Kosova Investors Guide 2011

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INVESTING IN

KOSOVO

REPUBLIC OF KOSOVO

Ministry of Trade and Industry


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Investor Guide

May 2011

INVESTING IN

KOSOVO


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Legal Notice and Information

Status o inormation: May . Changes reserved.

Publisher:

Investment Promotion Agency o Kosovo - IPAK

Contacts:

Ministry o rade and Industry

Muharrem Fejza Street n.n.Lagja e spitalit Prishtin, Kosovo el: + () Fax: + () 7Web: www.mti-ks.org

Investment Promotion

Agency o KosovoMuharrem Fejza Street n.n.Lagja e spitalit Prishtin, Kosovo el: + () 7

+ () Fax: + () 7Email: [email protected] Web: www.invest-ks.org

Disclaimer

Te inormation provided in this brochure was correct at the time it went to press, May . However, legislativechanges and changes in interpretation by the authorities and courts can generally occur requently. Tis brochure containsinormation that is summarized and, in part, simplied. It does not substitute or specic legal and tax advice. Despiteattempting to exercise care in compiling this brochure, the authors can not warrant the accuracy, completeness, or up-todate character o its contents. Any liability on the part o IPAK and the Government o Kosovo is thereore excluded.


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6 1. General Data

7 2. Declaration of the Government on attracting foreign investment

8 3. Principal industrial and business sectors

9 3.1 Agriculture

10 3.2 Wood processing

11 3.3 InformationTechnology and Telecommunications

12 3.4 Construction

13 3.5 Automotive components industry

13 3.6 Mining and energy

14 3.7 Textiles

15 3.8 Tourism

16 4. Investment Climate

17 4.1 FDI Inflows

18 4.2 Success stories

19 4.3 Key economic indicators

20 4.4 Incentives regime22 5. Currency and the banking system

24 6. Labour and education

25 6.1 Labour market

26 6.2 Educational system

28 7. Trade and customs

29 7.1 Trade regime

30 7.2 Customs regime

31 7.3 Transport and distribution

32 8. Setting up a business in the country

33 8.1 Business types

33 8.2 Legal framework

35 8.3 Taxation

37 8.4 Land acquisition and related matters

37 8.5 Industrial parks

38 8.6 Utility costs and availability

40 9. Quality of life

42 10. About Investment Promotion Agency in Kosovo and its office in Vienna

44 11. Websites of Institutions

45 11.1 Websites of Institutions45 11.2 Websites of International Institutions in Kosovo

46 11.3 Business support Institutions

Table of contents


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1General

Data

Economic DescriptionCurrency: EURO

Gross Domestic Product (GDP): In : . bil-lion, Per capita: ,.

Inflation: On average 3.1 % per annum over the pastve years.

Financial Sector:wo tier banking system consistingo Central Bank o the Republic o Kosovo and eightprivate Banks, 11 Insurance companies and twopension schemes.

Enterprises: over 45,000 active SMEs in 2010, app.50 % o total SMEs engaged in trade industry. 500Socially Owned Enterprises o which 400 alreadyprivatized.

Budget: In 2011 totalling app. 1.434 billion.

Tariff duties: 10 % customs duties on imports, noduties on capital and intermediary goods, and selectedraw materials; Excise tax on uel, tobacco alcohol andluxury goods. No duties and taxes on exports.

Tax System: VAT 16 %, Corporate Prot ax 10 %,

Personal Income ax progressive max. 10 %.Free trade: Customs-ree access to the EU marketbased on the EU Autonomous rade Preerence (ATP)Regime, Central European Free rade Agreement CEFTA and preerential treatment o exported goods inthe US market.

Labour market: Average labour cost 330 Euro in2010, skilled and well educated work orce.

Location factors: Competitive, well educated andyoung workorce, enviable natural resources (mining,agriculture), low taxes and a transparent tax system,

customs ree access to the markets oCEFTA, EU andUSA, Euro as ocial currency.

GeographyLand area: 10,908 km

Terrain: Low ood plains throughout centralKosovo, surrounded by mountains tothe north, west and south.

Land Use: 52 % agriculture, 39 % orests

Capital: Prishtina - est. population 200,000

Population

Population:approximately 1.8 millionEthnic

composition: 90 % Albanians, 5 % Serbs,2 % Muslim Slavs (Bosniaks, Gorans),2 % Roma and 1 % urks

Distribution: 42 % urban, 58 % rural

Diaspora: over 500,000 people living abroad

Languages: Albanian, Serbian, English.

Legal Framework

Applicable Law:Laws passed by the Kosovo Assem-bly enacted on 15 June 2008 and thereater; Regula-tions enacted by the United Nations Interim Admin-istration in Kosovo (UNMIK) between 10 June 1999and 14 June 2008; Laws dated prior to 22 March 1989,enacted beore the abolishment o Kosovos autonomywithin the Social Federal Republic o Yugoslavia; andlaws dated between 22 March 1989 and 10 June 1999,enacted ater the abolishment o Kosovos autonomy,provided that they are not discriminatory and are re-quired to ll a legal gap.

Regulations available at:www.assembly-kosova.org


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2. Declaration of the Government

on attracting foreign investmentDear Investor,The Government o Kosovos Vision or the next three years oresees a deep and thorough reorm on ive vital economic

development areas. These Five key strategic areas which will enable the Government to achieve a steady economic grow-

th including maintaining macro-iscal stability; investments and support to the private sector; development o the public

inrastructure; re-vitalizing agriculture and development o the human capital.

During the next three years the Government o Kosovo aims to achieve a steady annual economic growth o 7 to 8%. The

Government will increase the eiciency o the public expenditures and will ensure the continuous increase o the revenu-

es. The tax policy in Kosovo is the best in the region. Income taxes are between 0-10% and corporate taxes are 10%. Value

added tax is 16%, the lowest in the region. Labor orce is the most cost-eicient in the region with the average wage in2010 around 280 per month. From 2007 Kosovo averaged an economic growth o about 5%.

The Government o Kosovo has recognized that increasing investments and support to the development o the private

sector represents the basis or a sustainable economic development o the country.

Kosovo is a place which provides many investment opportunities. It has a good strategic position, it is the lowest cost

country in the Eurozone, it has the youngest population in Europe and it has low taxes and cost-eicient labor orce. The

banking system is one o the most stable in the Region, and privatization o the publicly owned enterprises is in progress

which brings lots o great opportunities or oreign Investors. Today, Kosovo has more than 3,000 companies o oreign

and mixed ownership. This investment is spread across a wide range o business sectors as well as investment in publicly-

owned assets sold by the Government as part o its privatization program.

In addition, Kosovo enjoys recently renewed customs-ree access to European Union and the United States through EU

Autonomous Trade Preerences and Generalized System o Preerences respectively. This allows all investors to export to

EU and US without any customs tari.

We have identiied some o our strongest potential sectors or investors. We believe that Kosovo will be an important

market or oreign investors in several sectors, including Business Process Outsourcing (BPO), ood processing, energy

and mining, wood processing, metals and metal processing, textiles, inormation technology, tourism and construction.

We have already started to address the issues o business registration, construction licenses, registration o property,

the issue o inancial loans, investor protection, taxes, reducing the procedures or imports and exports, enorcement o

contracts and closing o businesses. In the short term, we have managed to open 22 one stop shops throughout Kosovo.

These municipal business centers will ease the procedure and shorten the time or business registration. In the mid-term,by 2014, we aim to cut all business licenses by at least 50%.

This reorm, certainly, will be accompanied by a legal reorm which we create all the necessary conditions or it to happen.

Recently we passed the law on Business Associations and Internal Trade which allows potential investors to start a busi-

ness in just a ew days. The government has also drated a package o 12 basic laws or this year which will set the stage or

the deep economic and trade reorms. These laws will amend the Customs Code to harmonize it with the EU Law; regulate

internal and external trade o Kosovo; will improve execution procedures and registration o the property rights and will

regulate the notary, cadaster, inancial reporting.

We assure you that the Government o Kosovo will remain ocused in urther improving the business climate and in spee-

ding up the regional and European integration o Kosovo. We will provide ull support or your business and investment

activities in our country and we sincerely welcome you in Kosovo.

Mimoza Kusari-LilaDeputy Prime Minister or Economy

Minister o rade and Industry


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3Principal industrial

and business sectors


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3.1 Agriculture

Kosovo is well endowed with agriculturalland. Out o a total surace o . million haapp. , ha or is cultivable land.Currently some , ha is used as agricul-tural land in the diferent elds as illustrated

in graph .

With some percent o the populationliving in rural areas and mostly working inagriculture, Kosovo has a long agriculturaltradition. Currently, the sector o agriculturecontributes percent to the GDP and is themain source o income or the majority o thepopulation. It is one o the most importantemployment providers in Kosovo and it ac-counts or percent o the value o exports.Some 7 percent o the local market demand

or the agricultural products and processedoodstuf is still being ullled by imports.

Te arable land in Kosovo is considered to beo good quality. Combined with the temper-ate climate that prevails throughout the coun-try, very good conditions or the agriculturalproduction exist. Tis constellation, together with sucient natural irrigation possibili-ties, enables Kosovar armers to achieve high yields per ha in every sub-sector o agricul-ture. In comparison to other countries, Ko-

sovo additionally ofers a very exible andcost efective labour orce and, due to tradeliberalization within the CEFTA region, reeaccess to the regional market consisting o million consumers. In addition, Kosovo en-joys a preerential market access to the EU andUS markets, with only ew products exemptedrom this prerential treatment.

Based on the area and average yield per ha,certainly the most important elds o agri-culture in Kosovo are the vegetable and grain

sectors. In October the US Agencyor International Development (USAID),through Booz Allen, conducted a study thatrevealed new opportunities or growth. Giv-en the natural resource characteristics o theclimatic zones that exist in the country, thestudy showed that a total o crops can ea-sibly be grown. Further evaluation o actorssuch as highest production value, economiceasibility and attractiveness, investment, easeo production and ease o market access, hasgiven a list o top agricultural products orKosovo. Tis list is shown in table .

Kosovo is already well known as a producero diferent types o grapes. It has substantial

acres o vineyards largely dedicated to theproduction o Amselelder branded wine orsale in Germany. Cabernet Franc, Merlot,Prokupac and Gamay are all planted here. Te continental climate and the height o- meters above sea level provide idealconditions or vineyards and the developmentand growth o grapes or wine. Tere are morethan sunny days annually to help ripenthe grapes, on par with some well known wineproduction regions. Tese advantages createvery good conditions or the qualitative wineproduction in Kosovo.

Graph 1: Use of

agricultural land inKosovo

51% Arable land andkitchen gardens

37% Meadows

8% Uncultivated

2% Pastures

2% Orchards

0.1% Greenhouses

0.2% Vineyards

Graph 2: Structure ofcrop area in ha

108,358 Fodder crops

102,364 Grains

4,886 Fruits

17,704 Vegetables

Bulbs (flower) Cucumbers/gherkins

Lettuce/chicory

Currants/gooseberries

Asparagus Saffron

Apples Cranberries/bilberries

Table grape Kiwi fruit

Table 1: Top 10 strategic crops


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Due to its geographical composition, Kosovoalso ofers very good conditions or livestock

arming. Although, still experiencing a live-stock recovery process, arming in this sectorhas made great strides in recent years bothin numbers and yield.

In particular, there are two main actors inavour o livestock investments in Kosovo.Firstly, the country ofers very good naturaland climatic conditions or various types olivestock arming. Secondly, market demandor livestock arming products is currentlymuch higher than domestic production. Te

planned revitalisation o the ood processingindustry will urthermore create greater op-portunities or livestock arming in the uture.

Currently, the most signicant obstacle re-maining or Kosovos meat processing com-panies is the reopening o export markets.With Kosovos geographical location and itsclose proximity to non-EU countries such asAlbania, Montenegro, Bosnia and Herzego-

vina, Croatia and urkey, a short-term prag-matic approach could be to initially ocus onmeat exports to these destinations, with thepossibility o expanding into EU markets inthe next stage.

Tere are numerous agro-industries in Koso-

vo with high market potential, ofering poten-tial investors immediate access to suppliers oprimary products, substantial inherited capi-tal, technical capability and promising marketprospects. Te highly competitive workorceand the custom and tax incentives, urtherunderscore the opportunities available in thisbusiness eld in Kosovo.

Also taking into consideration the low priceso primary products, this eld is very prot-able and has the potential to expand into or-

eign markets. Recognising the potential, someoreign companies have already started to co-operate with local partners and are taking ad-vantage o Kosovos riendly tax and customssystems allowing them to ofer competitiveproducts in European markets.

In order to improve the competitiveness o theagricultural and ood processing sector andconsequently stimulate the local production,the Government o Kosovo has recently in-troduced diferent incentives or armers and

processors. Te zero percent customs rate ormost agricultural inputs and capital goods, to-gether with VAT exemption on a wide rangeo agricultural inputs, have been designed tostrengthen local production and enable it tourther compete with oreign products.

Te promotion o the processing businesses,support or exports and simple access to a-vourable nancial means are some additionalsteps that, together with sucient investorinterest, will turn around this segment o Ko-

sovos economy and lead to the creation o alarge export business.

3.2 Wood processing

Forests and similarly covered suraces makeup around one third o the total territory oKosovo and represent a resource o specialimportance or the countrys economy. Withthe annual value o wooden products and oth-er benets produced by orests reaching EUR 7 million, this sector represents a liveli-hood or percent o the Kosovar popula-tion.

Graph 3: Livestock in

Kosovo

0 500,000 1 ,00 0,0 00 1 ,500,000 2,0 00,000 2, 500,000

Sheep and Goats 151,813

Horses and Donkeys 6,152

Poultry 2,278,129

Pigs 39,591

Cattle 321,624

Graph 4: Forestry -growing stock in1,000 m3

0 5,000 10,000 15,000 20,000

Picea Abies 1,402

Pinus ssp 2,019

Other coniferous 223

Abies Alba 1,577

Other Broadleaves 9,690

Fagus 15,963

Quercus 9,675


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Due to the sucient availability o inputs,Kosovo ofers great investment possibilitiesin every single wood processing cycle. Te an-nual allowable amount o elling is currentlyslightly below million m with Beech andOak being the main species. Potential or or-eign investors ranges rom doors and windows

to a variaty o urniture production. Tere iscurrently a large pool o companies in Kosovothat would make good outsourcing partners.

A large amount o traditionally gained expe-rience, great knowledge in wood processing,and a cost efective labour orce make the Ko-sovar wood industry particularly well suitedor the manuacturing o hand made luxuryproducts. In addition, most sawmills in Ko-sovo only saw logs into rough, mixed gradelumber, and are not yet exploring the potential

value o waste products, i.e. sawdust and woodchips.

aking into consideration all these benets,Kosovos wood processing industry has ex-perienced signicant developments duringthe past years. Due to better organisation andsucient service-providing clusters, Kosovarproducers have been able to increase the qual-ity and product range, thereby allowing ex-pansion into oreign markets. Currently, Ko-sovar wood processors supply urniture both

or the domestic and international markets(or example hotels) to companies in Ger-many, the Netherlands, Switzerland and alsoneighbouring countries.

Trough the eforts and engagement o themembers o the rich institutional environ-ment o the wood industry, Kosovo ofers various incentives that aim to urther pro-mote and acilitate primary and secondarywood production. Te Kosovar Governmenthas recently approved a zero customs rate or

the imports o selected machinery and capi-tal goods related to this sector, while urthernegotiations or the exception o wood rawmaterial rom VA and customs are currentlyunderway.

3.3 Information Technology

and Telecommunications

The IT sector in Kosovo, including InternetService Providers, has experienced a remark-able development since . From being in-existent years ago, Kosovar companies inthe IT sector ofer today high quality servicesand the latest technologies to their customers

both local as well as to oreign companies whowant to outsource their sotware development

and/or call and support centres.

Kosovo has the youngest population in Eu-rope. It is both skilled and multilingual, withEnglish being only just short o an ociallanguage due to a high international presence.In addition, many Kosovars who have studiedabroad are now returning to Kosovo, bringingwith them skills and know-how. oday, pub-lic and private education institutions in the ITeld, supported by companies such as CISCOor Microsot, provide education to thousands

o young Kosovars while the demand or thisorm o training is still rising.

Be it the outsourcing o sotware develop-ment, data management, establishment ocall and support centres or other consultingservices, Kosovar companies ofer high qualityservices at low costs. Te recent acquisition othe largest IT company in Kosovo, Pronet, bythe Assecio SEE is proo o high opportunitiesin this sector in Kosovo.

Graph 6: Precentage ofindividials regularly

using internet

0%

10%

20%

30%

40%

50%

60%

70%

80%

EU-27KosovoMonte-

negro

AlbaniaSerbiaMacedoniaCroatia

FemaleMale

Graph 5: Annual fellingallowance in m3.

Picea Abies 26,000

Pinus ssp 49,000

Fagus 436,000

53%58%

62%

71%

54%

31%

40%

47%

53% 54%

66%

45%

29%25%

Abies Alba 42,000

Other Broadleaves 129,000

Other coniferous 6,000

Quercus 212,000


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Kosovo has two mobile telephone operatorsand two virtual mobile operators. Te state-

owned mobile telephony operator VALA, hascurrently over ,, users, while the sec-ond private owned mobile telephony operatorIPKO elekom Slovenian, serves approxi-mately , users and has a territory cov-erage o percent. Te state owned mobiletelephony operator will soon enter the pri-vatisation process and represents an attractiveinvestment opportunity or well establishedWestern telecom companies.

In addition, great opportunities or oreign

investors are available or xed telephony,VoIP, cable V, etc.

3.4 Construction

During recent years the construction in-dustry has become one o the most importantsectors contributing to Kosovos economicgrowth. Te construction sector in Kosovo hasso ar utilised several hundred million Eurothat were primarily used or the construction

o new homes, or or the rehabilitation anddevelopment o the road inrastructure.

Te construction industry remains a sec-tor with highly promising economic poten-tial or Kosovo. Roughly estimated, in orderto meet the existing market demand, in thenext ew years Kosovo will need some ,new apartments, including the associatedinrastructure, such as roads, kindergartens,schools, leisure acilities, restaurants etc.

A urther actor which is helping to boost thedevelopment o this sector is the demand orroad and highway construction. Te Govern-ment o Kosovo has set itsel a goal to connect

the country in three main directions with themost important international road corridorsin Macedonia, Albania and Serbia. Te con-struction o a highway, which will connect thenorthern and central parts o Kosovo withSkopje (Macedonia), is a mid-term goal o theGovernment. A much more important project

represents the building o a highway betweenMerdare-Kuks-Durrs, which will connectKosovo with the sea port o Durrs, Albania.Tis highway will become a part o the ransEuropean Corridor X that will connect theAdriatic Sea with the Western Europe. Teconstruction work or this highway began inMay .

In addition, as a result o an accelerated eco-nomic development Kosovo is acing an in-creased demand or commercial premises

such as production acilities, oce space andhotels.

Graph 7: Precentage ofenterprises which haveinternet access

0%

20%

40%

60%

80%

100%

120%

EU-27KosovoSerbiaMacedoniaCroatia

Small Medium Large

97%93% 94%

81%81%81%81%81%81%81%81%81%77%

99%98% 98%

90% 92%98%

100% 99%98% 98%



3.5 Automotive

components industry

The origins o the automotive componentsindustry in Kosovo date back to the s, when the rst large scale auto componentsmanuacturing companies were ounded. Al-though these manuacturing units were pri-

marily established to supply diferent partsor the production o Yugoslav vehicles, they very quickly penetrated oreign markets andcooperated with well-known European andAmerican automotive component manuac-turers. Te two best known agships o au-tomotive component industrialization in Ko-sovo were the Ramiz Sadiku, which producedprimarily car seats and small vehicle parts, andthe Shock Absorber Factory Prishtina, whichproduced shock absorbers or various well-known brands such as British Armstrong,

German Susta as well as French Peugeotamong others. Between and theShock Absorber Factory produced . mil-lion units each year and employed over ,workers.

With the loss o oreign markets as a result opolitical circumstances during the s, theKosovar car component manuacturers wereaced with immense nancial problems andconsequently many o them had to rethinktheir business philosophy in order to survive

in the global market. Although the currentoutput o these enterprises is still consideredto be low, re-established links with the tra-ditional partners bode well or a prospectivedevelopment o this sector. Te existing tech-nology, large capacities and ample knowledgeallow the automotive component industry toproduce and support any Original EquipmentManuacturer [OEM] with parts at a competi-tive cost.

Furthermore, the trend o shiting produc-

tion to Central and Eastern Europe makesthe Kosovar automotive component industryeven more interesting or investors wishing tobenet rom increasing opportunities in theregion.

3.6 Mining and energy

Kosovo has an enviable endowment o nat-ural resources. At .7 million tonnes, Kosovopossesses the worlds th-largest proven re-serves o lignite. Tis mineral is o outstand-ing importance or the country, representingin the long term one o the important actorsor the generation o power.

aking into consideration the high demandor energy in the local and regional markets,

the Government o Kosovo is currently nal-izing major projects regarding new ligniteexploitation and power generation acilities.Tese projects will ofer unique opportunitiesor companies willing to engage in the energyand/or mining sector(s) in Kosovo.

Apart rom lignite red energy generation ca-

pacities, Kosovo can also ofer vast opportuni-ties in the renewable energy sector. Currentlysome percent o electrical energy is pro-duced through thermal power plants. How-ever consistent with the obligations o theEnergy Community reaty or South-EastEurope, where Kosovo is a signatory party,Kosovo will have to cover eight percent o theelectrical energy consumption with renewableenergy resources by . Te Ministry oEnergy and Mining o the Republic o Ko-sovo has already conducted a pre-easibilitystudy or numerous sites where hydro powerplants can be constructed. Te expression ointerest or these HPPs will be internation-ally disseminated. In addition, eed-in tarifs

Graph 8: Kosovo lignite

reserves compared tothe rest of the World (inbillion tonnes)

0

5

10

15

20

25

30

35

40

45

50

RestCISKosovoChinaUSAustraliaGermany

42

38

33

19

14.7

11

32

Graph 9: Theoreticalrenewable energyresources in Kosovo

in GWh/year

Agriculture 1,200

Livestock 1,363

Wood 2,812

Solar 2,880

Solid waste 1,229


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or diferent renewable energy generation ca-pacities have been put in place. Te Kosovoresources or renewable energy are shown intable below.

In order to improve the eciency o the dis-tribution system, the Government o the Re-

public o Kosovo is planning urther invest-ments in distribution capacities, as well asthe privatisation o the currently state-ownedenergy distribution company which has al-ready been unbundled rom the state-ownedKosovo Energy Corporation.

Type of resource Resource

Biomass, wood 0,9 million m3

Biomass, livestock 322000 cattle, 152000sheep/goats

Biomass, agriculture 0,3 million tonnes straw

Solid waste 0,44 million tonnes

Solar energy 1500 - 1650 kwh/m2/year

Wind energy Unknown

Table 2: Resources in Kosovo for renewable energy

In the mining sector, and in addition to lig-nite, base-metal mining has been a mainstayo Kosovos economy since pre-Roman times.Modern mining in this eld began in thes, when the mining complex repa was

revamped by the British Company Selectionrust. Zinc, lead, silver, gold, cadmium andbismuth are exploited along repas mineralbelt.

Te lead and zinc reserves o Kosovo are esti-mated to be around million tonnes, thoseo nickel to million tonnes. Chrome re-serves amount to million tonnes and baux-ite reserves to . million tonnes.

Tere are diferent mines that can either be

acquired through the ongoing privatisationprocedures or can be revamped by enteringjoint ventures with private owners. For detailsregarding the specic mining possibilitieswithin the privatisation process please checkthe web-site o the Privatisation Agency othe Republic o Kosovo at www.pak-ks.org.

3.7 Textiles

With over 200 years o tradition, textiles were the second largest industrial sector inKosovo, ater mining. In the past, productsrom Kosovar manuacturers targeted the lo-cal market, as well as other markets through-

out the ormer Yugoslavia, Western and East-ern Europe and the United States. At its peakin around , each o the socially ownedenterprises (SOEs) engaged in textile produc-tion employed more than , people andsales totalled some million Euro.

Recent developments in the region have ro-zen the primary trading links o the textileindustry, causing lower production rates andresulting in a lack o competitiveness withoreign products. As a result, a major share

o ormer SOE workers has become redun-dant. A minor part has, however, establishedprivate textile companies. Currently there areover private companies engaged in tex-tile production, out o which percent arenal product manuacturers. Although thetextile industry has experienced a signicantrecovery during the past years, the majorityo businesses are still small and take the ormo micro enterprises. Consequently, they catersolely or the Kosovo market and are primar-ily geared towards a niche market.

Analysis indicates that some to millionEuro in exports could be reached, assumingthat trading links with ormer partners canbe re-established. Tere is considerable scopein this sector or investors to recreate a verti-cally integrated manuacturing cluster so thatKosovo would once again produce nishedclothing rom thread.

In particular, Kosovo ofers three major bene-ts or investors wishing to revamp one o the

existing SOEs or ound a new textile manu-acturing company. Tese are:

Acosteective,wellskilledandexperi-enced work orce

Asolidbaseoftechnologythatcanbeacquired through the ongoing privatisa-tion process

Numeroussubcontractingandoutsourc-ing possibilities

With the existing know-how, cost efective la-bour orce and other comparative advantagesthat the country ofers, including the riendlybusiness and investment environment, thetextile industry in Kosovo has thereore the



potential to become highly competitive inter-nationally.

3.8 Tourism

The natural wealth o Kosovo representshigh quality tourism resources. Te descrip-

tion o Kosovos potential in tourism is closelyrelated to its geographic position. Kosovosposition in south-eastern Europe, with a cen-tral location in the Balkan Peninsula, repre-sents a crossroad which historically dates backto Illyrian and Roman times.

Te mountainous south o Kosovo has greatpotential or winter tourism. One o the mostinteresting opportunities or oreign inves-tors in this sector is the ski resort Brezovicain the Sharr Mountains. Te resort, situated

between ,7 and , meters above sealevel. It ofers excellent weather and snowconditions, as well as long ski seasons romNovember to May.

Assets o Brezovica include three hotels with rooms, two restaurants and nine ski lits with the capacity to transport , skiersper hour. Trough its proximity to PrishtinaAirport ( km) and Skopje Airport (7 km),the resort is a possible destination or in-ternational tourists and has the potential to

become the most avourable winter tourismdestination in the Balkans.

Also in the Sharr Mountains in the verysouth o the country, bordering Macedo-nia and Albania, Kosovo is ofering about, hectares o largely untouched land inthe mountainous area, belonging to the SOESharrprodhimi or privatisation. Te regionofers excellent tourism opportunities, suchas skiing, eco-tourism, paragliding, moun-tain biking, rock climbing, trekking, kayak-

ing, horse riding, etc. Te Sharrprodhimi landin the municipality o Dragash is stunninglybeautiul. It is clearly a remarkable propertyor eco-tourism, and will only be sold to aproven investor who is committed to a sus-tainable and rational development programwhich will have strong local support.

Apart rom the above-mentioned tourismresorts, Kosovo is generally rich with moun-tains, articial lakes and rivers and thereorealso ofers prime possibilities or hunting andshing.

Te area o wellness in Kosovo also ofersgreat potential or development. Te numer-

ous thermal springs o Kosovo are well knownin the region or their healing efects. Foreigninvestors in this eld will nd high demand inthe regional and domestic market.

Te widespread production o rare artisancrats in Kosovo, such as the Filigree (silver),

represents an attraction or oreign tourists. Inaddition, Kosovo has the potential to developcultural tourism with numerous religious andother sites with extraordinary cultural andhistorical value.


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4Investment

Climate


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4.1 FDI Inflows

Taking into consideration the avourablebusiness climate, stable macroeconomic environment and the excellent opportunitiesacross diferent business sectors, Kosovo isincreasingly becoming an attractive place or

doing business. As a result, the interest ooreign investors has been increasing steadilythroughout recent years. Kosovo has attractedover billion Euro oFDIs in the past threeyears. Ater a peak in 7 with millionEuro oFDI, a slight decrease has been seen in and , this mainly due to the impacto the global nancial downturn. In Kosovo had positive growth o FDI inowsreaching . million Euro.

Apart rom investment pioneers such as the

Raifeisen Bank and Procredit, which enteredthe Kosovar market at the beginning o thetransition phase, there are many other or-eign companies engaged in a wide range obusiness sectors. According to the BusinessRegistry data or , there are , com-panies o oreign and mixed ownership thathave already used the opportunity to invest inKosovo. Te large amount o oreign compa-nies operating in Kosovo is living proo o theopportunities and benets that the countryofers, and also represents a base o quality

products and a successul service-providingcommunity.

Graph 10: FDI Inflow inmillion Euro

0

100

200

300

400

500

20102009200820072006

294.8

440.7

366.5

291.5314.1

Foreign companies in Kosovo


18/4818

4.2 Success stories

ConstruCtion

Xella International Xella International Group, part o HanielCorporation, is the market leader in construc-tion materials with production acilities on all

six continents.

Xella Group opened a silicate productionactory in Lipjan, near the Kosovar capitalPrishtina in . Te value o this Green-eld investment has reached million Euroand represents the most important project othe Xella Group in the Balkan region. XellaKosovo supplies the entire region with silicateproducts under the brand name Silka.

IT

Wertheim / Rrota Te Austrian company Wertheim has out-sourced the development o a new sotwarepackage to Kosovo. Tis investment oreseesthe development o a sophisticated sotwarepackage or managing sae deposit boxes pro-duced by Wertheim. Te project is also sup-ported by the Austrian Development Coop-eration (ADC), which will take over a part othe investment.

Over branches o banks in Austria, Swit-

zerland, Croatia and Slovakia use Wertheimsae deposit boxes, while the sotware willrom now on be developed by Rrota in Ko-sovo.

Agriculture

Kolm Puger / EtlingerKolm Puger, an Austrian company produc-ing several varieties o salads and tinned veg-etables, as well as supplying trade chains inAustria, has outsourced the production andpacking o chilli (Peferoni) and other vege-

tables to Kosovo. Te investment is situated incentral Kosovo in Shtimlje. Tis investment isworth , Euro and is supported by theAustrian Development Cooperation (ADC);more than new jobs have been created inKosovo.

Mining

FerronickeliNewco Ferronikeli is a part o Cunico Re-sources N.V, a multinational mining andmetals company. Cunico Resources N.V is the

largest manuacturer o erronickel in Europewith production plants in Kosovo and Mac-edonia.

Te total investment in Kosovo plant exceedsEUR million. NewCo Ferronikeli is themost successul story o the privatization inKosovo and as a company plays a crucial rolein Kosovos economy employing more than employees. Te products o Newco Fer-ronikeli are exported to the European Unionand Asia and are contributing substantially to

Kosovo exports.

Banking and Insurance

Raieisen BankRaifeisen Bank entered Kosovo market in through acquisition o the AmericanBank o Kosovo. Te Raifeisen Bank Kosovohas grown to be one o the main actors in thenancial system o Kosovo, contributing sub-stantially to the increased nancial interme-diation at all levels.

Currently Raifeisen Bank Kosovo is the sec-ond largest bank in Kosovo with total assetsamounting over Million. Raifeisen BankKosovo employs more than employees.

TelecommunicationIPKO / elekom Sloveniaelekom Slovenia acquired the local companyIPKO Net, which was the rst internet serviceprovider in Kosovo, in . IPKO Net ofers awide range o telecom services to its custom-ers. According to the market share or GSM

services it is the second largest telecom com-pany in Kosovo ater the state owned telecom.

In addition to GSM, the company ofers alsoxed telephony and internet services, and isthe market leader in cableTV.


19/4819Investment Climate

4.3 Key economic indicators

The real development othe economy meas-ured by the gross domestic product (GDP) hasbeen avourable in the past years, showing apositive and continuously increasing trend.Despite the efects o the international nan-

cial crisis, Kosovo was one o the ew coun-tries in Europe that experienced positive eco-nomic growth in recent years.

As donor support decreases, the private sectorconsumption and investments are becomingthe most important actors behind economicgrowth. Tese investments are mainly beingdriven by the ast expanding nancial sec-tor. Moreover, the Kosovo Government runsa stable and orward-looking scal policy.Te tax revenue base has been widened, thus

enabling the Government expenditures to in-crease and in turn support economic growth.

Apart rom the avourable economic peror-mance, Kosovo runs a very stable monetarypolicy. Kosovo is one o the ew countiesoutside the EU-zone that has introduced theEuro as its ocial currency. Te use o theEuro has provided the grounds or low in-ation and a stable macroeconomic environ-ment. By eliminating the exchange rate risk,transaction costs have been reduced, thus a-

cilitating the promotion o trade and invest-ment. Due to the absence o monetary in-struments resulting rom the use o the Euro,Kosovo does not run any monetary policy riskeither. Prices are expected to remain stable inthe uture.

Graph 11: Real GDP in billion Euro and GDP growth

0

500

1000

1500

2000

2500

3000

3500

4000

4500

20102009200820072006

2%

3%

4%

5%

6%

7%

20102009200820072006

3.464 3.792 4.2593.182

4.0%3.8%

4.0%

5.4%

5.0%

3.724

Graph 12: Inflation in Kosovo

-4

-2

0

2

4

6

8

10

20102009200820072006

0.6%

4.4%

9.4%

-2.4%

3.5%

Graph 14: Unemployment rate

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20092008200720062005

43%40% 42%

47% 45%

Graph 13: Budget balance

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20102009200820072006

2.4%

7.0%

-0.2% -0.1%

-2.0%


20/4820

4.4.5 Investment guarantees. Te Multilateral Investment Guarantee

AgencyMIGA (a member o the WorldBank Group) guarantees investmentsin Kosovo up to the value o million

Euro.. Te US Overseas Private Investment

Corporation (OPIC) also provides politi-cal risk insurance or oreign investors inKosovo.

. For investment and credit guaranteesrom Austria please contact the AustrianKontrollbank (OeKB) and or Germanythe Euler Hermes Kreditversicherung.

4.4 Incentives regime

The existing legal ramework in Kosovoallows incentives or oreign and local inves-tors. Tey are up to date and promote thegrowth o the SME-Sector. Additional incen-tives that enable Kosovo to cope with devel-

opments in the region are in preparation andwill be introduced soon.

Current incentives cover the ollowing issues:

4.4.1 Carrying orward o lossesBased on the Law Nr./L- on Corpo-rate Income ax, tax and capital losses can becarried orward or up to seven successive taxperiods and shall be available as a deductionagainst any income in those years.

4.4.2 Special Allowances o new assetsIn accordance with the Corporate Income axLaw Nr./L-, i a taxpayer purchases newcapital goods or the purpose o the taxpayerseconomic activity between January and December , a special deductiono ten percent () o the cost o acquisi-tion o the asset shall be allowed in the year inwhich the asset has been rst placed into ser-vice. Tis deduction is available in addition tothe normal allowable depreciation deduction.

4.4.3 Avoiding Double axationBased on the Law Nr./L- on CorporateIncome ax, a resident taxpayer who receivesincome rom business activities outside oKosovo through a permanent establishmentoutside o Kosovo, and who pays tax on thatincome to any state, shall be allowed a taxcredit under this regulation in an amountequal to the amount o tax paid to such state.

Any tax credit under the present section islimited to the amount o tax that would be

paid under this regulation on the incomemade in such state.

Any applicable bilateral agreement on theavoidance o double taxation shall supersedethe provisions above.

4.4.4 CustomsIn order to promote local production, the newKosovo customs and excise code No. /L- applies a reduced rate o zero percentcustoms duty on certain capital goods, rawmaterials and agricultural production inputs.For more details visit: www.dogana-ks.org/tarik/. A zero tarif rate is also applied to theexport o goods and services.


21/4821


22/4822

5Currency and

the banking system


23/4823

Kosovo adopted the Euro as its o-cial currency on January .With the use o this stable currency

as an ocial mean o payment, the prereq-uisites or the development o an ecient -nancial sector and stable macroeconomic en-vironment were in place. Benets arising rom

the introduction o the Euro in Kosovo havebeen obvious and resulted in low inationrates and strict nancial discipline. In particu-lar, the Euro has given Kosovo a considerableadvantage over its competitors in the regionby making it more attractive to oreign invest-ment, due to low transaction costs as well asthe elimination o exchange rate and currencyrisk.

Te absence o traditional monetary policyinstruments also enabled the establishment

o a very strict and ecient regulatory ramework, upon which a sound banking systemhas been developed.

Achievements in the banking sector in Ko-sovo have been signicant in the last veyears. Tey have resulted in the improvemento public condence in the banking sector andthe strengthening o the intermediation unc-tion o banks in the Kosovo economy.

Kosovo introduced a two-tier banking system

back in . Te Central Bank o the Re-public o Kosovo also embodies the charac-teristics o an integrated nancial supervisoryagency. Its responsibilities cover licensing,regulation and the supervision o nancial in-termediaries, and it ensures the proper unc-tioning o the payment system.

Te nancial sector in Kosovo is bank-basedand all o Kosovos banks are private. Tereare eight registered banks, o which six arein oreign ownership. Te Pro Credit Bank

established at the initiative o several leadingInternational Financial Institutions, and theRaifeisen Bank o Austria, hold the largestmarket share in the sector.

With banking sector assets accounting or percent o GDP at the end o , Kosovoranks well with the countries o the region.Loans granted by the banking sector o Ko-sovo or the same period accounted or percent oGDP.

In addition, the lowering o interest ratesand the shit rom short-term to long-term

nancing in the banking sector o Kosovo hashad a very positive impact on overall econom-ic growth enabling intensive long term capitalinvestments.

Graph 15: Structure ofloans by maturity

0%

20%

40%

60%

80%

100%

2010200920082007

Over 2 years

Up to 1 year

Over 1 and up to 2 years


24/4824

6Labour and

education


25/4825

6.1 Labour market

Kosovo is blessed with a young, skilled,multilingual and motivated labour orce witha strong entrepreneurial spirit.

With 7 percent o the population being

under the age o , Kosovo is consideredto have the youngest population in Europe.Tis young population has a high literacy ooreign languages. Albanian and Serbian areboth ocial languages, and given the long-term presence o a large international com-munity, English has been established as ade-acto third ocial language. Owing to thelarge Kosovar Diaspora, German and otherEuropean languages are requently heard.

aking into consideration the high availabil-

ity o the work orce and the liberal labour lawthat governs the local labour market, hiringemployees in Kosovo is both time saving andsimple. According to the Doing Business o the World Bank, Kosovo can outper-orm most o its neighbouring countries whenit comes to the simplicity o hiring new em-ployees. Te same applies to the cost o mak-ing workers redundant which, equal to a sal-ary o 7. weeks, is below the regional average.

Furthermore, the highly exible labour mar-

ket ofers a sucient work orce with variedskills and levels o education and training.Although according to the data covering job-seeker statistics the main part o the labourmarket supply consists o basic skilled labour,there are sucient quantities o highly edu-cated jobseekers as well.

Te main advantage o the Kosovo labourorce remains its low cost. With the averagemonthly labour cost estimated at EUR itis the most competitive in the region.

Country Average monthly labourcost (euro)

Kosovo 330

Macedonia 490

Serbia 566

Croatia 1055

Bosnia andHerzegovina

480

Table 3: Overview of the monthlylabour cost in the region - 2010

Furthermore, personal income tax in Kosovois very low at only our percent o the averagegross salary, and the wages are unburdened by

costly social contributions, unlike the salariesin most neighbouring countries. Te onlymandatory contributions on total gross wagespaid are those or individual pension savingsaccounts, nanced by the employer ( per-cent) and the employee ( percent).

Graph 16: Difficulty ofhiring index (0-100)

Graph 17: Redundancycosts (week salary)

Graph 18: Registeredjobseekers (2011)

0 20 40 60 80 100

0 5 10 15 20 25 30

0 50000 100000 150000 200000 250000

Kosovo 0

Kosovo 7.2

University 3.779

Montenegro 0

Croatia 7.2

College 2.154

Albania 44

Serbia 7.7

Secondary school 88.172

Bosnia and Herzegovina 56

Bosnia and Herzegovina 7.2

Qualified 28.395

Croatia 61

Macedonia 8.7

Semi-qualified 12.511

Serbia 78

Albania 10.6

Unqualified 201.352

Montenegro 26


26/4826

Working in Kosovo as a oreignerNatural persons, who are not citizens o Ko-sovo, when wanting to work in Kosovo ormore than three months, must apply or awork permit, which is issued by the Ministryo Labour and Social Welare. ogether withthe request or the work permit, the employer

should also submit a copy o the residencepermit, or proo o possessing a valid visa is-sued by the Kosovo authorities.

6.2 Educational system

The compulsory school and higher educa-tion systems in Kosovo are beeing reormedcontinuously while landing great impor-tance to their quality, and thus creating thebasic preconditions or the development o

a knowledge-based society out o the youngpopulation. With the ratication o the newuniversity law by the Government back in, Kosovos higher education authorityhas introduced educational levels in accord-ance with the Bologna Declaration.

Great importance has been given to estab-lishing a privately-driven educational system.Currently Kosovo has two state universitiesand several private universities and colleges, with worldwide known educational institu-

tions among them. As part o the educationalreorms, the Ministry o Education, Scienceand echnology has ounded the Public Uni-versity o Prizren. Te curricula o the studyelds ofered by the University o Prizren aredeveloped based on the mid-term needs othe local economy.

With approximately , students at thetwo state universities, and at least , stu-dents at the private universities and colleges,a sucient stream o highly educated labour

is guaranteed. Te number o graduates isincreasing continuously, with social sciencegraduates over-perorming those studying thenatural sciences.

Country Employee Employeer Total

Kosovo 5% 5% 10%

Macedonia 0% 26.5% 26.5%

Serbia 17.9% 17.9% 35.8%

Croatia 20% 17.2% 37.2%

Bosnia and Herzegovina 31% 10.5% 41.5%

Montenegro 12% 8% 20%

Table 4: Overview of thesocial contribution ratesin the region -2010

Graph 19: Number ofstudents in PrishtinaUniversity - by year

Graph 20: Graduatedstudents by field andyear

0

10000

20000

30000

40000

2009/20102008/20092007/20082006/2007

0 200 400 600 800 1000

353

601

103

101

80

74

69

89

52

346

368

55

140

141

151

170

185

156

627

249

660

719

801

786

472

657

617

136

417

647

27,274

Education

Physical Culture (Sports)

Mining and Metallurgy

Agriculture

Arts

Medicine

Machinery

Electrical Eng. and Computers

Construction and Architecture

Economics - Peja

Economics

Law

Philology

Mathematic-Natural Science

Philosophy

28,757 29,051

2008/20092006/007

37,839


27/4827


28/4828

7Trade and

customs


29/4829

7.1 Trade regime

Kosovo has a liberal trade regime and de-rives three major benets rom trade liberali-sation, namely improved export possibilities,a better investment environment, and stablerelations with its neighbours.

Committed to establishing principles or thestable development o a pure market economy,since a very early stage o development, Ko-sovos government has been working towardsestablishing a system or the ree movemento goods and services throughout the coun-trys borders. As a result, Kosovo currentlyenjoys ree trade within Central EuropeanFree rade Agreement CEFTA, enabling itsbusinesses and producers o goods to accessthe regional market comprising o million

consumers, ree o any customs duties.

In addition, Kosovo benets rom non-recip-rocal, customs-ree access to the EU marketbased on the EU Autonomous rade Preer-ence (ATP) Regime. Quantitative and quali-tative restrictions remain in orce only or avery limited number o goods. Furthermore,a signicant number o goods produced inKosovo enjoy a preerential treatment in theUS market.

Kosovo is still an import-based economy. Im-ports have been increasing steadily in recentyears (as the gure shows) reaching some .billion Euro at the end o . Te main im-porting countries in Kosovo are EU-countriesollowed by CEFTA-members. Even thoughlocal production is increasing steadily, Kosovois still orced to import goods and raw materi-als that are not ofered by the local market.Te main imports o commodity goods rangethereore rom transport means, chemicalproducts and base metals to machinery and

mineral products.

Recognising the opportunities that the lo-cal market is ofering, and beneting romvarious cross-sector incentives introduced bythe Government, local production has grownexponentially in recent years. Not only doeslocal demand continuously rely on local pro-duction but Kosovo is increasing its exportsto its main trade partners, EU-countries andCEFTA-members. At the end o , exportsreached million, an increase o pre-cent in comparison to . Te main exportso Kosovo comprise mainly base metals andmineral products, as well as vegetables andprepared oodstuf.

Given that the country has a very avourablebusiness climate, a modern legal rameworkand a cost efective work orce, and takinginto consideration that there is still immenseopportunity or local producers to ull mar-ket demand and also approach the regionalmarket, local production as well as exports areexpected to increase urther in the uture.

Graph 21: Imports in Kosovo

by year in million Euro

Graph 22: Top 6 Importsby commodity (2010) inmillion Euro

Graph 23: Exports fromKosovo by year inmillion Euro

0 500 1000 1500 2000 2500

2010

2009

2008

2007

2006

0 100 200 300 400

0 50 100 150 200 250 300

2010

2009

2008

2007

2006

1,305.9

1,576.2

110.8

Products of the chem. or allied indust 146.6

Base metals and artic. of base metal 190.0

Transport means 142.1

Prepared foodstuffs, bever. and tob. 261.7

Machinery, appliances, electrical, etc. 288.2

Mineral products 419.2

1,928.2

165.1

1,898.7

198.5

2,144.9

162.6

294.0


30/4830

7.2 Customs regime

Kosovo is an independent customs entitywith a liberal trade regime.

Custom duties and border taxes are regulatedby the Customs and Excise Code o Kosovo,Law No. /L-.

Customs:Aatrateof10percentisimposed on imports and zero percent onexports. Exemptions exist or importso raw materials, a range o capital andintermediary goods, but also or pharma-

ceutical goods, which are zero rated. Excisetax:Isleviedasacertainpercent

o the value o the goods or representsa xed amount per specied quantity, isapplied to cofee, sot drinks, beer, wines,alcohol, spirits, liquors and other spiritbeverages, cigarettes, other tobacco prod-ucts, cars, petrol, diesel or motor enginesand kerosene.

Detailsoncustomsratesandexcisetaxesapplied to specic goods can be oundunder: www.dogana-ks.org/tarik/index.

htm

Te Customs Code is based on the EU cus-tom code and is ully compliant with WCOagreed rules on customs procedures and theHarmonized Commodity Description andCoding System. It additionally allows the useo a number o business riendly trade-acili-tating instruments such as:

Boundedwarehousingallowingstoragein customs warehouses or non-domesticgoods, without import duties being im-posed. Under this procedure the goodsmay undergo any orm o handling in-tended to preserve them, improve theirappearance or marketable quality or pre-pare them or distribution or resale.

Inwardprocessingreliefallowingnon-domestic goods which are intended orre-export rom Kosovo to be used in

Kosovo in one or more processing opera-tions without such goods being subject tocustoms duties. Tis ofers a great oppor-tunity or outsourcing projects.

Processingundercustomscontrol-eprocedure or processing under customscontrol allows goods which are not do-mestic goods to be used in Kosovo inoperations which alter their nature orstate, without being subject to importduties or commercial policy measures,and shall allow the products resulting

rom such operations to be released orree circulation at the rate o import dutyappropriate to them.

Transitpermittingthemovementofthe goods, which do not originate inKosovo rom one point within Kosovo toanother, without such goods being sub-ject to customs duties.

Temporaryadmissionallowingtheuse in Kosovo, with total or partial relierom import duties, o goods which arenon-domestic goods and intended or

re-export without having undergone anychange except normal depreciation. Outwardprocessingallowingfordo-

mestic goods to be temporarily exportedin order to undergo any processingoperations, with the products resultingrom such operations to be released orree circulation with total or partial relierom import duties.

For details concerning the import o goodsplease contact Kosovo Customs at www.dog-ana-ks.org.

Graph 24: Top 6 Exports

by commodity (2009) inmillion Euro

0 20 40 60 80 100

Machinery, appliances, electrical, etc. 10.7

Mineral products 38.8

Vegetable products 12.1

Hides, skins, leather, articles thereof 9.7

Prepared foodstuff 11.4

Base metals and artic. of base metal 185.2


31/4831Trade and customs

7.3 Transport and

distribution

Located in the heart o the Balkans, Koso-vo serves as a connecting bridge between thecountries o South Eastern Europe. Troughits unique geographical position and its liberal

trade regime, it ofers instant access to the in-teresting and growing market in the Balkansand Central Europe, comprising millionpotential customers.

Kosovos capital Prishtina is within one hoursdriving time to any neighbouring country(Albania, Montenegro, Macedonia, and Ser-bia), thereby providing a connection or allcountries in the region.

Road network

Te road network consisting o km omain roads has been rebuilt to a high extentduring the past years, but some completelynew roads have also been constructed. Withthe construction o the highway that will con-nect Kosovo with Albania on one side andwith Serbia on the other, Kosovo is becom-ing an important gateway in the corridor that will connect the Adriatic Sea with WesternEurope.

Railway

Te railway network in Kosovo has a com-bined length o km. It covers the entireterritory, connecting both the south withnorth and east with west. On the south side aswell as the north side the railway line providesaccess to the international railway network. Te ongoing rehabilitation and modernisa-tion o Kosovo railways provides a solid baseto satisy the growing demand on logisticalservices. Te project or the construction othe new line that will connect the capital oKosovo, Prishtina, to the port o Durres in

Albania is under development.

Air communicationBesides the road and railway network, Kosovohas a modern international airport. With overone million passengers per year, PrishtinaInternational Airport is ranked among themost requented airports o the region, serv-ing several international airlines and oferingights to the most important European cen-tres. Prishtina Internationl Airport has beengiven with concession to the Limak-Airportde Lyon or a period o years, in exchange

or Euro million investments in mod-ernisation and expansion o the Airport. Tisshould help the Prishtina Internation Airportto become a regional hub in the near uture.

Graph 25: Travellingdistances from Prishtinato major regional

centres


32/4832

8Setting up a business

in the country


33/4833

8.1 Business types

Businesses operating in Kosovo must beregistered with the Ministry o rade andIndustrys Business Registration Unit (www.arbk.org).

Registering a business in Kosovo is both sim-ple and inexpensive. Te cost o registrationis Euro or a personal business and Euroor all other business orms.

All business and trade names are listed withthe Registry o Business Organization andrade Names and the basic inormation re-garding registered companies can be trans-parently and reely accessed via the internet.

Six procedures are required to start a

business in Kosovo:

Step 1 Depositing the required capitalminimum

Step 2 Payment of the registration fees tothe commercial registry

Step 3 Application at the Business Registryand issuance of the registrationcertificate

Step 4 Application for municipality licence

Step 5 Obtaining the fiscal number fromthe Kosovo Tax Administration

Step 6 Obtaining the VAT-number from theKosovo Tax Administration

With six steps needed to start a business, Ko-sovo compares well with other countries inSouth East Europe.

8.2 Legal framework

On 17 February 2008 Kosovo declared itsindependence, becoming the latest state toemerge ollowing the disintegration o Yu-

goslavia. Te declaration o independence es-tablished Kosovo as a democratic, secular andmulti-ethnic Republic promoting the rightso all communities. In April the Assem-bly o the Republic o Kosovo adopted thecountrys constitution that entered into orcein June .

Kosovos legal system has been continuouslyre-built since . While other countries inthe region have to undergo the dicult andcomplicated procedure o making more than, laws compatible with European Un-ion regulations, Kosovos legislation is alreadyEU-compatible.

Te legislation in orce in includes:a) Laws and regulations issued by the As-

sembly o the Republic o Kosovob) Te regulations promulgated by the Spe-

cial Representative o the Secretary-Gen-eral during the United Nations InterimsMission in Kosovo;

c) Te law in orce in Kosovo on March

Every law is available also in Englishand can be ound in electronic orm at:www.assemblyokosovo.org

Protection o Foreign InvestmentIn order to put in place certain legal guaran-tees that are necessary to encourage oreigninvestment, in April the Government oKosovo promulgated a Law on Foreign In-vestment (Law No. /L-). According to

this regulation a oreign investor, dened as aphysical person who is not a habitual residento Kosovo or a business or other organization,entity or association established under a juris-diction other than Kosovo, is to be governedby the principle o national treatment, mean-ing that oreign enterprises will be treated noless avourably than similar domestic enter-prises. In particular the right vested to a or-eign investor are: Non-discriminatorytreatment Constantprotectionandsecurity

Compensationincaseofnationalization,expropriation, including payment o in-terest;

Compensationincaseofviolationofapplicable law and international law at-tributable to Kosovo

Freelytransferableandotherwiseinanunrestricted manner used income

Protectionagainstretroactiveapplicationo laws

Public-Private-Partnerships and

Concessions Te Law No. /L- on Public-Private-Partnerships and Concessions provides thelegal ramework or granting public-privatepartnerships and concessions. Te law governsthe rights to utilize and/or exploit publiclyowned inrastructure and/or provide publicservices in all economic and social sectors in-cluding: energy, health, education, transporta-tion, waste, production activities etc.

According to this law a public-private-part-nership and/or concession can be grantedor a maximum o years. Te duration osuch agreement or additional period can beextended but cannot exceed more than one


34/4834

quarter o the initial duration stated in theagreement. Tere is a special unit PartnershipKosovo, within the Ministry o Economy othe Republic o Kosovo, which is responsibileor Public-Private-Partnership. More detailscan be ound at: www.pppkosova.org.

Legal Forms o EnterprisesSimilar to common practices in EU countries,only certain types o business can be regis-

tered in Kosovo. According to the Law onBusiness Organisation (Law No. /L-)these types are: a single person enterprise, ageneral partnership, a limited liability com-pany, a limited partnership and a joint stockcompany. Te characteristics o each type arelisted in the table above.

In accordance with the clauses o the ForeignInvestment Law, oreign companies are per-mitted to engage in any business activity open

to domestic business. Additionally, there is norestriction regarding the share o capital thatoreign entities are allowed to hold. Tereore,oreign entities may establish subsidiary en-terprises and branches in the same mannerand to the same extent as similar domesticbusiness organizations.

Contracts EnorcementLegal procedures concerning the enorce-

ment o contracts are regulated by the Law onContested Procedure (Civil Procedure Law)and the Law on Execution. In general, themunicipal courts have jurisdiction to enorcecontracts, with the exception o matters all-ing within the jurisdiction o the CommercialCourt, which is responsible or enorcement.

rade MarksTe Law on rademarks (Law No. /L-)provides the protection o trademarks andcommercial designations in accordance with

the requirements o international conventionsand the law and practice o the EU and itsmember states.

Any signs, particularly words, including per-sonal names, designs, letters, numerals, au-dio marks, three-dimensional congurations,including the shape o goods or their wrap-ping or other packaging, including colours,or combinations o colours, that are capableo distinguishing the goods or services o oneundertaking rom those o other undertakingsmay be protected as trademarks in Kosovo.

rademarks are to be registered at the Patentand rademark oce. Te proprietor o a reg-

single personenterprise

general partnership limited partnership limited liabilitycompany

joint stockcompany

Start-uprequirements

None General partnership

memorandum

limited partnership

memorandum

Memorandum ofassociation

Memorandum ofassociation

Foundingdocuments

Registration form

Rent contract for

premises

Registration form

General partnership

Memorandum

Rent contract forpremises

Registration form

limited partnership

memorandum


Registration form

Charter


Registration form

Charter


Size Small - one owner Small - two or moreowners

Small- two or moreowners

Middle Large - unlimited

Minimumcapital

None None None 1,000 25,500

Partners None At least 2 At least one generaland one limitedpartner

Regardless Regardless

Liability Full liability Full liability General partner -full liability

Limited liability orfully liable to theextent of unpaidstocks

Limited liability orfull liability to theextent of unpaidstock

Table 5: Characteristicsof business types inKosovo

Graph 26: Enforcingcontracts in days

0 100 200 300 400 500 600 700

Kosovo 420

Montenegro 545

Croatia 561


Serbia 635

Albania 390


35/4835Setting up a business in the country

istered trademark will ater registration haveexclusive rights in relation to the goods or ser-vices covered by the registration. In particularthese rights are:a. to use the trademark;b. to authorize another to use the trade-

mark;

c. to consent to the use o the trademark; ord. to obtain judicial remedy or a violation

o the trademark

Industrial DesignIndustrial Design can be protected in Kosovounder the clauses o the Law on IndustrialDesign (Law No. /L-). Industrial designis protected by the Law up to the point that itis still an innovation, and has a specic char-acter. Te design o a product is considered tobe an innovation i not identical to a design

previously available to the public, and that thedesign has a specic character i the consum-ers impression difers rom the impressionlet by any other design that was previouslyavailable to the public.

Industrial design protection can be obtainedby issuing a decision on the industrial designregistration and the recording thereo in theregister. Application or industrial design reg-istration is to be submitted to the Patent and rademarks Oce. Protection o the indus-

trial design lasts ve years and can be extend-ed to a maximum o years.

PatentsPatent related matters in Kosovo are governedby the Patent Law (No./). Accordingto this law, an invention shall be patentablei it is new, involves a inventive step and isindustrially applicable. Patentable inventionsare protected by patents in accordance withthe provisions o the above mentioned Law.A patent right is granted or the duration o

years.

Te application or a patent is to be submittedto the Patent Oce and shall contain:a. a request or the grant o a patent,b. a description o the invention,c. one or more claims,d. any drawings reerred to in the descrip-

tion or the claims,e. an abstract o the invention.

Standardisation Te certication o products, processing,services, quality and personnel systems, areregulated by the Law on Standardisation (No./L-). Under this Law, the institutionresponsible or the issuing, application anddetermination o standards is the Kosovo

Standardisation Agency (KSA). Standards is-sued byKSA are equally determined and ap-plicable or all legal and physical, domesticand oreign persons that do business withinthe territory o Kosovo.

By implementing standards based on EU andinternational practices, KSA aims to:. increase the level o saety or products

and processes, in the unction o require-ments to protect and improve the qualityo lie, health saety, environment and

consumer protection, by ensuring com-mon rules;

. promote quality o products, processesand diferent services according to de-ned standards;

. ensure rational use o materials and en-ergy and eciency in perormance;

. help to abolish the technical barriers ininternational trade.

8.3 Taxation

Kosovos tax policies are streamlined andecient. Unlike many other countries in theregion, Kosovo has laid out a taxation systemthat is simple and that reduces the tax burdenor individuals and businesses. Compliance isstraightorward and taxes are ew. Further-more, the Government is introducing tax in-centives to support domestic production.

Corporate taxDepending on annual income, domestic legalentities and permanent establishments o or-

eign legal entities are taxed as ollows (LawNr./L- ):

Annual income 0 - 5,000

37.5 / quarter

Annual income 5,001 - 50,000

3-10% of income

Annual income 50,000

10% of profit

Corporate income tax is paid quarterly in ad-vance, based on quarterly net income or protpredictions.


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Value added taxValue added tax (Law Nr./L- ) is ap-plied to all importers and businesses with anannual turnover in excess o , Euro. TeVAT rate stands at percent and is leviedon all goods and services, with exemptionor certain agricultural and capital goods (on

which VAT is zero percent). Exporters receiveull VAT reimbursement or exported goods.

Personal income taxPersonal income tax (Law Nr./L-) ap-plies to natural persons receiving income romKosovo sources and also to oreign incomes,received by Kosovo residents. Te rate o per-sonal income tax depends on annual incomeand ranges rom zero percent to percent.

Annual income

0 - 960

0%

Annual income 960 - 3,000

4% of the amountover 960

Annual income 3,001 - 5,400

81.6 + 8% of theamount over 3,000

Annual income 5,401 - above

273.6 + 10% of theamount over 5,400

Specic tax code on depreciationAccording to article o the Law Nr./L- on Corporate Income ax the amountallowed as a depreciation deduction or the

tax period is to be determined by applying the

ollowing percentages to the capital accountsunder the reducing balance method:(a) Category : Buildings; ve percent ();(b) Category : Vehicles and oce equip-

ment; twenty percent (); and(c) Category : Machinery and heavy trans-

port vehicles; teen percent ()

Property taxesProperty tax was introduced in and iscollected at the local government level byMunicipal administration.

Te Municipal Assembly o each municipal-ity denes tax rates on property on an annualbasis. Te tax rates range between . per-cent and one percent o the market value othe property or each o the ollowing prop-erty categories:

Residentialproperty Commercialproperty Industrialproperty Agriculturalproperty Immovableabandonedpropertyand

uninhabited buildingsAccounting practicesKosovo has a modern nancial reportingsystem based on International AccountingStandards. In , with the UNMIK Regu-lation No./, the Board on Standards

or Financial Reporting was established andto date, accounting standards in conorm-ity with IAS have been issued. According tothis regulation, all business organisations withan annual turnover in excess o , EURor total assets worth in excess o , EURare obliged to prepare our statutory nancialstatements on an annual basis (Balance sheet,income statement, cash ow statement, andchanges in equity, and accompanying notes,along with a tax return). Businesses with aturnover below , EUR are required

only to prepare a tax return.

Te overview o the comparison o the Ko-sovo tax system with its neighbouring coun-tries is shown in the table .

Te Government o Kosovo is currently pre-paring tax incentives and tax breaks or or-eign and local investors. More inormationcan be obtained by contacting the InvestmentPromotion Agency o Kosovo.

Country VAT Corporateprofit tax

Personalincome Tax

Kosovo 16% 10% 0-10%

Macedonia 18% 10% 10%

Serbia 18% 10% 10-20%

Bosnia and Herzegovina 17% 10% 0-10%

Croatia 17% 20% 12-40%

Montenegro 17% 9% 9%

Table 6: Comparison of

Tax Systems in theregion - 2010

Graph 27: Registeringproperty in days

0 20 40 60 80 100 120

Kosovo 33

Montenegro 71

Croatia 104


Albania 42

Serbia 91


37/4837Setting up a business in the country

8.4 Land acquisition and

related matters

Land in Kosovo is categorised as agriculturalor construction land.

Publicly owned land or construction can beacquired or private development, only by the

decision o the municipality and/or Ministryo Environment, or privatisation procedures.In contrast, construction land that is not pub-licly or socially owned can be acquired romprivate individuals. IPAK runs on its web pagean online database o locations and buildingsavailable or oreign investors.

Registering property in Kosovo is both quickand simple. Due to ecient property registersand cadastral systems, the total duration orregistering a property is below the regional

average. A construction licence issued by therespective Municipality is always required orconstruction purposes.

Inormation on the particular Land and/orexisting pledges can be obtained rom theMunicipalities where the property is regis-tered in the municipal register. For details visitwww.komunat-ks.net

Land leasingAccording to the Law on Local Sel Govem-

nment Nr. /L-, the municipalities inKosovo have the right to lease movable andimmovable property. Te lease can be grantedor a term o ten years with an extension op-portunity o up to years.

8.5 Industrial parks

Industrial property in Kosovo can be ac-quired or business purposes in two diferentways. Foreign companies can reely buy landand buildings through the ongoing privatisa-

tion procedures. For inormation on currentprivatisation opportunities contact the Priva-tisation Agency o Kosovo. Investors can alsoreely obtain a lease or land rom the respon-sible municipality or a term o years witha long term extension opportunity (see www.komunat-ks.net or details on municipali-ties across Kosovo).

Industrial ParksTe industrial park initiative was launched bythe Ministry o rade and Industry as a con-crete measure to boost business in Kosovo.

It has been identied that business growth ishindered by a lack o good quality and reliable

amenities. Te concept o the industrial parkis relatively simple, aiming to provide highquality acilities and inrastructure at a com-petitive market price, rom which businesses

can operate efectively and eciently.

In addition to providing a solid base rom which to operate, additional efects such asbusiness clustering may also take place thusacilitating exchange o business knowledgeand transer o know-how, and developingsynergies to urther accelerate business devel-opment and growth.

Te Drenas Industrial Park covers an area o hectares, in which 7 local and oreign

enterprises will be placed. Tree sizes o plotsare available, ,m, ,m and ,m.

Drenas Industrial Park is situated alongsidethe highway connection between Prishtinaand Peja. It lies km away rom the Kosovocapital Prishtina, ve km away rom PrishtinaInternational Airport, seven km rom thenearest railway station and km rom theport in Durres. Businesses that will be locat-ed in this industrial park will thereore havea unique possibility to serve the local mar-

ket rom a very central position. In an areapopulated with one million inhabitants, thelocation can ofer a sucient supply o labourorce. It urther enables investors to enjoy thebureaucracy o a small city and the services oa big city.

In addition, due to the proximity o regionalroads, there is also a possibility to switly ac-cess any neighbouring country by road trans-port within one hour.

Details concerning industrial parks are avail-able rom the SME-Agency, which is a parto the Ministry o rade and Industry o theRepublic o Kosovo (www.sme-ks.org).

Photo: Drenas IndustrialPark


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8.6 Utility costs and

availability

FuelTe uel supply is sucient in all regions oKosovo. Measured at a ratio o one uel sta-

tion per , inhabitants, Kosovo has one othe highest uel station densities in Europe.

Tariffs for fuel

Description EUR/Lit

Diesel 1.24

Petrol 1.24

Prices: March 2011

elecommunication Te telecommunication sector in Kosovo is

dominated by the Post and elecommunica-tions o Kosovo (PTK). Te PTK was incor-porated in and is still a ully state ownedenterprise. It provides various telecommuni-cation services ranging rom post and xedtelephony to mobile telephony and internet.Te PTK will be privatised soon and rep-resents a great investment opportunity orWestern telecom companies.

Te xed network currently consists o, telephone connections. Additionally,

there are pay phones located in public ar-eas as well as 7 in post oces. A secondxed phone licence was issued in to theprivate company and internet provider Ip-koNet.

GSM-services in Kosovo are provided cur-rently by Vala, a subsidiary oPTK, and IPKO, acompany owned by Slovenian elecom, whichhas acquired the second mobile operator li-cense in Kosovo and started operations inlate 7. Vala has over ,, subscrib-

ers, mostly using the pre-paid system, where-as IPKO has gained over , subscriberswithin our years o its establishment.

In addition to the post oces belongingto the PTK, Kosovo has a wide variety o in-

ternational courier service providers operatingin its territory (UPS, TNT, FEDEX, DHL).As a consequence, quick and reliable shippingpossibilities to diferent international destina-tions are available.

Kosovo has our licensed internet-providers

o which three are private (IPKO Net, Kujtesa,VIP rading) and one state owned (DardaNet,a subsidiary oPTK). Te high competition inthis sector, caused in main by the high shareo privately owned businesses, has produceda very wide internet coverage, comprehensiveproduct packages and low prices or internetservices. Te society o internet users is esti-mated to have around . members.

Energy, water and sewageKosovo uses V energy network and the

plug socket system corresponds to the Ger-man standard.

A public water supply system as well as sew-age services are established throughout thecountry. Te cost or energy and water supplycan be taken rom the table below:

Tariffs for Water Supply and Energy

Description Cost EUR

Water Supply 0.32 - 0.76 /m3

Energy 0.046 - 0.084 Euro/kWh

Sewage 0.04 - 0.09/ m3

Prices: March 2011

Tariffs for Fixed telephone, Mobile, Internet

Description Within thenetwork

To other local International

Fixed telephone (PTK) 0.01 From 0.05 From 0.26

Mobile Phone (VALA) 0.02-0.09 From 0.18 From 0.36

Mobile phone (IPKO) 0.05-0.10 From 0.10 From 0.44Fixed telephone (IPKO) 0.001 From 0.05 From 0.10

Prices: March 2011

Table 7: Tariffs for Fixedtelephone, Mobile,Internet


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9Quality

of life


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Hotels: Kosovo has plenty o hotelsspread throughout its territory. Tehotels are usually two to our-star

rated and the prices range rom between and Euro per night. Te most known ho-tels o the capital Prishtina are Hotel Prishti-na, Hotel Baci, Hotel Pejton, Hotel Emerald,

Hotel Aa, Hotel Royal, Hotel Victory andHotel Gorenje. Te newer and more modernhotels usually operate at ull capacity. Bookingprior to travel is thereore advisable.

Money: Te Euro is the ocial currency inKosovo and the majority o payments areusually made in cash. However, many majorshops, restaurants and hotels are equipped with electronic payment devices, thus ena-bling payments to be made with credit cardsand other means o electronic payment.

Tere is no restriction on the amount o cashthat may be imported into Kosovo. However,amounts greater than , Euro must bedeclared at the border.

Communication: Kosovo has a developedtelecommunication system. Tere are pay phones located in the public areas as well7 in the post oces. GSM providers areVala, IPKO, D and Z-Mobile and roam-ing is ofered or the majority o international

telephone service providers. For longer staysin Kosovo the purchase o a local pre-paidnumber is recommended. Prishtina and otherlarger cities have numerous Internet Cas.Some parts o the city are also covered by aWLAN network.

Trafc:rac in Kosovo keeps to the right,and an EU driving licence is sucient. Temajor and smaller roads are to a large extentrehabilitated and ofer good connections toneighbouring countries. Currently Kosovo is

also building a highway that will connect Ko-sovo to Albania to the south side and Serbiato the north. Tere are numerous rental carcompanies and daily charges range rom be-tween and 7 Euro depending on the classo vehicle. Rental car companies with prem-ises at Prishtina Airport are Europcar, Sixt,Auto Shkodra and LTG. For travel in the city, ataxi is recommended (EUR . - or km ride).

Te international green insurance card is stillnot valid in Kosovo. Foreigners travelling bycar must thereore obtain additional insuranceat the Kosovo border crossover. No toll eesare levied or the use o the road network.

Health care: Tere are six regional hospi-tals situated in the major towns o Kosovo.Tese are supported by health houses in eacho the municipalities. Apart rom the Pub-lic Health System there are numerous privatehospitals. Due to the higher quality o theirequipment and sanitation, private health in-

stitutions are more avourable.

Adequately equipped pharmacies may beound in every town throughout Kosovo,some o which are open hours.

Gastronomy: In restaurants, bistros, casand hotels, a good variety o meals and bev-erages are ofered (Balkans, Italian cuisine).Furthermore, there are numerous restaurantslocated in Prishtina and other larger townsofering international cuisine (Tai, Indian,

Chinese, Mexican, etc.). Te sh restaurantsin Vrmic and Istog with their unique troutspecialities are also major attractions.

Groceries: Te supply o groceries is verygood. Smaller shops can be ound at eachstreet corner. Supermarkets with ever-in-creasing assortments are usually located in thesuburbs.

Map material: Tere are several good roadmaps and city plans, available at kiosks and

uel stations.

Cultural attractions:Te cultural heritage inKosovo is very rich, especially in the southand west o Kosovo, including the Dukagjinregion and towns o Peja, Gjakova, and Priz-ren. Te small ortresses such as the AlbanianKullas, mills and bridges, the mosques, theCatholic and Orthodox churches, and theurkish baths, the castles and archaeologicalsettlements, all make up a part o the extraor-dinarily rich history o the region.

Kosovo presents a rich ethno-cultural, mate-rial and spiritual heritage treasure-house ovarious historical periods. With their uniquecharacteristics, eatures, and qualities, eachculture has contributed its diverse values tothe cultural heritage o Kosovo.

In the gurative-applicative establishment(composition) o Kosovo, the inuence oIllyrian, Byzantine, Helen, Roman, West-ern and Eastern, and Ottoman cultures arepresent.

For detailed attractions in Kosovar cit-ies please visit www.kosovoguide.com and

www.visitkosova.org.


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10About Investment Promotion Agency

in Kosovo and its office in Vienna


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Our vision, missionand our services

The Investment Promotion Agency o Ko-sovo was established as an Executive Agencyunder the administration o the Ministry orade and Industry, regulated by the Law onForeign Investments no /L-, article .

In November the Economic Initiativeor Kosova (ECIKS), with nancial supportrom the Austrian Federal Ministry o For-eign Afairs through the Austrian Develop-ment Cooperation, opened the rst ocialrepresentation o Kosovo abroad. Te ViennaOce o the Investment Promotion Agencyo Kosovo provides existing and potential or-eign investors rom German-speaking coun-tries (Austria, Germany, and Switzerland)with ree-o-charge services on a condential

basis.

Vision o support the economic developmento Kosovo by stimulating and acilitatingoreign direct investments which will have adirect impact in reducing unemployment andincreasing the social welare o our citizens.

MissionImprove the image o Kosovo and attractinvestments through a proactive market-

ing cam

Documents

Kosova Investors Guide 2011