Israel – Kosovo Tax Treaty

Business activity in Kosovo

Kosovo offers an attractive environment for business with its straightforward and efficient tax system. Notably, the corporate tax stands at a competitive rate (10%), and the value-added tax (VAT) is set at 18%. Despite not being a member of the Eurozone, Kosovo utilizes the euro as its local currency, simplifying financial transactions.

The country’s strategic location facilitates easy access to neighboring nations such as Montenegro, Albania, Macedonia, and Serbia, fostering regional trade. With a predominantly young and multilingual workforce, including proficiency in English and German, businesses benefit from effective communication and skilled talent. Approximately half of Kosovo’s population is under 30 years old, providing a dynamic and vibrant workforce.

Registering a business in Kosovo is a streamlined process, applicable to both local and foreign companies, following a standardized approach. The success of business investment programs is bolstered by strong institutional support from various non-governmental and private organizations, contributing to a favorable and supportive business ecosystem in Kosovo.

For more information on business activity in Kosovo – click here

Bilateral agreements between Kosovo and Israel

Kosovo and Israel have only a Diplomatic Agreement at the moment.

Residency for tax purposes in Kosovo

Residence of an individual

A resident is an individual who either has their primary residence in Kosovo or stays physically present in Kosovo for 183 days or more during any 12-month period.

Regarding the tax obligations of non-residents employed in Kosovo, the following applies:

Double Taxation Agreements (DTAs) in Force: If a DTA exists with the non-resident’s country, taxation aligns with the specific agreement.

Factors considered include the duration of employment (under 183 days, taxed in the country of residence), and the nature of services (repetitive or one-time). If the non-resident exceeds the 183-day limit, the engaging company must declare and pay taxes based on the employment or service contract. For tax payment proof, a tax certificate is issued by TAK (Tax Administration of Kosovo).

To read about how an individual is considered a resident of Israel, click here.

Residency of a company

Based on Kosovo legislation, a legal entity is considered to be resident in Kosovo if it has its head office or its place of effective management in Kosovo.

To learn about how a company is considered a resident of Israel, click here.

The tax system in Kosovo

The Kosovo Tax Authority is called Tax Administration of  Kosovo (ATK).

Click here for the official website of the Kosovo tax authority.

Income taxation: 0%; 4%; 8% and 10%

Taxation of companies and branches: 3%, 9%, 10%

VAT: 8%, 18%

Capital gains tax: 10%

Withholding Tax

Inheritance tax and estate tax in Kosovo

In Kosovo, inheritance involves the transfer of an individual’s property through legal or testamentary means to heirs or legatees, governed by existing laws. Equality is emphasized, extending inheritance rights to all individuals, including children born out of wedlock and adopted children, under specified conditions.

Foreigners in Kosovo enjoy equal inheritance rights, presumed under reciprocity. For heirs beyond the specified categories, inheriting amounts exceeding EUR 5,000 triggers Personal Income Tax (PIT) rates ranging from 0% to 10%.

Monetary or in-kind gifts exceeding EUR 5,000 received by residents are considered taxable income. However, gifts between spouses and certain familial relations remain exempt from income tax.

This concise overview sheds light on the legal framework, offering clarity on inheritance and estate tax regulations in Kosovo, ensuring a better understanding of asset transfers and taxable gifts in the jurisdiction.

For more information on Inheritance tax and estate tax in Kosovo – click here

Relocation to Kosovo

Today, a small Jewish community of around 50 members persists in Prizren (Kosovo), while remnants of Jewish heritage, such as two cemeteries in the capital Priština, mark the historical presence, with the last synagogue in Priština demolished during urban renewal in 1963.

Kosovo’s rapidly expanding economy and its adherence to market-oriented principles render it an increasingly alluring prospect for businesses contemplating relocation. Situated in the Western Balkans, the nation boasts a liberal trade regime that champions free competition and open markets. Noteworthy is Kosovo’s concerted effort to modernize and elevate its energy sector, with collaborative initiatives involving esteemed development partners such as USAID, the European Commission, World Bank, and others. Weathering the euro crisis adeptly, Kosovo exhibits sustained high growth rates, robust fiscal fundamentals, and a resilient banking sector, collectively establishing it as an appealing investment destination.

Complementing its economic vigor, Kosovo has instituted substantial enhancements to its business climate. Entrepreneurs stand to benefit from a streamlined business registration process, requiring a mere three days for completion. The establishment of a comprehensive one-stop shop for business registration, seamlessly integrating tax and business registration services, contributes to the simplification of administrative procedures. Notably, the average duration to initiate a business witnessed a reduction of six days in 2011, underscoring the government’s commitment to expeditious and efficient business setups. Legislative reforms mandating the Business Registration Agency to process essential documents within a three-day timeframe signify Kosovo’s unwavering dedication to fostering an environment conducive to investment. Concurrently, amendments to laws governing business organizations reflect a commitment to augmenting minority investor protection, thereby fortifying Kosovo’s position as a secure and attractive destination for businesses contemplating relocation.

Real estate taxation in Kosovo

Kosovo’s real estate taxation framework encompasses a comprehensive definition of immovable property, including land, buildings, subterranean structures, and above-ground constructions connected to the earth. The responsibility for property tax payment lies primarily with the property owner. However, in cases where ownership cannot be determined or located, the taxpayer becomes the natural or legal person utilizing the property. Notably, if the rightful owner or legal user cannot be ascertained, or even if identified, lacks access to the property, the taxpayer becomes the individual or entity utilizing the property.

For each tax year, the market value of the property on December 31 of the previous year determines the tax calculation. Municipal assemblies in Kosovo annually establish property tax rates, ranging from 0.05% to 1% of the property’s market value.

Several entities enjoy exemptions from property tax, including government institutions, the United Nations, multinational forces like KFOR, diplomatic missions, accredited consulates, non-governmental organizations with mutual public benefit status, religious institutions for exclusive religious purposes, and protected cultural and historical monuments.

However, it’s essential to note that exemptions do not extend to owners of immovable property, with certain exceptions. Moreover, exemptions do not apply if the property is used for commercial activities or income generation. In the case of non-governmental organizations with public benefit status, the exemption holds only if the property is exclusively used for public benefit purposes.

Transfer of funds from Israel to Kosovo

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities Kosovo

1. Individual business
2. Partnership “SH.K.M”
3. Limited Partnership “O.P”
4. Limited liability companies “SH.P.K”
5. Joint-stock companies “SH.A”
6. Foreign Commercial Company “Kosovo Branch

To read about the necessary documentation that should be provided regarding each type of business activity that is to opened, please click here.

Incentive laws in Kosovo

Kosovo’s tax framework offers several incentives aimed at fostering economic growth and supporting businesses. Notably, taxpayers earning income from foreign sources can claim a tax credit for the amount paid abroad, or up to the applicable Kosovo income tax rate, providing relief even in the absence of a Double Taxation Treaty (DTT) with the respective country. The Law on Economic Recovery introduces a temporary Value Added Tax (VAT) exemption until December 31, 2028, for raw materials produced by registered businesses, whether for export or domestic trade.

Additionally, the importation of manufacturing equipment and raw materials used in production processes is VAT-exempt, further incentivizing industrial development. Furthermore, dividends received by residents and non-residents are entirely tax-exempt. For personal business enterprise taxpayers investing in new heavy machinery, there is an extra one-time 10% deduction for Personal Income Tax (PIT) purposes when the machinery is first put into use in Kosovo.

However, it’s important to note that taxpayers benefiting from other tax breaks or incentives do not qualify for this specific 10% deduction on newly purchased and utilized assets. These incentives collectively contribute to a favorable environment for investment and business expansion in Kosovo.

Double Tax Treaties – Kosovo