Taxation trends in Western Balkans, 2016

FIRST EDITION, 2016

A PUBLICATION THAT

DESCRIBES THE TAXES AND

THEIR FUNCTIONALITY IN

ALBANIA, BOSNIA -

HERZEGOVINA, KOSOVO,

MACEDONIA, MONTENEGRO

AND SERBIA

TAXATION TRENDS

IN

WESTERN BALKANS, 2016

ALTAX Center

2016/11/08

TAXATION TRENDS IN WESTERN BALKANS, 2016

1

© ALTAX

Fiscal Studies November 2016

Preparation and distribution

A. GJOKUTAJ, Chairwomen ALTAX Center


ALTAX is an Albanian think - tank initiative aiming at a new approach to Albanian - European fiscal and economic policy. The primary goal is to promote education in taxation, help and assist the taxpayers and interested parties (students, field experts, civil servants) with the proper expertise. On the other hand the cooperation with the academics and fiscal experts helps to expand and create a comprehensive audience in help of increasing of fiscal capacities in Albania and Kosovo.

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www.al-tax.org [email protected] November 2016 Tirana, Albania

The document is available to the website www.al-tax.org If you request and send questions to [email protected] Cover and back design: ALTAX CENTER

ALTAX

ALBANIAN FISCAL STUDIES

http://www.al-tax.org/

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ALTAX Center ALBANIAN FISCAL STUDIES No. 2016/11/08 www.al-tax.org [email protected] Data 02.11.2016 Tirana, ALBANIA


This document is prepared by the ALTAX, in a series of thematic collections named ALBANIAN FISCAL STUDIES, with the aim to present an insight view of taxation policies and issues in order to become as a part of discussion for all people concerned, or for use in tax policy tax administration and in the implementation process of the good and competitive practices. The copyright is ©ALTAX. Anyone who will use the data from this document requires copyright mark as reference materials to be used. The document is available to the website www.al-tax.org If you request and send questions to [email protected]




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©2016 ALTAX CENTER ALBANIAN FISCAL STUDIES

NOVEMBER 2016


A COMPARATIVE VIEW OF TAXATION AND RULES FOR BUSINESSES AND INDIVIDUALS IN 6 WESTERN BALKAN COUNTRIES

ABSTRACT

This work is a product of the staff of ALTAX experts. The findings, and conclusions expressed in

this work reflect the copy of legislation and comments done by different authors and by the own

experts too. The work is a compilation of recent developments of tax rates and tax policies.

The publication aims to present and compare the tax systems for six neighbor countries in West

Balkans according to the tax policies and tax rates in 2016. The work includes the common and

different elements of 6 tax systems and also new developments, investment incentives and

rules about doing business in Western Balkans.

Keywords: tax system, corporate, business, individual, social contributions, VAT, CIT, PIT


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Contents

Preface 5

1. Tax system and incentives for foreign investments in Albania 7

2. The federal system of taxes in Bosnia and Herzegovina 22

3. The simple tax system of Kosovo 33

4. Tax system competitiveness in Macedonia 43

5. Montenegro tax system trends 57

6. Serbia tax system highlights 64

Conclusion 70


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Preface

The Taxation trend in Western Balkans, 2016 publication is the first edition from ALTAX CENTER,

in the thematic collection and publications of tax policies and issues in the Western Balkans

countries. The countries that compile the contents of this report are part of Western Balkans

and are ranked based in alphabetic order. They are Albania, Bosnia and Herzegovina, Kosovo,

Macedoni, Montenegro and Serbia.

The publication of policies and tax rates, together with the tax incentives for investors show

both successful policies and reform challenges, as well as provide a good point of reference for

individuals, scholars and businesses to participate in discussion around tax debates across a

broader range of issues.

This presentation shows that taxes on capital are not enough to give to the economy the proper

incentives if the indirect taxes are not harmonized with the direct taxes. The tax policy on the

other hand is only part of the picture when looking at the contribution made to investments and

economy.

Since taxes are a crucial component of a country’s international competitiveness there’s

important to factorize the tax incentives to make the economic environment more competitive.

In today’s globalized economy, the structure of a country’s tax code is an important factor for

businesses when they decide where to invest, how much to invest, and which types of

operations to locate in which countries.

The main characteristic of tax systems in Western Balkans is the low tax rates on taxes on

capitals and on labor with the objective to give to the business investment and activities the

proper guarantee for their economic performance. In recent years, all the Balkan countries have

recognized this fact and have moved to reform their tax legislation to be more competitive.


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The level of taxation in every country determines how much of the money residents earn can

get to take home and how much of the wealth they accrue could get to keep. It affects the

neighborhood in which we can afford to live, the luxuries we can afford to buy and our chances

of getting on the property ladder.

The report, which has been presented this year, factors in the time taken to pay taxes, the

overall tax rate are all included in this publication.


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1. Tax system and incentives for foreign investments in Albania

The principal business entities in Albania are as follows: (i) general partnership; (ii) limited

partnership; (iii) limited liability company (locally sh.p.k.); (iv) joint stock company (locally sh.a.);

v) a branch; and vi) a representative office. Any investment made through merger and

acquisition, takeover and green field investment is addressed in the Law on Entrepreneurs and

Commercial Companies, 20081.

Branches

Foreign legal entities may register branches in the Republic of Albania. Branches are entered in

the Commercial Register at the National Business Center (NBC). Though part of a foreign

company, branches are considered independent and therefore must keep separate accounting

books and prepare balance sheets. However, registered capital is not required for the

establishment of a branch.

Representative offices

Under the 2008 Commercial Companies Law, a foreign investor can have a representative office

in Albania. The representative office must also be registered with NBC and have a legal

representative empowered by the company to manage the representative office. However, such

an office is not entitled to perform commercial activity.

The Commercial Register, a unique electronic database of business entities existing under the

Albanian law, is regulated by the legislative provisions for the NBC. The following are subject to

registration with the Commercial Register:

- Individuals who carry out commercial activity

- Simple partnerships under the Civil Code

- Commercial companies

- Branches and representative offices

- Saving-credit companies and unions

- Cooperation companies and any other entity subject to registration according to Albanian

1 See www.qkb.gov.al

http://www.qkb.gov.al/


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legislation.

The NBC has the authority to receive all registration applications and keep all documents

containing information related to the incorporation, activity, statutory changes, organization of

businesses and legal representatives. The NRC provides full electronic access to the Commercial

Register, information for the general public, foreign investors and governmental institutions via

the internet. It offers a “one-stop-shop” solution for business registration as the registration

with the Commercial Register is simultaneous with the registration with the tax authorities, the

social and health insurance system and the Employment Inspectorate. The NBC serves as a

single “window” for all types of business entities throughout Albania to perform and apply for all

business registration-related processes.

Each individual, who is a partner in a commercial company, is responsible for the company's tax

liabilities to the tax administration, according to provisions in the company charter. According to

commercial registry, over 98 percent of companies are limited liability companies. The

remainder is joint stock companies, partnerships and less than 0.5 percent is limited

partnerships. The tax period commences on 1 January and ends on 31 December of each

calendar year.

At the moment a company is registered and starts its economic activity, it is responsible for:

- Calculation of VAT and timely declaration and payment;

- Payment of advance tax installments for profit tax to pay every three months;

- Calculation, timely declaration and payment of tax on incomes from employment

for employers and employees;

- Calculation, timely declaration and payment of social and health contributions;

- Withholding and payment of withheld tax, under obligation of Law "On Income tax";

- Calculation, timely declaration and payment of taxes according to specific activity

"for gambling, casinos and hippodromes" for the companies that have to deal

with this tax;

- Calculation, timely declaration and payment of excise under specific law "On Excises" for

the companies that have to deal with this tax;

- Calculation, timely declaration and payment of national taxes and local taxes (if).


9

In order to calculate taxes, taxpayers who are subject to VAT or profit tax keep registers,

accounting records, books and financial information and issue tax receipt or tax coupon, in

accordance with relevant laws and regulations pursuant to them. Taxpayers keep their accounts

in accordance with provisions of the law "On accounting and financial statements" and act

pursuant to that law in accordance with IFRS principles. In order to register economic

transactions related to taxes, taxpayers can also use books, records or documents specified in

specific tax laws and respective regulation provisions. Taxpayers are required to use basic

documentation, including tax invoice, in accordance with tax legislation and relevant legal

provisions.

Taxes in Albania are grouped into three main categories: (a) indirect taxes (VAT, excise,

gambling and other indirect taxes), direct taxes (income tax, personal income taxes, taxes on

capital); (b) local taxes, and (c) social and health security contributions.

National Taxes, administered by the Central Tax Administration and Customs Administration

include:

1. Indirect taxes2

a. Value added tax;

b. Excise (since 2012 is administered by Custom administration);

c. Taxes on gambling, casinos and hippodromes;

2. Direct taxes

d. Income tax;

e. National taxes;

f. Other taxes, which are defined as such by special law, and

g. Customs taxes.

3. Social and health security contributions, as defined in the social insurances law

4. Local taxes and tariffs administered by Local Tax Administration include:

a. Tax on immovable property, which includes tax on buildings and agricultural land;

b. Tax on hotel accommodation;

2 See explanation of term in ANNEX


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c. Tax on impact of new constructions upon infrastructure;

d. Tax on transfer of ownership right on real estate;

e. Annual tax for vehicle registration;

f. Tax for occupation of public space;

g. Advertising tax;

h. Temporary taxes

i. Registration tariff for various activities;

j. Fee on infrastructure of education;

k. Vehicle parking tariff;

l. Tariff for services

Value Added Tax

The majority of goods and services are subject to VAT at a standard rate of 20 per cent, although

certain exemptions apply (such as for financial services, postal services, supplies of electronic

and written media for advertising, supplies of services at casinos and hippodromes (race tracks),

sales of newspapers, magazines and advertisement services in them, as well as research

hydrocarbon operations).

In 2014 it was approved by Albanian Parliament a new VAT Law, which applied since January

2015. All taxable persons carrying out independent economic activities are required to apply for

a mandatory VAT registration if their taxable turnover exceeds ALL 5 million3 in a calendar year.

Any taxable person that performs import-export activities and any tax registered freelancer

should register for VAT purposes regardless of the annual turnover.

The new law provides convenient and attractive environment, safety for local entrepreneurship

foreign legal consistency fiscal, well-defined rules to ensure:

- Uniformity in the application of VAT, and so unified taxation system in line with that of the EU

countries;

- Fair competition and equal conditions, eliminating factors that affect these conditions;

- Promoting the circulation of goods services, making our business competitive with other

countries.

3 EUR 36,000


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According to the VAT Law (No. 92/2014), the most significant incentives for investors in Albania

are as follows:

- VAT credit at the rate of 100 per cent for importers of machinery and equipment which

will serve entirely their taxable economic activity;

- exemption of VAT for export of international services;

- automatic VAT refund system from treasury, based on risk management

The tax export regime can be considered a kind of investment incentive for both foreign and

national entrepreneurs, and is applicable to all Albanian products destined for export outside

the Albanian customs territory. The export VAT rate it is 0 per cent. Exporters can benefit from a

VAT credit for purchases made on behalf of their exports.

Overall, if the tax credit for a taxation period is higher than the VAT applicable in that period,

taxpayers have the right to use the credit surplus for the following taxable period. Taxable

persons have the right to request a reimbursement of the credit surplus when they have a

taxable credit amount over three months that is above 400,000 Albanian Leks. As stated above,

and since they are essentially exporters, investors are entitled to VAT reimbursement on the

purchase of domestic goods or raw materials when it is for production purposes4.

Corporate taxation

A company is considered resident in Albania if it has its legal seat or place of effective

management in Albania. Further, partnerships and legal entities with a permanent

establishment in Albania would be considered resident taxpayers. Residents must register with

the National Registration Center (NRC). Residents are taxed on their worldwide income;

nonresidents are taxed only on their Albanian- source income.

Taxable income of residents includes business profits, as well as dividends, interest, and realized

capital gains. Taxable profit is the difference between gross profit and related expenses. The

determination of the taxable profit is generally based on the profits shown on the financial

statements.

From the January 1st, 2014 the income tax rate of 15%.

4 For detailed explanation email to [email protected]



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Dividend income is considered taxable income, unless the participation exemption or a

double tax treaty relief is applicable.

Dividends and distribution of earnings are excluded from a resident’s taxable profit when

dividends and earnings are distributed from resident companies or partnerships which are

subject to corporate income tax despite the participation quota, in value or number, of the

share capital, of the right to vote or the participation in initial capital or share capital of the

beneficiaries.

No participation exemption is in place for holding of foreign companies. Consequently,

dividends received from foreign companies would be included in taxable income. Taxation of

dividends paid to nonresidents – Dividend income distribution to a nonresident is subject to a

withholding tax of 15%5, unless a double tax treaty provides for a lower rate.

Realized capital gains are considered as taxable income and are taxed together with other

income, at 15% on a net basis.

A loss may be covered by profits in the next three fiscal years, according to the principle ''first

loss before the last one”. The tax loss cannot be carried forward if the ownership of stock capital

or voting rights of an entity changes by more than 50% in value or number.

Double taxation is avoided through tax treaties. Albania currently has signed 40 tax double

treaties in effect with other countries. The treaties are based under principles of OECD Model

Tax Convention on Income and Capital. In 2013, Albania ratified the Convention on Mutual

Administrative Assistance in Tax Matters, a multilateral agreement developed jointly by the

Council of Europe and the OECD.

When a Tax Double Treaty is in force between Albania and another state, its provisions prevail

over the local tax regulations. The effects of tax double treaties are in force with countries

below, since the year in addition.

5 Since January 2015, amended by Law 156/2014


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Tax Incentives or tax expenditures

Every exemptions or tax incentive is granted only by law. The tax incentives comprise different

forms applied by law:

- low tax rates (15%) with no preconditions,

- special scheme for farmers,

- tax exemptions sectors (research of hydrocarbons),

- contributions made by the employer to ensure the health and lives of employees are

nontaxable,

- investment tax credits (investments of all kinds),

- tax loss carry forward,

- accelerated depreciation rates.

If the tax rate on income taxes can be compared with the neighbor countries with Albania, it can

be noticed that the income tax rates are competitive and attractive ones. The tax rate on

income and profit is applied on equal basis to all taxpayers regardless of the region, the branch

they perform their economic activity from or the type of activity.

Tax is granted for selected projects on a case-by-case basis and for every business as per under

- articles 18 of income tax law;

- articles 53, 54 and 56 of VAT law including the special scheme of exemption from VAT

for investments value over € 360,000;

- articles 10-12 of excise tax law; and

- article 9 of National Taxes law.

The investment projects may include investments channeled to public services, infrastructure

projects, as well as tourism and oil industries.

Foreign investors can freely transfer, and purchase to transfer, foreign currency abroad after

any corporate taxes due, including withholding taxes, have been duly paid.

The owners of companies may transfer abroad:

- Income generated through an investment

- Compensation against expropriation of investments for state needs


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- Liquidation quotas upon termination of the investment

- Proceeds from the sale of an investment

- Sums received as a result of enforcement proceedings.

This right may also be exercised by foreign individuals who have obtained a permanent

residence permit and are registered as sole traders or participate in a co-operative, in an

unlimited partnership or as unlimited partners in a limited partnership, after the payment of all

taxes due.

Tax exemption

Albania’s tax regime is considered by far one of the most important incentives for foreign

investment; however, the tax system as such does not discriminate against or in favor of foreign

investors. Likewise, legislation relating to the public procurement process makes little distinction

between foreign and domestic companies, as many activities in Albania require licensing within

the territory. The procedures for obtaining a license are, however, the same for national and

foreign companies. The government to date has not screened foreign investments and provided

little in the way of tax, financial or other special incentives.

Withholding tax

Withholding tax is applicable to dividend, interest, and royalty payments, as well as certain

other types of Albanian-source income earned by nonresidents.

Dividends are subject to a 15% withholding tax rate, unless the rate is reduced under an

applicable tax treaty. Interest is taxed at a 15% withholding tax rate, unless the rate is reduced

under an applicable tax double treaty. Royalties are subject to a 15% withholding tax rate,

unless the rate is reduced under an applicable tax double treaty.

Withholding tax must be paid no later than the 20th day of the month following the month the

remittance upon which the withholding tax is assessed. The payer of such amounts is

responsible for retaining and paying the tax on the account of the tax authorities.


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A withholding tax of 15% is applicable to the gross amount of:

a) technical service fees;

b) management fees;

c) payments for construction, installation, assembly or related supervisory work;

d) rental payments; and

e) payment for the performance of entertainment activities, which are made to

nonresident taxpayers.

The income in the form of cash for increasing the capital with resources from outside the

organization are not taxed ago, and have been subject to tax and that are not accompanied by

official documents proving the origin of this income are taxable by 15% as personal income.

Payroll tax

Resident employers are required to withhold personal income tax on employee wages and remit

to tax authorities on a monthly basis. The threshold of salary non taxable it is 30.000 Leks per

month (€ 215 per month). In Albania, since 2014 is applied the progressive tax rate, based in

three tax brackets, as can be seen in ANNEX.

Social Security and Health filing requirements

Employers must properly calculated social and health insurance contributions and must pay no

later than the 20th date of the month following the month of calculation. The total social

security contribution is 27.9 per cent of the monthly secured compensation salary. Social

security and health insurance contributions are paid by the employer at the rate of 16.7%. Social

security contributions paid by the employee are rated at 11.2%.

Albania doesn't have a sovereign wealth fund.

Local taxes

According to the Law on the Local Tax System, a wide range of local taxes is levied on every

business activity. Most of them are levied at specific amounts and differ by location of business

activity in the territory of Albania.

Transfer Tax of immovable property

The transfer tax which is imposed on the seller on a net basis from for the transfer of the


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immovable property varies from one municipality to another. The minimum tax for residential

building it is 100 Leks/ m² per year and a maximum of 1.000 lek/ m². The minimum tax for

commercial building it is 300 Leks/ m² per year and a maximum of 2.000 lek/ m². However, this

tax may be credited on capital gains for income tax purposes.

No transfer tax is imposed on the transfer of securities.

Tax on small business

Individual entrepreneurs or legal entities that conduct business activity in Albania and have an

annual turnover of less than ALL 8 million are subject to the local tax on small business. Since

2016, small businesses having an annual turnover of less than ALL 2 million are not anymore

subject to fixed tax obligation amounting to ALL 25,000 (approximately EUR 180) per year which

it was until 2015.

Also, the taxpayers with an annual turnover between ALL 2 million and ALL 5 million will not be

subject to the simplified income tax on small business at a 7.5 percent rate. This tax since 2016

will be 0%.

The taxpayers with an annual turnover between ALL 5 million and ALL 8 million will be subject to

a decreased rate of the simplified income tax on small business. Since 2016 the tax rate will be

5% instead of the 7.5 percent rate, which was until 2015.

The simplified income tax on small business for this segment will be paid in advance on a

quarterly basis, by 20 April, 20 July, 20 October and 20 December.

Property tax

The property tax includes (a) Property tax on real estate, (b) property tax on agriculture land, (c)

property tax on building ground.

Property tax on real estate

The property tax on real estate it is between 5 to 400 Leks per m², annually and is based on the

decision of Council of Municipalities according to the categories of municipalities.

The tax on residential buildings used for business purposes varies from ALL 5 to ALL 30 per m²,

while the tax on buildings owned by businesses varies from ALL 200 to ALL 400 per m². The


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variation depends by on to other category of the municipality.

The tax on buildings are double for any second or subsequent real estate property (apartment

or house) owned by individuals.

The local tax on agricultural land

Property tax is also applicable to agricultural land at rates varying from ALL 700 to ALL 5,600 per

hectares, depending upon their use. A tax credit of 50% may be available for certain rural

projects.

The local tax on building ground

For the first time in the tax history of Albania since 2016 will be taxed also the construction

ground. The tax base is the area of construction land measured in hectares. The tax is levied on

each hectare and varies depending on the district where the agricultural land is located. The real

estate tax on agricultural land per hectare varies from ALL 1,400 to ALL 5,600

Tax of impact on infrastructure

The tax base is the value of the new investment required to undertake or value in Leks of

domestic sales price per square meter of the new investment.

In the case of buildings for residential or service unit from building companies, which are not

intended for use in the tourism sector, industry or public the tax of impact on infrastructure it is

4% to 8% of the sales price per m².

In the case of other buildings, the tax rate is shown as a percentage of the investment value and

is 1 to 3 percent of this amount, while in the Municipality of Tirana is 2 to 4 percent of it.

City tax

City tax City tax is payable by all persons residing in a hotel, both Albanian and foreigners. In

2016 this tax has changed and is not with 5 percent of the accommodation price, but instead it

is Euro 1 per night for person.

This tax is calculated and withheld by the hotel administration. The hotel administration must

remit the total amount of city tax collected to the respective municipality by the fifth of the

following month in which the hotel invoice was issued.


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The other local taxes are advertising tax; annual tax for vehicle registration; Tax for occupation

of public space; Temporary taxes; Registration tariff for various activities; Vehicle parking tariff;

Tariff for services

In 2016, the cleaning tax is substituted with the tax on infrastructure of education, which it is €

1.05 /month for every family.

National taxes

The national taxes are levied by a specific law, which was amended for 2016 for specific royalty

taxes. There are a variety of other national taxes and fees. These include port charges, consular

fees, TV and telephone taxes, driving license fees, airport arrival and departure tax, circulation

tax on vehicles, plastic and glass packaging tax. Royalties shall be declared within deadlines

provided by the Law on National Taxes through a specific tax return. The detailed list and taxes

are to Annexes.

Luxury Tax

For the first time in tax history of Albania in 2016 enters in force the luxury tax on cars with

motor over 3000 cm³ or with a value equal or more than € 50,000. The registration tax for the

first time for cars that are imported it is 70 thousands Leks per year. The annual tax it is 21

thousands Leks.

Anti-avoidance rules

Transfer pricing – Albania applies the arm’s length principle. Since 2014 in Albania are in force

the transfer pricing guidelines6. The Albanian Tax Instructions refer to the OECD transfer pricing

guidelines, 2010 for guidance in applying transfer pricing principles.

Thin capitalization

The tax deduction for interest paid is restricted when:

- The debt-to-equity ratio is equal to or greater than 4:1. (Note, however, that banks,

insurance and leasing companies are not subject to this rule);

- Interest paid is in excess of the 12-month average rate of the inter-bank rate as officially

publicized by the Bank of Albania.

6 Instruction No. 16/2014, signed by Minister of Finance


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Excise tax

Excise duties are levied on certain domestic or imported goods such as alcoholic beverages, fruit

juice, water and other refreshment beverages, cigarettes, coffee, fuel oils, cosmetics, perfumes,

packaging materials etc. Tax liable persons for excise duties are licensed producers and

importers of the goods. Excise goods in the Republic of Albania and the relative tax rates are

shown in the link7

Investment Incentives of economic sectors

Manufacturing sector Lease of public property

Government can lease public property of more than 500 m2, or grant a concession for the

symbolic price of 1 euro if the properties will be used for manufacturing activities with an

investment exceeding 10 million euro, or for inward processing activities.

The Government can also lease public property or grant a concession for the symbolic price of 1

euro for investments of more than 2 million euro on activities that address social and economic

issues in a certain area, as well as activities related to sport, culture, tourism and cultural

heritage. Criteria and terms are decided on a by case basis by the Council of Ministers.

Manufacturing activities are exempt from VAT on machinery and equipment. The employer is

exempt from the social security tax payment for 1 year for all new employees. The state pays

the salaries for 4 months for the new employees and offers various financing incentives for job

training.

Apparel and footwear producers are exempt from 20 percent VAT on raw materials as long as

the finished product is exported.

The hydrocarbons sector, exploration and exploitation

Companies operating in the oil and gas extraction industry pay profit tax at the rate of 50

percent (different from the flat 15 percent corporate income tax applicable for all other

taxpayers) after deduction of all capital expenditure and operating and administrative expenses,

in accordance with the respective petroleum sharing agreement signed with the government

(PSA are negotiated on a case by case basis). The import of goods or services relating to the

7 http://www.dogana.gov.al/sites/default/files/Ligj%20142%20Per%20%23%20Ligjit%2061_Akciza_FZ-174-2014.pdf

http://www.dogana.gov.al/sites/default/files/Ligj%20142%20Per%20%23%20Ligjit%2061_Akciza_FZ-174-2014.pdf


20

performance of exploration/research phase of petroleum operations, carried out by contractors

who work for these operations, is VAT exempt.

Energy power sector

Cement and iron imported for the construction of HPPs is VAT exempt. Foreign tax credit:

Albania applies foreign tax credits rights even in case there is no double tax treaty in place with

the country where the tax is paid. If a double taxation treaty is in force, double taxation is

avoided either through an exemption or by granting tax credit up to the amount of the

applicable Albanian corporate income tax rate (currently 15 percent). Corporate income tax

exemption: Film studios and cinematographic productions, licensed and funded by the National

Cinematographic Centre are exempted from paying corporate income tax.

Tax exemption of dividends designated for investments

Dividends and profit share paid by a resident or non-resident company to a resident taxpayer

will not be subject to corporate income tax for the resident taxpayer. This applies, despite the

participation quote, in amounts or number of shares, in shareholder capital of the voting rights

or participation in initial capital of the beneficiary.

Customs

Customs duties are levied on the import of goods into Albania at the rates specified in the

Customs Tariff. Customs duties are prescribed based on customs tariffs, and are amended every

year.

There are three categories of customs duties used in Albania:

1. Tax on the value: calculated as a percentage of the value of goods that will be taxed;

2. Specific duty: calculated as a fixed amount per item of the goods that will be taxed; and

3. Combined duties: composed from these two categories of customs duties.

In special cases, to reinforce or replace customs duties, the following duties can be temporarily

used:

- special customs duties: when imported goods are harmful to national manufacturers of

the same goods;

- anti-dumping duties: when goods are imported at a much lower price

than they are sold at in the exporting country; and

- balancing duties: when imported goods cause the slowing or stopping of the

production of the same goods in Albania.


21

The new Custom Code was approved by Albanian Parliament in 2014. The new code provides for

different regimes for the circulation of goods within Albania. The Custom Code is aligned to the

closest level to the new Regulation Commission no. 952/2013, dated 09 October 2013 'Union

Customs Code,' which it is now an integral part of the new Customs Code.


22

2. The federal system of taxes in Bosnia and Herzegovina

There are two main tax jurisdictions in Bosnia and Herzegovina (BiH): the Federation of BiH

(FBiH) and the Republika Srpska (RS). Brcko District (BD) is a unit of local self-governance which

comes under the exclusive sovereignty of the national government. The complex system of

public administration has created multiple layers of government, which affects efficiency at all

levels. Indirect tax regulations are imposed at the state level, while direct taxes are imposed at

the entity/district level.

A. State level taxes and rules

There are the joint stock company and the limited liability company. Foreign companies can

open representative offices and/or branch offices, but such offices do not have legal entity

status. Representative offices of foreign companies can be registered in all three administrative

units. In BiH there’s not holding company regime.

The FBiH/RS requires a taxpayer to disclose on the annual tax return the difference between

market and transfer prices which are not at arm’s length, and the tax base should be adjusted

accordingly. There is no guidance on how market prices should be determined (information on

available methods follows), and there is no developed practice on which to rely. Companies

doing business in BiH should be aware that different transfer pricing rules apply in the FBiH and

in the RS. The main difference is the range of acceptable methods. Whereas only the

Comparable Uncontrolled Price (CUP) Method and Cost Plus Method (CPLM) are acceptable in

the FBiH, all of the Organisation for Economic Co-operation and Development (OECD) methods

(CUP, CPLM, Resale Price Method, Profit Split Method, and Transactional Net Margin Method)

are acceptable in the RS.

The statute of limitations on assessment of transfer pricing adjustments is five years and it

commences from the end of the year in which the tax return should have been submitted.

Additional taxable income assessed is subject to the standard corporate profit tax rate of 10

percent increased by the penalty interest of 0.04 percent/day in FbiH and 0.03 percent/day in

RS. The RS requires that a transfer pricing analysis be prepared.


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Tax residents of the FBIH and RS are taxed on worldwide income; nonresidents are taxed only

on FBiH/RS-source income. An individual is considered resident for personal income tax

purposes if his/her residence or center of business and/or vital interests is in the FBiH/RS, or if

he/she is present in the FBiH/RS for at least 183 days in the aggregate during a tax year.

In both the FBiH and RS, each taxpayer must file an individual return; joint filing is not

permitted.

The VAT is levied at the state level and is applicable to the imports of goods into the territory of

BiH as well as goods and services supply in the territory of BIH.

VAT Law is in accordance with the EU 6th Directive on VAT

In both the FBiH and RS, Value Added Tax (VAT) is levied at the state level and applies to the

supply of goods or services supplied for consideration; the import of goods; the use of business

assets or inventory for nonbusiness or personal purposes; and the provision of services for no or

reduced consideration or for nonbusiness purposes.

The standard rate is 17%. Certain transactions are exempt, including certain public services,

health and medical services and financial services. Exports of goods are zero rated.

Registration is compulsory if the individual/legal entity performs or intends to perform taxable

activities in BiH. The threshold for VAT registration is approximately EUR 25,000. Voluntary

registration is possible if the threshold is not met in certain cases. A taxable person established

abroad that carries out taxable economic activities in BiH must register through a VAT

representative.

VAT is calculated on a calendar month basis. VAT returns and payments are due by the 10th

day of the following month and is paid to the Single Account open at the BiH Central bank.

Collection of VAT on supplies of goods and services related to the construction of immovable

property is a subject of special scheme.

Special taxation procedures exist for the following as well:

small companies

farmers

services provided by travelling agencies and tour operators

supply of second hand goods, works of art, collector’s items and antiques, and

supply of goods on public auction


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The Indirect Taxation Authority is responsible for the collection of all indirect taxes at on the

entire territory of Bosnia and Herzegovina. The Indirect Taxation Authority is an autonomous

administrative organization responsible for its activities, through its Governing Board, to the

Council of Ministers of Bosnia and Herzegovina The field activities are run by four regional

centres in: Sarajevo, Banja Luka, Mostar and Tuzla, 30 customs sub-offices and 59 customs

posts, out of which 40 are passenger border crossings, 4 airports, 8 railway border crossings, 3

overseas mail offices and 4 free zones.

Corporate Income Tax Law and Regulations in the FBiH and RS, Personal Income Tax Law and

Regulations in the FBiH and RS, Value Added Tax Law and regulations at the state and cantonal

levels.

Taxation of capital gains from the sale of financial instruments on the whole territory of BIH are

regulated separately by the territorial entities (the FBIH, the RS and BD ). However, in general,

capital gains are treated as profit and included in the ordinary taxable income which is taxed at a

rate of 10%.

Custom duties in BIH are regulated by the Customs Tariff Law. Indirect Taxation Authority is

responsible for the collection of all customs duties. Import customs rates attributed to BIH

according to the customs tariffs are: 0%, 5%, 10%, and 15%.

The reduced import custom duty rates apply only to the goods that are imported from EU.

Customs protection is provided for agricultural products. Customs duties exemption is

applicable on equipment imported as part of share capital. No exemptions apply on passenger

vehicles, slot and gambling machines.

Excises are applicable on commodities and goods like oil products, tobacco products, soft drinks,

alcoholic drinks, beer, wine and coffee. The subject of taxation is the trade of excise products

that are manufactured in BIH, when the manufacturer trades with them for the first time and /

or during the import of excise products in Bosnia and Herzegovina.

In Bosnia and Herzegovina there are 4 major regional centres:

RC Banja Luka,

RC Sarajevo,


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RC Tuzla,

RC Mostar

BiH has concluded 40 tax treaties. The treaty concluded between Denmark and the former

Yugoslavia that was applicable in BiH on the basis of succession is no longer valid starting from

1 January 2016 due to reciprocity as the Danish Tax Authorities already denied application of

this treaty.

IAS and IFRS are fully applicable in BiH. Rules also are provided in the Laws on Accounting and

Audit and the framework law at the state level.

B. Entity level taxes

FBiH Corporate Income Tax (CIT)

A company is resident if it is registered as a legal entity in the relevant jurisdiction. An entity has

a taxable presence in the FBiH by carrying out business activities in the jurisdiction that meet the

criteria for a permanent establishment or by having a branch office. Resident companies are

subject to tax on worldwide income, while nonresident companies are taxed only on income

derived from the relevant jurisdiction.

Amendments to the Company Law and to the Law on Registration of Business Entities of the

FBiH introduced the possibility for foreign companies to establish one or more branch offices.

However, registration of a branch office of a foreign legal entity is still not enabled in practice.

Group taxation is allowed for a group of resident companies where the parent company holds at

least 90% its subsidiaries.

The capital requirement is EUR 500.

The tax return must be submitted and tax due paid to the authorized branch office of the tax

authorities within 30 days after the statutory deadline for the submission of the financial

statements, which is the end of February of the following year, i.e. no later than end of March of

the following year.

The new CIT Law came into force in March 2016. The new CIT Law introduces the thin

capitalisation rule, the obligation for possession of transfer pricing documentation at the


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moment of submission of the annual CIT return, and prescribes fines of up to 500,000 euros

(EUR) for taxpayers who do not possess the prescribed documentation on transactions with

related parties.

A CIT payer is also a business unit of a legal entity from RS and BD that is registered in the

territory of the FBiH for the income generated in the territory of the FBiH.

A CIT payer in the FBiH is also a business unit of a non-resident legal entity that performs

activities through a permanent establishment (PE) in the territory of FBiH and is a resident of

the FBiH.

A CIT payer is also a non-resident in respect to the income generated from a resident of the

FBiH.

The taxable base is determined by adjusting the accounting profit or loss for allowable expenses.

The CIT rate in the FBiH is 10%.

FBiH foreign tax credit

When a taxpayer generates income or profit through business activities outside of the FBiH

(directly or through a business unit) and pays the profit tax on such activities, the tax paid

abroad shall be credited, up to the amount of the profit tax that would have been paid for the

income or profit generated by the same activities in the FBiH. The amount of tax credit cannot

exceed the amount of tax that would be calculated in the event when the same income would

be earned

FBiH investment incentive

Taxpayers who invested their own resources in production equipment worth more than 50% of

realized profit in the tax period shall be relieved from 30% of taxation for the year of the

investment.

A taxpayer who invested in production within the territory of the FBiH for five consecutive

years for a minimum fee of EUR 10 million will be relieved from 50% of taxation for a period of

five years, starting with the first year in which it has invested at least EUR 2 million.


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The tax base is total gross taxable income paid by the employer less employee contributions and

deductible allowances (e.g. the monthly basic personal allowance, dependent family member

allowance(s)).

Personal deductions in the FBiH are approximately EUR 1,800 per calendar year. Additional

deductions include the dependent family member allowance, interest paid on home mortgages

and certain payments for health services.

FBiH employment incentive

A taxpayer who employed new employees is entitled to a tax-deductible expense in the double

amount of gross salary paid to newly employed employees if the following conditions are met:

Employment contract has to be concluded on a full-time basis for period of minimum 12

months.

Newly employed employee has not been employed by the taxpayer or by a related legal

entity in the past five years.

Dividends received by companies from their subsidiaries are exempt from corporate tax.

Dividends paid to a nonresident are subject to a 5% withholding tax unless the rate is reduced

under a tax treaty. Interest paid to a nonresident is subject to a 10% withholding tax unless the

rate is reduced or the payment exempt from withholding tax under a tax treaty.

Capital gains are not taxable.

Tax losses may be carried forward for up to five years. Losses may be offset against the first

available profits, with the oldest losses offset first. The carryback of tax losses is not permitted.

No Alternative minimum tax and No Foreign tax credit

Resident taxpayers are entitled to a tax credit for tax paid abroad up to the corporate income

tax liability.

Property tax is levied at the cantonal level. In Zenica Canton the tax rate of tax on transfer of

Land and Real Estate is 8% and in all the other nine cantons it is 5%.


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The acquisition of real estate is subject to real estate transfer tax, levied at the cantonal level.

The tax base is the purchase value of the property at the time of the transaction. Either the

buyer or seller may be responsible for payment of the tax, depending on the real estate transfer

tax law in the particular canton.

Inheritance and gift taxes are levied at the cantonal level, with tax due on the transfer of

immovable and movable property. Since the tax rate is levied at the cantonal level, it varies

between 2% and 10%.

The employer contributes 10.5% of the employee’s gross salary and the employee contributes

31% of the gross salary as social security contributions.

In the FBiH, financial expenses for interest per financial agreements and instruments to related

parties are generally recognized for tax purposes. However, if the ratio between these

obligations per financial agreements and the registered share capital of a taxpayer exceeds the

ratio of 4:1, then the financial expenses exceeding the 4:1 are not recognized for tax purposes

and cannot be transferred to another tax period. However, this does not apply to banks and

insurance companies.

Tax Administration of Federation BiH is responsible for the implementation of tax assessment,

tax collection and control through its cantonal branch offices.

RS CIT

A branch of a foreign legal entity can only be registered in RS. The tax treatment of the branch

of a foreign legal entity is still quite unclear from the local perspective, so we recommend

contacting a tax and accounting specialist.

The RS does not allow for consolidated returns. Each entity must file a separate return.

The capital requirement it is EUR 0.5.

The tax return must be submitted within 90 days of the end of the tax year, and in the case of a

calendar year-end, no later than 31 March of the following year.


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A CIT payer in Republika Srpska is:

A legal entity from Republika Srpska that generates income from any source in

Republika Srpska, FBiH, Brčko District, or abroad.

A business unit of a legal entity with its head office in FBiH or Brčko District that

generates income in the territory of Republika Srpska.

A non-resident legal entity that conducts business activity and has a PE in Republika

Srpska, for income that is related to that PE.

A non-resident legal entity that generates income from immovable property in

Republika Srpska, for the income that is related to that immovable property.

A non-resident legal entity that generates income in Republika Srpska, not mentioned

above, and is subject to withholding tax (WHT) in accordance with the CIT law of

Republika Srpska.

The CIT rate in Republika Srpska is 10%.

RS foreign tax credit

If a legal entity from Republika Srpska obtains revenue from a foreign state and the revenue is

taxed both in Republika Srpska and in the foreign state, then the tax paid to the foreign state,

whether paid directly or withheld and remitted by another person, is to be credited from RS

CIT, unless such legal entity from Republika Srpska elects to treat the foreign tax as a

deductible expenditure in determining the fiscal year tax base. The amount of tax credit cannot

exceed the amount of tax that would be calculated in the event when the same income would

be earned.

RS investment incentive for production companies

For a taxpayer who invests in property, plant, and equipment (PPE) for performing its own

registered business activity in the territory of Republika Srpska, a deduction is allowed for the

amount of the investment. Only companies registered for production activity in accordance

with special Ministry decision can use this tax incentive.

If the taxpayer disposes of the PPE within three years of the year for which the tax incentive

was used, the taxpayer will have to pay the additional tax as if they never used the incentive, as

well as penalty interest for late payments.


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The tax base is total gross taxable income paid by the employer less social security contributions

and deductible allowances (e.g. dependent family member allowance(s), interest paid on

housing loans, and pension contributions paid for voluntary pension insurance up to a ceiling,

where applicable).

There is a personal allowance in the amount of approximately EUR 1,200 per calendar year and

a dependent family member allowance.

RS employment incentive

For a taxpayer who employs 30 new employees (which were registered in the RS

unemployment agency) for an indefinite period of time during the tax period, a deduction is

allowed for the paid PIT and social security contributions for those employees.

If the taxpayer lets go of employees within three years for whom the tax incentive was used,

the taxpayer will have to pay the additional tax as if they never used the incentive, as well as

penalty interest for late payments.

Resident taxpayers are entitled to a tax credit for tax paid abroad up to the corporate income

tax liability.

Tax incentives are granted in the RS for investment in equipment, plant and real estate

necessary for the taxpayer’s business operations, up to the amount of the investment. Tax

incentives also are granted for hiring at least 30 new employees for an indefinite period of time,

up to the amount of personal income tax and social security contributions payable in respect of

the employees.

Royalties paid to a nonresident are subject to a 10% withholding tax unless the rate is reduced

under a tax treaty.

Technical service fees are subject to a 10% withholding tax unless the rate is reduced or the

payment is exempt from withholding tax under a tax treaty.

There are not branch remittance tax.


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There are no taxes applicable on gifts and inheritances.

The tax rate is determined by the municipality in which the property is located. There is no real

estate transfer tax, although the purchaser/owner of property automatically becomes the real

estate taxpayer according to the real estate tax law.

The purchase of real estate is not subject to real estate transfer tax, but the taxpayer is the

owner of the real estate. The tax base for real estate tax purposes is the estimated market value

of the property. Each municipality determines its own tax rate which may range from 0.05% to

0.5%.

The employee contribution is 33% of gross salary. With an aim to improve the demographic

picture, a tax exemption for remuneration of child birth has been introduced in the amount of

one average net salary.

There are no thin capitalization rules.

Capital gains are taxed at the rate of 10% and include gains arising from the sale of immovable

assets, gains arising from the sale of property rights, authorship rights, license, and franchise

rights

Tax Administration of the RS is responsible for implementation of all tax laws. Tax

Administration is under the Ministry of Finance of the RS.

BD CIT

The BD CIT law prescribes that a resident is a legal entity registered in Brčko District.

BD regulations do not allow registration of branch of a foreign legal entity.

A CIT payer in Brčko District is:

A legal entity from Brčko District that generates income from any source in Bosnia and

Herzegovina or abroad.

A business unit of a legal entity with headquarters in the FBiH or Republika Srpska, for

income generated in Brčko District.

A non-resident legal entity that conducts business activity and has a PE in Brčko District,

for income that is related to that PE.


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A non-resident legal entity that generates income from immovable property in Brčko

District, for the income generated in Brčko District.

A non-resident legal entity that generates income in Brčko District, not mentioned

above, and is subject to WHT in accordance with the CIT law of Brčko District.

The CIT rate in Brčko District is 10%.

BD foreign tax credit

If a legal entity from Brčko District obtains revenue from a foreign state and the revenue is

taxed both in Brčko District and in the foreign state, then the tax paid to the foreign state,

whether paid directly or withheld and remitted by another person, is to be credited from the

BD CIT, unless such legal entity from Brčko District elects to treat the foreign tax as a deductible

expenditure in determining the fiscal year tax base. The amount of tax credit cannot exceed

the amount of tax that would be calculated in the event when the same income would be

earned.

BD investment incentive

For a taxpayer who invests in machines and equipment for performing its own registered

business activity on the territory of Brčko District, a deduction is allowed for the amount of the

investment.

BD employment incentive

For a taxpayer who employs new employees for an indefinite period of time during the tax

period, a second deduction is allowed for the total amount of paid gross salaries for the new

employees.

Tax administration Brčko District is the institution responsible for the issue of direct taxes.


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3. The simple tax system of Kosovo

Kosovo has a simple tax system and relatively low tax rates. A risky feature of Kosovo’s tax

system is the high dependence on border taxes.

Following types of businesses are registered in Kosovo:

Individual businesses,

general partnerships,

Partnerships,

Limited Liability Companies,

Joint stock companies,

foreign companies,

socially owned enterprises and

Agricultural cooperatives.

The Kosovo tax legislation provides for the following taxes:

Corporate income tax (CIT)

Personal income tax (PIT)

Value added tax (VAT)

Withholding tax (WHT)

Custom duties

Excise tax

Local taxes.

Corporations conducting business in Kosovo are subject to CIT at a rate of 10%. The following

entities are subject to CIT:

Corporations or other business organizations which have the status of legal entities

under the applicable law in Kosovo

Business organizations operating with publicly or socially owned assets

Organizations registered as NGOs under the Regulation on the Registration and

Operation of Non-Governmental Organizations in Kosovo


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Permanent establishments in Kosovo of non-resident persons. Kosovo residents are

considered to comprise: corporations, groups of corporations or organizations

established in Kosovo or which have their place of effective management in Kosovo.

Kosovo resident corporations are subject to CIT on their worldwide income, whereas non-

resident entities are subject to tax only on the income derived from the Kosovo source.

Taxpayers with an annual gross income (revenue) of EUR 50,000 or less may choose to be taxed

either on an actual income basis or on a presumptive tax basis and have to pay:

3% of each quarterly gross income from trade, transportation, agricultural or similar

businesses but not less than EUR 37.50 per quarter

9% of their annual gross income deriving from the provision of services, vocational,

entertainment and similar activities but not less than EUR 37.50 per quarter

10% of the net rental income for the quarter, reduced by any amount withheld during

that quarter.

The corporate income tax is applied to the income as calculated in the financial statements and

adjusted for tax purposes. In determining the taxable income, expenses are deductible only if

they are incurred wholly and exclusively in connection with the economic activity.

The Corporate Income Tax Law provides a list of expenses that are non-deductible for tax

purposes, consisting of:

fines, penalties and interest imposed by any public authority and expenses related to

them;

income tax paid or accrued for the current or previous tax period and any interest or

late penalty incurred for its late payment;

any loss from the sale or exchange of property between related persons;

pension contributions above the maximum amount allowed by the Kosovo Pension

Law;

bad debts that do not meet the specified conditions;

contributions made for humanitarian, health, education, religious, scientific, cultural,

environmental protection and sports purposes, which exceed 5% of taxable income

(before the deduction of such expenses);


35

representation costs (these include publicity, advertising, entertainment and

representation) which exceed 2% of the total gross income; and

accrued expense for which the withholding tax should be paid, unless such expense is

paid on or before 31 March of the subsequent tax period.

The losses have to be settled according to the “first loss before the last one” principle.

As a general rule, the losses may be carried forward for 7 (seven) years, but they do not survive

a change of more than 50% in ownership. The Tax Administration may allow losses to be carried

forward in certain approved restructurings through M&A, demerger, insolvency, and exchange

of shares. A number of companies have utilized this right last year.

Foreign tax credit

According to the tax legislation provisions, income taxes paid abroad by residents are credited

to the tax balance due in Kosovo up to the maximum amount of tax payable in Kosovo. Non-

residents with a permanent establishment in Kosovo can obtain an official document from

Kosovo’s tax administration, certifying the amount of taxes they have paid, so this can be used

to obtain a credit if permitted by the foreign tax authority.

Special treatment of insurance companies

Companies, whose activity is the insurance or reinsurance of life, property, or other risks, pay

tax at a 5% rate of the gross premiums accrued during the tax period, instead of corporate

income tax.

All individuals who (i) have their principal residence in Kosovo or (ii) are physically present in

Kosovo for more than 183 days in any 12-month period of time, and all entities, individual

business enterprises and partnerships which are established in Kosovo or have their place of

effective management in Kosovo are considered object of personal income tax (PIT)

Kosovo resident individuals, individual business enterprises and partnerships are subject to

personal income tax on their worldwide income, whereas non-resident individuals, individual

business enterprises and partnerships are subject to tax only on income derived from a Kosovo

source.


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Personal income tax is progressive (0 – 10%) and levied on the following categories of income:

Wages

Business activities

Rents

The use of intangible property

Interest

Capital gains

Lottery winnings and winnings in games of chance

Pensions

Any other income which increases the taxpayer’s net worth.

The following income will now be exempt from PIT:

Wages of individuals with disabilities as foreseen under relevant laws for these

categories.

The entire expenses paid by an employer for the formal training of his employees, so

that the latter can acquire the relevant skills needed to perform assigned tasks

Mandatory contributions paid by the employer for health insurance for the employee,

as defined by relevant legislation on health insurance.

However per-diems will be treated as taxable income, in addition to bonuses and commissions.

The employer and employee must pay pension contributions at a minimum level of 5%. The

maximum level allowed is 15% of the gross monthly salary. Under Kosovo legislation, foreign

individuals are not required to pay pension contributions.

The Assembly of Kosovo approved Law No. 04/L-249 on Health Insurance in 2014 which

regulates the public health insurance system. Accordingly, the mandatory health insurance

premium for employees and employers is 7% of the gross income shared equally by the

employer and the employee (i.e. 3.5% each). The start date for the collection of premiums will

be separately confirmed by the Ministry of Health.


37

Taxes must be withheld by employers on a monthly basis. Taxpayers who receive income other

than wages, dividends, interest, lottery, gambling, or income from intangible property are

required to prepare an annual tax return for personal income tax by 31 March of the following

year.

Taxpayers registered for VAT are entitled to recover the input VAT, provided that the VAT is

charged in relation to their taxable activity. When taxpayers perform both taxable and exempt

supplies, VAT may be partially reclaimed. VAT cannot be reclaimed on certain recreation

expenses and representation costs, and it is limited on expenses for passenger vehicles which

are not used solely for business purposes.

The base VAT rate has been increased to 18% (from its previous rate of 16%), while a reduced

base rate of 8% has been introduced to include supply of water (except bottled water),

electricity, grains, products made from grains (for human consumption), cooking oils made from

grain and oil seeds, daily products (for human consumption), eggs (for consumption), salt (for

human consumption), textbooks, supply and lending of books from libraries, IT equipment,

supply of medicines, pharmaceutical products etc. (previously 0%). A full list of items subject to

the reduced rate of 8% is contained in Annex 1 of the Administrative Instruction (AI)

No.03/2015.

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. The law further clarifies

that a foreign person conducting an economic activity in Kosovo will be considered a taxable

person from the commencement of the economic activity in Kosovo. The requirement to obtain

a separate VAT certificate for import and export has also been removed.

The following activities are VAT-exempt:

insurance and reinsurance transactions;

financial services;

the supply of postage stamps;

the supply at face value of fiscal stamps and other similar stamps;


38

betting, lotteries and other forms of gambling;

the supply of land;

the supply of houses, apartments or other accommodation used for residential

purposes; and

the leasing or letting of immovable property.

Corporate Income Tax incentives

Tax holidays and other tax exemptions for new businesses have been introduced under the Law

on Personal Income Tax and are defined in a sub-legal act by the Ministry of Finance.

1. The cost of employee training shall be fully allowable for the employer and not limited to any

specific amount as it was previously. Such training expenses shall be allowed in whole in the

year in which such training costs occurred.

2. The deduction allowed for contributions (donations and sponsorship) made for humanitarian,

health, education religious, scientific, cultural, environmental protection and sports purposes

has increased up to a maximum of 10% of taxable income computed before such deduction are

applied. (The previous maximum was 5%). In addition to this deduction taxpayers that

contribute to certain areas as prescribed by special laws can have an additional allowance of

10%.

3. Any dividends paid or received remain exempt from Corporate Income Tax (and Personal

Income Tax)

4. Advertising and promotion costs such as: TV, radio, newspaper, magazines, direct

commercials, internet, posters, flyers, billboards, transit commercials and other similar ones are

now fully deductible expenses for tax purposes. Other representation costs e.g. for meetings,

presentations, inaugurations etc. shall be limited to 1% of gross annual income.

Certain tax breaks and incentives for new businesses are introduced in 2016. This tax incentive

allows businesses investing a certain amount and hiring a certain number of employees to

benefit from two to six years of tax breaks regarding CIT. To benefit from such tax breaks, an

entity must:

invest over EUR 10 million within three years with at least 120 hired employees for a six-

year tax break;

invest over EUR 5 million within three years with at least 80 hired employees for a four-year

tax break;


39

invest over EUR 2 million within two years with at least 50 hired employees for a three-year

tax break; or

invest over EUR 500.000 within three years with at least 30 hired employees for a one-year

tax break.

The Corporate Income Tax Law indicates the rules applicable to capital gains. As a general rule,

capital gains and losses are treated as ordinary income/losses from economic activity. Capital

gains are not recognized for fixed assets which are depreciated in a pool and purchased prior to

1 January 2010.

There is no participation exemption for capital gains.

There is no relief for reinvestment.

Dividends distributed by a local company are considered as exempt income.

Non-residents are taxed on the disposal of real estate in Kosovo, at a rate of 10% of the realized

profit. Payments made to natural persons, farmers, collectors of recycled materials, forest fruits,

healing plants and similar are taxed at source at a rate of 3%. Payments made to nonresident

individuals or businesses are subject of a withholding tax at a rate of 5%.

There are no “thin capitalization” rules or any similar rules.

There is a 9% withholding tax on property rental payments made to non-residents or residents.

There is no withholding tax on the proceeds of selling a direct or indirect interest in local

assets/shares.

There are no taxes payables upon the formation of a subsidiary.

There is no difference between the taxation of a locally formed subsidiary and the branch of a

non-resident company.

There is no withholding tax or other tax with regard to the remittance of profit by the branch.

Foreign-sourced income is taxable in Kosovo. However, tax credit is allowable for the amount of

income tax paid overseas for the income derived abroad.

Branches are taxed only on the taxable income from a Kosovo source of income. The taxable

income is determined in the same manner as for resident companies. Taxable income of

branches is subject to Corporate Income Tax at the same rate of 10%.


40

There is no branch profit tax.

There is no tax on the transfer of an indirect interest in real estate located in Kosovo.

There are no requirements to disclose avoidance schemes.

Kosovo has not introduced any legislation in response to the OECD’s project targeting BEPS.

Kosovo does not maintain preferential tax regimes such as a patent box.

A noteworthy change will occur with the introduction of the Administrative Instruction on

transfer pricing (TP), which is expected to require companies to prepare transfer pricing

documentation. Considering the fact that the transaction threshold to be scrutinized by the Tax

Administration in harmony with TP rules is quite low – for transactions exceeding EUR 50.000,

and it is predicted that the volume of services required for TP and the market in general will be

vast, which will make experience in the sector scarce.

Developments in cross-border taxation will intensify, as Kosovo is expected to conclude other

DTTs, and the possibility of reconsidering tax liabilities and the taxation nexus, in conformity

with such DTTs, will broaden.

Customs duties are regulated by Code No. 03/L-109, Customs and Excise Code in Kosovo. The

regulation provides for a customs rate of 10% for all goods imported into Kosovo. Customs

duties are charged according to classification of imported goods in a six digit harmonized

system.

According to Law No. 04/L-163, the following goods are exempt from customs duties:

Exports

Goods imported by foreign diplomatic, consular missions and their personnel (except for

local personnel)

Goods imported by UNMIK, KFOR, the United Nations High Commissioner for Refugees

(UNHCR), the International Committee of the Red Cross (ICRC) or by donors having

contracts with UNMIK

Goods used for humanitarian purposes

Goods used for agricultural production and some listed raw materials for heavy

industry, and

Pharmaceutical products.


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Excise taxes Law No. 03/L-112 on Excise Tax in Kosovo contain a list of goods subject to excise

tax and their corresponding excise rates. Goods subject to excise tax include: wine, cigarettes

and other tobacco products, oil, fruit juice and other drink concentrates, cars and other motor-

operated vehicles. Fixed amounts are provided for certain goods.

Local taxes are regulated by Law 03/L-049 on Local Government Finance. Municipalities may

impose the following taxes and fees:

• Tax on immovable properties situated in their territory

• An annual fee for business activity

• An annual fee for professional business

• An annual motor vehicle fee

• Construction permits and demolition fees

• Other fees in relation to services provided by the municipalities. Double Tax Treaties Kosovo

has a

There is a property tax in Kosovo. All persons who own, use or occupy immovable property are

subject to tax on real estate. The Municipal Assembly of each municipality sets the property tax

rates on an annual basis at the rates of 0.05% to 1% of the market property value. In the case of

properties used as principal residence is allowed EUR 10.000 allowable expenditure form

taxable value of property.

Double Tax Treaty (DTT) with the Republic of Albania effective from 1 January 2016, with

Macedonia effective from 1 January 2014, with the United Kingdom effective from 1 January

2016, with Hungary effective from 1 January 2015, with Slovenia effective from 1 January 2015

and with Turkey effective from 1 January 2016. Meanwhile, the Kosovo President has ratified

DTTs signed by Former Yugoslavia with Finland, Belgium, Germany and the Netherlands.

However, the effective applicability of such DTTs is unclear in Kosovo. It is unclear whether the

DTT provisions apply automatically in Kosovo or specific approval is to be obtained from the

Kosovo authorities. There are no specific internal rules in Kosovo on the implementation of the

DTTs in force. According to Law No. 03/L-071 on Tax Administration and Procedures, if the

existing tax laws relating to the international juridical double taxation of income and capital of

persons in the Republic of Kosovo do not address such taxation, the principles of the


42

Organization for Economic Cooperation and Development (OECD) Model Tax Convention on

Income and on Capital apply in order to avoid double taxation of such income and capital.

Kosovo tax treaties generally follow the OECD model. The new tax treaties must be ratified by

Parliament. A treaty ratified by Parliament becomes part of the Kosovo legal system after

publication in the Official Gazette and prevails over any law which differs from the treaty’s

provisions.

According to the provisions on interest, dividends and royalties, such income may be taxed in

either jurisdiction; this leaves room for discretion to the respective Tax Administration.

Additionally, this DTT’s protocol foresees that a PE in the event of construction works will be

established after a period of 12 months. The establishment of PE regarding construction works

is prolonged for an additional six months if another BIT is concluded within the same period of

time (18 months) with another state. These two scenarios are already provided for, while in the

first scenario the outcome is established on a case-by-case basis. The outcome of the second

scenario remains to be seen once Kosovo has signed new DTTs.

The firm has observed a moderate increase in restructurings through demerger procedures,

especially in relation to the division of real estate from actual business activities. This is due to

the real estate industry being one of the most profitable sectors in recent years.

Restructuring assistance has also been performed in conjunction with progressivity in taxation,

in some cases affected from the neighboring jurisdictions, which posed uncertainty in regards to

the neutrality principle.


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4. Tax system competitiveness in Macedonia

In Macedonia, foreign investors are entitled to register and operate all types of Macedonian

companies, i.e. limited liability company, joint stock company, general partnership, limited

partnership, and limited partnership by shares. Besides, foreign companies are entitled to open

branches and representative offices in Macedonia.

In order to facilitate the registration of foreign companies, Macedonia introduced a one-stop-

shop system which enables the investors to register their companies within a day. The investors

who would like to use the one-stop-shop system need to visit a single office. Thus, the new

system reduces administrative barriers related to the incorporation of a company.

Once a company is registered, the Central Register of Macedonia will make publicly available the

following information about the company: (1) unique registration number; (2) a code and the

title of the registered main activity; (3) a code of the company form; (4) the unique tax number;

and (5) information about the bank account of the company.

It should be noted that companies need to obtain working licenses or permits before conducting

certain activities in Macedonia. The employees working in the Central Registry of Macedonia are

trained to provide the newly registered companies with information on how to obtain the

appropriate licenses.

At the end of each calendar year, the registered companies have the obligation to prepare

annual accounts in accordance with the local accounting rules. In addition, large and medium-

sized companies should prepare and submit financial statements in accordance with the

requirements of the International Financial Reporting Standards (IFRS). The Macedonian audit

laws state that audit activities should be performed in accordance with the International

Standards on Auditing.


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The tax system in Macedonia includes:

a. Income taxes

- Profit tax

- Personal Income Tax

b. Consumption taxes

- Value Added Tax

- Excises

c. Property taxes8

d. Social and health contributions

e. Customs

Corporate Income Tax

The CIT in Macedonia is charged on two components, namely, any forms of distribution from

the profit (including dividend distribution) as well as certain non-deductible expenses and

understated revenues. The non-deductible expenses include, but are not limited to, expenses

which are not related to taxpayer’s business activities and employee-related expenses (e.g.,

holiday allowance, meals for employees, and expenses for the organization of business trips).

The understated revenues include, for example, understated revenues for supplies of services

and goods between related parties.

Taxpayers in regard of this direct tax are:

Legal entity (entity) – Resident of Macedonia that gains profit by performing activity in

the country and abroad. Resident is entity which is established or has headquarters on

the territory of the Macedonia.

Taxpayer of the CIT is also a permanent establishment of non-resident for the profit

realized by performing activity on the territory of the Macedonia.

Tax rate for profit tax of companies is 10%.

8 Along with the process of decentralization in the Macedonia, from 30.06.2005, the administration of the property

tax and the municipal fees is performed by the municipalities, as units of the local self-government and the City of

Skopje, as a separate unit of the local self-government


45

The taxation period for which the CIT is assessed, is one calendar year. If the taxpayer has been

working for a period shorter than one calendar year, as a taxation period is considered the

period of the year he was working for.

Advanced payment taxation period is one calendar month. The tax base for calculation of CIT is

the taxable profit assessed from the accounting gross profit realized in accordance with

accounting regulations and standards (as the difference between total revenue and total

expenses), increased for the unrecognized expenses.

The tax base is reduced by:

The amount of collected claims up to the stated income, for which in the previous tax

periods was made increasing of the tax base, according to the taxable amount;

The amount of the returned part of the loan for which in the previous tax periods was

made increasing of the tax base;

The amount of dividends derived by a resident of the Macedonia with participation in

the capital of another taxpayer - a resident of the Macedonia, provided that they are

taxable according to the rate of 10%;

Part of the loss transferred from previous years.

The reduction of the calculated tax is performed:

for the amount of the approved tax exemption for purchased and put into service up to

10 fiscal systems of equipment for registering cash payments i.e. fiscal equipment and

integrated automatic management system;

for the amount of tax included in taxable income / gains abroad (withholding tax) to the

prescribed rate;

for the tax that the branch office paid abroad, for the profit which is included in

revenues of the resident legal entity in the Macedonia to the amount of tax assessed

according to the tax rate in the Macedonia.

The assessment and the payment of the CIT is made according the Tax Balance, which is

submitted to the Public Revenue Office in the deadline proscribed for submitting the annual

calculation according the Law on Trade Companies and the Accounting Regulations i.e. until


46

latest date of February of the year following the year for which the taxation is made. For the

taxpayers who submitted the Annual accounts to the Central Registry of Macedonia

electronically, the deadline for submission is March 15th.

Payment of the CIT after the end of the year

The determined difference between the paid advances of the CIT calculated according

the tax amount in the form “DB” for the previous year and the real obligation of the

calculated CIT determined in the form “DB” for the acting year, the taxpayer is obliged

to pay within 30 days of the deadline for submission of the annual account.

The payment of the CIT is made by the authorized person of the taxpayer. The payment

of the tax after the submitted tax return for self-taxation, in regular procedure is made

from the finances, including all available taxpayer’s bank accounts.

Payment of the monthly advances from the CIT

The monthly advances of the CIT are determined in the amount of one twelfth from the

assessed tax in the Tax Balance form “DB“ for the previous year, increased for the

percentage of the cumulative increase of retail price in the Republic from the previous

period of the year, i.e. until 31 January the next year, related to the average retail prices

in the previous year.

The monthly advances are paid within 15 days after the deadline of each calendar

month.

The taxpayers/legal entities are not obliged to deliver Monthly calculation of the

advances of the CIT to the Public Revenue Office.

If the taxpayer as advances paid higher amount of tax than the amount he was obliged to pay,

he can require refunding of more paid tax from the PRO. The PRO is obliged the overpaid CIT to

refund to the taxpayer upon his request, within 60 days from the day the refund request

submission.

If the taxpayer does not require refund of the overpaid tax, the overpaid amount is considered

as advances for the next period.


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The tax refund is also made with the settlement of the overpaid CIT with the tax debts of the

taxpayer on other basis. Upon the taxpayer’s request for refunding or settlement of the

overpaid tax, the PRO makes an appropriate decision. If after the settlement it is determined

that the taxpayer still requires tax refund, the PRO is obliged to make a decision for tax refund in

the shortest period of time.

The withholding tax is made on revenues paid in the Macedonia or abroad to the foreign legal

entities, and which are not realized in the frames of the business of the permanent

establishment of the foreign legal entity on the territory of the Macedonia, provided it is not

otherwise determined by the International Agreements for avoiding double taxation.

Revenues on which there is withholding tax:

Revenue from dividends;

Revenue from an interest of resident;

Revenue from interest of non-resident who has permanent establishment in the

Macedonia, if the interest is at the expense of the permanent establishment;

Revenue from royalties paid by a resident;

Revenue from royalties paid by non-resident with permanent establishment in the

Macedonia, if the royalties is at the expense of the permanent establishment;

Revenue from entertainment or sports activities that are performed in the Macedonia;

Revenue from conducting management, consulting, financial services, research and

development services, if the revenue is paid by a resident or is at the expense of the

permanent establishment in the Macedonia;

Revenue from insurance premiums for insurance or reinsurance of risks in the

Macedonia;

Revenue from telecommunication services between the Macedonia and a foreign

country; and

Revenue from rental property in the Macedonia.

The withholding tax is done by:

1. Domestic legal entities

2. Domestic natural persons – registered for performing activity and


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3. Foreign legal entity or natural person-nonresident with permanent establishment in the

Macedonia.

The withholding tax rate is 10%.

The application of “Simplified Tax Regime for Trade Companies”

The trade companies which meets the conditions for calculating and payment of annual tax of

total income and which realized total income in the year that is being assessed from any sources

between EUR 48.000 and EUR 96.000 on annual level, can determine to calculate and pay

Annual Tax of Total Income according to the provisions of the chapter VII-a “Simplified Tax

Regime for the Trade Companies” of the Law on CIT, instead paying of CIT.

The trade companies cannot change the determined model/regime of taxation in the next three

years, including the year in which the tax of total income is paid, if in the next three years they

are realizing total income between EUR 48.000 and EUR 96.000 on annual level.

The trade companies which perform: banking, financial, insurance activity, as well as activity

from the area of the games of chance and entertainment games are not taxed by the Annual Tax

on Total Income, regardless of the amount of the realized total income.

Tax exemption

The trade companies that meet the conditions for calculating and payment of Annual Tax of

Total Income and which total income realized in the year for which the tax is being assess from

any source do not overcome the amount of approximately EUR 48.713 on annual level are

exempt of the obligation for paying of Annual Tax of Total Income.

Basis for Annual Tax on Total Income

The Annual Tax on Total Income is calculated on the basis of the realized total income on all

grounds (revenues from main activities, financial revenues, share in the profit of the associated

companies), in the business year for which the tax is being assess. The business year means

calendar year.


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Rate on which the Annual Tax of Total Income is calculated and paid

The Annual Tax of Total Income is calculated in the amount of 1%from the realized total income

amount stated in to the Income Statement in the Annual Account and the financial reports

according to the provisions of the Law on Trade Companies, for the business year for which the

tax is being assess.

Method and period of registration of the Trade Companies for Annual Tax on Total Income

The trade company that meets the conditions for calculation and payment of the Annual Tax on

Total Income, the Public Revenue Office records them in Registry of Trade Companies for Annual

Tax on Total Income.

The PRO performs the registration on the basis of the data for the expressed total income in to

the Income Statement in the Annual Account and the financial reports according to the

provisions of the Law on Trade Companies, for the business year for which the tax is being

assess.

Тax balance of the total income which is submitted to the PRO within the period specified for

submitting the Annual Account according the Law on Trade Companies and the accounting

regulations i.e. until 28/29 of February in the year following the year for which the taxation is

being asses. For the taxpayers who submitted the Annual accounts to the Central Registry of RM

electronically, the deadline for submission is March 15th.

Tax incentives - CIT

Tax exemptions are consisting in reducing the tax base and reducing the calculated tax.

a. Reduction of tax base for reinvested profit9

The tax base is reduced for the amount of investment of profits (reinvested profit) for

development purposes i.e. investment in tangible assets (property, plant and equipment) and

intangible assets (computer software and patents) intended to expand the activity of the

taxpayer.

9 The right to tax exemption on the basis of reinvested profit, taxpayers for the first time will be able to realize for

the investments performed in 2014 by the separate profits from 2013 for investment.


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b. Reducing the calculated tax

The calculated profit tax is reduced by:

The approved tax exemption on the basis of the purchased and put into service up to

ten fiscal systems of equipment for registering cash payments ie fiscal equipment and

automatic integrated management system;

The amount of tax included in taxable income / profits abroad (withholding tax) to the

prescribed rate;

The amount of taxes paid by the subsidiary abroad for the profit included in the income

of the parent entity in the Macedonia up to the amount of tax assessed according to the

tax rate in the Macedonia.

c. Tax exemptions prescribed for special categories of taxpayers, regulated with the rules which

regulate their establishment and functioning:

Protective companies, for employment of the disabled persons (in accordance with the

provisions of the Law on Employment of Disabled Persons);

Economic units within the institutions for carrying out sanctions and juvenile

correctional institutions (in accordance with the provisions of the Law on enforcement

of sanctions); and

Technological Industrial and Development Zones (in the period of 10 years under terms

and procedures determined by the Law on Technological Industrial and Development

Zones).

Personal Income Tax

Revenues realized by natural persons, in the country and abroad, are taxed with Personal

Income Tax (PIT).

The tax rate of PIT is at 10%.

The tax base for PIT calculation is different, depending on the type of revenue realized or the

activity performed by the natural persons.

The tax period for which the PIT is assessed is the calendar year.

The specific revenues realized during the calendar year, the taxpayers-natural persons have an

obligation to register in the Public Revenue Office and to submit an appropriate advance

payment tax return in the legal foreseen deadlines.


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After the end of the calendar year, and latest to 15th of March, the natural person is obliged to

submit Annual Tax Return for PIT assessment, in which he will declare all revenues, realized on

different bases during the calendar year.

For more information regarding taxation and tax stimulations of PIT, choose a type of income:

Value Added Tax (VAT)

In Macedonia, VAT is levied on import of goods into Macedonia and supply of goods or services

in Macedonia. The standard VAT rate is 18%. A reduced VAT rate of 5% applies to certain goods

and services, such as agricultural machines, accommodation services, computers, food products,

publications, pharmaceutical and medical devices, software, and transportation of persons.

The goods and services which are exempt from Macedonian VAT with a right of deduction of

input tax include, but are not limited to, delivery of goods abroad, goods supplied in free trade

zones, provision of services outside Macedonia, and services concerning the export, import and

transit of goods. The goods and services which are exempt from a Macedonian VAT with no right

of deduction of input tax include, but are not limited to, insurance and re-insurance services,

healthcare services, education services, trade of postage and revenue stamps at their nominal

value.

A VAT registration is mandatory for taxpayers when: (1) they have a turnover higher than

approximately EUR 16.168 in a preceding or the current calendar year; or (2) they predict that

their company will achieve an annual turnover exceeding approximately EUR 32.337. The

companies for which the VAT registration is not compulsory may, at their own discretion,

register for VAT. A VAT registration can be done by an authorized company’s representative.

Companies registered for VAT need to submit monthly VAT returns by the 25th of the month

following the month to which the VAT return applies. Taxpayers who do not have any taxable

turnover in a given tax period should also submit a tax return in which the fields are filled in with

0 (zero). Taxpayers who terminate their activities should submit a tax return within 25 days after

the end of the month in which the activity was stopped.


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The VAT due should be paid by monthly payers no later than the deadline for submitting the tax

return, i.e. no later than 25 days after the expiration of the tax period. Quarterly taxpayers are

paying the VAT until 25 April, 25 July, 25 October, and 25 January.

In order to receive a VAT refund, the taxpayer must submit a claim to the Macedonian Revenue

and Tax Administration. The claim needs to be accompanied by the invoices for which a refund

is requested. If the application is approved, the VAT refund will be issued within 10 days.

Finally, it should be noted that the EU VAT rules do not apply to Macedonia because it is not a

member of the European Union.

Excise duties

Excise duties are levied with respect to a limited number of goods produced or imported in

Macedonia. Petroleum products, alcohol and alcoholic beverages, tobacco products, and

passenger motor vehicles are subject to an excise duty at a flat or percentage rate. The excise

period is one calendar month, and excise duty is payable within 15 days as of the end of the

calendar month. The excise duty for alcohol beverages and tobacco goods is levied by way of

purchasing excise stamps.

The amount of excise duty for petroleum products depends on the type of petroleum product

and is payable per kilo/liter.

Alcohol and alcoholic beverages are taxable per liter/percentage of alcohol. Some categories of

alcoholic beverages (e.g. wine) are subject to no excise duty. Maximum excise duty payable is

up to EUR 5.5 per liter on pure alcohol.

The excise duty for tobacco products is combined and is calculated both per unit/kilo and as a

percentage from the retail price. As of July 2014 up to July 2023, the rate of the specific and

minimum excise duty on cigars/smoking tobacco will increase gradually every year.

The excise duty for passenger motor vehicles is calculated as a percentage of the market value

or the custom value of the vehicle. It ranges from 0% for vehicles valued up to EUR 3.000 to

18% for vehicles valued above EUR 30.000.


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Property Tax10

According to the Law on property taxes, the Public Revenue Office supervises the work of the

municipality bodies, the municipality bodies in the City of Skopje and the bodies of the city of

Skopje i.e.

Social and health Contributions

Contributions from the compulsory social insurance are the following:

1. Pension and disability insurance based on the current payment;

2. Health insurance;

3. Health insurance in case of an injury at work and a professional illness;

4. Insurance in the case of unemployment;

5. Years of service for insurance that is considered with the prolonged duration

Taxpayer payments of contributions from compulsory social insurance is a physical

person/insured in whose name and for which account are paid the contributions and the

personal income tax, or:

1. Employee with the employment status with the legal entity

2. Executive member of a board of directors in a trade company, a member of a

management board in a trade company and manager of a trade company, if they are

not insured on any other grounds

3. Self-employed person

4. Individual farmer (holders of family agricultural economy of first, second and third

category according the Law on Agriculture and Rural Development, starting from 1st

January 2016)

5. Religious official person

6. Temporary unemployed person while receiving a pecuniary compensation from

insurance in case of unemployment, according the law

10 Along with the process of decentralization in the Macedonia, from 01.07.2005, the local taxes (Property Tax, Tax

on inheritance and gift, Tax on real estate turnover) are administered by the municipalities. More information

related to the local taxes you can find in the municipality where the taxpayer’s property is located.

http://mls.gov.mk/map/index.htm


54

7. A person who besides the income from employment, self-employment or retirement,

has realized an income from performing physical and / or intellectual work, based on

one or more contracts for work and / or copyright agreements or other agreements

with which is determined the fee for the performed work, if the total net amount of the

income under this basis is higher than the amount of the average net salary for the

previous year published by the State Statistical Office

8. A person employed which earns an income from performing physical and / or

intellectual work, based on one or more contracts for work and / or copyright

agreements or other agreements with which is determined the fee for the performed

work with the employer where is employed or other entities that have ownership,

organizational or management relations with the employer

9. A person who earns an income from performing physical and / or intellectual work,

based on one or more contracts for work and / or copyright agreements or other

agreements with which is determined the fee for the performed work, if the total net

amount of the income on that basis is higher than the amount of the minimum wage

established by law

10. Аn employee to whom the employment is temporarily suspended for using unpaid

parental leave

Taxpayer calculations and payment of contributions from compulsory social insurance, the

subject that has obligation on the burden and the expense of the taxpayer for payment of

contributions to calculate, withhold and pay the contributions and the personal tax from the

salary.

1. Employer

2. Legal entity – payer of the fee

3. Self-employed person

4. Executive member of the board of directors of a company, a member of the

management board of a company or manager of a company

5. The Fund for pension and disability insurance of Macedonia

6. Health insurance Fund of Macedonia

7. Employment Agency of the Macedonia

8. Ministry of Health


55

The basis for calculating and payment of social contributions depends on the type of income

gained by the taxpayer for payment of contributions:

Salary, additional fees from the employment

Monthly compensation specified in the contract for regulation of relations between the

company and an executive member of the board of directors, member of the

management board i.e. manager of a company, for executive member of the board of

directors of a company, a member of the management board of a company, or manager

of a company

Salary for the part time jobs

Average salary for an independent artist, top athlete, a person serving a prison

sentence, a person who is in custody, a minor who is serving an educational measure

placement in educational - correctional institutions and citizens who are not defined as

the taxpayers to pay the mandatory contributions for health insurance

Monthly advance of the net revenue for self-employed person

The retirement pay, or the compensation according the regulations of the pension and

disability insurance

20% from the average paid monthly salary per employee for individual farmer

50% of the average monthly salary paid per employee

The amount of the difference between the net fee and the minimum wage established

by law, increased by contributions for compulsory pension and disability insurance,

contributions for compulsory health insurance and personal income tax from the

contract for work, copyright agreement or other agreement with which is determined

the fee for the performed work

The amount of the difference between net fee and net average salary for the previous

year published by the State Statistical Office, increased by contributions for compulsory

pension and disability insurance, contributions for compulsory health insurance and

personal income tax from the contract for work, copyright agreement or other

agreement with which is determined the fee for the performed work

The gross fee from the contract for work, copyright agreement or other agreement by

which is determined the fee for the performed work for the persons for who a taxpayer

for calculation and payment of contributions is the legal person-payer.


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RATES PER TYPES OF SOCIAL CONTRIBUTIONS AND AVERAGE SALARY PER EMPLOYEE

Contribution type

Rate

Compulsory pension and disability insurance 18%

Compulsory health insurance 7,3%

Additional health insurance contribution in case of an injury at work and a professional illness

0,5%

Compulsory contribution for insurance In case of unemployment

1,2%

Contribution for the years of service that is considered with the prolonged duration

Rate

12 months service are being considered as 18 months 9%

12 months service are being considered as 17 months 7,5%





Customs duties

Customs duties generally apply to most products imported into Macedonia. The customs rates

under the most favored nation treatment for agricultural products are up to 31%, whereas the

customs rates for industrial products are below 23%.

Macedonia has signed trade agreements with Turkey, Ukraine, and European Free Trade

Association (EFTA) member states. The country is a member state to the Central European Free

Trade Agreement (CEFTA) and has signed a Stabilization and Association Agreement with the

European Community.

The import of industrial products with preferential origin and certain raw precious metals is

exempt from customs duties.

According to the Stabilization and Association Agreement 2001 between Macedonia and the

European Union, products with Macedonian origin can generally be exported into EU countries

free of customs duties.


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5. Montenegro tax system trends

Montenegro’s tax regime has become one of the most competitive in whole of Europe. In an

attempt to increase the efficiency of the national economic system as a reaction to the global

economic crisis, Montenegro's government has adopted a whole package of tax law

amendments.

Montenegro is a small and highly open economic system has a potential to be flexible in fitting

in the global FDI trends, and in that sense it primarily has to work on the improvement of the

overall investment climate. Attracting foreign investments is one of the primary objectives,

bearing in mind their positive effect on speeding up the production and creating new jobs by

opening new businesses or companies.

The tax system in Montenegro is settled in a modern way that corresponds to the comparative

experiences of developed countries and international standards.

It provides the following:

- Functioning and stability of the integral market and efficient conducting of macroeconomic and

stabilization policy.

- Compatibility with the tax systems of countries of market economy;

- Equal position and business conditions and competitiveness of taxpayers in a unified economic

territory and on an integral market, which enables the free movement of goods, services,

persons and capital.

- Equal position of all legal entities and natural persons in the territory of Montenegro.

- Payment of liabilities of all taxpayers in conformity with their economic force.

- Foreign investment incentives by providing equal tax treatment and tax security in the territory

of Montenegro, and thus also competitiveness on the international market of capital, goods and

services.

Unified tax registration in Montenegro

In order to improve the effectiveness of tax charging policy, the Montenegrin tax administration

implemented a unified registration and collection of taxes and contributions.


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The tax system in Montenegro consists of:

corporate income tax;

personal income tax;

Value Added Tax (VAT);

real estate transfer tax;

social security contributions;

excise duties;

fees;

Customs duties.

The tax system for foreign investors is the same as for local business entities.

Corporate income tax amounts to 9%. Capital gains, dividends, interests and royalties are

included in the income of companies and are taxed as part of corporate income tax. Upon

payment of the corporate income tax, business entities operating in Montenegro have the

possibility to transfer funds to their accounts abroad at the end of the year.

All expenses incurred wholly and exclusively for the generation of income are deductible for tax

purposes if supported by relevant documents such as tax invoices, foreign invoices, receipts

issued by state entities or other documents compiled and issued according to the Ministry of

Finance Directives.

Personal income tax (PIT) of 9% is levied on salaries, property-related income, and investment

income (interest income earned by non-residents is subject to a 5% PIT).

Salary is subject to progressive tax at rates of 9% and 11%. Personal income tax rate is at 11%

for gross salaries exceeding EUR 720 (whereas the higher rate applies only on part of the salary

exceeding EUR 720). Exemptions are granted to taxpayers with specific types of income.

There is obligatory taxation of the income derived from capital gains realized from the sale of

real-estate, shares, and securities which is to be treated as personal income and taxed

accordingly.


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Local surtax exists in addition to PIT and is paid to the municipality where the taxpayer is

domiciled. Surtax of 13% is applicable in all municipalities with the exception of Podgorica and

Cetinje, where the rate is 15%.

The surtax base is the amount of PIT assessed.

Two positive rates of value added tax (VAT) are applied, standard rate of 19% and the reduced

rate of 7%, while the zero rate applies to: export transactions and delivery of medicines and

medical devices that are funded by the Republican Health Insurance Fund.

Value added tax is calculated and paid for:

delivery of products and services done for a fee by the taxpayer within the performance

of its business activities;

imports of products;

imports of motor vehicles (new and pre-owned) is liable to VAT at the rate of 19%;

trade in pre-owned passenger vehicles, motorcycles and vessels for which the taxpayer

was not entitled to input VAT deduction upon acquisition is not subject to VAT; In this

case, a special tax is paid at the rate of 5% by the buyer;

trade in land (agricultural, construction, developed and undeveloped), is not subject to

VAT.

Ownership of Immovable property in Montenegro

Montenegro treats foreign legal and physical persons in the same manner as the domestic

business subjects without any reciprocity terms. However, the law does provide specific

restrictions for foreign investors' acquisitions of immovable properties that belong to cultural

heritage and public interests.

The tax rate on real estate transfer is proportional and amounts to 3% of the tax base. Trade in

real estate is considered to be all acquisitions of ownership over real estate in Montenegro and

this area is thoroughly regulated by the Law on Real Estate Transfer Tax.

Tax implication on acquisition of immovable property in Montenegro


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The tax base for property transfer tax is the value stated in the Purchase Agreement. However,

in cases when the value from the Purchase Agreement is far from the market value or it's not

presented realistic therein, the municipal market value calculation shall be applied.

Moreover, in cases when the real estate is included in the company's capital as a contribution in

kind, the Property Transfer Tax shall not be paid.

The taxpayer is a buyer i.e. acquirer of the real estate. The transfer of the property must be

reported to the Tax administration by submitting the tax return within 15 days from the date of

signing the Purchase agreement.

According to the Montenegro tax regulation, the property tax rate is proportional. The owner of

the property (including foreign person or Company) is liable to pay this tax which is set by

municipal tax authorities. The property tax rates range from 0,25% to 1 % of immovable

property market value.

Stamp duty

Montenegro does not have a Public Notary regulated legal system, and some preliminary

preparation has been made recently for its establishment henceforth. Therefore, property

transfer is not subject to any kind of Notary charge.

The Real Estate Purchase Agreement is a strictly formal document and in order to be considered

as valid, the signatures of the Buyer and the Seller must be verified in front of the Court officials.

There is a general stamp duty on documents and verification charges by the Court. Stamp duty

depends on total value of the Purchase Agreement.

Compulsory social insurance in Montenegro is paid by the employees, employers,

entrepreneurs and farmers who are not contributors to unemployment insurance at a total rate

of 24 %.

Contributions for compulsory social insurance for a business are:

contribution for compulsory pension and disability insurance at 15%;

contribution for compulsory health insurance at 8.5%;

contribution for unemployment insurance at 0.5%;


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Contribution rates are different depending on the category of taxpayers, and they are defined

by the Law on Compulsory Social Insurance.

The maximum annual base for payment of social security contributions is EUR 50,000.

Law on Excise Duties governs the system and introduces the obligation to pay excise duties for

individual goods and services that are released to free circulation on the territory of

Montenegro.

Excise products are:

alcohol and spirituous beverages;

tobacco products;

mineral oils, their derivatives and substitutes.

Excise duty payers calculate the excise duty for the calendar month themselves.

Types of fees in Montenegro, that have to be paid by investors, are:

administrative fees;

court fees;

utility fees;

registration fees;

sojourn fees.

Transfer Pricing and Tax consolidation

According to Montenegro's regulations, parent and subsidiary companies constitute a group of

related resident companies if the parent has direct or indirect control over no less than 75% of

shares or participation in the subsidiary company and thus has a right to apply for tax

consolidation. Each member of the related companies group is liable to submit its tax return to

the relevant tax administration, while the parent company has to submit the consolidated tax

return for the group of related companies. Once approved from the competent tax authorities,

tax consolidation is applied for at least five years. It is worth mentioning that transfer pricing is

considered to be the price applied in relations and transaction between related parties.


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A transfer price has to be shown in a tax balance as well as the "arm's length" price which would

have been applied between unrelated parties. The difference between these two prices shall be

calculated in the tax basis.

Capital Gains Tax and Withholding tax

Capital Gains generated from sales of property owned by the legal entity are not separately

taxed in Montenegro. They are included in the taxable income when making annual tax balances

and are taxes at a rate of 9%. The sale of such property is included in the taxable gains when

annual tax balance is calculated. According to Montenegro's tax law, capital gains are consider

to be incomes which the taxpayer realized from the sale or other assignment of land, building

facilities, property rights, shares in capitals and stock values.

The withholding tax rate is at a rate of 9%. All residents, including companies, sole

entrepreneurs, central and local governmental bodies, non-profit organizations and any other

legal entity registered in Montenegro are obliged to withhold tax from the dividend payments,

interest profit shares, interests paid to non-residents, royalties paid to non-residents, capital

gain paid to non-residents, income derived from consulting services paid to non-residents, rent

of movable and immovable property paid to non-residents, market research services paid to

non-residents, audit services paid to non-residents.

The domestic withholding tax rate (9%) may be reduced when a double tax treaty exists with

more favorable rates. A rate of 5% applies to interest paid to a nonresident individual.

Montenegro Double Tax Treaties

Montenegro has so far signed 42 double taxation treaties with various countries on income and

property (6 treaties are pending).

The 36 treaties are now in force with: Albania, Belarus, Belgium, Bosnia and Herzegovina,

Bulgaria, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France,

Germany, Hungary, Iran, Italy, Korea, Kuwait, Macedonia, Malaysia, Moldova, Netherlands,

Norway, Poland, Romania, Russia, Slovakia, Slovenia, Sri Lanka, Sweden, Switzerland, Turkey,

Ukraine and United Kingdom.


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Tax incentives in Montenegro

The amount of property tax for buildings and residential apartments can be reduced to 20 % of

the tax base including 10% for each family member. However, such tax reduction cannot exceed

50% of taxpayer's tax liability. Furthermore, in the case when the total tax base for all specific

assets of a taxpayer does not exceed EUR 40 (if assets are not used for obtaining the income),

immovable property tax is not paid. Salaries paid to employees of a start-up business (excluded

agriculture, transport, steel and fishery, shipbuilding) in an non developed zone are tax exempt

for 8 years, but not more than EUR 200.000.

Incentives for non-developed areas of Montenegro

Newly incorporated companies in the production sector are exempted from payment of

corporate income tax during the first three years starting from the day of the commencement of

business activities in relation of profit realized in an undeveloped municipality. The taxpayer in

such cases shall be entitled to tax credit for the period of three years, proportionally to the

share of such realized profit of the total amount of the taxpayers' profit. The first year of

utilization of this tax exemption begins on the day of registration into the Central Register of the

Commercial Court. It is worth mentioning that a newly incorporated company is not a candidate

for this tax relief if the founder or cofounder is a related person. Finally, a legal entity formed as

a result of any status changes or by a merger or a division of an existing legal entity shall not be

considered a newly incorporated company and consequently shall not be entitled to this tax

relief.

The basis of the customs system in Montenegro consists of the Law on Customs Tariff and the

Customs Law. Customs clearance under this law, includes receipt of import customs declaration,

inspection of goods and classification according to the customs tariff and other tariffs, fixing the

customs basis, amount of customs duties and other import duties charged on the goods,

collection of fixed customs duty amounts and other import duties.

According to the law, investors may be eligible for exemption from customs duties.

Customs duty is based generally on the value of goods or upon the weight, dimensions, or other

criteria, depending on the item. The rate of customs duty in Montenegro is different for each

product and it also varies by country/ies of origin. The customs authorities have the obligation

to publish and update the list of the customs rates for each product and each country.


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6. Serbia tax system highlights

Serbia has a deep industrial tradition, a strategic transportation and technical infrastructure, a

private sector accustomed to complement international business, rich natural resources, ideal

location, a growing network of R&D institutes, and high quality secondary and tertiary

education.

Value Added Tax (VAT) is charged on supplies of goods and on services provided by a company,

entrepreneur or individual in the course of pursuing its business activities within the territory of

Serbia, as well as on the import of good s into Serbia, whereas export is exempt from taxation.

The registration threshold for VAT purposes is an annual turnover of approximately EUR 65.000.

The regular VAT rate in Serbia is 20%, whereas the reduced rate of 10% is applied for supplies of

certain products of public interest, including but not limited to: basic food products (e.g. sugar,

cooking sunflower oil, bread, milk, flour, edible fats; fruits, vegetables, meat, fish, eggs); human

and animal medicines, orthopedic and prosthetic appliances; text books and teaching aids,

natural gas, etc.

VAT Law provides an extensive list of exemptions with the right to deduct input tax (so called

“zero rated supply”) and ordinary exemptions without such right. Separately, VAT Law provides

for exemptions applicable to the import of certain goods.

VAT Law provides for exceptional treatment of small taxpayers whose annual turnover does not

exceed approximately EUR 69.000 or is not estimated to exceed the aforementioned amount.

Specifically, those taxpayers are not subjected to VAT, unless they choose to be taxed in that

manner.

In the event that the taxable income exceeds the amount of approximately EUR 406.000, the

taxpayer is obligated to submit a monthly VAT return; otherwise if the taxable income is under

the above amount VAT return shall be filed quarterly.


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Corporate income tax is imposed on the profits of a company (joint-stock company, Limited

Liability Company, general partnership, limited partnership, state owned enterprises,

cooperative, etc.). Taxable income is usually comprised of business income and capital gains.

Resident companies are responsible for paying taxes on their worldwide income, whereas

nonresident legal entities are responsible for paying taxes on income generated within the

territory of Serbia. Taxable income is calculated in accordance with the tax balance sheet, which

is specially prepared for that purposes. It should be noted that, for tax purposes, the branch/es

and the head office of a foreign company are treated as separate entities. Generally, the

corporate income tax is self-assessed by the taxpayer.

Both corporate income and capital gains are taxed at the rate of 15%. However, capital gains are

subjected to a 20% rate for a nonresident taxpayer (e.g. branch office). Other related

withholding taxes (e.g. interests, dividends, royalties) are taxed at rates between 15% and 25 %,

nevertheless, different rates may be stipulated in Double Taxation Avoidance Treaties.

The withholding tax is at a rate of 25% for payments made to persons, which are residents to a

preferential tax jurisdiction, or lease payments for real estate and other assets. For non-

residents of Serbia, a 20% withholding tax is calculated and paid on certain payments such as

dividends, shares in profit, royalties, interest, capital gains, lease payments for real estate and

other assets. Technical service fees and branch remittances have no withholding ore other type

of tax.

Tax incentives

Corporate Income Tax Law provides for tax holidays and investment tax incentives. The tax

holiday that is envisaged as exemption from corporate income tax shall apply to other taxpayers

(e.g. nonprofit organization) who shall not be considered as a joint-stock company, a limited

liability company, a general partnership, a limited partnership, a state owned enterprise or a

cooperative and for whom the realized surplus of receivables over the expenses did not exceed

the amount of approximately EUR3.300 in the tax period for which the right to exemption was

granted, in accordance with the conditions prescribed by Corporate Income Tax Law.


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Investment tax incentives are prescribed mainly in favor of large investors. Any taxpayer that

invests more than approximately EUR 8.261.000 in its fixed assets and who uses such assets for

the exercise of its principal business and activities as those are defined in its founding

documents or in some other documents of the taxpayer in which the line of business of said

taxpayer and is identified and, further, who employed during the investment period at least 100

persons for an indefinite time period, shall be exempt from corporate profit tax in proportion to

its investment for a period of ten years.

Companies are exempt from Corporate Profit Tax for a period of 10 years starting from the first

year in which they report taxable profit if they:

invest in fixed assets an amount exceeding approximately €8.5 million, and

hire at least 100 additional full-time employees during the investment period

The tax loss stated in the tax return can be carried forward and offset against future profits over

a period of 5 years.

Residents (or persons with the center of its business activities in Serbia or persons with

permanent residence who stay in Serbia for more than a 183 days during the tax year) are

responsible for their worldwide income (sum of all net receivables generated by taxpayer during

the tax year), whereas nonresidents are responsible for income earned within the territory of

Serbia.

The Salary Tax base in Serbia is deducted by approximately EUR 100 a month for all employees

working full time. New employment entitles employers to a sizable relief of taxes and

contributions paid on net salary from the moment of employment until June 30, 2016.

Salary taxes and insurance contributions are levied at the following rates:

(i) salary tax, 10%;

(ii) pension insurance contribution, 14%;

(iii) health insurance contribution, 5,15%;

(iv) unemployment insurance contribution, 0,75%.


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These salary taxes and contributions payable by employees are withheld by the employer.

Employer is also subjected to the contributions for health and unemployment insurance, at the

rates outlined above, however, for pension insurance contribution it shall be taxed at the rate of

12%.

Thus, the overall and total percentage of all mandatory employment related taxes and

contribution constitutes 47, 8% of the employee’s taxable gross salary.

The annual income is taxed if exceeding the amount of threefold the average annual salary in

Serbia. The tax rate is 10% for the annual income below the amount of 6 times average annual

salary in Serbia, and 15% for the part of the annual income above the amount of 6 times

average annual salary. The taxable income is further reduced by 40% of an average annual salary

for the taxpayer and by 15% of an average annual salary for each dependent member of the

family. The total amount of deductions cannot exceed 50% of the taxable income.

The rates for mandatory social security contributions are:

14% for pension and disability insurance,

5.15% for health insurance, and

0.75% for unemployment insurance.

The total sum of social security contributions and income taxes that are calculated on the net

income, amounts to about 65% of net earnings.

The self-employed taxpayer is a natural person who earns income by way of performing

business activities or by being subjected to value added tax in accordance with the law

governing VAT. It should be noted that, pursuant to the latest amendments to the Law on

Personal Income, income realized from agricultural and forestry activity shall also be considered

as income from self-employed activity. Those natural persons are taxed at the rate of 10%,

unless they are subjected to the lump-sum taxation regime. The limit for the lump-sum taxation

is currently set at approximately EUR 52.000.

The taxpayer shall also be subjected to tax for the following kinds of income:

(i) royalties, at the rate of 20%;


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(ii) rentals and capital income, at the rate of 15%

(iii) capital gains, at the rate of 15%;

(iv) other income, at the rate of 20%.

Real estate property tax

In general, the rights to own and use various kinds of real estate properties are subject to

taxation. If the taxpayer is a natural person then the tax is levied on the market value of the real

estate with progressive rates between 0,3% and 2%. However, if the taxpayer is a legal entity

then the value of the real estate is determined in accordance with the book value of the real

estate and is taxed at the following progressive rates:

(i) Up to 0,4% for taxpayers maintaining business book;

(ii) Up to 2% for taxpayers that do not keep business books. The actual rate will be defined by

Municipality within the aforementioned limits.

Inheritance and gift tax

A person who inherits or receives property as a gift is defined as a taxpayer and thus is

subjected to taxes at the progressive rate ranging from 1,5% to 2,5%. It should be noted that

Property Tax Law in Serbia (PTL) envisages numerous exemptions and beneficiaries based

predominantly on family law relations.

Transfer tax is payable by both natural persons and legal entities that sell or assign real estate

property, intellectual property rights, certain motor vehicles, usage rights on construction land.

Given that transfer tax and VAT are competitive taxes, PTL provides for an exemption from

transfer tax applied on transfer of absolute rights if the assignment is considered as supply and

thus subjected to the VAT regime. Taxpayers are taxed at the rate of 2,5%, whereas the taxable

base is the agreed price so long as it is not below the market value.

Certain products in the Republic of Serbia (petroleum products, tobacco products, alcoholic

beverages, coffee, bio-fuels and bio-liquids) are taxed in accordance with the excise regime.

Serbian governing law envisages two mechanisms for the prevention of tax avoidance:

(i) Transfer pricing rules;

(ii) Thin capitalization rules.


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Financial transactions between affiliated companies (companies shall be deemed as affiliated if

there is a possibility of control or significant influence on business decisions) must be done

at arm’s length terms, which means that the taxpayer is subject to certain reporting

requirements.

Thin capitalization usually occurs when the capital of the company is comprised of greater debt

than equity (misbalance of the debt-equity ratio). Thus, pursuant to the Serbian rules, interests

and related expenses paid on loans may not be withheld if they exceed by four times the equity

of the company. For banks, insurance companies and other financial institutions the debt-equity

ratio is set at 10:1.

Avoiding Double Taxation

If a taxpayer already paid tax on the profit generated abroad, he is entitled to a Corporate Profit

Tax credit in Serbia to the already paid amount. The same right is enjoyed by a taxpayer who

earns revenue and pays Personal Income Tax in another country, provided there is a Double

Taxation Treaty with that country. Serbia has signed so far 54 double tax treaties.

Foreign investors in Serbia can enjoy the benefit of customs free import of raw material and

semi-finished goods for export oriented production. This benefit can either be achieved by

operating in one of the free zones in Serbia or by a permit from custom office for outward

processing production. In both cases finished products must be 100% designated for export.

Foreign investors are exempt from paying customs duty on imported equipment and machinery

which represents the share of a foreign investor in a capital of a company in Serbia.

A wide array of incentives is also available at the local level, varying in scope and size from one

city to another. The major ones comprise the following:

City construction land lease fee exemptions or deductions, including the option of paying in

installments, with the prior consent of the Serbian Government;

City construction land development fee relief such as fee exemptions or discounts for one-

off payments;

Other local fees exemptions or deductions (e.g. the fee for displaying the company's

name).


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Conclusion

The Albania and Serbia are two countries, which have approved in respective

Parliaments a fiscal policy with respect of change of tax burden consequences for their

fiscal systems and over the average of the Western Balkans.

In Albania, Serbia, and Macedonia could be seen a growing fiscal burden from fiscal

policy, i.e. increase of burden from total tax rates. This difference or increase of total tax

rates reflects the adaption in the legislation of some Balkan countries of higher specific

tax rates, as can be seen in the table.

Tab.3 TAX RATES IN BALKAN COUNTRIES, 2016 %

TOTAL EMPLOYER EMPLOYEE

1 MECADONIA 5,18 10 10 27 0 27

2 KOSOVO¹ 8,18 10 10 10 5 5

3 CROATIAI² 5,13, 25 20 47,2 37,2 17,2 20

4 MONTENEGRO 19 9 9 32,8 9,3 23,5

5 BOSNIA-HERZEGOVINA 17 10 10 41,5 10,5 31

6 BULGARIA³ 9,20 10 10 31,4 18,5 12,9

7 ALBANIA 20 5, 15 13,23 27,9 16,7 11,2

8 SERBIA´ 20 15 15 37,8 17,9 19,9

9 ROMANIAµ 5,9,20 16 16 54,5 38,45 16,05

10 GREECE¶ 6,13,23 29 46 40,06 24,56 15,5

Source: WB, IMF, TE, PwC, EC, MoF

NOTE: Updates of tax rates and differences between 2015 with 2014

¹ Increase of VAT 2% and introduction of reduced VAT rate 8%

² Decrease of social contributions rate less 2%

³ Decrease of social contributions rate less 1,55%

´ Decrease of social contributions rate less 0,4%

µ Increase of VAT rate 4%

¶ Increase of Profit Tax with 3%. Decrease of social contributions rate less 1,95%

SOCIAL AND HEALTH CONTRIBUTIONSNo. COUNTRIES VAT PROFIT TAX

PERSONAL

INCOME TAX


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Value Added Tax is still the most significant tax for the European Union and other

countries that are part of Western Balkans. The VAT rates are below the average rate of

EU member states.

Kosovo has updated the VAT rates and respectively have increased with more 4% and

2%.

As regard to corporate income tax, the tax rate below average rate is applied in

Montenegro, Kosovo, Macedonia, and Bosnia.

Albania is determined with the profit tax rate between higher and lower tax rates.

The personal income tax (including withholding taxes), looks with lower tax rates in

Kosovo, Albania11, Macedonia, Bosnia-Herzegovina.

When we check the rates for social and health contributions, it is noticed that Serbia,

Bosnia and Herzegovina have higher rates, while the lowest rate are applied in Kosovo,

Macedonia, and Albania. In 2015, several countries have updated the rates on social

contributions as it is mentioned in the notes in Table.

The reason for the harmonization of scope between tax policy, tax rates and foreign

investments is the best reflection about the effect it has to prove in the first view for the

climate for investment in every country of Western Balkans.

Tax policy has the effect to attract investment, as market conditions and regulations are

perceived by investment indexes with positive situations and on their average levels.

On the other hand, the need for developed systems of financial market, of high skilled

capacities of labor market with the lower level of corruption have another influential

effect in attracting investments and making the development happen in the internal

market.

11 The case of personal income tax rate for Albania has an explanation why included in the group, because

the rate of 13% of personal income tax represents over 95% of its tax base


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TAXATION TRENDS IN WESTERN BALKANS, 2016 The Taxation trends in Western Balkans, 2016 publication is first edition of ALTAX CENTER in thematic collections of ALBANIAN FISCAL STUDIES regharding to tax policies and issues trends in 2016 in the Western balkan countries. The countries that compile the contents of this report are part of Western Balkans and are ranked based in alphabetic order. They are Albania, Bosnia and Herzegovina, Kosovo, Macedoni, Montenegro and Serbia.This work is a product of the staff of ALTAX experts. The findings, and conclusions expressed in this work reflect the copy of legislation and comments done by different authors and by the own experts too. The work is a compilation of recent developments of tax rates and tax policies.

ALTAX CENTER Albanian Fiscal Studies

No. 2016/11/08

Economy & Finance

Taxation trends in Western Balkans, 2016