource sites. Construction or project sites also create a permanent establishment Kosovo within a year and they are subject to local tax rules.
Income Determination
In Kosovo, corporate income tax follows the principle of worldwide taxation. Subject of corporate income tax include corporations, other legal entities, business organizations operating with public/state-owned assets, and non-resident individuals with a permanent establishment in Kosovo. Residents are typically taxed on both foreign and domestic income, while non-residents are usually taxed solely on their income derived from Kosovo.
Corporate Income tax rate
The corporate income tax in Kosovo is 10%. Small businesses with a gross annual income under EUR 30,000 are exempt from corporate income tax but must make quarterly tax payments on their gross receipts, with rates varying by activity type 3% for trade and similar activities, 9% for services, and 10% for rent income.
Capital gains are taxed at the standard 10% corporate income tax rate. Dividend income is tax-exempt, while interest, rental, and royalty incomes are taxed at rates of 10%, 9%, and 10% respectively. Partnerships are not directly taxed; instead, individual partners are taxed on their share of income at the standard corporate income tax rate.
Resident corporations are taxed on worldwide income, with a tax credit available to avoid double taxation under Double Tax Treaties (DTTs). Withholding taxes (WHT) apply to payments like rent, interest, and royalties at rates up to 10%, and services from non-residents at 5%, with some exceptions based on DTTs. There is no WHT on dividends, and branch income is taxed similarly to other legal entities in Kosovo.
Tax Credits and Incentives
Kosovo offers a variety of tax incentives and credits designed to promote economic activity and investment. Dividends, both for residents and non-residents, are free from taxation, encouraging investment by ensuring investors can retain more of their earnings. For companies investing in new heavy machinery, there’s a substantial incentive in the form of a 10% deduction on corporate income tax for these assets when they are first used in Kosovo, although this is not available to those already benefiting from other tax incentives.
The country supports contributions toward sports, youth, and cultural activities by offering a corporate income tax credit of up to 30% for sports sponsorships and up to 20% for youth and culture contributions, demonstrating its commitment to societal development. Kosovo also provides a foreign tax credit to prevent double taxation on income earned abroad, offering a credit up to the amount of tax paid in the foreign country or the Kosovo income tax rate, whichever is lower.
These tax measures reflect Kosovo’s strategic approach to stimulate economic growth, attract foreign and domestic investment, and support important social sectors. Before deciding to invest in Kosovo, companies should understand the country’s legal, financial, and tax system. Our firm brings a wealth of knowledge and experience in international taxation. We invite you to get in touch with us for an introductory meeting, where we can explore how we can assist you in navigating these complexities.
