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Republika e Kosovës
Republika Kosovo -Republic of Kosovo
Kuvendi – Skupština – Assembly

LAW Nr.03/L -161

ON PERSONAL INCOME TAX

Assembly of Republic of Kosovo,

In conformity with the Article 65.1 of the Constitution of the Republic of Kosovo,

Adopts :

LAW ON PERSONAL INCOME TAX

CHAPTER I

GENERAL PROVISIONS

Article 1
Purpose

This Law sets the system of Personal Income Tax in the territory of the Republic of
Kosovo.

Article 2
Definitions

1. Terms used in this Law have the following meani ng

1.1 Economic activity – any activity of producers, traders or persons supplying
goods or services including mining and agricultural activities and activities of the
professions. The exploitation of tangible or intangible property for the purposes of

2
ob taining income there from on a continuing basis shall in particular be regarded
as an economic activity;

1.2 Capital Asse ts – tangible and intangible property that costs more than one
thousand (1,000) €, with the time of use of one or more years;

1.3 Intangible property – patents, copyrights, licenses, franchises and other
property that consists of rights only, but has no physical form.

1.4 Dividend – a distribution by a company to a shareholder:

1.4.1 Of cash or share with respect to the shareholder‟s equity interest in
the company; and

1.4.2 Of p roperty other than cash or share , unless such property is
distributed as a result of liquidation;

1.5 Employee – natural person, who performs work for wages under the direction
and control of an employer, regardless of whether the work is performed under a
contract, or any other form of agreement, whether in writing or not.

1.6 Self -employed person – any natural person who works for personal gain, i n
cash or in goods, that is not covered by the definition of an employee under the
present law. A self -employed person includes a personal business enterprise and a
partner engaged in a n economic activity .

1.7 Employer – any person or entity that pays wages among others:

1.7.1 A public authority;

1.7.2 A permanent establishment of a non -resident
person;

1.7.3 A non -governmental organization;

1.7.4 An international organization, including KFOR, with the exception
of the United Nations, its Special ized Agencies and the International
Atomic Energy Agency;

1.8 Principal employer – the employer designated by the employee as such at a
time and in the manner set out in a sub -legal act issued by the Minister;

1.9 Wages –financial and other kinds of com pensation, including goods, bonuses,
favors, services, or barter, paid in connection with employment in Kosovo.

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1.10 Taxable Wages – wages paid per Article 9.1 of this law , discounting those
amounts excluded from gross income from wages per Articles 9.2 a nd 9.3 of this
law.

1.11 Foreign source income – gross income that is not Kosovo source income;

1.12 Kosovo source income – gross income that arises in Kosovo, as follows:

1.12.1 Wages from work performed in Kosovo;

1.12.2 Income f rom economic acti vities where such activity is developed
in Kosovo;

1.12.3 Inco me from the use of movable or immovable property in Kosovo ;

1.12.4 Inco me from the use of intangible property in Kosovo;

1.12.5 Interest on a debt obligation paid by a resident or a public a uthority;

1.12.6 Dividends paid by a resident business organization;

1.12.7 Gain from the sale of movable and immovable property, or
securities located in Kosovo; and

1.12.8 Other income not included above .

1.13 Person – for purposes of this law shall include the following:

1.13.1 a natural person,

1.13.2 a l egal person, which in a general term means any organization,
including any business organization that has, as a matter of law, a legal
identity that is separate and distinct from its members, owners or
shareholders, such as, but is not limited to, joint stock company and
limited liability company;

1.13.3 A partnership, which means a general partnership, a limited
partnership or similar pass -through arrangement that is not a legal per son
and that proportionately shares items of capital, income, and loss among
its partners; and

1.13.4 A grouping or association of persons, including consortiums, but
excluding partnerships, set up for a common purpose of a s pecific
economic activity. A n association is two or more individuals, companies ,
organizations or governments (or any combination of these entities) with
the o bjective of participating in a common activity or pooling their

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resources for achieving a common goal. Each participant retai ns its
separate legal status and the association‟s control over each participant is
generally limited to activities involving the joint endeavor, particularly the
division of profits. An association is formed by contract , which delineates
the rights and obligations of each member;

1.14 Entity – a corporation or other business organization that has the status of a
legal person, a business organization operating with public and socially owne d
assets, a non -governmental organization registered in conformance with
legislation on Registration and Operation of Non -Governmental Organizations in
Kosovo, and a permanent establishment of a non -resident. The term entity does
not include a personal bus iness enterprise, grouping or association of persons, or a
partnership;

1.15 Personal business enterprise – a natural person engaged in business who is
not an agent or employee of another economic activity ;

1.16 Public authority – a central, regional, m unicipal, or local authority, public
body, ministry, department, or other authority that exercises public executive,
legislative, regulatory, administrative or judicial power;

1.17 Permanent Establishment -a fixed place of business through which the
busin ess of a non -resident person is wholly or partly carried on in Kosovo, as
described “in Article 35 of this Law.”

1.18 Related person s – persons that have a special relationship that may
materially influence the economic results of transactions between the m. Special
relationship is considered when :

1.18.1 The persons are officers or directors of one another‟s business;

1.18.2 The persons are partners in business;

1.18.3 The pers ons are in an employer -employee relationship;

1.18.4 One pers on ho lds or controls fifty percent ( 50% ) or more of the
shares or voting rights in the other legal person

1.18.5 One person directly or indirectly controls the other person;

1.18.6 Both pers ons are directly or indirectly controlled by a third pers on;
or

1.18.7 The persons a re husband or wife or relatives to the third degree
inclusive or in – law to the second degree inclusive;

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1.19 Open Market value – that amount that, in order to obtain the goods or
services in question at that time, a customer at the same market stage at which the
supply of the same or similar goods or services takes place, would have to pay,
under conditions of fair competition, to a supplier at arm‟s length;

1.20 Resident – A natural person who has a principal residence in Ko sovo, or is
physically present in Kosovo for 183 days or more in any twelve -month period of
time; or an entity, personal business enterprise, partnership, or association of
persons which is established in Kosovo or has its place of effective management
in Kosovo.

1.21 Main residence – also known as “Permanent residence”, – a place where a
natural person has his/her usual place of residence or lives permanently; the place
where the natural person is subject to income tax for the reason of residence or
dwell ing

1.22 Non -resident – any person or entity that is not a resident;

1.23 Representation costs – all costs related to promotion of the busine ss and
include business entertainment and representation costs ;

1.24 Involuntary conversion – property, in whol e or in part, that is destroyed,
stolen, seized, or condemned, or the taxpayer is otherwise forced to dispose of it
by reaso n of threat or imminence mentioned before ;

1.25 Immovable property – for tax purposes, all the land and buildings or
structures und er and above la nd surface and related to the land, including the
property that is additive (subsidiary) to immovable property; the rights to which
there are applied the provisions of the general Law which respects land property;
usufruct of the immovable p roperty; and the rights to variable payments and fixed
as consideration for working ,or the right to work, the mineral source, sources and
other natural reserves.

1.26 Royalty – payment of any kind received as a consideration for the use of, or
the right to use, any copyright of literary, artistic, or scientific work including
cinematograph films, and patent, trade mark, design or model plan, secret formula
or process, or for information concerning industrial, commercial or scientific
experience.

1.27 Sub contractor – any person performing a part of a comprehensive project
which has been undertaken by a prime contractor. The subcontractor is directly
engaged in the execution and realization of the comprehensive project and acts on
behalf of the prime contr actor. The period spent by a subcontractor working on a
comprehensive project is considered as being time spent by a prime contractor on
the project.

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1.28 Prime Contractor/ Contractor – any business, whether an organization or
indi vidual, which has agree d to car ry out operations under any legal binding
document signed by the beneficiary, either by doing the operations itself or by
arranging for them to be done by others

1.29 Constructive acceptance – for taxpayers with base in cash, that the income
are a ccepted in a constructive way when they have been disposed for taxpayers
without substantial restrictions, as credit in his amount, are put alongside for him,
or otherwise they have been disposed in that way that he can withdraw them every
time, or in that way that he could withdraw them during the taxable year if there
has been given the notification for the purpose of withdrawal.

1.30 Benefits in nature (also known as Benefits in things) – various
compensations not given with wage of the employees, excep t their normal wage.
Given into goods, items or services than in cash.

1.31 Tax period – calendar year or every other period of the reporting, foreseen
by this Law .

1.32 Financial evidences – financial evidences with general purposes prepared
in accorda nce with the legislation that regulates Kosovo Board on Standards for
Financial reporting and legislation that regulates financial reporting of business
organizations ( trading company);

1.33 KTA – Kosovo Tax Administration

1.34 Minister – Minister of th e Ministry of Economy and Finance

1.35 Kosovo – shall include all the land, inland waters and airspace of Kosovo, as
defined by the Constitution of the Republic of Kosovo .

1.36 Oper ating leasing – every leasing that is not a financial leasing.

1.37 Fina ncial leasing – a leasing that transfers, in a substantial way, all casual
risks and rewards for the ownership of a property item. The title can or can not be
transferred to the end of leasing. A financial leasing fulfills one of the four
following conditi ons:

1.37 .1 if the longevity of the leasing exceeds seventy -five percent ( 75% )
of the longevity of the property

1.37 .2 if there exists a transfer of ownership in the leasing -receiver at the
end of leasing term

1.37 .3 if there exists a possibility to pur chase the property in an “ agreed
prize” at the end of leasing term

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1.37 .4 if the a ctual value of leasing payments, decreased in an adequate
decrease rate , exceeds ninety percent (90% ) of the open market value for
property.

Article 3
Taxpayers

Accord ing to this law taxpayers are resident and non -resident natural persons, personal
business enterprise, partnerships, or associations of persons who receive or accrue gross
income described in Article 7 of this Law during the tax period.

Article 4
Object of taxation

1. The object of taxation for a resident taxpayer shall be taxable income from Kosovo
source income and foreign source income.

2. The object of taxation for a non -resident taxpayer shall be taxable income from
Kosovo source income.

Artic le 5
Taxable income

Taxable income for a tax period shall mean the difference between gross income received
or accrued during the tax period and the deductions allowable under the present law with
respect to such gross income.

Article 6
Tax rates

1. For taxable income in tax period that begins on 1 January 2009 and following tax
periods, personal income tax shall be charged at the following rates:

1.1. For taxable income 960 euro or less, zero percent (0%);
1.2. For taxable income over nine hund red and sixty ( 960 ) € up to three thousand
(3.000 ) euro, including also the amount of three thousand (3.000 ) €, four percent
(4%) of the amount over nine hundred and sixty ( 960 ) €;

1.3. For taxable income over three thousand ( 3.000 ) € up to five thousand and
four hundred ( 5.400 ) €, including also the amount of five thousand and four

8
hundred (5.400 ) €, eighty -one euros and sixty cents ( €81.6 ) plus eight percent
(8%) of the amount over three thousand (3.000 ) €; and

1.4. For taxable income over five thousand and four hundred (5.400 ) €, two
hundred and seventy -three euros and sixty cents ( €273.6 ) plus ten percent (10%)
of the amount over five thousand and four hundred ( 5.400 ) €.

2. For income t axable in tax periods prior to 1 January, 2009, income is taxed at the
following ra tes;

2.1. For taxable income nine hundred and sixty ( 960 ) € or less, zero percent (0%);

2.2. For taxable income over nine hundred and sixty ( 960 ) euro up to three
thousand ( 3.000 ) €, including also the amount of three thousand (3.000 ) €, five
percent (5 %) of the amount over nine hundred and sixty ( 960 ) €;

2.3. For taxab le income over three thousand ( 3.000 ) € up to five thousand and
four hundred ( 5.400 ) €, including also the amount of five thousand and four
hundred ( 5.400 ) €, one hundred and two ( 102 ) € plus ten percent (10%) of the
amount over three thousand ( 3.000 ) €; and

2.4. For taxable income over five thousand and four hundred ( 5.400 ) €, three
hundred and forty -two (342 ) € plus twenty percent (20%) of the amount over five
thousand and four hundred (5.400 ) €.

Article 7
Gross income

1. Except for income that is exempted under the present law, gross income means all
income actually or constructively received from the following sources:

1.1. Wages

1.2. Rents

1.3. The use of inta ngible property

1.4. Interest, except interest which is exempted under this law

1.5. Replacement income, such as that mentioned in Article 8.1.8 of this Law;

1.6. Capital Gains resulting from an increase or decrease in the value of shares

1.7. Capital Gain s resulting from an installment sale of a capital asset

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1.8. Lottery Winnings and, in accordance with Article 49, winnings in Games of
Chances.

1.9. Pensions paid by a p revious employer, or according to the Law on Pensions
in Kosovo

1.10. Economic activity generated by businesses with annual gross income of
fifty thousand euros ( 50,000 ) € or less unless those businesses have opted to
maintain books and records required in Article 33 of this law .

2. Except as p rovided in parag raph 1 of this A rticle, gross income also means all income
accrued from the following sources:

2.1. Economic activity

2.2.Capital Gains, except those Capital Gains described in paragraph 1 of this
Article

2.3.Any oth er income not described in th e s ub -law act issued by the Minister.

Article 8
Exempt income

1. The following income shall be exempt from personal income tax:

1.1.Wages of foreign diplomatic and consular representatives and foreign
personnel of Embassies and foreign Liaison Office s in Kosovo, as defined in
applicable legislation on the establishment and functioning of liaison offices and
diplomatic services in Kosovo;

1.2.Wages of f oreign representatives, foreign officials and foreign employees of
international governmental o rga nizations and international non -governmental
organizations that have regis tered in accordance with applicable legislation in
Kosovo and have received and maintained public benefit status under such
legislation;

1.3 Wages of f oreign representatives, foreign officials and foreign employees of
donor agencies or their contractors or grantees carrying out humanitarian aid,
reconstruction work, civil administration or technical assistance within
Kosovo;

1.4. Wages received by foreign and locally – rec ruited officials of the United
Nations and its Specialized Agencies, and the International Atomic Energy
Agency, which according to the present law shall include foreign and locally
recruited UNMIK personnel as defined in legislation regarding the Status ,

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Privileges and Immunities of KFOR and UNMIK and t heir Personnel in Kosovo.
The same exemption shall apply to entitled and duly authorized international
inter -governmental financial institutions operating in Kosovo .

1.5.Wages of foreign personnel of KFOR; ICO and EULEX.

1.6. Compensation for the damage or destruction of property;

1.7. Proceeds of life insurance policies payable as the result of the death of the
insured person;

1.8. Reimbursement or compensation fo r medical treatmen t and expenses,
including hospitalization a nd medication, other than wages paid during the
periods of absence from work due to sickness or injury;

1.9. Interest on financi al instruments which are issued or guaranteed by a public
authority of Kosovo pai d to resident or non -resident taxpayers;

1.10. Income of a prime contractor or a subcontractor, other than a local person,
generated from contracts for the supply of goods and services to the United
Nations (including UNMIK), the Specialized Agencies of the United Nations,
KF OR and the International Atomic Agency that are directly engaged in projects
and programs of the organizations mentioned before;

1.11. Income of a prime contractor or a subcontractor but other than a local
person, genera ted from contracts with foreign governments, their organs and
agencies, the European Union, the Specialized Agencies of the European Union;
the World Bank, the IMF and international inter -governmental organizations for
the supply of goods and services in support of programs and projects for Kosovo.

1.12. Dividends received by resident and non -resident taxpayers;

1.13. Wins from games of chance, except lottery winnings in accordance with the
provisions of Article 49 of this Law ;

1.14. Pensions an d social welfare payments paid by the Government;

1.15. Assets received, or value of assets received, as a result of inheritance;

1.16. Education al expenses paid by an employer on behalf of an employee
provided that such expenses are paid directly to an edu cational institution that is
recognized in accordance with the applicable law in Kosovo and provided that
onwards the employee to remain emp loyed at the employer for at le ast twenty –
four (24) months after the termination of the education for which the expe nses are
paid by the employer.

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1.17. Scholarshi ps received by an individual to attend an institution of higher
learning, trade school, or vo cational school, so long as the scholarship is paid
directly to the institution and no part of the scholarship is r efundable to the
student;

1.18. Training expenses paid by an employer for an employee to attend formal
training programs to acquire basic sk ills necessary for the employee to perform
assigned tasks or necessary to provide updated skills to the employ ee which are
job -related so long as such expen ses do not exceed one thousand euros ( € 1,000)
in that tax period.

1.19 Expenses in excess of one thousand euros (1,000 ) € in any tax period shall be
considered taxable income to the employee and subject to withholding in
accordan ce with the provisions of this L aw.

1.20 Expenses for subsist ence while attending a formal training program shall be
allowable up to a maximum established by the Minister in a sub -legal act.

1.21 Such sub -legal act shall also specify what kind of training expenses qualify
for this exemption. Training expenses for this sub -paragraph will not include
amounts equival ent to wages and salaries which are p aid to beginners or
apprentices .

CHAPTER II

EMPLOYMENT INCOME

Article 9
Income from wages

1. Gross income from wages shall include:

1.1. Salaries paid on be half of an employer for work that the employee does
under the direction of the manager or employer;

1.2. Bonuses, commissions, and other forms of compensation that an employer or
some other person , on behalf of the employer, pays to employees over and abo ve
salary;

1.3. Income from temporary work performed by an employee;

1.4. Income from p rospective employment, such as signing of a salary bonus;

1.5. Health and life insurance premiums that an employer pays for the employee;

12

1.6. Forgi veness of an employee‟s debt or obligation to the employer;

1.7. Payment of an employee‟s personal expenses by an employer ; and

1.8 Except as othe rwise provided in the present Law, benefits in things given by
an employer to an employee that exce ed the minimum amount determined in a
sub -legal act issued by the Minister.

2. Gross income from wages shall not include:

2.1. Reimbursement of actual business travel expenses up to the amounts to be
sp ecified in a sub -legal act issued by the Minister;

2.2. Indemnity for accidents at work ; and

2.3. B enefits in goods given by employers to foreign employees to facilitate their
living in Kosovo, such as housing and school tuition.

2.4. Gains in kind in form of meal provided by the employer to emp loyee,
exempting the compensation in money.

2.5. Rei mbursement, limited in less than the cost of public transportation or 0.16
Euro/KM, for the expenses in-and -out for the employees, whose distance of in –
and -out from their main residence to the regular wo rking place is longer than
twenty ( 20 ) kilometers .

2.6. Benefits in nature that are given to employees in the form of public transport
tickets limited in transportation on public authorized transport from the main
residence of the employees to the regula r working place. Benefits in nature can be
given to the employees whose distance of in -and -out from their main residence to
the regular working place is longer than one ( 1) kilometer .

2.7. Such reimbursement or giving of the benefits in nature shall not b e
considered as business deducte d expenses by any donator of such reimbursement
or benefits in nature, an even they will not be deducted as expense of any kind.

2.8. The Minister wil l issue a sub -legal act in order to determine the requests of
reporting r egarding the giving of reimbursement or benefits in nature allowed by
sub -paragraphs 2.5 and 2.6.

3. With respect to pension contributions, gross income shall include:

3.1. Contributions made by an employer on behalf of an employee to the
Individu al Savings Pension system, a supp lementary employer pension fund and

13
a supplementary individual pension scheme under legislation on Kosovo Pension
Savings Trust; and

3.2.Contributions made by an employee to the Individual Savings Pension system,
a supplem entary employer pension fund and a supplementary i ndividual pension
scheme under legislation on savings pension in Kosovo .

CHAPTER III

INCOME OTHER THAN EMPLOYMENT INCOME

Article 10
Income from business activities

1. Gross income from eco nomic activity means gross receipts generated by a person or
entity, except lega l persons for purposes of this L aw, engaged in such activities. For
taxpayers with annual gross income of more than fifty thousand euros ( 50,000 ) €, or
those who opt to mainta in books and recor ds in accordance with Article 33 of this Law ,
income must be reported in the tax period during which it is received or accrued.

2. Businesses with annual gross income of fifty thousand euros (50,000) € or less, which
do not opt to mainta in books and recor ds in accordance with Article 33 of this Law , shall
report income from business activities in the tax period in which that income is actually
or constructively received.

3. Businesses with annual gross income of mo re than fifty thousand euros (50,000) €
shall report income from business activities in the tax period in which the income is
received or accrued.

4. Taxpayers with income from the sale of goods who maintain inventories to determine
the cost of goods sold, shall use the FIFO (first -in-first -out) or such other method as may
be set out in a sub -legal act issued by the Minister.

5. When a registration method of goods is selected, that method shall be used for the year
in which it has been selected plus at least for three additional tax periods . A taxpayer who
aspires to change the registration method of goods, after that period of time should
require an individual explaining decision by KTA in compliance with the applicable
provisions of the Law on Tax Administration and Procedures amended with the Law
03/L -071.

6. Tax payers who are charged in contracts and long -term constructive projects shall
report the taxable income from those contracts and long -term projects in a descriptive
way in a sub -legal act that is issued by the Minister.

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7. The tax able income from operating and financial leasing will be determined and
rep orted in a descriptive way in a sub -legal act that will be issued by the Minister. The
sub -legal act shall describe operating and financial leasing.
Article 11
Income from rents

1. Gross income from rents include:

1.1 income realized by rental of real estate such as buildings, la nd or apartments;

1.2 income realized by rental of equipments, transport vehicles and other kinds
of property.

2. Regardless of provisions of paragraph 1 of th is Article, income of rent realized by
persons charged in economic activities of rental of movable or immovable property for
clients, shall be treated and taxed as income from economic activities.

Article 12
Income from intangible property

Gross income from intangible property inc ludes income realized from patents,
copyrights, licenses, franchises, and other property that consists of rights only, but are
incorporeal . The right to use immovable property is intangible . That right, as well as
other propert y comprised only by the rights, but is incorporeal, will be further defined in
a sub -legal act issued by the Minister.

Article 13
Interest income

1. Gross income from interest includes:

1.1. Interest from loans made to persons or entities;

1.2. Interest from bo nds or other securities issued by business organizations;

1.3.Interest from (savings) accounts that bring interest, and are main tained in
banks and other financial institutions.

1.4. Gross income from interest does not include inte rest from the assets of the
Kosovo Pension Savings Trust or any other pension fund defined under
legislation on pension savings in Kosovo .

15

Article 14
Other income including gifts

1. Gross income includes every other form of income from whatever s ource , such as
income from lottery wins or income from debt forgiveness, except those that are released
from tax in compliance with the provisions of this Law.

2. Monetary gifts or gifts in things received by residents shall be included in other
income, if the value of such gift amounts exceeds five thousand euros ( 5,000 ) € in a tax
period.

3. Gifts, either monetary or in things , given between spouses, or by a parent to their
natural born, or legally adopted, children, or by children to their parents are ex empt from
income irrespective to the amount or value of the gift.

4. Gifts given for educational purposes are exempt from taxation so long as the gift is
given in the form of tuition paid directly to an educational institution recognize d by
public law, irrespective to the relationship between the donor and recipient.

CHAPTER IV

ALLOWABLE BUSINESS EXPENSES

Article 15
Expenses General Provisions

1. Subject to the provisions o f this Article , there shall be allowed as a deduction from
gross income generated from intangible property, rents or business activities t hose
expenses paid or incurred during the tax peri od that are wholly, exclusively and directly
related to such income generating activities, including premiums for health insurance
paid in behalf of an employee and those dependents eligible to be included on the
insurance policy of the employee.

2. P ension contributions paid by a n employer are deductible , limited in the amount of
personal contributions that are really paid, as those pension contributions do no t exceed
the amount of pension contributions allowed by the applicable Law.

3. No deduction shall be allowed for any accrued expense related to income which is
subject to withholding (wages, dividends, interest, royalties, rents, lottery winnings, etc.)
unless it is paid on or before 31 March of th e subsequent tax period. Any expense not

16
allowed by this sub -paragraph shall be deductible in the tax period in which it is actually
paid.

4. Businesses with annual gross income of fifty thousand ( 50,000 ) € and more, and those
businesses which have opted to maintain books and records as required in Article 33 of
this Law, shall deduct the expenses that are allowed and paid or accrued during the tax
period.

5. There shall not be allowed any deduction f or any expense while it is not documented in
the required way as foreseen by the sub -legal act issued by the Minister.

6. Expenses, including the expenses of depreciation, regarding the operating and financial
leasing shall be repor ted in the way as fores een in a sub -legal act that shall be issued by
the Minister.

Article 16
Representation Expenses

Expenses incurred for representation shall be limited to fifty percent ( 50% ) of the amount
invoiced for business entertainment. The maximum amount of all r epresentation
expenses shall not exceed two percent ( 2% ) of annual gross income.

Article 17
Bad Debt Expense s

1. A bad debt shall be considered an expense if it meets all the following conditions:

1.1.The amount t hat corresponds to the debt has previou sly been included in
income;

1.2.The debt is written off in the taxpayer‟s books as worthless for accounting
purposes;

1.3.There is no dispute of the legal validity of the debt;

1.4. At least six months of the debt have exceeded of term;

1.5. There is adequate evidence of substantial attempts made by the taxpayer to
collect the debt, including any applicable actions to maximize collection of the
debt, such as:

1.5.1. Taxpayer has offset any undisputed debt owed to the debtor against
the bad d ebt;

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1.5.2. Corresp ondence and contacts attempting to collect the debt;

1.5.3. Legal action was considered to be uneconomical f or documented
reasons or legal action was unsuccessful, or

1.5.4. a claim was filed in a bankruptcy/liquidatio n proceeding, if
applicable , and the amount that will be taken is determined in a reasonable
way by the administrator/executor. As long as those means deriving from
the bankruptcy are applied in the unredeemed debt.

2. Bad debt deductions are limited to the non -recovered portion of the debt. Any bad
debt deducted as an expense and then subsequently collected shall be included in income
at the time of collection.

3. No bad debt deduction shall be allowed for debts between related parties.

4. The Minis ter shall issue a sub -legal act to describe the requirements for bad debt
deductions as provided in this Article.

Article 18
Business Travel Expense s

1. Business travel expenses include transportation, various travel expenses ( such as daily
expenses) lodg ing and meals for business trip but do not include allowances for
commuting to and from the place of work.

2. Expenses for travel, meals, lodging, and moving shall be limited to the amounts to be
specified in a sub -legal act to be issued by the Ministe r.

Article 19
Payments to Related Persons

1. Compensation or emoluments paid to a related person shall be allowed as an expense
in an a mount equal to the minimal actual salary or the open market value.

2. Interest, rent, and other expenses paid to a related person shall be allowed as an
expense in an am ount equal to the minimal actual salary or the open market value.

Article 20
Depreciation

1. Expenditures on tangible property, other than expenditures for land, works of art, and
other property whi ch are not subject to wear, owned by the taxpayer and used for the

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taxpayer‟s economic activity, shall be recovered over time by depreciation deductions in
the manner pre scribed by the present Article.

2. Expenditures on improvements to leaseholds used fo r the taxpayer‟s economic activity
shall be recovered through depreciation deductions calculated using the straight -line
method with a period equal to the life of the leasehold.

3. All tangible property of the taxpayer that is subj ect to depreciation unde r this A rticle
shall be placed in one of the following categories:

3.1 . Category 1 : Buildings and other construction structures;

3.2 .Category 2 : Automobiles and light trucks, heavy transport vehicles, earth
moving equipment, bulldozers, scrapers and ot her heavy vehicles, computers,
peripherals and other data processing equipm ent, office furniture and equipment,
instruments, sundries and other accessories; and livestock used for production or
breeding.

3.3. Category 3 : Plant and machinery; rolling stock and locomotives used for rail
transport; airplanes; ships; perennial plants and trees used for vinic ulture or
production of fruits such as apples, pe ars, walnuts, blueberries, etc. ; and all other
tangible assets not included in Category 1 or Category 2.

4. The amount allowed as a depreciation deduction for the tax period shall be determined
by applying the following percentages individually to the individual tangible property
under the straight line method at the close of the tax period according to the ca tegory to
which the asset belongs:

4.1. Category 1: five percent (5%);

4.2. Category 2: twenty percent (20%); and

4.3. Category 3: ten percent (10%)

5. According to this Article, a n asset shall first be taken into account when it is fir st
placed into service.

6. The initial amount to be depreciated shall be the purchase price or, in the absence of a
purchase price, the cost price. The initial amount shall also include:

6.1.taxes, duties, levies and charges, and

6.2. incidenta l expenses such as commission, packing, assembl ing , transport, and
insurance costs charged by the supplier.

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7. Individual depreciation of property of Category 2 and Category 3 shall be implemented
only for those properties that have been taken in the date or after the date of entering into
force of this Law.

8. The purchase of a property for a price of one thousand (1.000) € or less shall be
allowed as a current expense.

9. Capital goods (assets) that were purchased and their depreciation has started under the
pooling method prior to the entry into force of th is L aw , shall continue to be depreciated
under the previous le gislation until the value of the pool equals zero.

10. Tangible assets ( property) with the purchase price of more than one thousand (1.000)
€ and less than three thousand (3.000) €, provided after the date that this Law enters into
force, shall be dispos ed into a one group of assets and depreciated with the twenty
percent ( 20% ) rate of the value of the assets in group, not considering that in which
category of assets it would be disposed according to the provi sions of paragraph 3 of this
Article . When the qualified assets are purchased, their purchase price shall be added to
the value of group. When the assets are sold by the group, the purchase price of the sold
asset will be reported as a usual business income in the year in which the asset has been
sold , but the value of group will not be decreased as a result of the sale .

Article 21
Depreciation of Livestock

Depreciation of livestock is allowed only if such animals are used in the course of
economic activity. Animals which breed offspring used only for personal use or dairy
animals used only for personal use are not subject to depreciation.

Article 22
Special Deduction for New Assets

1. If a taxpayer purchases production lines for plant and machinery, rolling stock and
locomotives used for rai lway transportation, airplanes, ships, heavy transport vehicles,
earth moving equipment, bulldozers, scrapers and other heavy vehicles for the purpose of
the taxpayer‟s economic activity between 1 January 2010 and 31 December 2012, a
special deduction of t en percent (10%) of the cost of acquisition of the asset shall be
deducted in the year in which the asset has been first placed into service.

2. This deduction shall be in addition to the normal allowable depreciation deduction.

3. The deduction shall be allowed only if the asset is new or is placed into service in
Kosovo for the first time. A deduction shall not be allowed if the asset is transferred from
an existing or a former business in Kosovo.

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4. Other special allowances may only be granted if s o provided by specific Law.

Article 23
Repairs and Improvements

1. In the case of any depreciable asset, amounts expended for repairs or improvements ,
excluding repairs of usual maintenance, shall be capitalized and added to the basis of the
asset if th e repairs or improvements extend the useful life of the asset for at least one (1)
year and the amount of repair o r improvement is greater than one thousand ( 1,000 ) € for
that asset. If the repair o r improvement is one thousand ( 1,000 ) € or less for any a sset,
the amount of the repair or improvement shall be an expense in the year that it has been
paid or occurred.

2. If the repairs or improvements meet the crit eria f or capitalization according to
paragraph 1 of this Article , the amount shall be capitali zed and added to the remaining
book value of the capital asset. The new book value of the asset will be used as the basis
for depreciating the asset. The asset will be depreciated in accordance with the rules of
the applicable category.

3. Minister sh all issue a sub -legal act for implementation of this Article.

Article 24
Amortization

1. Expenditures on intangible assets that have a limited useful life including, but not
limited to patents, copyrights, licenses for drawings and models, contracts and franchises
are deductible in the form of amortization charges.

2. The method of amortization shall be the straight -line method and the allowance shall
be based on the useful life of the asset as determined by the legal agreement governing
the acquisitio n and use of the intangible asset.

Article 25
Costs for Research and Development

1. All research and development costs in respect of the natural reserves of minerals and
other natural resources and interest attributable thereto shall be added to a cap ital account
and amortized under the present Article.

2. The amount allowed as an amortization deduction with respect to the research and
developmen t costs referred to in paragraph 1 of this Article for the tax period shall be
determined by multiplying t he balance in the capital account by a fraction of:

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2.1. the numerator of which is the units ex tracted from the natural reserves during
the year; and

2.2. the denomi nator of which is the estimated total units to be extracted from the
natural deposit ov er the life of the asset.

3. The estimated total units to be extracted referred to in paragraph 2 of this Article shall
be determined in accordance with instructions concerning such estimates to be set out in a
sub -legal act issued by the Minister.

Ar ticle 26
Tax Losses

1. A tax loss as defined by this L aw is the negative difference between the taxpayer‟s
income and expenses and allowances determined in accordance with this law.

2 .The amount of the tax loss determined under the present Article may b e carried
forward for up to seven (7) successive tax periods and shall be available as a deduction
towards any income in those years.

3. The amount of the carry forward taken into account for any tax period after the year of
the tax loss shall be the ent ire amount of the loss, reduced for the aggregate amount
previously allowed as a deduction.

4. If a taxpayer has a tax loss in more than one (1) year, the present Article shall be
applied to the losses in the order in which they have arisen .

5. The prov isions of this Article shall be allowable only to the business which incurred
the loss. If the business has an own ership change of more than fifty percent (50% ) or if a
personal business enterprise is changed in any other form of business (legal entity,
partnership, etc.) the loss carried forward shall not be allowed anymore. Minister may
issue a sub -legal act in order to r egulate the provisions of loss bearing regarding the
change of the kind of business organization or the change of ownership, as well as every
other necessary provision of loss bearing for the implementation of this Article.

Article 27
Rental Expenses

If a taxpayer, other than a taxpayer engaged in the business of renting movable or
immovable property, opts to not maintain records of ac tual expenses incurred in the rental
activity, such taxpayer shall be allowed a deduction from gross income from rent an
amount equal to ten percent (10%) of the rents received in order to cover the costs of
repairs, collection charges and other expenses p aid or incurred in generating the rent.

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Article 28
Deduction for charitable contributions

1. Contributions made by taxpayers who m aintain records under Article 33 .4 of this L aw
for humanitarian, health, education, religious, scientific, cultural, enviro nmental
protection and sports purposes are allowed as a deduction up to a maximum of five
percent (5%) of taxable income computed before the charitable contribution is deducted.

2. A ch aritable contribution according to paragraph 1 of this Article must b e made to:

2.1. An organization registered under Legislation on registration and operation of
non -governmental organizations that has received and maintained public benefit
status;

2.2. Any other non -commercial organizations that directly perform n ot for profit
activities in the public interest, such as:

2.2.1. Medical institutions;

2.2.2. Educational institutions;

2.2.3. Organizations to protect the environment;

2.2.4. Religious institutions;

2.2.5. Institutions that care for disabled or elderly persons;

2.2.6 Orphanages; and

2.2.7 Institutions that promote science, culture, sports or arts.

3. A charitable contribution shall not include a contribution that directly benefits the
donor, or related persons of the donor.

4. Any taxpayer that is object of real tax, who claims a deduction for a charitable
contribution must file an annual declaration and furnish a receipt in respect of such
contribution , in the manner prescribed by a sub – legal act issued by the Minister.

Article 29
Educational and Training Expenses

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1 .Educational expenses paid by an employer to an educational institution for an
employee shall be allowable in full in the year in which such expenses are paid, provi ded
that:

1.1.education expenses are paid directly to the educational institution;

1.2. the educational institution is recognized by effective public Law in Kosovo;

1.3. the education is relevant to the employee‟s position and does not qualify that
employee for work in a different occupation; and

1.4.the employee remains in the employment of the employer for at least twenty –
four ( 24 ) months after completion of the education for which the expenses were
paid by the employer.

2. Training expens es (expenses incurred by an employer to provide basic skills necessary
for the employee to perform assigned tasks or necessary to provide updated skills to the
employee) which are job -related shall be allowable in full in the year in which such
training ex penses are incurred. The amount of such expenses shall not exceed one
thousand Euros ( €1,000 ) per employee in any tax period. Any training expenses incurred
above that amount will not be allowable in that tax period.

CHAPTER V

UNALLOWABLE EXPENSES

Article 30
Unallowable Expenses

1. No deduction shall be allowed for:

1.1. Cost of land acquisition ;

1.2. Fines and penalties, and related costs and interest for any violation of law or
administrative procedure;
1.3. Income taxes paid or accrued (does not include taxes withheld from
employees);

1.4. Value A dded Tax for which the taxpayer cla ims a rebate or credit for
deductible tax under the legislation on Value Added Tax;

1.5. Personal, living, or family expenses;

1.6. Any loss from the sale or exchange of property between related persons; and

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1.7. Amusement or recreation expenses, unless they are incurred in connection
with the taxpayer‟s business of providing amusement or recreation activities.

1.8. Expenses not documented per requirements set out in a sub -legal act issued
by the Minister shall be consid ered as unallowable expenses .

2. On general income are not included pens ion contributions, as follows:

2.1 . Pension c ontrib utions above maximum amount allowed by the Law o n
Pensions in Kosovo .

2.2 . Treatment of expenses which may be partially personal a nd partially
business, or which may be subject to question as to whether they are personal or
business, will be defined in a sub -legal act to be issued by the Minister.

CHAPTER VI

CAPITAL GAINS AND LOSSES

Article 31
Income s from capital gains

1. Gross income s from capital gains means the gain that a taxpayer realizes through the
sale or other disposition of capital assets including real estate and securities.

2. The amount of capital gain is the positive difference between the sales price of the
asse t and the cost of the capital asset as determined under paragraph 5 of this Article.

3. The sales price of the capital asset shall be the sum of any money received, plus any
other compensa tion received for the sale.

4. If the parties are related per son s and the sales price is lower than the open market
price, then the sales price will be adjusted to the open market price in the manner
pre scribed in a sub -legal act issued by the Minister.

5. The cost of the capital asset is the amount that the taxpayer paid for the acquisition of
the asset, increased for the cost of improvements and reduced by depreciation and o ther
expenditures allowable by this L aw.

6. Capital gains shall be recognized as business income and capital losses as business
losses, if not foreseen otherwise by this Law.

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7. Capital gains and losses shall not b e recognized for pooled asset ( asset in Category 2
and Category 3 acquired prior to the date of entry into force of this Law) referred to in
Article 20 of this Law.

8. Capital loss means a loss that a taxpayer realizes through the sale or other disposition
of capital assets includ ing real estate and securities .

9. The amount of capital loss is the negative difference between the sales price of the
asset according to paragraph 3 or 4 of this Article and the cost of the capital asset,
acco rding to paragraph 5 of this Article .

10. Capital loss means a loss that a taxpayer realizes through the sale or other disposition
of capital assets including real estate and securities . The provisi ons of Article 26 of this
Law shall apply to the losses described in this paragraph.

11 . Gross income from capital gains does not include capital gains realized from the sale
of the assets of the Kosovo Pension Savings Trust or any other pension fund defi ned
under legislation on Pensions in Kosovo .

12 . A capital gain shall not be recognized on the involuntary conversion of property to
the extent that the consideration received from the conversion consists of either property
of the same character or natur e or money that is invested in property of the same
character or nature within a replacement period of two (2) years.

13 . If a sale of capital assets involves an installment agreement that lasts more than the
tax period in which the sale is finalized (all applicable documents are signed by all parties
and the sales agreement is legally enforceable), any gain must be amortized on a straight –
line basis over the life of the installment agreement and the amount of gain attributable to
any tax period must be re ported on the tax declaration as income in that tax period.
Further provisions related to installment sales shall be described in a sub -legal act.

14. The capital gain shall not be recognized in case of involuntary conversion of property
if the considera tion is received from the conversion consisting of either property of the
same character or nature or money that is invested in property of the same character or
nature within the replacement period of two (2) years.

Article 32
Cash and Accrual Method of Accounting

1. Taxpayers not engaged in economic activity shall report the income in accounting on
the cash basis. Such income is reported on the actual year or is constructively received in
the form of cash, it is equivalent of it or other property.

2. Taxpayers engaged in economic activity with an annual gross income of five thousand
(5.000) € or less and the taxpayers with annual gross income from economic activities of

26
more than fifty thousand (50.000) € up to, including, fifty thousand (50.000) €, who are
not required and have not opted to keep books and records listed in Article 33.4 of th is
Law, shall report their various income components in accounting on the cash basis
(income reported when actually or constructively received).

3. Taxpayers engaged in economic activity with an annual gross inc ome in excess of
fifty thousand ( 50,000 ) €, taxpayers who are required to keep the books and records listed
in article 33.4 of this Law, and the taxpayers who opt to keep these books and records as
well as general and limited partnerships and grouping of persons shall report their various
income co mponents on the accrual basis of accounting, except those items of income
described in Article 7.1 of this Law.

4. Taxpayers described in paragraph 3 of this Article shall report their various
components of expenses on the accrual basis of accounting, except if provided otherwise
in paragraph 3 of Article 15 of this Law.

CHAPTER VII

BOOKS AND RECORDS

Article 33
Requirement for Books and Records

1. A taxpayer with annual gross income of more than fifty thousand (50.000) €, from
business activities for the tax period, as well as partnerships and groups of persons, shall
keep the books and re cords identified in paragraph 4 of this A rticle.

2. A taxpayer with annual gross income of fifty thousand ( 50.000 ) € or less , from
business activities for the ta x period may opt to prepare the books a nd records identified
in paragraph 4 of this Article .

3. A taxpayer who opts to prepare books and records identified in paragraph 4 of this
Article for any tax period shall be required to prepare such books and reco rds for the tax
period in which the option is made plus at least three (3) succeeding tax periods , as
provided in a sub -legal act i ssued by the Minister .

3.1 A taxpayer wishing to opt the option described in paragraph three (3) of this
Article shall submi t a statement to the tax administration by 1 March of the tax
period in which the taxpayer wishes to make the option and that the option is
made. The statement to be submitted shall be in a format prescribed by the tax
administration. Once such option is m ade, the taxpayer must continue to prepare
financial statements and adjust income and expenses recorded in such statements
for the tax period in which the option is made and, at least, for the next
succeeding three tax periods as provided in paragraph 3 of this Article .

27
3.2 A taxpayer eligible to opt the maintaining of books and records as r equired in
paragraph 4 of this A rticle, must submit a request for explanatory ruling to TAK,
in accordance with applicable provisions of the Law on Tax Administration a nd
Procedures, and receive approval from TAK before maintaining books and
records in acco rdance with Article 34 of the L aw. Approval must be received by
1 March of the year for which the taxpayer requests the explanatory ruling.

4. The books and record s required under this Article, maintained in accordance with the
Accounting Standards of Kosovo, are as follows:

4.1. A sales book in which all sales and returns must be recorded;

4.2. A purchase book in which all purchases and returns must be recorded;

4.3. A Cash receipts diary and a cash payments diary that relate to the sales book
and purchase book.

4.4 . A capital account, if applicable, that includes the opening balance, additions
to capital, expenses to be capitalized, depreciation rate, amount of depreciation,
dispositions, and closing balance; and

4.5. Such other books and records as necessary to provide an accurate accounting
of all income and expenses so that a correct determination of tax can be made;

4.6. Notwithstanding the requiremen t in paragraph 1 of this Article that
partnerships and groups of persons must maintain the books and records described
in Paragraph 4 of this Article, partnerships and groups of persons with annual
gross turnover of fifty thous and ( 50,000) € or less shall not be required to
maintain income or financial statements as required by the
Accounting Standards of Kosovo. They shall, however, be required to maintain
the books and records described in sub -paragraphs 4.1 through 4.5, and any other
rec ords required in order to accurately determine the amount of profit, or loss, to
be distributed to the separate partners.

4.7. The content of books and records required by this paragraph and any other
books or records required, including those maintained in an electronic format,
shall be defined in a sub -legal act issued by the Minister.

Article 34
Requirements for Books and Records for Small Businesses

1. A taxpayer with annual gross income of fifty thousand ( 50,000 ) € or less, who does not
opt to prepare the books and records required under paragraph 4 of Article 33 , must
maintain the following minimal books and records:

28
1.1 A sales book in which all sales and returns must be recorded;

1.2. A purchase book in which all purchases and returns must be recorded;

1.3 A Cash receipts diary and a cash payments diary that relate to the sales book
and purchase book.

1.4 The content of books and records required by this paragraph and any other
books or records required for small business, including those maintained in an
electronic format, shall be defined in a sub -legal act issued by the Minister.

CHAPTER VII I

INTERNATIONAL PROVISIONS

Article 35
Permanent Establishment

1. “Permanent establishment” shall include:

1.1.Any place of management;

1.2. Any branch;

1.3. Any office;

1.4.Any factory;

1.5. Any workshop;

1.6. Any mine; and

1.7. Any oil or gas source, quarr y or other place of exploitation of natural
resources.

2. “Permanent establis hment” shall also include;

2.1.Any building site, construction, assembl ing or installation project, or
supe rvisory activity in connection herewith, but only if such site, project or
activ ity lasts longer than one hundred and eighty -three ( 183 ) days. Where the
building site, project, or activity lasts longer than one hundred and eighty -three
(183) days, including any preparatory activity, the building site, project, or
activity shall be deemed to have been or created a permanent establishment from
the day s uch work was commenced;

29
2.2. The furnishing of any service, including any consultancy service but
excluding any supervisory activity referred to in paragraph 2.1 of this Article,
carried out in Kosovo by a non – resident pe rson through employees or other
personnel, but only if such activities continue within Kosovo for a period or
periods totaling ninety (90 ) days or more within any twelve -month period. Where
the activ ities do continue within Kosovo for a period or periods totaling 90 days
or more within a twelve –month period, the activities shall be deemed to have
created a permanent establishment from the day such activities commenced;

2.3. Any site used for the search for natural resources within Kosovo, where such
activities within Kosovo c ontinue for a period or periods totaling one hundred and
eighty -three (183) days or more within any twelve – month period. W here the
activities do continue for a period or periods totaling one hundred and eighty –
three (183) days or more within a twelve -month period, the activities shall be
deemed to have created a permanent establishment from the day such activities
commenced; and

2.4. Any immovable property situated in Kosovo and owned by a non -resident
person.

3. Notwithstanding paragraph 1 of this Article , wher e a person, other than an agent of an
independent status to whom paragraph 6 of this Article applies, acts in Kosovo on behalf
of a non -resident person, the non -resident person shall be deemed to have a permanent
establishment in Kosovo in respect of the a ctivities which that person undertakes for the
non -resident person, if such a person:

3.1. Has and usually exercises an authority in Kosovo to conclude contracts on
the name of the non -resident person, unless the activities of such person are
limited to those mentioned in paragraph 6 of this Article which, if exer cised
through a fixed place of business, wou ld not make this fixed place of business a
pe rmanent establishment under the provisions of that sub -article; or

3.2. Has no such authority, but habitua lly maintains in Kosovo a stock of goods
or merchandise f rom which he regularly delivers goods or merchandise on behalf
of the taxpayer.

4. A non -resident person who provides insurance shall, exc ept in regard to reinsurance, is
deemed to have a permanen t establishment in Kosovo if he/she collects premiums in
Kosovo or insures risks situated in Kosovo through a person other than an agent of an
independent status to whom paragraph.6 of this Article applies.

5. Notwithstanding paragraphs 1 and 2 of this A rticle, “permanent establishment” shall be
deemed not to include:

5.1. The use of facilities solely for the purpose of storage or display of goods or
merchandise belonging to the non -resident person;

30

5.2. The maintenance of a stock of goods or merchandise belonging to the non –
resident person solely for the purpose of storage or display;

5.3. The mai ntenance of a stock of goods or merchandise belonging to the non –
resident person solely f or the purpose of processing by another taxpayer;

5.4. The maintenan ce of a fixed place of business solely for the purpose of
purchasing goods or merchandise or of collecting information for the non -resident
person;

5.5. The maintenan ce of a fixed place of business solely for the purpose of
carrying on, for the non – reside nt person, any other a ctivity of a preparatory or
auxiliary character; and

5.6. The maintenance of a fixed place of business solely for any combination of
activities mentioned in paragraphs 1 to 5 of the present sub – article, provided that
the overall act ivity of the fixed place of business resulting from this combination
is onl y of a preparatory or auxiliary character.

6. A non -resident person shall not be deemed to have a permanent establish ment in
Kosovo merely because he/she carries on business in Kos ovo through a broker, general
commission agent or any other agent of an independent status, provided that such persons
are acting in the ordinary course of their business. However, when the activities of such
an agent are devoted wholly or almost wholly o n behalf of that taxpayer, and conditions
are made or imposed between that taxpayer and the agent in their commercial and
financial relations which differ from those which would have been made between
independent taxpayers, he will not be considered an age nt of an independent status within
the meaning of this sub -article.

7. The fact that a non -resident person controls or is controlled by a company which is a
resident of Kosovo, or which carries on business in Kosovo (whether through a
permanent establi shm ent or otherwise), shall consider no company a permanent
establishment of the other.”

Article 36
Prices of Transfer

1. The pric e used in conjunction with means transactions or contract ing obligations
between related persons shall be considered the pric e of transfer.

2. The price expected to be received in conjunction with asset transactions or contract
obligations between parties that had worked according to market dominance shall be
considered the open market value.

31
3. The open market value shall b e determined under the comparable uncontrolled price
method and, when this is not possible, there is used the resale price method or the cost –
plus method, or any other method as defined by sub -legal act .

4. The difference between the open market value an d the transfer price shall be included
in taxable income.

5. A sub -legal act shall be issued by the Minister fo r implementation of this Article .

Article 37
Avoidance of Double Taxation

1. The resident taxpaye r who receives income from economic activiti es outside of
Kosovo and who pays income tax on that income to any other State, shall be allowed a
tax credit under this Law for the amount of income tax paid to such State , that is
attributable to the income generated from the other state.

2. The tax c redit allowed in paragraph 1 of this Article is limited to the am ount of foreign
tax paid on the income earn ed outside Kosovo, and shall not exceed the amount of
obligatory tax in Kosovo on that same income. To the extent that Kosovo tax on that
income e xceeds the foreign tax paid, the excess amount must be included in the
computation of Kosovo obligatory tax .

3. Any applicable internat ional agreement negotiated by Minister and ratified by the
Assembly on the avoidance of double taxation shall supersede the provisions of the
present Article as they relate to the parties to that international agreement .

CHAPTER IX

WITHHOLDING PROVISIONS

Article 38
Withh olding tax on wages

1. Each employer shall be responsible for withholding tax from the taxable wages paid to
its employees during any payroll period for in which wages are paid.

2. An employer who is the employee‟s principal employer shall withhold an amount for
the appropriate payroll period, in accordance with t he rates established in Article 6 of this
Law. Any tentative tax for a given month shall be reduced for the amount withheld by the
principal employer for the previous month in the year.

3. An employer who is not the employee‟s principal employer shall withhold an amount
equal to ten percent ( 10%) of the wages for each tax period.

32

4. Pensions paid by, or on behalf of, Kosovo Pension Saving Trust, or by an authorized
supplementary pension fund regulated by the law on pension contributions shall be
subject to withholding by the payer of such pe nsions at the rates provided in Article 6 of
this law.

5. Each employer, or person required to withhold according to paragraph 4 of this Article,
shall submit a statement of tax withholding and remit the amount of tax withheld to an
account designated by the Tax Administration in a bank, or financial institution, licensed
by the Central Bank of Kosovo within fifteen (15) days after the last day of each calendar
month, in accordance with a sub -legal act issued by the Minister.

6. Each employer or person re quired to withhold according to paragraph 4 of this Article
that makes wage payments during the tax period shall submit to the Tax Administration
by 31 January of the year following the tax period an annual tax reconciliation statement
with information abo ut wages paid and tax withheld and remitted with respect to each
employee in accordance with the form and procedures specified in a sub -legal act issued
by the Minister.

7. Each employer or person required to withhold in principle according to paragraph 4 of
this Article shall provide by 1 March of the year following the tax period to every
employee from whom wage tax has been withheld , a certificate of tax withholding in the
form sp ecified in a sub -legal act issued by the Minister.

Article 39
Withholdin g Tax on Interest and Royalties

1. Each personal business enterprise, entity, public authority, partnership or grouping of
persons, bank or other financial institution who pays interest or royalties, except interest
that is exempt under this law , to resi dent or non -resident persons, shall withhold tax at the
rate of ten (10%) at the time of payment or credit.

2. Notwithstanding paragraph 1 of this A rticle , interest on loans provided by financial
institutions licensed by CBK to the ir customers shall be su bjec t to withholding.

3. Each personal business enterprise, entity, public authority, partnership or grouping of
persons, bank or other financial institution shall submit a statement of tax withholding
and remit the amount of tax withheld to an account de signated by the Tax Administration
in a bank licensed by the Central Bank of Kosovo within fifteen (15) days after the last
day of each calendar month, in accordance with a sub -legal act issued by the Minister.

4. Each personal business enterprise, entit y, public authority, partnership or grouping of
persons bank or other financial institution that pays interest or royalties during a tax
period shall, upon request by the recipient, provide s a certificate of tax withholding by 1

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March of the year following the tax period, in the form specified in a sub -legal act issued
by the Minister.

5. Each personal business enterprise, entity, public authority, partnership or grouping of
persons, bank, or other financial institution who withholds tax under this artic le during a
tax period shall submit to the tax administration an annual reconciliation statement in the
form and format specified by the Tax Administration no later than 1 March of the year
following the tax period. Each personal business enterprise, enti ty, public authority, bank
or other financial institution must include a copy of all withholding certificates, requ ired
by paragraph 4 of this A rticle, with the annual reconciliation statement submitted to the
tax administration.

Article 40
Withholding T ax on Lottery and Game of Chance Winnings

1. Each organizer of a lottery shall withhold tax in an amou nt equal to ten percent (10%)
of each payment for winners .

2. Subject to the provisions of Article 49 of this L aw, each organizer of a game of chance
shall withhold tax in an amount equal to ten percent (10%) of each payment for winnings

3. Each organizer of a game of chance and organizer of a lottery shall submit a st atement
of withholding and transfer the amount of tax withheld to an account designat ed by the
Tax Administration in a bank licensed by the Central Bank of Kosovo within fifteen (15)
days after the last day of each calendar month, in accordance with a sub -legal act issued
by the Minister.

4. Each organizer of a game of chance and organize r of a lottery during a tax period shall,
upon request by the winner, provide by March 1 of the year following the tax period a
certificate of tax withholding in the form specified in a sub -legal act issued by the
Minister.

5. Each organizer of a game of chance and organizer of a lottery who withholds tax under
this Article during a tax period shall submit to the tax administration an annual
reconciliation statement in the form and format specified by the Tax Administration no
later than 1 March of the yea r following the tax period. Each organizer of a lottery must
include a copy of all withholding certificates, required by paragraph three of this article,
with the annual reconciliation statement submitted to the tax administration.

Article 41
Withholdin g on certain payments to non -residents

1. Income attributable to a non -resident of Kosovo as an entertainer, such as a theatre,
motion picture, radio or television artiste, or a singer or musician, or as a sportsman, from

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his or her personal activities ex ercised in Kosovo shall be su bject to withholding by the
paye r of that income, whether paid directly or indirectly to the non -resident, so long as
the gross compensation from such activities exceeds one thousand (1,000 ) € in a tax
period.

2. Income, oth er than income described in paragraph 1 of this Article , earned from
agreements or contracts, whether written or verbal, with Kosovo persons or entities by a
non -resident person or entity from services performed in Kosovo shall be su bject to
withholding by t he paye r of that income, so long as the non -resident person or entity has
no permanent establishment in Kosovo and the gross compensation paid to the non –
resident is more than five thousand (5,000 ) € in any tax period.

3. Notwithstandin g any other provisions in this L aw , the amount of withholding
according to paragraph 1 and 2 of this Article shall be five percent ( 5% ) of th e gross
compensation. Each paye r shall submit a statement of withholding a nd remit the amount
of tax withheld to an account designated by the Tax Administration in a bank licensed by
the Central Bank of Kosovo within fifteen (15) days after the last day of each calendar
month, in accordance with a sub -legal act issued by the Min ister.

4. Withholdin g under this A rticle shall be considered to be a final tax and the recipients
of such income subject to the withholding shall not submit a declaration to the tax
administration, notwithstanding the pr ovisions of Article 48 of this L aw .

5. Each paye r who withholds under this A rticle during a tax period shall, upon request of
the recipient of the income, by March 1 of the year following the tax period shall provide
a certificate of tax withholding in the form specified in a sub -legal a ct issued by the
Minister.

6 Each taxpayer who withholds tax under this Article during a tax period shall submit to
the tax administration an annual reconciliation statement in the form and format specified
by the Tax Administration no later than 1 March of the year following the tax period.
Each taxpayer must include a copy of all withholding certific ates, required by paragraph
5 of this A rticle, with the annual reconciliation statement submitted to the tax
administration.

7. The Minister shall issue a sub -legal act which will specify those persons or entities
who will be considered as „paye rs‟ under this A rticle and all other activities requi red for
implementation of this A rticle.

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CHAPTER X

PARTNERSHIPS AND GROUPING OF PERSONS

Article 42
Partnerships and Grouping of Persons

1. Each partnership and grouping of persons that receives or accrues gross income in
accordance with the provisions of this Law, shall for personal income tax purposes,
submit an annual income tax declaration on or before 31 March of the year followin g the
tax period but will make no payment of income tax liability.

2. The tax declaration shall be made i n the form prescribed by the Tax Administration of
Kosovo and shall include, inter alia, gross income from all sources, allowable deductions,
taxable income and each partner‟s or member‟s distributive share, along with their
Kosovo fiscal number and their respective addresses. Each partner or group member
shall report their distri butive share of taxable income i n their individual income tax
declaration submitted in accordance with Article 48 of this L aw.

3. The partnership and grouping of persons shall also submit the quarterly adv ance
payments according to paragraph 2.2 of Article 43 and pay the amount obligator y for
each partner or each member of the group in the name of each partner or member, using
each partner‟s or member‟s fiscal number.

4. Partnerships and grouping of persons, as well as individual partners of partnerships and
members of groups, must main tain books and records in accordance with paragraph 4 of
Article 33 of this L aw and must pay obligatory income taxes in accordance with
paragraph 2 .2 of Article 43 of this Law .

5. The partnership and grouping of persons is required to withhold tax and pe nsion
contributions from the wages of the employees of the partnership or grouping of persons
and make payment in accordance with the requirements of this L aw.

6. The partnership, or grouping of persons, is responsible for submitting declarations and
mak ing payment of all taxes for which the partnership or grouping of persons becomes
liable, except for income taxes which are to be declared in accordance with sub –
paragraphs 1 and 2 of this A rticle.

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7. The partnership and grouping o f persons shall file all declarations and statements by
using the fiscal number assigned by the tax administration.

8. Each partnership and grouping of persons shall appoint one of the general partners or
one of the persons belonging to the grouping as representative. This repre sentative shall,
on basis of a written authorization provided by all partners or persons belonging to the
grouping, act in their name and on their behalf and be authorized to fulfill all tax
obligations of the partnership or grouping of persons, including the payment obligations,
as defined by L aw. However, the assignment of a representative shall not relieve the
individual partners or members from their individual liability for their own income taxes
or partnership or group debts as provided in t he Law o n Business Associations, if the
partnership fail to meet its fiscal obligations

CHAPTER XI

PAYMENTS, CREDITS, AND DECLARATIONS

Article 43
Payment of tax for economic activities

1. Each taxpayer who receives or accrues income from economic activities s hall make
quarterly payments of tax to an account designated by the Tax Administration in a bank
licensed by the Central Bank of Kosovo no later than fifteen (15) days after the close of
each calendar quarter (15 April, 15 July, 15 October, 15 January).

2. The amount of each quarterly payment of tax under pa ragraph 1 of this A rticle shall be
as follows:

2.1. Taxpayers with annual gross income from business activities of up to fifty
thousand ( €50.000 ) € who are not required and do not opt to keep the books an d
records listed in paragraph 4 of Article 33 , must pay :

2.1.1.Three percent (3%) of each quarter‟s gross income fro m trade,
transport, agriculture and similar economic activities, and bu t not less than
thirty seven euros and fifty cents ( €37.50 ) per quarter.

2.1.2. Five percent (5%) of each q uarter‟s gross income from services,
professional, vocational, entertainment and similar activities. but not less
than thirty seven euros and fifty cents ( €37.50 ) per quarter.

2.1.3. If a taxpayer described in paragraph 2.1 of this A rticle has no
income in a quarterly period, no payment shall be required, but the
taxpayer must submit the quarterly installment declaratio n for the period
with no tax ob ligation .

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2.2 Taxpayers with annual gross income from business activities in excess of fifty
thousand ( 50,000 ) €; and taxpayers who are required, or opt as provided in
paragraph 3 of Article 33, to keep the books and records listed in paragraph 4 of
Artic le 33 must make advance payments :

2.2.1 . One -fourth (1/4) of the total tax liability for the current tax period
based on estimated taxable income, dedu cted by any amount of tax
withheld pursuant to Article 39 of this L aw and Article 30 of the Law on
Corp orate Income Tax; or

2.2.2 . For the second tax period and those subsequent, for which a
taxpayer makes payments under this Article, one -fourth (1/4), or more, of
one hundred and ten percent ( 110% ) of the total tax liability for the tax
period immediately preceding the current tax period, deducted by any
amount of tax withheld pursuant to Article 39 of this L aw and Article 30
of the Law on Corporate Income Tax.

2.2.3. A taxpayer who has exceeded annual gross income of fifty thousand
(50,000 ) € in an y year is required to report income and make payments in
accordance with paragraph 2.2 of this Article for the tax period in which
annual gross income exceeded fifty thousand (50,000) € and, at least, the
three succeeding tax periods. If, after that time, the taxpayer’s annual
gross income has dropped below the fifty thousand (50,000) € threshold
and the taxpayer wishes to return to reporting income and making
payments in accordance with sub -paragraph 2.1 of this Article, such
taxpayer shall submit a reque st for ruling to the tax administration in
accordance with Article 10 of the Law on Tax Administration and
Procedures prior to 1 March of the year in which the change is being
requested .

3. If an advance payment is not made timely, or in an amount that is less than that
required, the tax administration may impose a penalty in an amount equal to the rate of
interest in effect at the t ime the advance payment was obligatory to be made. There shall
be no other additions to tax, for late or inadequate advance payments. If the payments of
quarterly installments have been made on or before the due dates, and a final settlement
has been made as requ ired by paragraph 4 of Article 38 of this Law , no penalty shall be
charged for insufficient payments, if:

3.1. The difference between the amount due in each installment and the amount
paid for each installment is not greater than ten percent (10%) of the amount
due; or

3.2. After the taxpayer‟s first tax period, the amount paid in each installment is a
minimum of ten percent (10%) at least higher than one -fourth (1/4) of the tax
liability on the tax declaration for the preceding tax period.

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3.2.1 If the tax administration performs an audit of any year and makes an
adjustment to the tax of that year of more than twenty percent ( 20% ), the
relief from penalty provided in sub -paragraph 8 .2 will not apply to the
advance payment requirements for the succeeding tax period.

3.3. For the first tax period during which a taxpayer has been in business (the tax
period in which the taxpayer requested a fiscal number, or if taxpayer conducted
business prior to that time, the tax period in which economic activity started),
there shal l be no penalty charged if, including the fourth quarterly installment due
on 15 January, the taxpayer has made quarterly advance payments equal to at least
ninety percent ( 90% ) of the final tax obligatory for that tax period.

3.4. A taxpayer that had a l oss on the previous year Personal Income Tax
declaration is not eligible to use the provisions of sub -paragraph 2.2.2 of this
Article in making advance payments for the current year. Such taxpayer must
make advance payments in accordance with the provisio ns of sub -paragraph 2.2.1
of this A rticle.

3.5. The penalty to be charged under this Article shall be applied only to the
underpaid amount from the date of the underpayment until the date described in
paragraph 3 of this Article for making the final settl ement for the tax period, or, if
earlier, the payment date on which the taxpayer‟s advance payment includes an
amount sufficient to pay the advance payment for that quarter plus the underpaid
amount.

Article 44
Payment of tax for rents

1. Each taxpayer covered by Article 27 of this law who receives income from rent, except
those taxpayers whose economic activity is renting movable or immovable property, shall
make quarterly payments of tax to an account designated by the Tax Administration in a
bank or financial institution licensed by the Central Bank of Kosovo no later than fifteen
(15) days after the close of each calendar quarter (15 April, 15 July, 15 October, 15
January).

2. The amount of each quarterly payment , under paragraph 1 of this A rticle , shall be ten
percent (10%) of the taxable rental income (gross rental income minus ten percent (10%)
deduction provided in Article 27 of this L aw) received in the calendar quarter
immediately preceding the payment date reduced by any amount held during th e quarter
pursuant to Article 30.2 of the Law on Corporate Income Tax.

Article 45
Payment of tax for intangible property

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1. Each taxpayer who receives income from intangible property shall make quarterly
payments of tax to an account designated by the Tax Administration in a bank, or
financial institution, licensed by the Central Bank of Kosovo no later than fifteen (15)
days after the close of each calendar quarter (15 April, 15 July, 15 October, 15 January).

2. The amount of each quarterly pay ment under paragraph 1 of this A rticle shall be ten
percent (10%) of the taxable income from intangible property received in the calendar
quarter immediate ly preceding the payment date de duc ted by any amount that was
withheld on royalties purs uant to Article 39 of this L aw.

Article 46
Payment of tax for other taxable income, including capital gains

1. Each taxpayer who receives taxable income from capital gains or any other source not
described in Articles 38 to 43 of this L aw shall make payments of tax on or before 31
March of the year following the tax period in accordan ce with the provisions set out in
Article 48 of this L aw.

2. Taxpaye rs who receive taxable gifts according to Article 14 of this Law, must make an
advance payment of ten percent ( 10% ) of the amount of the gift which is in excess of five
thousand ( 5,000 ) € by the last day of the month following the quarter in which the gift is
received.

Article 47
Credits against tax

1. Taxpayers may credit against the amount of tax owed under this L aw for the taxable
year the following amounts:

1.1. Amount s withheld during the same tax period under the provisions of this
Law and Article 30.2 of Law on Corporate Income Tax;

1.2. Payments of tax under Articles 42, 43, 44, 45, or 46 of the present Law;

1.3. Income taxes p aid to any foreign country as provided in Article 37 of this
Law, if the income on which the foreign tax is paid is subject to tax under the
present Law. The amount of the foreign tax credit is limited to the amount of tax
that would have been paid on such income under the present Law.

Article 48
Tax declarations and payments

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1. Except where paragraph 2 of this Article applies, all taxpayers are required to prepare
and submit an annual tax declaration on or before 31 March of the year following the tax
period. The declaration shall be made on the forms prescribed by the Tax Administration
and s hall include, inter alia , gross income from all sources, allowable deductions, taxable
income, applicable credits, and the tax due pursuant to Article 6 of this L aw.

2. Taxpayers who receive or accrue i ncome only from one of the following sources are
not required to submit an annual declaration:
2.1. Wages;

2.2. Economic activities where tax is paid under paragraph 2.1 of Article 43 of
this L aw;

2.3. Rent wher e full payment has been made ac cording to Article 44 of this L aw;

2.4. Interest;

2.5. Lottery winnings , and being subject to Article 49 of this Law , Game of
Chance winnings;

2.6. Income from intangible property; or

2.7. Income from gifts

3. Taxpayers who receive or acc rue income only from the sources foreseen in paragraph
2 of this Article may opt to prepare and submit an annual declaration on or before 31
March of the year following the tax period. The declaration shall be made on the forms
prescribed by the Tax Admini stration and s hall include, inter alia , gross income from all
sources, allowable deductions, taxable income and the tax due pursuant to Article 5 of the
present L aw.

4. Any taxpayer who opts to submit an annual declaration under this A rticle shall be
su bject to the requirements established in par agraph 3 of Article 33 of this L aw for
making and reversing that option. Such taxpayers shall be required to submit annual
declarations in the year in which the option is made plus the three succeeding tax perio ds.

5. Taxpayers who are required to submit an annual tax declaration shall submit, together
with such declaration, the final owing amount of tax . The final owing amount of tax shall
be the diffe rence between the total tax unpaid for the tax period dete rmined in accordance
with the present Law and the total credits in tax under Article 47 of the present L aw.

6. If the total of the amount of credits in tax pursuant to Article 47 of the present Law
exceeds the total tax unpaid for the tax period, the tax payer shall be entitled to a refund of
the excess tax paid.

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7. The location for submitting tax declarations, remitting tax, and claiming refunds shall
be specified in a sub -legal act issued by the Minister.

Article 49
Appeals and temporary measur es

1. Any person unsatisfied with the decision taken according to the provisions of this Law
by the Kosovo Tax Administration has the Right of submitting the request f or review in
the department of Appeals of the Tax Administration.

1.1. Taxpayers who do no t accord with the decision of Department of Complain ts
may submit the complaint in the Independent Board for Reviews.

1.2. Submission of the Complain t does not suspend the execution of decision
issued by Kosovo Tax Administration.

1.3. If a Taxpayer is not sa tisfied with the decision taken by Independent Board
for Reviews, may submit a complaint in the competent Court .

2. The provisions relative to Games of Chance in sub -paragraph 1.8 of Article 7, sub –
paragraph 1.13 of Article 8, Article 40, and sub -paragra ph 2.5 of Article 48 shall become
obsolete and superseded by provisions in the Law on Games of Chance and Lottery (or
similar law related to the regulation and taxation of games of chance and lottery) relative
to fixed quotes upon its date of entering into force.

3. In accordance with the Law on VAT, a taxpayer must register for VAT when reaching
the threshold of fifty thousand (50,000 ) €of gross turnover in a twelve ( 12 ) consecutive
month period. The Law on VAT includes provisions under which the registr ation
threshold may be changed with the approval of the Assembly. If the VAT registration
threshold is increased or decreased, the threshold for determining personal income tax
liability based on an accounting for income and expenses (currently fif ty thou sand
(50,000 ) € annual turnover) shall be increased or decreased accordingly.

3.1.An increase or decrease in the threshold for determining personal income tax
liability shall be reflected in the applicable provisions of Articles 7, 10, 15, 32, 33,
34, and 43 of this Law.

3.2. Any increase or decrease in the personal income tax threshold shall be
effective for the tax period beginning on 1 January of the year following the
revision of the VAT threshold and each successive tax period thereafter. If the

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increase in the VAT threshold is effective as of 1 January of a tax period, revision
of the personal income tax threshold shall be effective beginning with 1 January
of that same tax period.

3.3. Upon an increase or decre ase in the threshold approved by the Assembly, the
Minister shall issue a sub -legal act to implement the revised threshold level,
which will reflect the necessary revisions to Articles 7, 10, 15, 32, 33, 34, and 43
of this Law.

Article 50
Implementation

1. The Minister shall issue the sub -legal acts required by this Law for the implementation
of this Law.

Article 51
Applicable Law

This Law shall repeal Law No. 03/L – 115 , date 18 December 2008, as well as any other
provision that is in contradiction with this Law.

Article 52
Entry into Force

1. This Law shall enter into force fifteen (15) days after the publication in the Official
Gazette of the Republic of Kosovo.

2. By the entry into force of this Law, its effects will be from 1 January 2010.

Law No.03/L -161
29 December 2009

The President of the Assembly of Republic of Kosovo

_____________________________
Jakup Krasniqi

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