2019 Investment Climate Statements: Kosovo

Policies Towards Foreign Direct Investment

Kosovo seeks more FDI. Kosovo’s laws do not discriminate against foreign investors. The Government – including the Prime Minister’s Office, Ministry of Trade and Industry (MTI) through its Kosovo Investment Enterprise and Support Agency (KIESA), the Ministry of Finance, the Ministry of Economic Development, and the Ministry of Diaspora and Strategic Investments – recognize the importance of FDI to the expansion of the private sector. However, the lack of a single entity empowered and responsible for cataloging investment opportunities and supporting potential investors results in an uncoordinated approach and limits competitiveness with other emerging markets.

KIESA’s mission is to promote and support foreign investments. The agency is tasked with offering a menu of services, including: assistance and advice on starting a business in Kosovo, assistance with applying for a site in a special economic zone or as a business incubator, facilitation of meetings with different state institutions, and participation in business-to-business meetings and conferences.

Limits on Foreign Control and Right to Private Ownership and Establishment

The laws and regulations on establishing and owning business enterprises, and engaging in all forms of remunerative activity apply equally to foreign and domestic private entities. Kosovo legislation does not interfere with the establishment, acquisition, expansion, or sale of interests in enterprises by private entities. Under Kosovo law, foreign firms operating in Kosovo are granted the same privileges as local businesses. Kosovo does not have an investment screening mechanism.

We have no reports of restrictions from U.S. investors. There are no licensing restrictions particular to foreign investors and no requirement for mandatory domestic partners for joint ventures.

Other Investment Policy Reviews

Kosovo is not a member of OECD, WTO, or UNCTAD; there are no investment policy reviews from these organizations. In September 2018 the European Investor Council (EIC), a Pristina-based business association of European investors, launched a “Whitebook 2018” that identifies a collection of barriers to investment and recommendations for improvement. However, this has not been posted online. In February 2017 the Pristina think tank, Group for Legal and Political Studies, published the report, “How ‘friendly’ is Kosovo for Foreign Direct Investments: A Policy Review of Gaps from a Regional Market Perspective”.

Business Facilitation

The government has taken steps to facilitate businesses’ operations. Kosovo moved up 20 spots to 40 on the 2018 World Bank’s Doing Business report, then up to 44 in the 2019 report. This was largely due to Kosovo’s high scores in the categories of ‘ease of registering a business’ and ‘transferring property’. Per the amended Law on Support to Small and Medium Enterprises, KIESA offers support to both domestic and foreign-owned micro, small, and medium enterprises (MSMEs), without any specific eligibility criteria. Such services include voucher programs for training and advisory services, investment facilitation, assistance to women and young business owners, and the provision of business space with complete infrastructure at industrial parks, at minimal cost.

The Kosovo Business Registration Agency (KBRA), part of the Ministry of Trade and Industry, registers all new businesses, business closures, and business modifications. The KBRA website is available in English and can be accessed at www.arbk.rks-gov.net. As of February 2019, business registration can be completed online. Successful applicants will receive a business-registration certificate, business-information document, a fiscal number, and a VAT number. New businesses must register employees for tax and pension programs with the Tax Administration under the Ministry of Finance. Business registration generally takes one day for an individual business and up to three days for joint ventures. A notary is not required when opening a new business unless the business registration also involves transaction of real property.

Outward Investment

Kosovo does not promote or incentivize outward investment. There are no restrictions on investments abroad.

Kosovo is signatory of the Central European Free Trade Agreement (CEFTA) and has finalized negotiations, but has not ratified, a free trade agreement with Turkey. Kosovo has started the accession process for the European Free Trade Association and has expressed interest in signing a cooperation agreement with the United Kingdom in the event it leaves the European Union.

The United States does not have a bilateral investment or a taxation treaty with Kosovo.

Kosovo has signed double-taxation treaties with Luxemburg, Austria, Albania, Switzerland, Slovenia, Turkey, United Arab Emirates, Hungary, Croatia, North Macedonia and the United Kingdom. Older treaties with Hungary, Netherlands, Germany, Finland, and Belgium from the time of the former Yugoslavia are still in effect. Kosovo is currently negotiating or is in the process of ratifying double-taxation treaties with Italy, Luxemburg, Kuwait, and Saudi Arabia.

Transparency of the Regulatory System

The Law on Public Procurement delegates procurement authority to budgetary units (i.e., ministries, municipalities, and independent agencies) except when the government specifically authorizes the Ministry of Finance’s Central Procurement Agency to procure goods and/or services on its behalf. All tenders are advertised in Albanian and Serbian, and for the most important projects, also in English.

The Public Procurement Regulatory Commission (PPRC) oversees and supervises all public procurement and ensures that the Law on Public Procurement is fully implemented. The PPRC publishes contract information on its website (https://e-prokurimi.rks-gov.net/Home/ClanakItemNew.aspx?id=327). The National Audit Office conducts annual procurement audits of the various Kosovo ministries, municipal authorities, and agencies that receive funds from the Kosovo consolidated budget. The Procurement Review Body, an independent administrative body, is responsible for hearing appeals related to government procurement. As of 2019, an e-procurement platform is fully operational all procurements are handled through it, which has greatly enhanced transparency.

The Kosovo Assembly is responsible for rule-making and regulatory actions, while government ministries and agencies draft and authorize secondary legislation (i.e., implementing regulations). Municipal assemblies and mayors have regulatory authority at the local level. The Government of Kosovo is working to align all legal, regulatory, and accounting systems in Kosovo with EU standards and international best practices. Publicly-listed companies are required to comply with international accounting standards.

The Assembly publishes draft laws on its website. The relevant committees also hold public hearings on proposed laws, including investment laws. The 2016 regulation on the Minimum Standards for Public Consultation Process clarifies the standards, principles, and procedures for consultations during the drafting of legislation. Kosovo has developed an online platform for public comments (http://konsultimet.rks-gov.net/) and publishes rules, regulations, and laws in the official Kosovo Gazette (https://gzk.rks-gov.net/) and on the Kosovo Assembly’s website (http://www.kuvendikosoves.org/?cid=2,191). The Ministry of Finance regularly publishes detailed reports on Kosovo’s public finances and debt obligations.

Kosovo’s Better Regulation Strategy 2014-2020 is a government initiative to implement a smart regulatory system with sound implementation and effective communication. The Law on Public Financial Management and Accountability requires a detailed impact assessment of any budgetary implications before new regulations can be implemented.

In spite of the strategy and regulatory requirements, regulations are often passed with little substantive discussion or stakeholder input.

International Regulatory Considerations

Kosovo is a CEFTA member and is pursuing EU integration. Through the Stabilization and Association Agreement (SAA) with the EU, Kosovo is working to harmonize its laws and regulations with EU standards. Kosovo is not a member of the WTO.

As of July 2017, Kosovo is also a signatory of Multi-Annual Action Plan for a Regional Economic Area in the Western Balkans Six. This action plan aims to increase regional integration in the fields of trade, investment policy, labor force mobility, and digitalization.

Legal System and Judicial Independence

In 2016, the Kosovo Assembly amended the constitution to enhance the independence of the judiciary in line with EU requirements. Despite significant reforms and improvements in court efficiency, backlog, and sentencing procedures, the judiciary currently lacks sufficient subject-matter expertise to effectively handle complex economic issues. While complainants have the right to challenge court decisions, regulations, and enforcement actions in the regular court system, as well as the constitutional court, Kosovo’s courts are viewed as politically influenced by the executive branch, with special treatment or “selective justice” for high-profile, well-connected individuals. For example, while Kosovo court conviction rates match regional averages, the rate falls considerably for high-profile corruption cases.

Kosovo’s civil legal system provides for property and contract enforcement. The Department for Economic Matters within the Basic Court of Pristina has jurisdiction for the entire territory of Kosovo economic disputes between both legal and natural persons including reorganization, bankruptcy, and liquidation of economic persons; disputes regarding impingement of competition; and protection of property rights and intellectual property. A similar department within the Court of Appeals holds jurisdiction over “disputes between domestic and foreign economic persons in their commercial affairs” and addresses all appeals coming from the Pristina Basic Court’s Department for Economic Matters. Department for Economic Matters Commercial cases can take anywhere from six months to three years to resolve.

The Law on Enforcement Procedures permits claimants to utilize bailiffs licensed by the Ministry of Justice to execute court-ordered judgments. In addition, the Laws on Arbitration and Mediation have helped to address key impediments to alternative dispute resolution and to enforcing arbitral awards.

Significant legislation overhauling the 2004 Criminal Code and the Criminal Procedure Code, developed by the United Nations Mission in Kosovo (UNMIK), went into force in 2013 and was amended in 2018. This legislation brought Kosovo’s Criminal Law in compliance with the EU Convention on Human Rights, updating definitions and best practices. The Criminal Code contains penalties for tax evasion, bankruptcy, fraud, intellectual property offenses, antitrust, securities fraud, money laundering, and corruption offenses. The Special Department of the Special Prosecutor of the Republic of Kosovo handles high-level cases of corruption, organized crime, terrorism, etc.

Laws and Regulations on Foreign Direct Investment

Foreign firms operating in Kosovo are entitled to the same privileges and treatment as local businesses. Kosovo’s commercial laws are available to the public in English, as well as Kosovo’s official languages (Albanian and Serbian) on the Kosovo Assembly’s website (www.assembly-kosova.org/?cid=2,191) and on the Official Gazette website (http://gzk.rks-gov.net/default.aspx).

Laws of particular relevance include:

• Law on Strategic Investments: authorizes fast-track negotiations between the Government and private companies in targeted sectors and grants the government the option of ceding state-owned real estate for the purpose of developing and executing strategic investment projects.
• The Law on Late Payments in Commercial Transactions: discourages late payments and regulates the calculation of interest on late payments.
• The Law on Bankruptcy: regulates all matters related to the insolvency of business organizations; the provisions for the protection, liquidation and distribution of the assets of a bankrupt debtor to its creditors; and the reorganization and discharge of debt for qualified business organizations.
• The Law on Prevention of Money Laundering and Combating Terrorist Financing: enabled Kosovo to join Egmont Group, an inter-governmental network of 152 Financial Intelligence Units whose members exchange expertise and financial intelligence to combat money laundering and terrorist financing.
• The Credit Guarantee Fund Law: increased access to finance for all micro- and SMEs in Kosovo in an effort to increase employment, boost local production, and improve the trade balance.

Competition and Anti-Trust Laws

There are two main laws that regulate transactions for competition-related concerns: The Law on Protection of Competition and the Law on Antidumping and Countervailing Measures.

The Competition Authority is responsible for implementing the Law on Protection of Competition, but generally lacks the human resources to conduct thorough investigations. The Trade Department of the Ministry of Trade and Industry is responsible for the implementation of the Law on Antidumping and Countervailing Measures. In September 2018, Kosovo Assembly approved the Law on Safeguard Measures on Imports, which allows the Trade Minister to impose a provisional safeguard measure up to 200 days.

From 2016 through April 2019, there were 21 complaints on antidumping, of which MTI investigated five and approved antidumping measures for two.

Expropriation and Compensation

Articles 7 and 8 of the Foreign Investment Law limit expropriation to cases with a clear public interest and protect foreign investments from unreasonable expropriation, guaranteeing due process and timely compensation payment based on fair-market prices. The Law on Expropriation of Immovable Property permits expropriation of private property by the government or municipalities when such action is in the public interest. Articles 5 through 13 of the Law on Expropriation of Immovable Property define expropriation procedures. An eminent domain clause limits legal recourse in cases arising from the expropriation and sale of property through the privatization of state owned enterprises.

There is no history of expropriation outside of uncontroversial, undisputed expropriation for works in the public interest, such as roadway construction.

Dispute Settlement

ICSID Convention and New York Convention

In 2009, Kosovo became a party to the International Center for Settlement of Investment Disputes (ICSID) Convention and has incorporated the Convention into national law.

There is no specific legislation providing for the enforcement of the ICSID Convention, but in accordance with the Law on Foreign Investments, investors may contractually agree to arbitration or other alternative dispute resolution mechanisms. Kosovo is not a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Law.

Investor-State Dispute Settlement

Kosovo’s courts recognize international arbitration awards. There is no history of extrajudicial action against foreign investors.

The Commercial Department of Pristina Basic Court has jurisdiction over investment disputes involving SOEs. There are no records available detailing the frequency with which domestic courts have ruled in SOEs’ favor.

Kosovo is a party to ICSID. Over the past ten years, three foreign investors have brought claims against Kosovo. Kosovo’s state-owned telecom company lost two cases before the London Court of International Arbitration (LCIA), one of which involved a foreign investor. In 2013, the LCIA determined Post & Telecom Kosovo owed an Israeli company USD 9.8 million for breach of contract. In July 2016, the International Court of Arbitration in Paris awarded an Austrian printing company USD 5.6 million for Kosovo’s illegal termination of a contract to manufacture passports. In June 2015, a German company filed a case before ICSID related to the failed privatization of Kosovo’s telecom company, but the arbitration court ruled that it had no jurisdiction over the dispute.

International Commercial Arbitration and Foreign Courts

The Foreign Investment Law stipulates that investors may utilize the following alternative dispute resolution mechanisms:

a) The ICSID Convention if both the foreign investor’s country of citizenship and Kosovo are parties to said convention at the time of the request for arbitration;

b) The ICSID Additional Facility Rules if the jurisdictional requirements for personal immunities per Article 25 of the ICSID Convention are not fulfilled at the time of the request for arbitration;

c) The United Nations Commission on International Trade Law (UNCITRAL) Rules. In this case, the appointing authority would be the Secretary General of ICSID; or

d) The International Chamber of Commerce Rules.

Arbitration services are available at arbitral tribunals within the Kosovo Chamber of Commerce and American Chamber of Commerce in Kosovo. Kosovo’s Arbitration Rules are based on model rules derived from the 2010 United Nations Commission on International Trade Law (UNCITRAL) Model Rules for Commercial Arbitration and are consistent with international best practices. The Law on Foreign Investment favors the use of arbitration. To utilize this option, the law requires that the disputed agreement/contract include an arbitration clause.

Foreign arbitral awards and judgments are enforceable in Kosovo. Recognition and enforcement of foreign arbitral awards is more efficient than recognition and enforcement of judgements and recognition and enforcement of arbitral awards is limited. There has been no case of voluntary compliance by the Government of Kosovo or other public entities with arbitral awards; all of the cases have gone through some form of judicial process.

Additionally, in accordance with the Law on Mediation, Kosovo courts recognize mediation centers and one is operated by the American Chamber of Commerce in Kosovo. The Ministry of Justice has adopted the rules leading to the creation of mediation services and has trained and certified a number of mediators. For more information, visit http://www.kosovo-arbitration.com.

Bankruptcy Regulations

The Law on Bankruptcy regulates bankruptcy and insolvency procedures and specifies provisions for the protection, liquidation, and distribution of the assets of a bankrupt debtor to its creditors and the reorganization and discharge of debt for qualified business organizations. Under the law, foreign creditors have the same rights as domestic investors and creditors when launching and participating in bankruptcy proceedings.

In early 2006, Kosovo created a credit registry. The Central Bank of Kosovo manages it. It serves as a database for customers’ credit history and aims to help commercial banks and non-banking institutions assess customers’ creditworthiness. Banks and non-banking institutions are required to report to Credit Registry of Kosovo, and only authorized banking and non-banking institution personnel can access it. In addition to the Credit Registry of Kosovo, the Ministry of Trade and Industry offers a Pledge Registry Sector, a mechanism that records data for collateral pledges.

Investment Incentives

Kosovo’s flat corporate tax of 10 percent helps attract FDI. The Law on Strategic Investment allows the government to make available state-owned immovable property for the purposes of developing and executing strategic investment projects, as well as to support access to basic infrastructure. To encourage investment, the government can grant certain VAT-related privileges, such as a six-month VAT deferment upon presentation of a bank guarantee for companies importing capital goods. Suppliers may export goods and services without being required to collect VAT from foreign buyers. Suppliers may claim credit for taxes on inputs by offsetting those taxes against gross VAT liabilities or claiming a refund. The government can issue guarantees or jointly finance foreign direct investment projects, but has not yet done so.

The Customs agency has enacted an administrative instruction that reduces the number of documents required for export and import. Only two documents are needed to export (a commercial invoice and a customs export declaration) and only three are now required to import (a commercial invoice, a customs import declaration, and a certificate of origin).

Foreign Trade Zones/Free Ports/Trade Facilitation

The Kosovo Customs and Excise Code is compliant with EU and World Customs Organization standards, and addresses topics such as bonded warehouses, inward and outward processing, transit of goods, and free-trade zones. In addition to imported goods, some domestically-produced goods from designated industries can be stored in bonded warehouses when these goods meet export criteria. Foreign firms are permitted to import production inputs for the manufacture of export goods without paying taxes or customs duties.

The Customs Code permits the establishment of zones for manufacturing and export purposes, and the Law on Economic Zones regulates their establishment. In 2014, Kosovo established three economic zones in the municipalities of Mitrovica/e, Gjakovë/Djakovica, and Prizren. Currently only the economic zone of Mitrovica/e has completed the legal and administrative procedures for building infrastructure. Three business parks and one business incubator are operational.

Kosovo announced its intention to establish an American Special Economic Zone in January 2018, but operational details are still undetermined.

Performance and Data Localization Requirements

Kosovo does not specify performance requirements as a condition for establishing, maintaining, or expanding investments in Kosovo. There are no onerous requirements that would inhibit the mobility of foreign investors or their staff. There are no conditions on permissions to invest, and the government does not mandate local employment. Investment incentives apply uniformly to both domestic and foreign investors, on a case-by-case basis.

Depending on the tender, Kosovo may require foreign IT providers to turn over source code and/or provide access to surveillance. Kosovo does not yet have standard rules on data transmission or storage. The Agency for Information Society is responsible for the storage of data for the central government, and other institutions store their respective data as well.

Real Property

Generally, Kosovo’s de jure property-related laws are well structured and provide for security and transferability of rights. The country’s legal and regulatory framework is complex. Government ministries, municipal authorities, and independent agencies jurisdictions often overlap, and the court system is backlogged with property-related cases. Property rights and interests are enforced, but weaknesses in the legal system and the difficult of establishing title to real estate can make enforcement difficult. Kosovo has mortgages and liens but the range of financial products for both is currently limited. Mortgage agreements must be registered in cadastral records by the Kosovo Cadastral Agency, while pledge agreements must be registered with the pledge registry, which is a centralized registry office in the Business Registration Agency. The World Bank’s 2019 Doing Business Report ranked Kosovo 37 out of 190 economies for ease of registering property. The report noted Kosovo made transferring property easier in 2014 by introducing a new notary system and combining procedures for drafting and legalizing sale and purchase agreements.

The Kosovo Property Comparison and Verification Agency (KPCVA) is responsible for receiving, registering, and resolving property claims on private immovable property, including agricultural and commercial property. Decisions of the Kosovo Property Claims Commission within the KPCVA are subject to a right of appeal to the Supreme Court. The KPCVA has received 42,749 total claims, the vast majority of which relate to agricultural property. The KPCVA holds the mandate for implementing decisions of the Housing and Property Claims Commission (HPCC) that are pending enforcement.

Resolution of residential, agricultural, and commercial property claims remains a serious and contentious issue in Kosovo and limit the development of the formal property market needed for more stable economic growth. Many property records were destroyed or removed to Serbia by the Serbian government during the 1998-1999 conflict, which can make determining rightful ownership difficult. The country is in the process of rebuilding the property registry and an EU-facilitated Kosovo-Serbia dialogue includes a component focused on restoring the cadastral records taken from Kosovo.

While Article 121.2 of the Constitution states foreign nationals and organizations may acquire ownership rights over real estate in accordance with conditions established by law or international agreement, Kosovo has no specific legislation establishing relevant conditions. In early 2017, Kosovo launched the national strategy on land and property rights reform, which includes a provision to clarify and codify regulations regarding property ownership by foreign and/or non-resident investors. Per Article 40 in the Law on Property and Other Real Rights, a proprietary possessor acquires ownership of immovable property after ten years of uninterrupted and uncontested possession.

Intellectual Property Rights

Registration of intellectual property rights (IPR) conforms with regional and international practices. A trademark registration process takes approximately nine months, while patent approval takes about 18 months.

Public awareness of the importance of brand protection and associated IPR is low. A number of counterfeit consumer goods, notably CDs, DVDs, and clothing items, are available for sale and are openly traded. Evidence suggests there is little domestic production of counterfeit goods in Kosovo, but the importation of counterfeit goods, especially apparel, is a concern. The government tracks and reports on seizures of counterfeit goods.

IPR protections are improving slowly. The Law on Patents, Law on Trademarks, Law on Industrial Design, and Law on Geographical Indices, together with the relevant Criminal Code and Customs provisions, provide for strong protection of IPR; authorize enforcement of trademark, copyright, and patent laws; and comply with related international conventions. The IPR laws were amended in 2015 to strengthen legal remedies for right holders and to further align them with the EU standards. The Ministry of Trade and Investment established the Industrial Property Rights Office (IPO) in 2007, which is tasked with IPR protection. In 2018, the Assembly approved the Law on Customs Measures for Protection of Intellectual Property Rights in order to harmonize it with EU regulations. These laws adhere to international treaties and conventions, including the Paris Convention, Madrid Protocol, Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement, Budapest Treaty, and several European Council Directives on protection of IPR.

To enhance IPR enforcement and increase interagency coordination, the government has adopted an IPR strategy and established the National Intellectual Property Council and a Task Force Against Piracy. The Council and the Task Force have similar structures and are comprised of the IPO, the Copyright Office, Customs, Kosovo Police Departments for Economic and Cyber Crimes, Market Inspectorate, and the Ministry of Justice. The Council also includes the Kosovo Prosecutorial Council, courts, and other government and non-governmental institutions.

Kosovo is not listed in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List. Kosovo is not a member of the World Intellectual Property Organization (WIPO), and there is no WIPO country profile for Kosovo.

Capital Markets and Portfolio Investment

Kosovo has an open-market economy and the market determines interest rates. Individual banks conduct risk analysis and determine credit allocation. Foreign and domestic investors can get credit on the local market. Access to credit for the private sector is limited, but improving.

The country generally has a positive attitude towards foreign portfolio investment. Kosovo does not have a stock exchange. The regulatory system conforms with EU directives and international standards. There are no restrictions beyond normal regulatory requirements related to capital sourcing, fit, and properness of the investors. The CBK has taken all required measures to improve policies for the free flow of financial resources. Requirements under the SAA with the EU oblige the free flow of capital. The government respects the IMF’s Article VIII conditions on the flow of capital.

Money and Banking System

Kosovo has 10 commercial banks (of which 8 are foreign) and 22 micro-financial institutions (of which 14 are foreign). The official currency of Kosovo is the euro, although the country is not a member of the Eurozone. In the absence of an independent monetary policy, prices are highly responsive to market trends in the larger Eurozone.

Kosovo’s private banking sector remains well capitalized and profitable. Difficult economic conditions, weak contract enforcement, and a risk-averse posture have limited banks’ lending activities, although marked improvement occurred in the past several years. On February 2019, the rate of non-performing loans was 2.6 percent, the lowest rate in the last ten years. The three largest banks own 57.5 percent of the total 4.2 billion euros of assets in the entire banking sector. Despite positive trends, relatively little lending is directed toward long-term investment activities. Interest rates have dropped significantly in recent years, from an average of about 12.7 percent in 2012 to an average of 6.7 percent in 2019. Slower lending is notable in the northern part of Kosovo due to a weak judiciary, informal business activities, and fewer qualified borrowers.

The Central Bank of Kosovo (CBK) (established in 2008 is an independent government body responsible for fostering the development of competitive, sound, and transparent practices in the banking and financial sectors. It supervises and regulates Kosovo’s banking sector, insurance industry, pension funds, and micro-finance institutions. The CBK also performs other standard central bank tasks, including cash management, transfers, clearing, management of funds deposited by the Ministry of Finance and other public institutions, collection of financial data, and management of a credit register.

Foreign banks and branches can establish operations in the country. They are subject to the same licensing requirements and regulations as local banks. The country has not lost any correspondent banking relationships in the past three years and no such relationship is currently in jeopardy. There are no restrictions on foreigners opening bank accounts; they can do so upon submission of valid identification documentation.

Kosovo is a signatory country to the United States’ Foreign Account Tax Compliance Act (FATCA), aimed at addressing tax evasion by U.S. citizens or permanent residents with foreign bank accounts. For more information, visit the FATCA website: https://www.irs.gov/Businesses/Corporations/Foreign-Account-Tax-Compliance-Act-FATCA.

Foreign Exchange and Remittances

Foreign Exchange

The Foreign Investment Law guarantees the unrestricted use of income from foreign investment following payment of taxes and other liabilities. This guarantee includes the right to transfer funds to other foreign markets or foreign-currency conversions, which must be processed in accordance with EU banking procedures. Conversions are made at the market rate of exchange. Foreign investors are permitted to open bank accounts in any currency. Kosovo adopted the euro in 2002, but is not a Eurozone member. The CBK administers euro exchange rates on a daily basis as referenced by the European Central Bank.

Remittance Policies

Remittances are a significant source of income for Kosovo’s population, representing over 12 percent of GDP (or over USD 900 million) in 2018. The majority of remittances come from Kosovo’s diaspora in European countries, particularly Germany and Switzerland. The Central Bank reports that remittances are mainly used for personal consumption, not for investment purposes.

Kosovo does not apply any type of capital controls or limitations on international capital flows. As such, access to foreign exchange for investment remittances is fully liberalized.

Sovereign Wealth Funds

Kosovo does not have any sovereign wealth funds.

Kosovo has 63 state-owned enterprises (SOEs), 44 of which are municipality managed. These enterprises are a legacy of the Yugoslav era and are concentrated in waste management, water supply, and transportation. Kosovo’s 17 largest SOEs hold total assets of USD 378 million and employ over 11,000 people. SOEs are generally governed by government-appointed boards. The Ministry of Economic Development monitors SOE operations with a light hand.

Private companies can compete with SOEs in terms of market share and other incentives in relevant sectors. There are no state-owned banks, development banks, or sovereign funds in Kosovo. State-owned enterprises are subject to the same tax laws as private companies.

The majority of Kosovo’s SOEs operate at a loss and depend on government subsidies for their survival. SOEs do not receive a larger percentage of government contracts in sectors that are open to foreign competition. However, the government interprets procurement law in a way that considers SOEs to be public authorities and prevents contracting authorities from procuring goods from other sources if SOEs offer such goods and/or services. SOEs purchase goods and services from the private sector, including international firms.

Privatization Program

Kosovo has been progressively privatizing SOE assets since the early 2000s. The Privatization Agency of Kosovo (PAK), an independent agency, is responsible for the disposition of Kosovo’s SOE assets. PAK plans to finalize all remaining privatizations over the next three to four years, pending legal challenges. There has been a freeze on privatization of land assets since December 2017. The privatization process is open to foreign investors and follows Kosovo’s public procurement procedures. PAK provides a live feed of bidding day procedures on its website (www.pak-ks.org). The website also includes bidding information, the results of sales, and other information.

Kosovo adopted the Law on Strategic Investment in 2016 in an effort to boost foreign direct investment. Through the law, the government can transfer ownership of lands under administration of PAK the state and offer it to strategic investors. The law also enables Kosovo to negotiate directly with potential strategic investors without going through tendering procedures in special cases. The media has criticized some bidding processes as non-transparent and illegal.

Spurred in large part by the growing number of foreign investors, the topic of RBC has begun to surface in public discussions. The American Chamber of Commerce, Kosovo CSR Network, and other entities engaged in RBC are able to advocate and monitor freely. The government generally does not promote or encourage RBC and does not factor RBC principles into procurement decisions. In most cases, tenders are awarded to the economic operator with the lowest price offer and highest technical score.

There have not been any major cases of negative corporate impact on human rights in Kosovo. There are occasional complaints and media reports that the health of citizens in the area near the power plant in Obiliq/Obilič is being endangered due to high levels of lignite coal pollution. As a result of those concerns, the Kosovo Assembly approved a 2016 Law on Environmentally Endangered Zone of Obiliq/Obilič and its Surroundings, which returns 20 percent of any royalties collected in the area to the municipality.

Companies are not required to make a public disclosure of policies, procedures, or practices unless registered as a joint stock company, in which case there are added responsibilities for the disclosure of policies, procedures, and practices related to financial reporting and auditing.

Implementation of the Law on Consumer Protection is limited. The government has not undertaken any significant action to raise awareness of consumer rights. The government does not promote the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas. Kosovo does not participate in the Extractive Industries Transparency Initiative (EITI). There are no domestic transparency measures requiring the disclosure of payments made to governments for projects related to the commercial development of oil, natural gas, or minerals.

Opinion polls attest to the public perception that corruption is widespread in public procurement and local and international businesses regularly cite corruption as one of Kosovo’s largest obstacles to attracting investment.

Kosovo has enacted strong legislation to combat corruption, but the government has thus far been unsuccessful in efforts to investigate, prosecute, jail, and confiscate the assets of corrupt individuals. The Anti-Corruption Agency and the Office of Auditor General are the government agencies mandated to fight corruption. The Law on Prevention of Conflict of Interest and Discharge in Public Function as well as the Law on Declaration, Origin, and Control of Property of Public Officials are intended to combat nepotism. They require senior public officials and their family members to disclose their property and its origins. The Criminal Code also punishes bribery and corruption.

The government has recently enacted measures to address corruption including a requirement to conduct all public procurement electronically and to publish the names of contract winners.

The Embassy is unaware of any government activity to encourage private companies to establish internal codes of conduct. The embassy is also unaware of local industry or non-profit groups that offer services for vetting potential local investment partners.

In 2016, the Kosovo Assembly approved amendments to the Law on Anti-Money Laundering. The EU-compliant law supported Kosovo’s membership in the Egmont Group, a network of 152 Financial Intelligent Units (FIU) where the members exchange expertise to combat money laundering and terrorist financing. Laundering is believed to be most common in the real estate, construction, and gambling sectors. Kosovo’s FIU is an independent governmental agency that leads Kosovo’s efforts to investigate economic crimes.

U.S. companies operating in Kosovo must adhere to FCPA requirements. Kosovo participated in 2013 as an observer member in the anti-corruption conference organized by the United Nations Convention Against Corruption (UNCAC), and has attended several international conferences on anti-corruption with the support of the Council of Europe and UNDP. Kosovo’s laws protect NGOs that investigate corruption.

Resources to Report Corruption

Shaip Havolli
Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+381 38 518 980
Email: shaip.havolli@rks-gov.net

Hilmi Jashari
OMBUDSMAN
The Republic of Kosovo OMBUDSPERSON Institution
Str. “MIGJENI”, no. 21, Pristina, Kosovo
Email: hilmi.Jashari@oik-rks.org
+383 (0) 38 223 782

Ismet Kryeziu
Executive Director
Kosovo Democratic Institute
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
ikryeziu@kdi-kosova.org

Jeta Xharra
Executive Director
Balkan Investigative Reporting Network Kosovo
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+ 381 38 22 44 98
Email: jeta@birn.eu.com

In May 2017, a vote of no confidence heralded the fall of the existing administration. Following elections in June 2017, a new government was formed in September 2017 with a one-vote majority (61 out of 120) in the Assembly. The government lost its majority in the Assembly in October 2018 and at present the government finds it increasingly difficult to pass legislation through the Assembly.

In November 2018, Kosovo imposed a tariff of 10 percent on goods originating in Serbia and Bosnia and Herzegovina as a response to Serbia’s lobbying against Kosovo’s membership in INTERPOL and de-recognition campaign. Kosovo increased the tariff to 100 percent two weeks later, essentially embargoing trade between the two countries. The tariff has become a point of contention between the Kosovo political elite and has overshadowed other political and economic developments elsewhere.

Opposition members in the Kosovo Assembly released teargas on March 21, 2018 in protest of the final vote for border demarcation with Montenegro. The voting session was interrupted on four separate occasions when some MPs released tear gas inside the chamber. In August 2016, the Assembly building was hit by a rocket-propelled grenade. Opposition party members were tried for the attack, but a conviction was overturned in November 2017 and is pending a retrial. There were no serious injuries reported from these incidents.

While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.

According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s 1.8 million population is of working age (15-64). The official unemployment rate is 29.6 percent, with youth unemployment as high as 55 percent. There are no reliable statistics on Kosovo’s informal economy, but a recent EU-commissioned estimated the informal and black market at 31 percent of GDP. Informal businesses dominate in the agriculture, construction, and retail sectors.

Kosovo’s Law on Labor requires employers to observe employee protections, including a 40-hour work week, payment of overtime, adherence to occupational health and safety standards, respect for annual leave benefits, and up to a year of maternity leave (six months of employer paid leave at a reduced rate, followed by three months of government paid leave and three months of unpaid leave). The Labor Law distinguishes between layoffs and firings, and mandates severance payments only for laid off workers (when at least 10 percent of employees are dismissed collectively). The government is in the process of changing the Law on Labor to make it more business friendly and discourage gender discrimination.

The law also establishes a monthly minimum wage, which the government set in 2011 at USD 146 (€130) for employees under 35 and USD 191 (€170) for those over 35 years of age. Kosovo has no unemployment insurance or any other safety net programs for workers laid off for economic reasons.

Private-sector employers often do not provide contracts to their employees and pay them in cash. In the public sector, employers sometime hire employees as contract workers and enroll them in the regular payroll when the budget for salaries becomes available.

The Labor Law has no nationality requirement. Labor laws are not waived for investment purposes. There are no additional or different labor laws for special economic zones or free zones.

Labor unions are independent by law, but in practice, many of them are closely associated with political parties. A collective bargaining agreement between the government, labor unions, and private sector representatives was signed in 2014 and has been partially implemented. Kosovo’s Statistical Agency and the Ministry of Labor and Social Welfare do not collect specific data on implementation. Public-sector employees – including doctors, teachers, and judges – sporadically go on strike to demand implementation of the entire agreement, better working conditions, or higher wages. In January 2019, education and health workers went on a month-long strike demanding higher wages, only stopping the strike after the Kosovo Assembly approve the Law on Wages, which granted some of their demands. Strikes and protests in the private sector are almost inexistent. Local courts formally adjudicate labor disputes.

The Ministry of Labor and Social Welfare established a compliance office with the authority to inspect employer adherence to labor laws. The International Labor Organization office in the country is project-focused and does not serve as a government advisor on labor legislation or international labor standards. The Labor Inspectorate suffers from inadequate staffing and a limited budget; with 40 inspectors conducting inspections in 38 municipalities, the Inspectorate cannot meet all the inspection needs of the labor market. The Inspectorate issues fines and penalties depending on the extent of the violation of labor legislation. The Labor Inspectorate and the judicial system investigate and prosecute labor practice violations. Municipal social work centers at the Ministry of Labor and Social Welfare investigate and report on child labor issues, while the Labor Inspectorate inspects violations of child labor practices for children aged 15-18 years.

Kosovo’s education system has been criticized for not sufficiently linking its curriculum to the needs of Kosovo’s business community. Kosovo’s large, young labor force often remains idle due to mismatches between applicant skills and employer needs.

The U.S. Overseas Private Investment Corporation (OPIC) has been active in Kosovo since 2000. OPIC provides financing, political risk insurance, and other investment vehicles to U.S. investors. In June 2009, OPIC signed an investment agreement with Kosovo which streamlines OPIC’s ability to support U.S. investments. OPIC is currently considering partial financing for Kosova e Re Power Plant, one of the biggest projects in Kosovo’s history. Kosovo is also a member of the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA), the International Monetary Fund (IMF), and the European Bank for Reconstruction and Development (EBRD).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

* Source for Host Country Data: Central Bank of Kosovo

Table 3: Sources and Destination of FDI

Data from the CBK is generally consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in both categories differ slightly. According to the CBK, total inward direct investment was USD 3,520 million and total outward direct investment was USD 299 million in 2017.

Table 4: Sources of Portfolio Investment

Data from the CBK is generally consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in both categories differ slightly. According to the CBK, total inward direct investment was USD 3,520 million and total outward direct investment was USD 299 million in 2017.

Data from the CBK is consistent with the IMF data in terms of ranking of the top five partners in each column of the table, but amounts for each country in each category differ. According to the CBK, total portfolio investment assets for 2017 were USD 2.14 billion, with total equity securities USD 1.67 billion, and total debt securities of USD 473 million.

Dren Pozhegu
Economic Advisor
U.S. Embassy Pristina
Nazim Hikmet 30
Pristina, Kosovo
+383 38 5959 3183
Email: PozheguDM@state.gov