Kosovo: Kosovo Tax Alert - VAT

Taxable persons

[Addition] Non-profit organizations are not considered taxable persons for payments deriving from membership, funds, grants or donations received for the purposes of their non-profit activity, except when they receive such payments as a result of an economic activity.

VAT registration

[Amendment] A certificate of import and export is no longer required and only a VAT certificate will be issued for taxable persons.

The VAT registration threshold and turnover calculation method has been changed from EUR 50,000 in the previous 12 months to EUR 30,000 within a calendar year.

[Addition] The law further clarifies that foreign persons conducting an economic activity in Kosovo will be considered taxable persons from the commencement of their activity in Kosovo, and the same applies for the permanent unit of a non-resident person in Kosovo.

Cancellation of VAT registration

[Amendment] Cancellation of VAT registration will be effective 2 months after the request is submitted, provided it is approved by the tax authorities.

Taxable persons cannot cancel their VAT registration at least for 1 more calendar year after the year of registration.

Mixed supply of goods and/or services

[Addition] Supply of services included in the supply or import of goods is considered part of the supply or import of goods, respectively. Similarly, supply of goods included in the supply of services is considered part of the supply of services.

Use of self-supplied services for business needs

[Addition] Construction repair work with respect to immovable property used or to be used for existing or future economic activity and rendered for free by a taxable person or his staff to himself is treated as a supply of services for consideration.

Place of supply of goods

[Addition] For supply of goods on boards of ships, aircraft or trains, in the case of an in-and-out trip, the return leg is treated as a separate transport operation.

Place of supply of services

[Amendment] A point of transport departure shall be the place of supply for passenger transport to a taxable person, and not where the transport takes place proportionate to covered distances.

The same will also apply in determining the place of supply of goods and passenger transport to a non-taxable person.

The place of supply of restaurant and catering services which are physically carried out on board ships, aircraft or trains during the section of a passenger operation within Kosovo is the point of departure of passenger transport operation, not Kosovo.

Chargeability of VAT

[Addition] Long-term contracts shall be regarded as completed:

• In the month of issuance of IPC (Interim Payment Certificate), but not later than 1 month after the issuance of IPC in cases when the technical acceptance of works is made later;
• In cases when one or more IPCs have been issued during the year, at the end of the year it is required for an IPC to be issued based on the real measurement of works completed;
• If no IPC has been issued during the year, then at the end of the year the obligation to charge VAT will arise based on the real measurement of works completed;

Chargeability of VAT for imported goods

[Addition] When imported goods are subject to customs duties, the chargeable event will occur and VAT will become chargeable.

Taxable Amount

[Addition] For supplies made through public auction, the taxable amount is the final value obtained.

For supplies with goods and services not accompanied by an invoice, the taxable amount is deemed the supply to final consumers under the open market value principle.

Rate

[Amendment] Standard VAT rate is increased from 16% to 18%.

[Addition] A reduced VAT rate of 8% will apply to the import and supply of the following goods and/or services:

• Supply with water, except bottled water;
• Supply with electricity, including transmission and distribution services, with central heating, waste collection and other waste treatment;
• Grains such as barley, corn, maize varieties, oats, rye, rice and wheat;
• Products made from grain for human consumption, such as flour, pasta, bread and similar products;
• Cooking oils made from grains or oilseeds for use in cooking for human consumption;
• Dairy and dairy products intended for human consumption;
• Salt appropriate for human consumption;
• Eggs for consumption;
• Textbooks and serial publications;
• Supply including lending of books from libraries including brochures, leaflets and similar printed materials, children's picture books, drawing and coloring books, music printed texts or manuscripts, maps and hydro graphic charts and similar;
• Information technology equipment
• Supply with medicines, pharmaceutical products, instruments, medical and surgical devices;
• Medical equipment, ambulances, aids and other medical devices to facilitate or treat inability for exclusive use by the disabled, including the repair of such goods and supply with children's vehicle seats;

Exemptions without right of deduction for certain activities in the public interest

[Amendment] Supply of medicines, pharmaceutical products and medical and surgical instruments and apparatus will no longer be exempt from VAT, but subject to the reduced VAT rate of 8%.

All activities carried out by public radio and television bodies will be exempt from VAT. The previous VAT law specified that only those not of a commercial nature are VAT exempt.

[Addition] Supply of public transport services to travelers and their baggage, with prices set by the competent state authority will be VAT exempt.

Exemptions without right of deduction for other activities

[Amendment] Transactions of life and health insurance and reinsurance, including related services performed by insurance brokers and insurance agents will be exempt from VAT. The previous VAT law did not limit the type of insurance transactions that are VAT exempt.

Supply of houses, apartments or other accommodation used for residential purposes, including garages and basements is VAT exempt. The previous VAT law did not include garages and basements in the definition of VAT exempt supplies of accommodation.

[Addition] International road transport of passengers by bus and other vehicles and transport of accompanying goods, such as suitcases or supply of services related to passenger transport, from one place in the territory of Kosovo to a place outside of it and vice-versa, will be VAT exempt.

Exemptions on importation

[Amendment] Import of catches of fishing vessels and fishing boats used for the purpose of carrying out a fishing activity into a port, subject to certain conditions, will no longer be VAT exempt.

In line with their supply no longer being VAT exempt, import of medicines, pharmaceutical products, medical and surgical instruments and apparatus will no longer be VAT exempt.

[Addition] Import of the following goods will be VAT exempt:

• Production lines and machinery for use in the production process
• Raw materials used in the production process
• Information technology equipment
• Newspapers and periodic publications
• Equipment and materials for the needs of electronic and written media

Transitional period

[Amendment] The transitional period for VAT exemption on imports and supplies of goods and/or services funded from proceeds of donations made to or through the Kosovo budget or under the supervision of competent bodies or directly financed through contracts for the benefit of public authorities from international organizations and their agencies, governments, government agencies, governmental or non-governmental organizations in support of humanitarian and reconstruction programs and other projects, including European integration projects in Kosovo, has been removed and such imports and/or supplies will remain VAT exempt unless the new VAT law is amended.

Exemptions related to certain transactions treated as exports

[Addition] The supply of goods and services to foreign staff of special diplomatic and consular missions accredited in Kosovo, including their family members will be VAT exempt.

The supply of goods and public services to Kosovo Religious Communities in accordance with the respective legislation on religious freedom and other applicable legislation will be VAT exempt.

The supply of goods and services co-financed by proceeds of donations from foreign governments and the Kosovo budget for public benefit project, if the exemption is provided by agreement between the parties and the co-payment from the Kosovo budget is not more than 20%, will be exempt from VAT.

The right to deduct VAT

[Amendment] The new law clarifies that a taxable person cannot deduct input VAT on representation costs, which include only costs for hosting and entertainment during business or social contacts, including food, drinks and accommodation costs. A taxable person, however, can deduct input VAT on marketing expenses, meals and transportation for personnel.

The previous VAT law did not make such a distinction but only provides an exception when representation costs are incurred for personnel in charge of making supplies of goods and/or services.

Exercise of the right of deduction

[Addition] A taxable person who pays VAT compensation is entitled to deduct the VAT compensation as deductible, provided that he has paid the VAT compensation and the value of goods and services received to the farmers, and that the goods and services were intended for taxable supplies for which the right for the deduction of input VAT is established.

Manner to exercise the right of deduction

[Amendment] The taxable person will no longer be required to notify in advance the Head of the Regional Tax Office for late deductions of input VAT.

Calculation of the deductible proportion of input VAT

[Amendment] In absence of data on transactions in the preceding year, or where they were insignificant in amount, the provisional deductible proportion shall be determined by the taxable person, on the basis of the taxable person's own forecasts, regarding which the taxable person should notify TAK. The previous VAT law required that tax authorities determine the provisional deductible proportion.

VAT refund claims

[Amendment] A taxable person may claim a VAT refund if they maintain a credit position for 3 consecutive months and the amount of VAT credit exceeds EUR 3,000 and all VAT and other tax returns for past tax periods have been submitted. The previous VAT law allowed the taxable person to submit a refund claim only in the last tax period of a calendar quarter and if the VAT credit amount exceeds EUR 5,000.

A taxable person that has exports may claim a VAT refund after each tax period, provided only that the amount of VAT credit exceeds EUR 3,000. The previous VAT law required that export transactions represent at least 25% of all transactions by the taxable persons and that the amount of VAT credit exceeds EUR 5,000.

Deduction of input VAT on commencement of economic activity

[amendment] On the day the registration for VAT purposes becomes valid, a taxable person acquires the right to a deduction of input VAT for goods in stock from the moment the VAT threshold is reached. The previous VAT law allowed for the right of deduction of input VAT on goods in stock the day before the VAT registration becomes valid.

Bad debt for VAT purposes

[Amendment] Where the whole or part of payment for a taxable supply is not received by a supplier and is considered as uncollectable by initiating court procedures, the respective VAT deduction is allowed.

This VAT deduction is allowed in each tax period after the debt becomes bad and starts at least 6 months after closing the tax period for which VAT has been in applied in respect of that supply. The taxable person must issue a 'bad debt' invoice for the uncollected amount and in cases when such bad debt is subsequently paid, a 'bad debt paid' invoice must be issued.

[Addition] No initiation of court proceedings is required for bad debt up to 500 EUR.

Uncollected amounts are not considered bad debt if:

• Transactions with the same debtor have been recurring after recognizing bad debt (exception for public services to be provided in a sub-legal act);
• Bad debt is between related parties; or
• There is insufficient evidence that substantial efforts have been made to collect the debt, including each applicable action to optimize the debt collection.

The previous VAT law did not foresee the EUR 500 threshold under which no initiation of court proceedings is required, and required the taxable person to apply to the tax authorities for the recognition of bad debt.

Requirement for books and records

[Amendment] When IT programs are used to store accounting and tax records, it is no longer required that the agreement between the taxable person and the outsourcing specialist be provided to the tax authorities, and they will no longer be jointly and severally liable for the payment of tax.

Retention of books and records

[Addition] Documentation on immovable property must be kept for a minimum of 20 years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.