KOSOVO Law and Practice Contributed by: Ardian Rexha, Nora Grajcevci Mehmeti and Vjollca Hiseni, Rex Law Partners
Nevertheless, employees are guaranteed freedom of association and trade-union action without inter - ference. Trade unions have the legal role of organis - ing strikes for the protection of employee rights. If an employer plans a collective dismissal, they are required to notify the employees’ trade union in writ - ing at least one month in advance (provided a union is active). With regard to collective bargaining, employee organi - sations or their representatives are the necessary par - ties for concluding collective contracts at the state, branch and enterprise levels. Pursuant to Law No 05/L -028 on Personal Income Tax, taxation applies to income generated from wages, salaries, bonuses and other forms of compensation. Taxes are primarily through a withholding at source system, where employers deduct income tax and pen - sion contributions from employees’ gross salaries and remit them to authorities. Tax residents are taxed on all income, whereas non-residents are taxed only on income earned within Kosovo. Taxable income from employment is calculated after deducting mandatory pension contributions. Both the employer and the employee are required to contribute 5% of the gross salary each to the pension fund, with optional additional contributions of up to 10%. These contributions are paid into the Kosovo Pension Sav - ings Fund or licensed alternatives. 5. Tax Law 5.1 Taxes Applicable to Employees/ Employers Following the deduction of pension contributions, per - sonal income tax is applied on a progressive basis, as follows: • 0% on annual income from EUR0 to EUR3,000; • 8% on annual income from EUR3,000 to EUR5,400; and • 10% on annual income above EUR5,400.
For employees that receive income from a secondary employer, a flat rate of 10% applies to the secondary employment income. 5.2 Taxes Applicable to Businesses Corporate taxation is primarily governed by Law No 06/L-105 on Corporate Income Tax, Law No 05/L-037 on Value Added Tax, Law No 05/L-028 on Personal Income Tax and Law 08/257 on Tax Administration and Procedures, supplemented by relevant adminis - trative instructions issued by the Tax Administration of Kosovo ( Administrata Tatimore e Kosovës – TAK). Corporate Income Tax Corporate income tax is set at a flat rate of 10% on taxable income. VAT Companies engaged in the supply of goods or ser - vices are generally subject to VAT. The standard VAT rate is 18%, while a reduced rate of 8% applies to certain goods and services, typically those consid - ered essential. Certain activities of public interest are exempt from VAT, including other activities in finan - cial and insurance services, such as loans granted by financial institutions, life insurance and reinsurance, amongst others. VAT registration is mandatory once an entity’s annual taxable turnover exceeds EUR30,000, although volun - tary registration is permitted below this threshold. VAT is also applied to imports of goods, whereas export of goods is exempted of VAT. Withholding Tax Withholding tax obligations apply to specific catego - ries of cross-border and domestic payments, includ - ing interest, royalties, rent and certain service pay - ments made to non-residents. Applicable rates are as follows: • 10% for interest and royalties; • 9% for rent; and • 5% for qualifying services paid to non-resident entities. Dividends are exempt from taxation in Kosovo.
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