The Corporate Income Tax Law (03/L-162, December 29 2009), which entered into force on January 1 2010, has introduced for the first time a withholding tax on certain payments made to non-resident taxpayers. Previously, the legislation did not provide clear provisions for the taxation of non-residents without a permanent establishment in Kosovo that rendered services in Kosovo. The interpretations of the tax authorities were thus inconsistent.

The new law provides that the following will be subject to withholding tax at a rate of 5%:

• income attributable to non-resident entertainers (eg, theatre, motion picture, radio or television artists, singers, musicians or sportspeople), generated from personal activities exercised in Kosovo; and
• income generated in Kosovo by non-resident persons or entities for services performed in Kosovo, provided that the non-resident has no permanent establishment in Kosovo and the gross compensation paid exceeds €5,000 in any tax period (calendar year).

Withholding tax is also levied on income from interest, royalties, rents, lotteries and games of chance earned by Kosovo residents or non-residents. Reflecting the change in the corporate income tax rate, except for the withholding tax on rent (9%), all other income is taxed at 10%.

The withholding tax will be levied even in cases where the recipient of the income is subject to corporate income tax and such income is included in the recipient's taxable profits. The withholding tax is offset against the corporate income tax payable by the recipient on the annual tax return.

Pursuant to the new law, dividends received by resident and non-resident taxpayers are not subject to the withholding tax.

For further information please contact Mirjeta Emini or Andi Pacani at Boga & Associates by telephone (+355 42251050), fax (+355 42251055) or email (memini@bogalaw.com or apacani@bogalaw.com).

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