Attitude toward Foreign Direct Investment
To the extent that Kosovo has laws impacting foreign investment, they are nascent and untested. The Prime Minister’s Office, Ministry of Trade and Industry (MTI) through its Kosovo Investment Enterprise and Support Agency (KIESA), Ministry of Finance, and the Ministry of Economic Development – actively promote foreign direct investment and welcome expansion of the private sector. However, the lack of government coordination is a hurdle to some projects.
Other Investment Policy Reviews
The World Bank Group has published an “Ease of Doing Business 2016” report for Kosovo. Additionally, in late 2014, the NGO “RIINVEST Institute” and the European Union issued “Business Climate for Kosovo, A Cross Regional Perspective” which identified mid-term opportunities and risks. The report, as well as several other sector-specific reports on investment opportunities, is available in English at: http://www.riinvestinstitute.org/index.php?gjuha=al&action=category&cid=3
As a new country, Kosovo has not undergone any investment policy reviews by OECD, WTO, or UNCTAD.
Laws/Regulations on Foreign Direct Investment
The legal system in Kosovo has three layers of legislation operating simultaneously -- laws enacted by the former Yugoslavia through 1989, regulations issued by the United Nations Interim Administrative Mission in Kosovo (UNMIK) in the aftermath of the NATO military intervention (1999-2008), and laws passed by the Kosovo Assembly since its inception in 2002. With international assistance, Kosovo has been moving towards a legal structure that meets European standards. These efforts are likely to intensify in accordance with the April 1, 2016 entry into force of the EU’s Stabilization and Association Agreement (SAA).
Although the legislative framework for a market-oriented economy is in place, a lack of experience owing to the communist Yugoslavia legacy, poor enforcement, a nascent modern judiciary, and uncertainties regarding legal recognition of foreign arbitral awards, hinder economic growth and investment. To address these challenges, the U.S. Government and the EU have been providing technical assistance aimed at improving Kosovo’s judiciary. Licensed private enforcement agents began assisting enforcement of judicial decisions in 2014; they have had moderate success in executing collections on non-performing loans.
The Law on Foreign Investment, passed by the Assembly in late 2013, further improves the legal infrastructure and helps address inconsistencies in current legislation that unduly discourage foreign investment. All sectors of the Kosovo economy are open to foreign investment. The Kosovo Assembly and UNMIK, which governed Kosovo until 2008 under UN Security Council Resolution 1244, have passed pro-business legislation that specifically seeks to attract foreign investment. Under Kosovo law, foreign firms operating in Kosovo are granted the same privileges as local businesses, with this national security exception: foreign investors may not hold more than 49 percent ownership in a business producing or selling military-related products (Reg. No. 2001/3, Section 6).
In 2011, the government took substantive steps to further open Kosovo to foreign investment through the passage of the Public Private Partnership (PPP) Law, which was harmonized with European Council regulations and EU Acquis Communitaire. The law creates separate definitions for concessions and PPPs, resulting in FDI transactions being structured more flexibly. Certain constraints have been removed, such as limits on the length of investment projects and a provision allowing unsolicited proposals, which could have allowed procurement outside a competitive bidding process. In 2015, the Assembly passed amendments to the Public Procurement Law mandating electronic procurement to improve transparency and reduce the risk of corruption.
In September 2015, amended tax laws intended to improve the business climate entered into force. The laws authorize tax breaks for new investments, and are expected to enter into force in 2016 once the necessary sub-legal acts are in place. The government is also drafting a Strategic Investment Law which would enable fast-track negotiations with strategic investors and bypassing current procurement practices.
The courts are perceived as being influenced by the executive branch. USAID, the U.S. Department of Justice, EU Rule of Law Mission in Kosovo (EULEX), and other international partners have been working to reform the judicial system by assisting the local institutions with court reform and decentralization. In addition, USAID is implementing programs to improve contract enforcement and property rights.
Kosovo’s commercial laws are available to the public in Kosovo’s official languages (Albanian and Serbian), as well as English. They can be found on the Kosovo Assembly's website at: www.assembly-kosova.org/?cid=2,191 and on Official Gazette website at: http://gzk.rks-gov.net/default.aspx.
The Kosovo Business Registration Agency (KBRA) under the Ministry of Trade and Industry registers all new businesses, closes businesses, and modifies business data. The KBRA website is available in English and can be accessed through the following link: http://www.arbk.org/en/. Business registration must be submitted in person at a KBRA center. Application documents and instructions can be downloaded from the website. Successful applicants will receive a business-registration certificate, the business-information document, and a fiscal number. New businesses must register employees for tax and pension programs with the Tax Administration under the Ministry of Finance. Business registration 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.
The Kosovo Investment and Enterprise Support Agency (KIESA) is the official investment promotion agency, providing investment-support services to all potential investors. The KIESA website is available in English and can be accessed at: http://www.invest-ks.org/en/.
Enterprises with up to nine employees are classified as micro enterprises; 10-49 employees are small enterprises; and 50-249 employees are medium enterprises. 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 criteria. Such services include voucher programs for training and advisory services, one-stop-shops for foreign companies to facilitate investment, assistance to female business owners, and provision of business spaces with complete infrastructure at industrial parks at minimal costs.
Kosovo does not yet have a comprehensive industrial policy/investment program. KIESA promotes ICT, agribusiness, tourism, mining, and energy as potential sectors for investment. It does so by publishing information on its website, attending tradeshows and conferences in Kosovo and abroad, and organizing workshops with local and foreign companies.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish and own business enterprises, and engage in all forms of remunerative activity. Kosovo legislation does not interfere with the establishment, acquisition, 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 except in the production and selling of military related-goods, where foreign firms cannot hold more than 49 percent of ownership (Reg. No. 2001/3, Section 6). Foreign investors can receive private ownership rights. Foreign investment is not subject to approval by the government, except when such approval would be required for similar domestic businesses. The following rights also apply:
The U.S. Embassy has heard no reports of sector-specific restrictions. There are no licensing restrictions particular to foreign investors and no mandatory domestic partners for joint ventures.
Since the early 2000s the government has been progressively privatizing the assets of hundreds of former socially-owned enterprises (SOEs) that were a legacy of the communist regime. These “SOEs” are legally distinct from the more commonly-known entities sharing this acronym, “State-owned enterprises”. The Privatization Agency of Kosovo (PAK), an independent agency, is legally mandated to handle the disposition of Kosovo’s SOE assets. As of February 2016, PAK has created a trust fund of over €660 million from the sale of approximately 400 SOEs. The privatization process is open to foreign investors and follows Kosovo’s public procurement procedures. Despite this, bidding processes often have been criticized in the media as non-transparent and illegal. Kosovo’s Law on Publically Owned Enterprises (POEs) was amended in 2015 to give the government authority to transform current socially-owned enterprises to government-controlled “POEs” (e.g. entities that are known in the rest of the world as State-owned enterprises, or SOEs).
Kosovo laws do not require FDI to be screened, reviewed, or approved. However, the lack of predictability in government processes creates uncertainty, allows for abuse and corruption, and permits the politicization (or appearance thereof) for many private investments.
The Law on Competition and Law on Antidumping and Countervailing Measures were adopted in 2010 and amended in 2014. The Competition Authority, established in 2008 and consisting of four members and a chairperson appointed by the Assembly, is in charge of implementing these laws, as well as the Law on Consumer Protection. However, the Authority has been nonfunctional since November 2013 due to the expiration of its members’ mandates and a prolonged delay by the Assembly in appointing new members. In April 2016, the government approved a slate of candidates, who must be approved by the Assembly.