the wolf theiss guide to kosovo - corporate, tax- and other regulations_3rd_edition

7/27/2019 The Wolf Theiss Guide to Kosovo - Corporate, Tax- And Other Regulations_3rd_edition

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THE

WOLF THEISS

GUIDE TO

KOSOVO:

Corporate, Tax-& other Regulations

3rd EDITION


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Guide to: Kosovo

1

Legal Notice and Information:

Status of information: September 2012. Changes are reserved.

Conception, design, and editing:

WOLF THEISS Rechtsanwlte GmbH

Schubertring 6

1010 Vienna

Tel.: +43 1 515 10

Fax: +43 1 515 10-25

Contact:

Christian Mikosch

E-mail: [email protected]

Thomas Kienbauer

E-mail: [email protected]

Disclaimer

This brochure was correct at the time it went to press, i.e. September 2012; however,

legislative changes and changes in interpretation by the authorities and courts can

occur frequently in Kosovo. This brochure contains information that is summarised

and, in part, simplified. It does not substitute for specific legal and tax advice. Despite

attempting to exercise care in compiling this brochure, the authors cannot warrant theaccuracy, completeness, or up-to-date character of its contents. Any liability on the

part of Wolf Theiss is therefore excluded.

This brochure is based on a standard doing business guide of the Austrian Chamber

of Commerce written in German. It has been adapted and updated and provided to

the Austrian Chamber of Commerce, Investment Promotion Agency of Kosovo (IPAK)

and Economic Initiative of Kosovo (ECIKS), to be published by these institutions in

their own name and on their own behalf. This brochure was translated into English

and further amended and adapted by Wolf Theiss to be used and published in their

own name and on their own behalf. The Austrian Chamber of Commerce, Investment

Promotion Agency of Kosovo (IPAK) and Economic Initiative of Kosovo (ECIKS) havereceived the amendments and updates to the original brochure and may publicise

and use this brochure in their own name and on their own behalf.

We would like to thank Graham Burnett of the Tax Administration of Kosovo for his

valuable input on Kosovo tax law, USAID, Dastid Pallaska of Pallaska & Associates,

Lily Thurner, Julia Kollitsch and Agnieszka Zajac.


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CONTENTS

1. General Overview ............... .............. ............... ............... ............... .. 51.1 History of the Legal System .............. ............... ............... ............... .. 61.2 Applicable Law .............. ............... .............. ............... ............... ....... 71.2.1 General ............... ............... .............. ............... ............... ............... .. 71.2.2 Relevance of EU Laws in Kosovo .............. ............... .............. .......... 81.3 The Court System ........................ .............. ............... ............... ....... 81.3.1 General ............... ............... .............. ............... ............... ............... .. 81.3.2 Current Status ............... ............... .............. ............... ............... ....... 81.3.3 Court system pursuant to the new law on courts .............. ............... 101.4 The Concept of Social Ownership ............. ............... .............. ........ 111.5 Publicly Owned Enterprises .............. ............... ............... ............... 122. Corporate Law............................................................................... 132.1 General ............... ............... .............. ............... ............... ............... 132.2 Establishment of Companies ............. ............... ............... ............... 132.2.1 Individual Business Enterprises and General Partnership ............... 132.2.2 Limited Partnership ............ .............. ............... ............... ............... 142.2.3 Corporations .............. ............... ............... ............... .............. ........ 142.2.4 Duration and Costs of the Foundation .............. ............... ............... 152.2.5 The Business Registry ............... ............... ............... .............. ........ 162.2.6 Foreign Business Organisation ........................ ............... ............... 162.2.7 Local Registration of Each Premises .............. .............. ............... ... 172.2.8 Comparison L.L.C J.S.C ................ ............... ............... ............... 172.2.9 Management of a Corporation .............. ............... .............. ............. 172.2.10 Shareholders' Liabilities ............. ............... ............... .............. ........ 182.2.11

Board of Directors .............. .............. ............... ............... ............... 18

2.2.12 Directors' Liability ............... .............. ............... ............... ............... 192.2.13 Officers ......................................................................................... 192.2.14 Transfer of Shares in a Limited Liability Corporation ............. ..... ..... 192.3 Share certificates and share registers .............. ............... ............... 212.4 Annual general meetings and reports ............... ............... ............... 212.5 Transformation of Entity Type .............. ............... .............. ............. 212.6 Increase in Borrowing, Capital & Bonds ............... .............. ............. 213. Insolvency and restructuring ............. ............... ............... ............... 223.1 Bankruptcy Provisions ...................... ............... ............... ............... 223.2 Types of Insolvency Proceedings Available .............. .............. ........ 223.3 Conditions for the opening of insolvency proceedings ............. ..... ... 233.3.1 Debtor Capable of Insolvency .......................... ............... ............... 233.3.2 Entitled Partners .............. ............... ............... .............. ............... ... 233.3.3 Commencement and Handling of Insolvency Proceedings ........... ... 233.3.4 Filing of Claims .................. .............. ............... ............... ............... 243.3.5 Effects of Opening the Insolvency Proceedings ................. ............. 253.3.6 Avoidance of Transactions .............. ............... .............. ............... ... 253.3.7 Reorganisations ........................... .............. ............... ............... ..... 253.3.8 Sale of the Debtor's Estate and Creditors' Satisfaction ..... ..... ..... ..... 264. Investment Protection for Foreign Investors .............. .............. ........ 275. Tax Law .............. ............... .............. ............... ............... ............... 285.1

General ............... ............... .............. ............... ............... ............... 28

5.1.1 Fiscal and VAT Number ............. ............... ............... .............. ........ 285.1.2 Corporate Income Tax ............... ............... ............... .............. ........ 29


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5.1.3 Deductible Items ................ .............. ............... ............... ............... 295.1.4 Losses Carried Forward............. ............... ............... .............. ........ 305.1.5 Corporate Assessments and Payments ........................... ............... 305.1.6 Taxation of Permanent Establishments .......... .............. ............... ... 315.1.7

Withholding Tax .............. ............... ............... .............. ............... ... 31

5.1.8 Avoidance of Double Taxation ............... ............... ............... .......... 335.2 Personal Income Tax ............... .............. ............... ............... .......... 335.2.1 Taxable Persons ............. ............... ............... .............. ............... ... 335.2.2 Taxable Income ............. ............... .............. ............... ............... ..... 335.2.3 Tax Rates ..................................................................................... 345.2.4 Taxation of Foreigners ............... ............... ............... .............. ........ 345.3 Value Added Tax ............. ............... ............... .............. ............... ... 355.3.1 General ............... ............... .............. ............... ............... ............... 355.3.2 Basic VAT Rules ............. ............... ............... .............. ............... ... 355.3.3 "Persons" obligated to register ............. ............... .............. ............. 355.3.4 Deduction of Input Tax......................... ............... .............. ............. 365.3.5 VAT Compliance ............. ............... ............... .............. ............... ... 365.4 Social security and Health Insurance Charges .............. ............... ... 365.5 Salary Taxes and Pension Charge Compliance ........................... ... 375.6 Customs Duties and Customs .............. ............... .............. ............. 375.7 Excise Duties ............. ............... ............... ............... .............. ........ 385.8 Property Tax .............. ............... ............... ............... .............. ........ 385.9 Form of Tax Declarations and Penalties .............. .............. ............. 385.10 Capital Gains Tax ............... .............. ............... ............... ............... 396. Labour Law .............. ............... .............. ............... ............... .......... 406.1 General ............... ............... .............. ............... ............... ............... 406.2 Overview of important Articles of the Law on Labour............. .......... 406.2.1

Scope of the Labour Law Art. 2 .............. ............... .............. ........ 40

6.2.2 Social Dialogue and Social Economic Counsel Art. 3.1.4 and

Art. 3.1.5 ............. ............... .............. ............... ............... ............... 416.2.3 Duty to Report to Tax Authorities Art. 7.4 .............. .............. ........ 416.2.4 Labour Contracts ............. ............... ............... .............. ............... ... 416.2.5 Change of Employer Art. 13 .............. ............... .............. ............. 416.2.6 Trial Period Art. 15 ........................ ............... ............... ............... 416.2.7 Commissioning of Employees Art. 17 ............... .............. ............. 426.2.8 Reassignment of Employees Art. 18 .............. ............... ............... 426.2.9 Working Hours Art.21 et seq. ........................ ............... ............... 426.2.10 Paid and Unpaid Leave ......................... ............... ............... .......... 426.2.11 Termination of an Employment Contract .............. .............. ............. 436.2.12 Collective Dismissals Art.76 .............. ............... .............. ............. 436.2.13 Employees of Foreign Investors and Work Permits ......................... 437. Public Procurement Law ............... .............. ............... ............... ..... 447.1 Introduction to Public Procurement, PPP and Concessions ..... ..... ... 447.2 Public Procurement .............. ............... ............... .............. ............. 447.3 Public Private Partnerships ............. ............... .............. ............... ... 447.4 Concessions ................................................................................. 458. Intellectual Property Protection ...................... .............. ............... ... 468.1 General ............... ............... .............. ............... ............... ............... 468.2 Patents, Trademarks and Industrial Design .............. .............. ........ 468.2.1 Registration Procedures ................... ............... ............... ............... 468.2.2 Patent Protection ............. ............... ............... .............. ............... ... 478.2.3 Trademark Protection .............. .............. ............... ............... .......... 47


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8.2.4 Industrial Design Protection .............. ............... ............... ............... 488.2.5 Rights Enforcement .............. ............... ............... .............. ............. 488.3 Copyright ...................................................................................... 498.3.1 Granting of Copyright Protection ............... ............... .............. ........ 498.3.2

Rights of Authors and Related Rights to Copyright ..... ..... ..... ..... ..... 49

8.3.3 Protection of Foreigners ...................... ............... .............. ............. 508.3.4 Rights Enforcement .............. ............... ............... .............. ............. 508.4 Product Piracy ............... ............... .............. ............... ............... ..... 509. Environmental Laws ............. ............... ............... .............. ............. 5110. Arbitration ..................................................................................... 5211. Mining and Energy ............... ............... ............... .............. ............. 5312. Banking and Insurance .............. ............... ............... .............. ........ 5413. Privatisation ............. ............... .............. ............... ............... .......... 5513.1 Privatisation of SOEs ............... .............. ............... ............... .......... 5513.2 Privatisation of POEs ............... .............. ............... ............... .......... 5514. Entry and Exit from Kosovo............................................................ 5715. Registration of Vehicles, Insurance, Import of Personal Effects ....... 5816. Important Links and Addresses .............. ............... ............... .......... 5916.1 Websites of Institutions in Kosovo ............. ............... .............. ........ 5916.2 Websites of International Institutions in Kosovo ............... ............... 6016.3 Important Addresses in Kosovo .............. ............... ............... .......... 6116.3.1 Banks ........................................................................................... 6116.3.2 Insurance Companies .............. .............. ............... ............... .......... 6216.3.3 Business Support Solutions .............. ............... ............... ............... 6316.3.4 Additional Reading .................... ............... ............... .............. ........ 63


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1. GENERAL OVERVIEW

The Republic of Kosovo has declared independence from Serbia on 17 February

2008. In April 2008 the Assembly of the Republic of Kosovo adopted the new

constitution which has entered into force on 15 June 2008.

The constitution was based on the Comprehensive Proposal for a Status Settlement

for Kosovo, submitted by the United Nations Special Envoy for the resolution of

Kosovo's status (the "Ahtisaari Plan"). The Ahtisaari Plan provided, among others, for

a number of overriding protection mechanisms for Kosovo's minorities, but its main

goal was to prepare, in cooperation with the Kosovo authorities, the grounds for a

fully sovereign and independent country.1 For these purposes the Athisaari Plan put

into operation such institutions as International Civilian Representative (ICR), who

was supported by the International Civilian Office (ICO), European Security and

Defense Policy (ESDP, now CSDP- Common Security and Defense Policy) Mission

and the International Military Presence.

The ICR, according to the Settlement, was the ultimate supervisory authority over the

implementation of the Plan. He was armed with such means as: annulment of

decisions or laws adopted by Kosovo authorities and sanctioning and removing

public officials whose actions were inconsistent with the Settlement.

The ESDP Mission, under the direction of the European Union Special

Representative (EUSR), who was the same person as the ICR, was acting in Kosovo

as an EU representation, developing a stronger and more effective EU Common

Foreign and Security Policy.

The Athisaari Plan was in effect until September 2012. The Assembly unanimously

declared the end of supervised independence of Kosovo and ended the mandate of

the ICR with immediate effect.

Despite the formal termination of the supervision, two international missions remain

in Kosovo. These are NATO's Kosovo Force (KFOR), fulfilling military tasks, and The

European Union Rule of Law Mission in Kosovo (EULEX).

EULEX was launched in 20082 under the CSDP Mission and is its largest civilian

mission. It works under the general framework of the UN Security Council Resolution1244(1999)3. On 7 September 2012 the Kosovo parliament ratified EULEX for

another two years extending the mandate of the EU rule of law mission until 2014.

1A letter dated 26 March 2007 from the Secretary- General to the President of the Security Council, Report of the

Special Envoy of the Secretary- General on Kosovo's future status;

http://www.ico-kos.org/d/Ahtisaari%20Comprehensive%20Proposal%20in%20English.pdf ; 3rd

October 20122

Council Joint Action 2008/124/CFSP on the European Union Rule of Law Mission in Kosovo, EULEX KOSOVO,

4.02.20083

Report of the Secretary- General on the United Nations Interim Administration Mission in Kosovo of 12.6.2008(S/2008/354)


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Although EULEX has not as far-reaching an authority as the ICR had, it still enables

the EU to play a role in the Kosovo's policy with the key priority of establishing an

effective rule of law system as the basis for attracting foreign investment in Kosovo 4.

According to the Joint Action of 2008, EULEX shall assist the Kosovo institutions,judicial authorities and law enforcement agencies. This shall be done through

monitoring, mentoring and advising whilst retaining some executive responsibilities in

specific areas of competence, such as war crimes, organised crime, corruption, etc.

EULEX is also preparing to establish the rule of law in the north of the country.

1.1 History of the Legal System

Under the 1974 constitution of the Socialist Federal Republic of Yugoslavia (SFRY),

Kosovo was an autonomous province within the SFRY and, as such, enjoyed

substantial sovereign rights. As an autonomous province in the SFRY, Kosovo had a

parliament, a government, a judiciary, constitutional court and a national bank. In

March 1989, following the rise to power of Slobodan Milosevic, Kosovos autonomy

was unlawfully abolished and Serbia assumed full control over the province. Shortly

thereafter, the newly installed regime dismissed all Kosovo Albanians from their

public positions, including the judiciary. Following the disintegration of SFRY, the

aforementioned constitutional changes were sanctioned into law by the 1992

constitution of the Federal Republic of Yugoslavia, which was constituted of only

Serbia and Montenegro. While some of the dismissed Kosovo Albanian judges and

prosecutors moved to private practice, the lawlessness and widespread corruption

that followed the installation of the Milosevic regime in the province rendered their

roles as attorneys obsolete. Consequently, most of them were forced out of the legalprofession completely.

Following the end of the war in June 1999 the province was placed under an

international protectorate, pursuant to United Nations Security Council Resolution

1244, and was administered by United Nations Mission in Kosovo (UNMIK), while

NATO based Kosovo Force (KFOR) provided for overall security.

In accordance with UNSC Resolution 1244, UNMIK assumed full competencies in the

legislative, executive and judicial branches of government which were exercised by

the Special Representative of the Secretary General (SRSG). In order to fill the

legislative gap created during the decade of Milosevic's rule, UNMIK enacted laws inthe form of executive decrees, commonly referred to as UNMIK Regulations.

UNMIK regulations were intended to complement, and govern the precedence of,

different legal instruments enacted in the past. Indeed, while the bulk of Kosovo

legislation remained relevant, a number of laws enacted during Milosevic's rule,

which introduced discriminatory provisions against the Kosovo Albanian community,

were repealed. Consequently, UNMIK authorised the application of the provincial law

as it was in effect before 22 March 1999 (before the abolishment of Kosovo's

autonomy) and excluded the laws enacted between 1989 and 1999, save in cases

where these legal instruments were not discriminatory and were needed to fill a legal

4CSDP Newsletter, Summer 2010;

http://www.consilium.europa.eu/uedocs/cmsUpload/online_100818_CSDP_Newsletter_hw.pdf


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vacuum. During its mandate, UNMIK progressively developed a comprehensive

modern legal framework, which culminated with the enactment of the Constitutional

Framework of Kosovo, on the basis of which, the people of Kosovo were able to

democratically elect their representatives on a local and central level. In 2000,

UNMIK established an emergency justice system exclusively composed of localjudges and prosecutors, who were subsequently joined by a limited number of

international judges and prosecutors, who were responsible for serious and sensitive

crimes. While, in the executive and legislative branches of government, UNMIK

gradually transferred its competencies to Kosovo authorities, UNMIK retained

executive control over the judiciary until Kosovo's independence.

While the entry into effect of the Kosovo constitution in 2008 has rendered UNMIK

largely redundant; UNMIK is still present in Kosovo and continues to facilitate

Kosovo's relations with countries which have not formally recognised its

independence in general and Serbia in specific. UNMIK, however, remains active in

some Serb enclaves and represents Kosovo in international bodies, which have not

formally admitted Kosovo such as the International Civil Aviation Authority.

1.2 Applicable Law

1.2.1 General

Kosovo`s official languages are Albanian and Serbian. However, laws are usually

also published in English. Since the quality of the translations is rather inconsistent,

care should be taken.

The applicable law in Kosovo stems from different sources with the following order of

precedence:

Laws passed by the Kosovo Assembly after the constitution came into force in

June 2008, provided they are consistent with the constitution and the

"Ahtisaari Plan"

UNMIK Regulations (with supporting Assembly laws) passed between June

1999 and June 2008

Laws dated prior to 22 March 1989

Laws dated between 22 March 1989 and 10 June 1999 which are not

discriminatory.

Pursuant to the Ahtisaari Plan the laws of Kosovo are based on the principles of:

Respect for the rule of law,

Protection of human rights in compliance with international legal acts,

including the European Convention for the Protection of Human Rights and

Fundamental Freedoms and its Protocols,

Equality and democratic standards,

Open market economy with free competition,

Recognition and protection of the right of personal movable and immovableproperty.


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1.2.2 Relevance of EU Laws in Kosovo

Kosovo is not an EU member and has submitted no formal application for EU

membership to date. Thus, Kosovo does not have a general obligation to implement

the EU laws. However, by accepting EU aid and assistance and by signing aEuropean Partnership Action Plan/Agreement to adopt the EU acquis

communautaire, which is the cumulative body of European Union laws, comprising

the EC`s objectives, substantive rules, policies and, in particular, the primary and

secondary legislation and case law5, Kosovo has made commitments to comply with

EU laws. The adoption of the EU acquis is monitored annually by means of an EU

Commission Report.

In April 2010, the Government of Kosovo established the Ministry of European

Integration (MEI). The MEIs main mission is the direction, coordination and

monitoring of all activities towards the integration of Kosovo in the European Union.

1.3 The Court System

1.3.1 General

In 2011 the Law on Courts (Law No. 03/L-199), which regulates the organisation,

functioning and jurisdiction of the courts, provided for a reorganisation of the Court

system. At this point, only a selection of articles from this law has already come into

effect while the rest are in a "transitional phase" and their implementation is due to

begin by 1 January 2013.

We therefore thought it prudent to first outline the 'old' court system, giving a brief

overview of the current situation before introducing the new (not yet fully applied)

court system.

1.3.2 Current Status

Kosovos regular court system is currently composed of 27 municipal courts6, five

district courts, one commercial court and the Supreme Court (the two latter being in

Pristina). The new constitution also created a Constitutional Court7 which became

operational in September 20098. The minor offences court system, which adjudicates

over administrative offences as well as public order and traffic violations, includes 27municipal courts for minor offences and the high court for minor offences.

"Parallel courts", run by Kosovo Serbs and supported/financed by Belgrade, operate

without UNMIK or Kosovo government authorisation in a number of Serbian enclaves

throughout Kosovo. Moreover, Serbia has retained the continuity of the public

5http://www.eurofound.europa.eu/areas/industrialrelations/dictionary/definitions/acquiscommunautaire.htm ,

24th

July 20126

Iset Morina Das Gerichtssystem im Kosovo, ZfRV 2010/20 (139);7

The Law on the Constitutional Court was published in the Official Gazette of the Republic of Kosovo on 15January, 2009 and came into force on that date.8

American Bar Association; Judicial Reform Index for Kosovo; http://apps.americanbar.org/rol/publications/kosovo_jri_vol_iv_12_2010_en.pdf


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administration, healthcare and justice institutions from the Milosevic regime by simply

transferring the seats of these institutions from Kosovo to different towns in south-

eastern Serbia after the end of the war. However, decisions by these parallel courts

have no legal effect in Kosovo and have not been recognised by either UNMIK or the

authorities of newly independent Kosovo.

The municipal courts operate as courts of first instance for criminal offences

punishable with sentences of up to five years imprisonment9 and as courts of first

instance for civil inheritance matters, labour relations and other civil matters.

The district courts hear appeals on decisions by the municipal courts. They also

serve as courts of first instance for criminal offences punishable by an imprisonment

term of more than five years, major property disputes and family law matters.

The commercial district court has Kosovo-wide first instance jurisdiction over

disputes between business entities, disputes pertaining to bankruptcy proceedings

and certain commercial criminal offences. It also hears cases referred by the Special

Chamber of the Supreme Court.

The Supreme Court of Kosovo serves as a third instance appellate court in a limited

number of criminal cases, hears direct appeals on cases originating in the district

courts and is court of first instance for extraordinary legal remedies and other matters

as provided by law.

The Constitutional Court is composed of 6 (six) national judges and 3 (three)

international judges appointed by the President of Kosovo upon the proposal of theKosovo Assembly10. It is the final authority for the interpretation of the constitution

and the compliance of laws and government actions therewith. Furthermore, the

Constitutional Court can be petitioned directly also by individuals and regular courts

regarding certain matters in connection with the constitution11.

Kosovo's legal system is based on the continental law tradition, whereby court

decisions are generally not considered as precedents, although lower courts tend to

follow the opinions and rulings of higher courts.

In 2009, an Independent Judicial and Prosecutorial Commission (IJPC), consisting of

5 (five) international members from United States and Europe, was established toconduct a one-time comprehensive review of the suitability of all individuals who seek

appointment as a judge or prosecutor in Kosovo. The vetting process, conducted by

IJPC, requires full financial disclosure and background checks for all judicial and

prosecutorial candidates as well as a high degree of professional competence in

addition to professional and personal integrity. The process, which was funded by the

9With the exception of, inter alia, traffic accidents with death casualties which are publishable with up to eight

years of imprisonment.

10 Official website of the Constitutional Court of Kosovo; http://www.gjk-ks.org/?cid=2,3; 10 th July 201211

American Bar Association; Judicial Reform Index for Kosovo; http://apps.americanbar.org/rol/publications/kosovo_jri_vol_iv_12_2010_en.pdf; 23

rdJuly 2012


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Government of the United States and the European Union, was organised in three

successive phases and has been concluded in October 201012.

According to Kosovo law, arbitration is a recognised instrument for the resolution of

local and international disputes between physical persons and legal entities. Underthe Regulation on Foreign Investments, companies under international ownership

can always choose arbitration. UNCITRAL and ICC arbitration are the 2 (two)

recognised systems, although neither one maintains a permanent chamber in

Kosovo.

1.3.3 Court system pursuant to the new law on courts

According to the new Law on Courts (Law No. 03/L-199), which abrogates the Law

on the Regular Courts of KISP, regulations of UNMIK and the Law on Minor

Offences, the Kosovo courts system will be organised as follows:

There are 7 (seven) Basic Courts, which each have a number of Branches (total 20).

These Basic Courts are situated in the following cities:

Pristina

Gjilan

Prizren

Gjakova

Pej/Pe

Ferizaj/Uroevac

Mitrovica

All Basic Courts are competent to adjudicate all cases in the first instance, unless

they are specifically assigned to one court. This is the case for administrative and

commercial matters as they fall under the exclusive jurisdiction of the Basic Court of

Pristina.

There are five departments established within the Basic Courts, for the purpose of

allocating cases according to subject matter. These departments are:

Department for Commercial Matters (Basic Court Pristina)

Department for Administrative Cases (Basic Court Pristina) Department for Serious Crimes (All Basic Courts)

General Department (All Basic Courts)

Department for Minors (All Basic Courts)

While the law does list a number of specific crimes, classing them as 'serious', there

is also a general provision which states that any crime punishable by 10 (ten) years

or more as provided by the law falls under the jurisdiction of the Department for

Serious Crimes.

12Report on the work of the IJPC; http://www.kgjk-ks.org/repository/docs/Official_Final_Text_of_Final_Report.pdf ;

24th

July 2012


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The Court of Appeals in Pristina decides all appeals against decisions from Basic

Courts. In addition to that, it also functions as a third instance Court of Appeals when

an appeal is permitted by the law. Conflicts of Jurisdiction between Basic Courts are

also resolved by the Court of Appeals. The Five-Department organisational structure

still applies at the Court of Appeals.

The Supreme Court is the highest judicial authority in Kosovo. It has territorial

jurisdiction over the entirety of the Republic of Kosovo. Among others, its

competences are: extraordinary revision against final decisions of the courts and

revision against second instance decisions of the courts on contested issues.

As of 1 January 2011, the following articles of the new Law on Courts have entered

into force:

Art 29: salary and judicial compensation

Art 35: prohibitions on conduct of judges

Art 36: transitional phases (explanation of the stages of entry into force)

Art 38: transfer and reassignment of judges

Art 40: validity of prior final decisions and right of appeal

The implementation of the remaining articles shall begin on 1 January 2013.

1.4 The Concept of Social Ownership

Prior to 1989 almost all economic activities were operated through Socially Owned

Enterprises (SOEs).

The concept of social ownership was a long-standing legal concept of the SFRY. It

stems from the communist doctrine of common ownership in the means of production

(i.e. everything is owned by the workers, who contribute to the betterment of society).

The SOEs reflected this concept. Some enterprises were entirely socially owned.

They were managed by a works council. Combinations of socially and privately

owned enterprises were introduced by later laws. These laws provided for the

possibility of acquiring private ownership in previously entirely socially owned

enterprises (e.g. through the transfer of shares to employees). The concept of private

ownership rights in enterprises was continuously refined, and resulted in socially

owned enterprises issuing shares to employees and private entities. In most cases,this resulted in mixed enterprises which were partially socially and partially privately

owned. However, the legal system prior to 1989 did not provide for rules on the sale

of socially owned property, the liquidation of enterprises in social ownership or the

privatisation of such entities. Only after 1989 was the sale of socially owned property

or entire enterprises in social ownership provided for in the SFRY legislation. All of

these laws have now been replaced and are relevant only for a better understanding

of the history of SOEs.


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1.5 Publicly Owned Enterprises

A publicly owned enterprise (PoE) was (pre March 1989) defined as a subcategory of

SOEs, performing infrastructure operations in the public interest. Today, in Kosovo

there are basically 2 (two) different types of POEs, ones owned by the Republic ofKosovo, i.e. Central POEs and ones owned by municipalities, i.e. Local POEs. Local

POEs are mostly local water and waste companies or heating companies.

As of today, the following Central POEs exist in Kosovo:

Kosovo Energy Corporation JSC (KEK)

Kosovo Electricity Distribution and Supply Company (KEDS Co)

Transmission System and Market Operator, JSC (KOSTT)

Post and Telecommunications of Kosovo J.S.C. (PTK)

Kosovo Railways TrainKos J.S.C

Kosovo Railways InfraKos J.S.C.

Pristina International Airport Air Control Adem Jashari J.S.C

Kosovo Landfill Management Company J.S.C

HPE Iber Lepenc JSC

A legal framework for the ownership of POEs, or rather their corporate governance is

laid down by the Law on Publicly Owned Enterprises (Law No. 03/L-087; POE Law).

Under this law, which was amended (Law No. 04/L-111) in 2012, POEs have to be

organised as joint stock companies. This policy has already been applied to all

remaining POEs.


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2. CORPORATE LAW

2.1 General

Corporate law in Kosovo is regulated by the Law on Business Organisations, (LawNo. 02/L-123) which entered into force on 27 May 2008 and was later amended with

Law No.04/L-006 bringing the legal framework closer to current EU standards13, it

supersedes UNMIK Regulation No. 2001/6 and UNMIK Administrative Direction No.

2002/22.

The Law on Business Organisations contains provisions with regard to the following

aspects of corporate law:

Types of business organisation through which business activity may be

conducted in Kosovo

Applicable registration requirements for each type of business organisation

Legal provisions applicable to each type of business organisation with respect

to its legal capacity and structure as well as its rights and obligations, and the

rights and obligations of its owners, managers, directors, legal representatives

and third parties

Legal provisions which promote and facilitate the orderly and efficient

creation, operation and dissolution of such business organisations

Similar to common practices in EU countries, only certain types of business can be

registered in Kosovo. According to the Law on Business Organisations these types

are:

(i) Individual business ("I.B"),

(ii) General partnership,

(iii) Limited liability company,

(iv) Limited partnership; and

(v) Joint stock company.

It is also possible to register a business organisation as a branch of a foreign

company.

2.2 Establishment of Companies

2.2.1 Individual Business Enterprises and General Partnership

A personal business enterprise is established by the operation of a business by a

sole proprietor who is a natural person engaged in commerce. No further acts of

establishment are necessary. This is the most common business form in Kosovo and

more than 95 % of businesses are registered in this form. The owner has unlimited

liability, meaning their individual assets can be pursued in the event of default.

13European Commission; Kosovo 2011 Progress Report; http://ec.europa.eu/enlargement/pdf/key_documents/

2011/package/ks_rapport_2011_en.pdf ; 24th

July 2012


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A general partnership comes into existence either through registration or by

operation of law. In the latter case, a general partnership is assumed to exist, if 2

(two) or more persons and/or organisations cooperate in the conduct of business

activity. A written partnership agreement is not a precondition to establish a general

partnership, thus it is sufficient, if such a cooperation is based on an oral agreement.The general partners are jointly and severally liable for all debts and obligations

incurred by the general partnership.

2.2.2 Limited Partnership

A limited partnership consists of at least one general partner and at least one limited

partner. It is incorporated by registration of the limited partnership agreement which

is the founding and constitutional document of a limited partnership. The Business

Registry issues a certificate of registration, which serves as public conclusive

evidence that the limited partnership was properly incorporated. In case of lack of

such an agreement, a limited partnership has not been incorporated, and all persons

who have paid-in their contributions become partners of a general partnership (and

are thus fully and personally liable). Each limited partner must have paid-in their

contribution by the time the limited partnership agreement is registered.

The general partner of a limited partnership is jointly and severally liable for the debts

of the partnership without limitation, whereas the limited partner is jointly and

severally liable only with their contribution to the limited partnership. Individuals

and/or legal entities can be partners in a limited partnership.

A limited partner cannot represent the partnership. The limited partnershipagreement and the business signs, letterhead and other means which expose the

limited partnership's name to third parties must include the name of at least one

general partner and the words a limited partnership.

Every limited partnership has a limited partnership agreement containing provisions

governing the management and the operation of the business, as well as provisions

specifying the contributions to the partnership capital of each partner.

2.2.3 Corporations

A corporation may either be a Joint Stock Company, J.S.C, (Articles 126 et seq.) or aLimited Liability Company, L.L.C (Articles 78 et seq.). The corporation has to indicate

its legal form in its name.

A corporation is created only upon the registration of its charter, which is the

founding and constitutional document of a limited liability company and a joint stock

corporation.


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The charter must contain:

Name of the corporation;

Address in Kosovo at which the corporation will have its principal place of

business; the address of its registered office and the name of thecorporation's registered agent at that address (the registered agent must be a

person with a Kosovo ID who is present in Kosovo for most of the year);

Business purpose of the corporation, which may be described as "any lawful

business purpose"; but the Business Registry requires you to also use a list of

activities which must be identical to the list of codes and business descriptions

in the Excel spread sheet list on the Registry website;

Charter capital (which must be at least EUR 10.000 for a J.S.C14);

Denomination of the share capital, i.e. nominal value and number of shares;

Names and addresses and IDs or passport numbers of the founders;

Names and addresses of the owners and their respective ownership interest

(only for the L.L.C); and

Directors' names and addresses of their residence in or outside Kosovo.

Furthermore, there must be a corporation agreement i.e. articles of association

(L.L.C) or by-laws (J.S.C), containing provisions governing the management and

operations of the corporation.

The charter capital can be paid up in cash or in kind. In the case of joint stock

companies there are stricter rules regarding the valuations of in-kind contributions

(Article 149).

In addition to registering with the Business Registry, it is necessary to complete a

registration form, produce photocopies of foreign passports of the directors and

shareholders and Kosovo residence IDs for any Kosovar citizens.

Where a subsidiary or a branch of a foreign corporation is being founded by a foreign

entity, a notarised copy and certified translation of the foreign shareholder's business

registry extract or equivalent must be submitted. It is possible to use a lawyer's or an

accountant's office or similar as the registered office either on a permanent or

temporary basis.

2.2.4 Duration and Costs of the Foundation

In accordance with the Law on Business Organisations the Minister of Trade and

Industry will publish a schedule of fees regarding the registration of companies and

other services provided by the Registry. Current provisions regarding fees of the

foundation are provided in Administrative Direction no. 2008/15 of 18 September

2008 by the Ministry of Trade and Industry.

In practice, however, the Business Registry has (already prior to the adoption of this

direction) applied a simple fee structure of EUR 20 for filing any document related to

a limited liability company, joint stock corporation, limited partnership or foreign

14Elimination of charter capital requirements for Limited Liability Companies (L.L.Cs)


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corporation and EUR 5 (five) for any document related to a personal business

enterprise, limited partnership or general partnership. The fee must be paid into the

central business registry account at the bank and evidence of payment must be

submitted with the filing. There is also a fee of EUR 2 (two) for the certificate

collection, which is paid in cash.

If a document delivered to the registrar for filing meets all requirements of the Law on

Business Organisations, the registrar should register this within ten calendar days of

receipt. In the case of shortcomings in the filing, the registrar should return the filing

to the applicant within ten calendar days of receipt, together with a brief written

explanation of the reasons for refusal. In practice, written explanations are not

usually given but are given orally when the person registering visits the Business

Registry.

2.2.5 The Business Registry

The Business Registry is a central register which maintains the records of all

registered companies and trade names. Each registered corporation can be found

online by entering the corporation name or business ID on http://www.arbk.org/arbk.

Application forms also are available on that site, although it should be noted that

many of them are now out of date and no longer accepted by the registry.

The Business Registry is responsible for:

Registration of new companies;

Registration of termination, voluntary dissolution and merger of companies;

Registration and reservation of trade names; the registration of foreign

business organisations;

Handling new pledge registrations;

Receipt of the annual report of every registered business organisation; and

Receipt of annual financial statements and business reports of L.L.Cs and

J.S.Cs.

2.2.6 Foreign Business Organisation

A foreign business organisation is any organisation that has been established under

the law of a jurisdiction outside of Kosovo and engages in any kind of businessactivity in Kosovo. Such a foreign business organisation may engage in business

activity in Kosovo to the same extent as a Kosovo business organisation. Prior to

that, it has to register with the Business Registry and has to submit a "foreign

business organisation agreement" meeting the information requirements according to

the Law on Business Organisations.

A foreign business organisation has to comply with such regulations, prior to

engaging in business in Kosovo. A notarised copy of the certificate (translated into

English, Albanian or Serbian if not in any of those languages) must be presented

along with the same data as mentioned above (2.2.3).


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2.2.7 Local Registration of Each Premises

Under the Local Government Finance Act 2008, each municipality can also require a

business that has any premises in its municipality to register such premises as a

further business registration. A copy of the Central Registration certificate andBusiness Information sheet must be provided. The fee for such municipality

registration is based on the activity types of the business (as registered or as should

be registered). Each municipality sets its own fees per activity type. This must not be

confused with the registration fee for businesses which has been abolished 15. Main

Focus: Corporations.

According to the Law on Business Organisations a corporation is a business

organisation whose capital is divided into a specified number of shares (J.S.C) or

ownership interests (L.L.C). A corporation is a legal entity which is legally separate

and distinct from its owners. Its shareholders may be individuals or legal entities.

A corporation is liable for its obligations with all of its assets. The founders are jointly

(and regarding the L.L.C severally) liable for the corporations obligations if they have

not paid-in their contributions to the charter capital as well as for the founders

actions prior to registration.

2.2.8 Comparison L.L.C J.S.C

Limited Liability

Company

Joint Stock Corporation

Minimumcharter capital

No minimum chartercapital requirement

EUR 10.000

Number of

shareholders

Unlimited, co-

ownership possible

Unlimited

Transfer of

shares

Corporation agreement

may impose

restrictions: other-wise

no pre-emption rights

exist by default

By public offering (after

charter capital has been

fully paid) or free transfer,

i.e., no pre-emption rights

but they can be put in a

shareholder agreement

2.2.9 Management of a Corporation

J.S.Cs have to allocate management functions among the shareholders' meeting, the

board of directors, and the officers of the corporation.

L.L.Cs are managed by the owners (shareholders) meeting and one or more

managing directors, with the authority to represent the corporation in the conduct of

its normal and customary business activities.

15Art. 8 of the Law on amending and supplementing of the Law on Business Organisations (Law No. 04/L-006);


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2.2.10 Shareholders' Liabilities

The shareholders' primary liability is to pay their contributions. Partial payments are

allowed. Thus, within the first 30 days following its initial registration a J.S.C may

issue some or all parts of its shares of stock in return for partial payment. Altogetherno less than 25 % of the par value of the shares must be paid. The unpaid balance

must be paid by a date no more than two years after the initial registration. A penalty

for non-payment is provided in Article 151 of the Law on Business Organisations

(forfeiture of shares, court complaint).

Article 151 provides that shareholders who have not paid-in their entire contributions

to the charter capital are liable to the corporation for the unpaid balance. Moreover,

no public offering may be made until the charter capital has been fully paid (Article

153). Therefore, the full payment of the initial charter capital is imperative in

connection with the shareholders protection and the issuance of shares.

2.2.11 Board of Directors

The board of directors manages the business of the corporation (J.S.C) and therefore

has the exclusive authority and competence to:

Approve overall business strategy plans;

Hire and discharge officers;

Purchase under certain circumstances own shares of the corporation on

behalf of the corporation;

Convene and administer the shareholders' meeting;

Determine the officers compensation;

Determine the disposition of the corporations reserves;

Ensure the observance of the applicable law and accounting standards by the

corporation; and

Issue shares and bonds within the limits as stated in the corporation's charter.

In general, the directors cannot individually assume obligations on behalf of the

corporation vis--vis third persons. However, the corporation may furnish individual

directors with the authorisation to conclude certain agreements.

As part of the business registration is the creation of an information sheet, whichusually shows the authorisation of each director. Companies and authorities in

Kosovo can review this document in order to verify someone's power to sign on

behalf of a certain corporation.

The number of members of a J.S.C's board of directors depends on the total number

of shareholders:

One or more members for a corporation with less than ten shareholders,

At least three members for a corporation with ten or more shareholders and

At least seven members for a corporation with more than 500 shareholders.


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2.2.12 Directors' Liability

Compared to other continental European concepts of director liability, the Kosovo

standards for directors liability under the so-called business judgment rule, which

sets forth the criteria under which the liability of a director is established or excluded,are somewhat more lenient. The standard is a subjective one (good faith of the

director) rather than the usual objective standard (comparison with a prudent

director).

According to the Law on Business Organisations, no director should be held liable for

any action if they reasonably believed they had been acting with proper authority and

in the corporation's best interests, in good faith and with due and diligent care and

attention to their responsibilities. This, however, does not apply in the event the

director has been acting in their personal interest.

Notwithstanding the above, the Criminal Code contains provisions, making a director

liable for other offences, such as entering into a contract which is unfavourable for

the corporation. Regarding such matters, the director is obliged by law to declare any

conflict of interest and not to vote in relation to such matter.

The concept of an exoneration of a director at the end of each business year (like in

most European jurisdictions) does not exist in Kosovo.

2.2.13 Officers

Officers of a J.S.C are appointed by the board of directors and have the powers andauthorities assigned to them in the by-laws. Each corporation must have a secretary

who is responsible for the preparation and administration of shareholder meetings

and board meetings.

Officers are liable in the same way directors are.

2.2.14 Transfer of Shares in a Limited Liability Corporation

It is possible to transfer shares ("ownership interests") in a Kosovo limited liability

company freely in whole or in part, provided the corporation agreement does not

state otherwise.

If shares in a limited liability company are transferred, the registered charter of the

corporation must be amended accordingly and the changes must be notified to the

Business Registry.


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In practice, this has often caused considerable confusion, since the requirements of

the Business Registry were often perceived as arbitrary. In the following we have

summarised the procedure as provided by the law and last applied in practice in

Pristina:

Adoption of a resolution of the owners authorising an amendment to the

registered charter;

Such resolution authorising the amendment shall instruct an "authorised

person" (note: every document to be submitted for registration shall be signed

by such person, which is either an officer of the corporation or an officer of the

board of directors or a founder of the corporation if the document is submitted

in connection with the initial registration of the corporation) to sign and submit

a notice to the Business Registry, containing:

Name and registration number of the limited liability company;

Text of each amendment adopted;

Date of each adoption of each amendment by the owners;

Statement that the amendment was duly approved by the owners in a manner

consistent with the present law, the charter and the by-laws;

Statement that the person signing and submitting such notice is an

"authorised person" and that such person has been duly authorised to sign

and submit the notice

Copy of the respective resolution(s);

Text of the concerned document (here: the registered charter) as amended

(the law states that such document does not need to be signed by the owners

of the limited liability company)

In practice, the application should also contain:

An original or certified copy of the share purchase agreement regarding the

transfer of the ownership interest

A confirmation that the respective purchase price has been duly transferred

and received

Copies of the passports of the signing individuals

Completed form no. "A 8" (see: website of the Business Registry under

http://www.arbk.org/arbk/)

A "proof of payment" regarding the registration fees

In case the parties applying for a registration are not individuals, it might also be

prudent to provide for official excerpts regarding these legal entities.

Once all the documents are submitted to the Business Registry (it is not possible to

electronically submit documents) a respective payment form is issued. Such payment

form provides for the transfer of registration fees to an "authorised bank" and must

(after the transfer of fees is confirmed on such form) be immediately submitted to the

Business Registry.


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2.3 Share certificates and share registers

Shares do not need to have certificates. There must however be a share register

kept at the corporations registered office.

2.4 Annual general meetings and reports

Annual general meetings of J.S.Cs must be held within 30 business days after the

board receives the corporation's audited financial statements, but not later than 90

days after the end of the corporation's financial year. Every registered business

organisation must submit an annual report to the Business Registry between 1

January and 30 April of each year together with a copy of the accounts.

2.5 Transformation of Entity Type

The current business law does not provide for a transformation from one entity type

to another.

In practice, the registry does permit this. In order to conduct a transformation, a

certificate must be produced by the tax authority showing all taxes have been paid.

There is no need to notify creditors of such transformation.

2.6 Increase in Borrowing, Capital & Bonds

Provisions regarding increases in the charter capital of a corporation are provided by

the Law on Business Organisations. The shareholders' meeting can increase thecharter capital by either increasing the par value of shares or by issuing additional

shares. More detailed information on the increase of charter capital can be found in

the Law on Business Organisation (L.L.C Article 79, J.S.C Article 154 et seq), as

amended with Law No. 04/L-006.


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3. INSOLVENCY AND RESTRUCTURING

3.1 Bankruptcy Provisions

Insolvency law in Kosovo is laid down in the Law on Liquidation and Reorganisationof Legal Persons in Bankruptcy (Law No. 2003/4) promulgated and entered into force

on 14 April 2003 (the "Law on Bankruptcy"). It is expected that the Government of

Kosovo will soon adopt rules regarding its implementation. In that case, the Law on

Bankruptcy will become fully applicable.

Law No. 2003/4 of the Assembly of Kosovo on the Liquidation and Reorganisation of

Legal Persons in Bankruptcy, promulgated by UNMIK Regulation no. 2003/7 and

amended with Law No.02/L-115, provides that a creditor can submit a bankruptcy

petition to a court if (a) the debtor has failed to pay a debt that is at least 60 days

overdue; or (b) the total amount of the overdue debt exceeds EUR 5.000, or (c) the

debtor is generally not paying debts as they become due. A debtor can initiate

bankruptcy proceedings under the same conditions. There are also advertisement

requirements. The applicable secondary legislation is in the process of being drafted.

Directors' and officers' failure to initiate proceedings when necessary can lead to

their personal liability vis--vis the creditors. Public and social enterprises are not

subject to this law.

Most importantly there is almost no practical experience with these legal concepts in

practice. Actual successful insolvency procedures are extremely rare and even where

all the conditions for insolvency have been met, these regulations have been seldomapplied in practice. Nevertheless, the following should give the reader an introduction

to the laws which will certainly be applied in practice in the future. At the moment the

most important application of the Law on Bankruptcy is that it sets out the basis for

the assessment of e.g. directors liability, liquidity requirements or good governance.

3.2 Types of Insolvency Proceedings Available

The Law on Bankruptcy provides for 2 (two) types of insolvency proceedings:

Bankruptcy (liquidation) proceedings, which lead to the sale of the debtor as a

whole, or on an asset-by-asset basis; and

Reorganisation proceedings, which aim to preserve the debtor's business andallow the debtor to discharge liabilities within a certain period of time in

accordance with the reorganisation plan.


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3.3 Conditions for the opening of insolvency proceedings

3.3.1 Debtor Capable of Insolvency

Pursuant to the Law on Bankruptcy, only legal entities (i.e. a general partnership,limited partnership, joint stock company and limited liability company) can be made

subject to insolvency proceedings.

3.3.2 Entitled Partners

The insolvency proceedings shall be initiated by the petition of the debtor, creditor or

group of creditors.

The debtor may submit a petition only after obtaining an approval of its board of

directors or other governing body in accordance with its charter, founding documents,

or partnership agreement. Furthermore, the following criteria must be fulfilled:

Debtor has failed to pay a debt which is at least 60 days overdue;

Total amount of the overdue debt exceeds EUR 5.000; and

Debtor is generally not paying its debts as they become due.

The creditor or a group of creditors may submit a petition for initiating the insolvency

proceedings when:

Debtor has failed to pay a debt which is at least 60 days overdue;

Total amount of the overdue debt of each creditor exceeds EUR 2.000;

Debt is not conditional or subject to a bona fide dispute; and

Debtor is generally not paying debts as they become due.

The court may presume that the debtor is generally not paying its debts as they

become due when a creditor presents a competent evidence proving that its debt has

not been paid when due.

3.3.3 Commencement and Handling of Insolvency Proceedings

Competent Court

The Commercial Court in Pristina has Kosovo-wide first instance over disputes

pertaining to insolvency proceedings.

Insolvency Administrator Appointment and Responsibilities

The insolvency administrator shall be appointed no later than 2 (two) days after the

opening of insolvency proceedings. In case of an urgent need to protect the assets

from damage or unauthorised dispositions, the court may, on its own initiative or at

the request of the petitioner, appoint an interim administrator prior to the opening of

insolvency proceedings.


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Furthermore, the creditors (secured and unsecured) holding 60 % or more of the

outstanding debt of the debtor, may submit at any time a written request to the court

to replace the appointed administrator with an administrator of their own selection. If

such a request is validly made and the requirements met, the court must appoint the

selected administrator no later than 2 (two) days after the submission of suchrequest.

The insolvency administrator is entitled to:

Take immediate possession of the debtor's property;

Call the creditor meetings and preside over such meetings;

Initiate and continue the legal and administrative proceedings related to the

enforcement of the debtor's rights;

Serve as the official authorised representative of the debtor's estate;

Upon the court approval, hire the employees, subordinates and experts

required for the proper administration of the case and supervise their work;

Close the debtor's bank accounts and open a special insolvency account in a

bank approved by the court;

Make payments to creditors for approved claims; and

Compel the debtor or designated representatives of the debtor's management

to appear at and assist in taking an inventory of the debtor's property.

Creditors Committee

The creditors' committee consists of at least three and not more than five creditors

from among those with the largest unsecured or partially secured claims. If fewerthan three creditors are willing to serve, than no committee shall be formed.

The rules governing the creditors' committee meetings and creditors' meetings (in

cases where the creditors' committee has not been formed) are to be prescribed by

the respective implementing rules.

3.3.4 Filing of Claims

Creditors are required to file with the court a proof of claim in written form no later

than 60 days after the opening of insolvency proceedings. Within 30 days after the

claims' bar date, the administrator shall evaluate the validity, extent and priority of thefiled claims and submit an objection, if there are grounds to do so. If no objection is

submitted to the court within 30 days after the claims' bar date, all submitted claims

shall be deemed valid and accepted.

After the resolution of all objections, the administrator shall compile and submit to the

court a final list of claims, indicating their amount and status, which shall be delivered

to the debtor and the creditors' committee. If the creditors' committee has not been

formed, the final list of claims shall be delivered to the creditors holding the 10 (ten)

largest unsecured claims.

The rules governing the minimum required information for a proof of claim and the

computation of claims are to be prescribed by the respective implementing rules.


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3.3.5 Effects of Opening the Insolvency Proceedings

As of the petition submission date, all actions, proceedings or acts of any kind aimed

at satisfying the claims against the debtor shall be suspended, including:

Any acts, including judicial proceedings, intended to collect or recover a claim

for debts, taxes penalties or obligations of any kind arising prior to the petition

submission date;

Any acts intended to create, modify, increase, perfect, register or enforce a

mortgage or pledge in the property of the debtor's estate; and

Any acts intended to seize or sell any pledged or mortgaged property of the

debtor's estate.

3.3.6 Avoidance of Transactions

The court may void transactions concluded by the debtor prior to the opening of

insolvency proceedings or later, if it determinates those transactions:

(i) Were concluded for less than fair value;

(ii) Have resulted in a reduction of the total assets in the debtor's estate;

(iii) Were undertaken with the intent to harm the creditors' interests; or

(iv) Have occurred after the date on which the petition was submitted and

before the appointment of the administrator.

3.3.7 Reorganisations

Reorganisation Plan

Reorganisation is carried out in accordance with a reorganisation plan which must be

prepared in writing.

Pursuant to the Law on Bankruptcy, the reorganisation plan may be filed by the

debtor, administrator, creditors holding at least 30 % of the secured claims, creditors

holding at least 30 % of the unsecured claims, or persons owning at least 30 % of the

debtor's shares.

The reorganisation plan shall be filed with the court within 60 days after the openingof insolvency proceedings. Given the appropriate circumstances, this deadline may

be extended by the court for additional 30 days.

Proceedings and Voting

The court shall schedule a hearing for consideration of the reorganisation plan and

voting within 30 days after the date on which the plan was filed. The rules governing

such hearings shall be prescribed by the implementing rules.

All creditors (secured and unsecured) are eligible to vote on approving thereorganisation plan. Creditors' claims shall be divided into classes based primarily

upon the relevant secured rights and their ranking. For a reorganisation plan to be


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approved it must be adopted by each class of creditors by simple majority vote, i.e.

the reorganisation plan shall be deemed to have been approved, if all the classes of

creditors adopt it.

Consequences of Adoption

In the event of the adoption of a reorganisation plan, the creditors face the situation

in which all of their claims and rights towards the debtor shall be governed solely by

terms stated in the plan. More precisely, the approved plan shall be considered to be

a new contract for the satisfaction of claims presented therein.

3.3.8 Sale of the Debtor's Estate and Creditors' Satisfaction

After the issuance of the decision on bankruptcy, the insolvency administrator shall

commence and carry out the sale of all or part of the debtor's estate. The debtor's

estate may be sold at a public auction or through a direct agreement.

Creditors' claims shall be satisfied in order of priority as follows:

Secured claims;

Priority claims, including:

Court expenses;

Administrator's expenses;

Administrator's compensation;

Administrative expenses related to the maintenance and protection of the

insolvency estate; Expenses, financing and credits related to the reorganisation (in case of failed

reorganisation);

Expenses of the administration;

Expenses of the creditors' committee;

Salary claims;

Unsecured claims;

Claims of the shareholders, founders, participants or partners of the debtor.

The rules governing the procedure of creditors' satisfaction shall be established by

the implementing rules.


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4. INVESTMENT PROTECTION FOR FOREIGN INVESTORS

According to UNMIK Regulation No 2006/28 on Foreign Investment and the Law on

Foreign Investment (Law No. 2005/02-L33), foreign investors are granted the same

treatment as resident investors and do not require a further license or approval. Theprincipal purpose of this law is to promote and to encourage foreign investments in

Kosovo by providing foreign investors with a set of fundamental and enforceable

legal rights and guarantees. These rights are designed to safeguard foreign

investments in strict accordance with the rule of law, fairness and respect as well as

widely accepted international standards and practice. Therefore, when establishing

subsidiaries, branches, and representative offices, the same rules apply for foreign

investors as for domestic business organisations. Also, foreign investors must not be

taxed less favourably in comparison with domestic business organisations.

In addition foreign investors may:

Open bank accounts in the currencies that are legally permitted (Bank

accounts in any foreign currency also may be opened);

Transfer into and out of Kosovo profits after the payment of taxes16

Use their investments and any income lawfully received for any lawful

purpose; and

Retain the profits of their investment, and convert such into another currency

in any domestic or foreign market.

Detailed provisions concerning the protection of foreign investors against unjustified

expropriation were also incorporated in this law.

Furthermore, the Ministry of Trade and Industry of Kosovo has established the

Investment Promotion Agency of Kosovo (IPAK), which is intended to provide a one-

stop shop service to both local and foreign investors seeking investment

opportunities in Kosovo.

On a bilateral level, to this date a variety of investment protection agreements

between Kosovo and a lot of foreign countries are already in place. For instance,

foreign investments by Austrian entities in Kosovo are protected by such an

investment protection treaty between the Republic of Austria and Kosovo which came

into force on 1 February 2012, providing, inter alia, for:

Non-discrimination of foreign investors in relation to domestic investors

Protection of investors from unfair treatment and guaranteed adherence to

international minimum standards

Dispute resolution by means of international arbitration

16Dividend withholding taxes which had been applicable prior to 2010 have been abolished as of 20

thFebruary

2010.


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5. TAX LAW

5.1 General

The Kosovo tax system is a young system. The first state duties were introduced in1999 by the implementation of a customs regulation. Since 2000, further taxes have

continuously been implemented, e.g. municipal taxes. However, until now there has

been no integrated fiscal code governing all tax aspects, but rather several

regulations issued to cover the main taxes applicable in Kosovo. In 2009, the

standard VAT rate was increased to 16% and the corporate income tax rate was

reduced to 10%.

The tax regulations aim to strengthen the development of the economy and be

generally consistent with European standards.

The most important taxes are:

Corporate income tax,

Personal income tax;

Value added tax;

Wage withholding tax

Rent withholding tax;

Custom duties;

Excise tax;

Municipal tax (immovable property tax and business license fee).

5.1.1 Fiscal and VAT Number

From mid-2012 the business and tax registration processes were combined and this

process now takes place through Business Registration Agency (part of the Ministry

of Trade and Industry) one stop shops which have been established in most of

Kosovos municipalities. The one stop shops issue both business registration and

fiscal numbers, and if the business requests them, VAT certificates and import/export

certificates. The previous requirements for TAK to visit business premises before tax

registration/issue of a fiscal number were all removed in an Administrative Instruction

signed by the Minister of Finance earlier in 2012. New businesses can request

educational visits from the tax office, but these and any other checks by the taxoffice are all now post-registration.

Also while separate VAT registration numbers are still required (mainly due to the

legal requirement for them to be shown on VAT invoices and other VAT

documentation), over time this will be replaced by the fiscal number. (for information

on VAT please see 5.3).


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5.1.2 Corporate Income Tax

On 29 December 2009 the Kosovo Assembly adopted the Law on Corporate Income

Tax (Law No. 03/L-162), which has effect as of 1 January 2010 and which has been

amended with Law No. 04/L-103.

According to this law, the following entities are subject to corporate income tax:

Corporations or other business organisations which have the status of a legal

entity under the applicable laws in Kosovo;

Companies operating with public or socially owned assets;

Organisations registered as non-governmental organisations; and

Permanent establishments in Kosovo of non-residents. Such permanent

establishments include but are not limited to: plants, branch offices,

representation offices, factories and construction sites.

The corporate income tax rate is 10 % of the profits. Certain revenues like such of

non-governmental organisations holding the public benefit status certificate are

exempt from corporate income tax.

5.1.3 Deductible Items

Expenses are considered deductible if they are incurred during the tax period wholly

and exclusively in connection with conducting the business activity.

In particular, representation costs (advertisements, marketing) are now fullydeductible; partial deductibility limitation now only relates to business entertainment

such costs are 50 % deductible up to a maximum limit of 2 % of annual turnover.

Repair and maintenance costs of vehicles and of other assets are fully deductible,

irrespective of amount, where the repairs do not extend the useful life of the asset by

more than one year; otherwise they are required to be capitalised as part of the cost

of the asset and amortised. The tax authority will not allow as an expense an invoice

from a company that is not registered in Kosovo when it should be. The tax authority

also does not easily recognise the validity of inter-company agreements, e.g. for

services provided by the parent company or headquarters.

Expenses which are not deductible include, for example, costs associated with the

acquisition of real estate, the acquisition of goods that can be amortised,

contributions to reserve funds/provisions, fines and the value added tax for which the

taxpayer claims a deduction of input tax. Further, expenses which are EUR 500 or

more are only deductible if paid by bank transfer and all expenses need the business

registration number and full name of the supplier and business registration number

and full name of the purchaser on the coupon or invoice. A list of all expenses over

EUR 500 with details of supplier and the nature of the expense must be submitted by

31 March each year to the tax authority.


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5.1.4 Losses Carried Forward

In principle, losses may be carried forward and may be settled against future profits

for seven consecutive fiscal years. This does not apply in the event that the

ownership structure changes by more than 50 %. As a general rule, losses have tobe settled against profits of the same category of income ("horizontal loss

adjustment").

Currently, there are no group taxation provisions in Kosovo that would enable losses

of one corporation to be offset against the taxable profits of another corporation in

the same group.

5.1.5 Corporate Assessments and Payments

The fiscal year corresponds to the calendar year.

Taxpayers are required to make quarterly advance payments for the immediately

preceding quarter to any authorised bank. These advance payments have to be

made on or before 15 April, 15 July, 15 October and 15 January of each year.

Enterprises with an annual turnover of less than EUR 50.000 can be taxed either on

an actual profit basis (i.e. after deducting expenses) or a presumptive tax basis

(based on turnover). The turnover basis applies if the taxpayer does not opt for

taxation on the actual profit basis and his annual turnover is less than EUR 50.000.

Enterprises involved in trade, transport, agricultural, and similar commercial activities

pay 3 % of each quarters gross income, but not less than EUR 37.5 per quarter.Enterprises deriving income from services, professional, vocational, entertainment,

and similar activities pay 9 % of each quarters gross income, but not less than EUR

37.5 per quarter. (Note: for quarters ending on or before 30 June 2012, a lower 5 %

rate than the 9 % now in place, applied).

However, such enterprises can also opt for taxation on the basis of actual profits.

The tax rate in this case is 10 % of actual taxable income by submitting a form. They

must then produce related financial statements and continue to pay income tax on

the actual profit basis for the year the option was exercised and at least the following

3 (three) tax years.

The payments of enterprises that opt for the actual profit basis and not presumptive

tax basis are as follows:

For the first tax year after making the option, taxpayers are required to pay

of the estimated quarter tax liability, less any amount withheld by a third party.

For subsequent tax years, taxpayers are required to pay at least 110% of the

assessed corporate income tax liability for the previous year less any amount

withheld by a third party


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Additionally, such tax payers are obligated to submit an annual tax declaration to the

tax administration on or before the 31 March of the year subsequent to the tax period

and to pay the taxes that have not been paid up to such date. Together with the tax

declaration, these taxpayers are also required to submit financial statements.

Together with the submission of the final tax declaration, a confirmation of the

already paid taxes should be submitted. The taxpayer is entitled to receive a refund

for any surplus.

5.1.6 Taxation of Permanent Establishments

A permanent establishment is considered to be any workplace through which a non-

resident person carries on a business in Kosovo. This place can be a plant, a branch

office, a representative office, a factory, a shop, etc.

In practice, such non-resident person is subject to corporate income tax for the

profits made in Kosovo.

Non-resident persons with a permanent establishment in Kosovo can obtain an

official document from the Kosovo tax administration, certifying the amount of taxes

they have paid, in order for this to be used to obtain a credit if permitted by the

foreign tax authority.

The test for corporate income taxation in Kosovo is far-reaching and the tax authority

under Law No 03/L-162, taxes companies which acquire income as a result of even a

short consultancy visit to Kosovo, even when they have no permanent office or staffin Kosovo if their company bills work for more than 90 cumulative staff days spent in

Kosovo or are present for more than 183 days. After such a period tax is due

retrospectively.

VAT is also chargeable by entities doing business in Kosovo irrespective of the

period of residence and even for services. With the rules on reverse charge VAT

having come into effect, Kosovo has implemented the place of supply rules from the

EU Directive on VAT dated 28 November 2006 (EU 6th Directive).

5.1.7 Withholding Tax

The Law on Corporate Income Tax also provides for regulations of the withholding

tax. This Law provides that each taxpayer who pays interest or royalties to a resident

or a non-resident person is liable for withholding 10 % tax at the time of payment.

There is no longer any tax on dividend income and thus no withholding obligation.

However, interest on shareholder loans is still subject to the withholding tax. This

makes intra-group financing of local Kosovo subsidiaries through shareholder loans

rather unattractive.

The income generated by a non-resident person or entity, and from entertainers inKosovo is subject to withholding tax, provided that the non-resident person or entity

has no permanent establishment in Kosovo and the gross compensation received is


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more than EUR 5.000 in any tax period. The withholding tax applied is 5 % of the

gross compensation.

There is also a withholding tax on rent. Whenever a legal entity, e.g. a limited liability

corporation, pays rent, 9 % of the gross rent must be withheld.

Furthermore, a 10 % withholding tax applies with respect to lottery and game of

chance winnings.

The withholding

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