A business-friendly tax regime, trade policy and labour force
The overall tax level in Kosovo is low. The tax system, created from scratch in recent years, has introduced modern European taxation standards and practices and is the least burdensome and simplest system in the region.
Most of the budget revenue comes from value added tax (VAT), excise tax and custom duties. The largest revenue source is VAT, which is collected at the border on imported goods and internally on locally produced goods and services. VAT applies to all imports and to domestic transactions made by enterprises with a turnover larger than 50,000 Euro. Exporters can use the VAT rebate. Businesses can defer payment of VAT on import of capital goods up to 6 months. Excise taxes are levied on alcohol, tobacco, coffee, soft drinks, motor vehicles and certain other products.
The Kosovo Tax System
Trade policy promoting local production and exports
Kosovo is an independent customs entity with a liberal trade regime. The general tariff rate is currently at 10% for imports and 0% for exports. Tariff rates for capital goods and a wide range of intermediary goods are also 0%. With these policies, Kosovo is certainly the most advantageous tax environment in the wider region.
Currently, Kosovo has a Free Trade Agreement (FTA) with Albania. Negotiations are ongoing with Bosnia and FYROM to sign Free Trade Agreements. Trade with Serbia and Montenegro is at present equally free, and the 1996 FTA between Yugoslavia and FYROM is applied on an interim basis. Kosovo has committed itself to sign FTAs with all Western Balkan countries under the Stability Pact framework. Following that process, Kosovo will become part of a regional free trade area of over a hundred million people.
You can find the full texts of the agreements on Free Trade, Investment Protection, Avoidance of Double Taxation as well as other policy and legal documents, reports and analyses in the Documentation section of this website.
Kosovo enjoys non-reciprocal, customs-free access to the EU market, as stipulated by the EU Autonomous Trade Preference (ATP) Regime (Council Resolution (EU) 2007/2000). Quantitative and qualitative restrictions remain in force only for a very limited number of goods. Investors thus enjoy unlimited access to the EU market and the benefits of Kosovo's low-tax environment, low labour costs and payroll taxes, and they have access to a pool of young and motivated workers.
A flexible labour market and a competitive labour force
The labour market in Kosovo is highly flexible and regulated by a modern Labour Law (Regulation No. 2001/27 on the Essential Labour Law in Kosovo), created in line with EU standards. The average monthly wage in Kosovo in 2004 was estimated at 218 EUR.
Kosovo's labour force is also among the most competitive in the region, given that income taxes are very low --only 5% on the average gross salary. Furthermore, wages in Kosovo are unburdened by costly social contributions, unlike the salaries in most neighbouring countries. The only mandatory contributions are those for individual pension savings accounts, financed by employer (5%) and employee_(5%) contributions on total gross wages paid. Individual pension accounts are direct and tax-free personal savings for employees.
The Kosovo Government and the international community in Kosovo have established vocational training programmes, which benefit workers and employers. These programmes continue with generous donor support. Kosovo's education system is undergoing substantial reforms to make its labour force more productive and competitive in an open economy, which Kosovo is increasingly becoming.
Source: ECIKS / MTI - Ministry of Trade and Industry