Despite being one of Europe’s youngest and poorest countries, Kosovo has recorded positive economic growth rates, averaging almost four percent, during the last decade. Kosovo has potential to attract foreign direct investment, but that potential is constrained by failure to address several serious structural issues including: limited regional and global economic integration; political instability and interference in the economy; corruption; an unreliable energy supply; a large informal sector; difficulty establishing property rights, and tenuous rule of law, including a glaring lack of contract enforcement. The country’s ability to sustain growth relies significantly on international financial support and remittances.
The COVID-19 pandemic is unlikely to lead to significant permanent changes in investment policies. As of April 2020, the government had enacted several emergency relief measures that did not require legislative changes. These measures are all temporary and focused on maintaining employment levels and helping businesses maintain liquidity. As such, they do not affect the broader investment policy environment. The government also announced a package of economic recovery measures, but as of April 2020, it was still working on finalizing the package.
Many international financial institutions have forecasted economic growth rates in Kosovo to fall from a pre-pandemic projection of four percent positive growth to a post-pandemic contraction of up to five percent. This includes the IMF (-5 percent), World Bank (-4.5 percent) and European Bank for Reconstruction and Development (-4.5 percent).
In 2019, net flow of foreign direct investment (FDI) in Kosovo was estimated at USD 292 million, close to the 10-year annual average of USD 296 million. The stock of portfolio investment in 2019 totaled USD 2.05 billion, with equity securities of USD 1.67 billion, and debt securities of USD 385 million. Real estate and leasing activities are the largest beneficiaries of FDI, followed by financial services and energy. The food, IT, infrastructure, and energy sectors are growing and are likely to attract new FDI.
Though justice sector remains weak in implementation, Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment. Kosovo has a flat corporate tax of 10 percent. In 2016, Kosovo ratified a strategic investment law intended to ease market access for investors in key sectors, and the government partnered with USAID and other international donors to launch the Kosovo Credit Guarantee Fund, which improves access to credit. With USAID assistance, the Government of Kosovo continued a series of business environment reforms which contributed to improving Kosovo’s ranking and score in the World Bank Doing Business Report over the years. In the 2020 Doing Business Report, Kosovo ranked 57 out of 190 economics surveyed and was recognized as one of the top 20 most improved economies in the world.
Property rights and interests are enforced, but weaknesses in the legal system and difficulties associated with establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, can make enforcement difficult. Kosovo has a good legal framework for protecting intellectual property rights (IPR), but enforcement remains weak, largely due to lack of resources. While IPR theft occurs in Kosovo, it is not widespread.
All legal, regulatory, and accounting systems in Kosovo are modeled on EU standards and international best practices. Publicly-listed companies are required to comply with international accounting standards. Investors should note that despite regulatory requirements for public consultation and establishment of an online platform for public comments (http://konsultimet.rks-gov.net), some business groups complain that regulations are passed with little substantive discussion or stakeholder input.
Recently, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. (For example, the current government, formed in February 2020 collapsed 50 days later and has been in caretaker status since). While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.
The public consistently ranks Kosovo’s high unemployment rate (officially 25.7 percent in 2019) as among its greatest concerns. Unemployment levels for first-time job seekers and women are considerably higher than the official rate. Many experts cite a skills gap and high reservation wage as significant contributing factors.
Despite the challenges, Kosovo has attracted a number of significant investors including several international firms and U.S. franchises. Some investors have been attracted to Kosovo’s relatively young population, low labor costs, relative proximity to the EU market, and natural resources. Kosovo does provide preferential access to the EU market through a Stabilization and Association Agreement (SAA).
Kosovo welcomes FDI. Kosovo’s laws do not discriminate against foreign investors. The current caretaker government (as the government before it) – including the Prime Minister’s Office; Ministry of Economy, Employment, Trade, Industry, Entrepreneurship, and Strategic Investments (MEETIESI); and the Ministry of Finance and Transfers – recognizes the importance of FDI to the expansion of the private sector.
Kosovo Investment Enterprise and Support Agency’s (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 heard 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.
The government has taken steps to remove barriers to facilitate businesses’ operations and improve related government services With USAID’s assistance, the Government of Kosovo continued a series of business climate reforms which contributed to Kosovo’s improved ranking in the World Bank Doing Business Index over the years. Kosovo currently ranks 57 out of 190 economics surveyed and was recognized as one of the top 20 most improved economies in the world. 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 Economy, Employment, Trade, Industry, Entrepreneurship, and Strategic Investments, registers all new businesses, business closures, and business modifications. The KBRA website is available in English and can be accessed at arbk.rks-gov.net. As of April 2020, some steps in the registration process can be completed online. Successful registrants will receive a business-registration certificate, 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 and Transfers. 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 a transfer of real property.
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 a Stabilisation and Association Agreement (SAA) with the European Union that serves among other things as a free trade agreement. Kosovo has also signed a trade and cooperation agreement with United Kingdom and a free trade agreement with Turkey. Kosovo has started the accession process for the European Free Trade Association.
Businesses and the government have often complained about non-tariff barriers in trading with other CEFTA countries and the inability of CEFTA dispute mechanisms to resolve them. Resolving these disputes bilaterally has proven difficult given that three out of seven CEFTA countries do not recognize Kosovo’s statehood.
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, Saudi Arabia, and Malta. Older treaties with Hungary, Netherlands, Germany, Finland, and Belgium from the time of the former Yugoslavia are also still in effect.
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. As of 2019, an e-procurement platform is fully operational; all procurements are handled through it, which has greatly enhanced transparency. The PPRC publishes contract award 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.
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 (http://www.kuvendikosoves.org/shq/projektligjet-dhe-ligjet/). 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’s Better Regulation Strategy 2014-2020 is a government initiative to implement a smart regulatory system with sound implementation and effective communication. 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. The Law on Public Financial Management and Accountability requires a detailed impact assessment of any budgetary implications before new regulations can be implemented. The Ministry of Finance regularly publishes detailed reports on Kosovo’s public finances and debt obligations.
In spite of the strategy and regulatory requirements, some businesses and business associations complain that regulations are passed with little substantive discussion or stakeholder input.
International Regulatory Considerations
Kosovo is a CEFTA member and is pursuing EU integration. Through its 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.
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 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. While Kosovo court conviction rates generally match regional averages, the rate falls considerably when filtered for high-profile corruption cases.
Significant legislation overhauling the 2004 Criminal Code and the Criminal Procedure Code, amended in 2018, 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 rights 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.
Kosovo’s civil legal system provides for property and contract enforcement. The Department for Economic Matters within the Basic Court of Pristina has jurisdiction over 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 rights across the entire territory of Kosovo. 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 impediments to alternative dispute resolution and to enforcing arbitral awards.
Law on Foreign Investment: provides a set of fundamental rights and guarantees to ensure protection and fair treatment treated in strict accordance with the accepted international standards and practices.
Law on Business Organizations: regulates the registration and closure of a company and the rights and obligations of shareholders, authorized representatives, and others included in the business management structure.
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.
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.
ICSID Convention and New York Convention
In 2009, Kosovo became a party to the International Centre 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.
Over the past ten years, three foreign investors have brought publicly-known 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 brought a case before ICSID related to the failed privatization of Kosovo’s telecom company; the arbitral tribunal 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:
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;
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;
The United Nations Commission on International Trade Law (UNCITRAL) Rules. In this case, the appointing authority would be the Secretary General of ICSID; or
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. There has been no instance of voluntary compliance by the Government of Kosovo or other public entities with arbitral awards; all known cases have involved 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.
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 managed by the Central Bank of Kosovo. 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 the Credit Registry of Kosovo, but 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.
Kosovo has established a flat corporate tax of 10 percent. 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.
Property rights and interests are enforced, but weaknesses in the legal system and difficulties related to establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, can make enforcement difficult. Minority communities, in particular, are frequently unable to fully exercise their property rights. The country’s legal and regulatory framework is complex, but generally, Kosovo’s de jure property-related laws are well structured and provide for security and transferability of rights. The World Bank’s 2020 Doing Business Index ranked Kosovo 37 out of 190 economies for ease of registering property. Government ministries, municipal authorities, and independent agencies jurisdictions often overlap, and the court system is backlogged with property-related cases. Mortgages and liens are available, but the range of financial products is 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 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 related to the 1998-1999 conflict and post-conflict period. 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. Current KPCVA leadership is generally perceived to be unqualified and corrupt.
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 comparing the cadastral records with the records taken by Serbia and resolving any gaps, predicated on Serbian returning the cadastral records to Kosovo. The KPCVA is charged with carrying out the task of property comparison and verification.
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) in Kosovo conforms with regional and international practices. The trademark registration process takes approximately nine months, while patent approval takes about 18 months.
Public awareness of the importance 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.
The Ministry of Trade and Investment established the Industrial Property Rights Office (IPO) in 2007, which is tasked with IPR protection. Kosovo’s IPR laws were amended in 2015 to align them with EU standards and strengthen legal remedies for right holders. Kosovo’s 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 and comply with related international conventions even though Kosovo is not party to the associated international organizations. Examples of these conventions include the Paris Convention, the Budapest Treaty, the Madrid Protocol, and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). In 2018, the Assembly approved the Law on Customs Measures for Protection of Intellectual Property Rights in order to harmonize Kosovo law with EU regulations.
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, judicial courts, and other government and non-governmental institutions.
Kosovo is not included 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.
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 20 micro-financial institutions (of which 12 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. In February 2020, the rate of non-performing loans was 2.5 percent, the lowest rate in the last ten years. The three largest banks own 56.4 percent of the total 4.8 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 6.3 percent in 2020. 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) 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.
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.
Remittances are a significant source of income for Kosovo’s population, representing over 12 percent of GDP (or over USD 925 million) in 2019. 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.
Kosovo has 63 state-owned enterprises (SOEs), 44 of which are municipality managed. These enterprises are a legacy of the Yugoslav era and include entities involved in telecommunications, waste management, water supply, mining, and transportation. SOEs are generally governed by government-appointed boards. The Ministry of Economy, Employment, Trade, Industry, Entrepreneurship, and Strategic Investments monitors SOE operations with a light hand.
Private companies can compete with SOEs in terms of market share and other incentives in relevant sectors. State-owned enterprises are subject to the same tax laws as private companies. There are no state-owned banks, development banks, or sovereign funds in Kosovo.
The majority of Kosovo’s SOEs are either regulated or 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.
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 (http://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 to 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 responsible business conduct (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 does not actively 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, especially in the form of political interference, 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 government has enacted other measures to address corruption, including a requirement to conduct all public procurement electronically and to publish the names of contract winners. The government also recently dismissed the boards of several SOEs, citing mismanagement.
The Kurti government, which started its mandate in February 2020, but fell in March 2020 and as of May 2020 was in caretaker status, took a number of concrete steps to combat corruption and political interference, but given its short tenure was not able to institutionalize all of its measures and change the perception of political interference in public administration and the judicial system. 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 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 Intelligence Units (FIU) where the members exchange expertise to combat money laundering and terrorist financing. Money 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
Director, Kosovo Anti-Corruption Agency
Nazim Gafurri Street, No. 31, Pristina, Kosovo
+381 38 518 980
The Republic of Kosovo OMBUDSPERSON Institution
Str. “MIGJENI”, no. 21, Pristina, Kosovo
+383 (0) 38 223 782
Kosovo Democratic Institute
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
Balkan Investigative Reporting Network Kosovo
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+ 381 38 22 44 98
Recently, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.
The current administration took up its mandate in February 2020, but a motion of no confidence led to its fall 50 days later. The government formation followed lengthy period of coalition negotiations and certification of the October 2019 election results. The previous administration succeeded the May 2017, motion of no confidence, and 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 found it increasingly difficult to pass legislation through the Assembly. The prime minister resigned in July 2019, and elections were held in October 2019.
Kosovo is not a member of the United Nations and neighboring Serbia and Bosnia and Herzegovina are among the countries that do not recognize its statehood. In November 2018, Kosovo imposed a 100 percent tariff on all goods from Serbia and Bosnia and Herzegovina, in part in response to Serbia’s lobbying against Kosovo’s membership in INTERPOL and other international bodies. The current administration lifted the tariff on raw materials in March 2020 and removed tariffs on all goods in April. In April, the government also began enforcing an agreement with Serbia on phytosanitary documentation. Although it warned it would apply additional such “reciprocal measures,” no new measures had been enacted as of May 2020.
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.
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 25.7 percent. Youth unemployment is estimated at 49 percent. There are no reliable statistics on Kosovo’s informal economy, but an EU-commissioned report estimated the informal and black market at 32 percent of GDP. Informal businesses dominate in the agriculture, construction, and retail sectors. Private-sector employers make a practice of not providing 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.
Kosovo’s Labor Law 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 law also establishes a monthly minimum wage, which the government set in 2011 at €130 (USD 146) for employees under 35 and €170 (USD 191) 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. It is estimated that about one third of employees are employed in the public administration and SOEs. Although the country’s average salary amounts to nearly €498 take home a month (USD 540), there are stark differences between private sector average of €364 (USD 395), public administration average of €509 ( USD 550) and SOE average of €620 ( USD 670).
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 Economy, Employment, Trade, Industry, Entrepreneurship, and Strategic Investments (MEETIESI) 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 nonexistent. Local courts formally adjudicate labor disputes.
MEETIESI has 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 government had planned to reform and increase the number of inspectors to 90, but the March 2020 vote of no confidence stalled implementation. 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 MEETIESI 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 DFC prioritizes investments in low and lower-middle income countries and may consider investments in certain projects in upper-middle income countries that address key agency priorities. As of May 2020, Kosovo was classified as an upper-middle-income country by the World Bank. The DFC has indicated that it is looking for large-scale projects in the Balkans that focus on infrastructure, energy, digital economy, and healthcare, and that emphatically demonstrate U.S. commitment to the region.
The U.S. Overseas Private Investment Corporation (OPIC) has been active in Kosovo since 2000. OPIC’s successor, the U.S. International Development Finance Corporation (DFC), has expressed interest in continuing to provide financing, political risk insurance, and other investment vehicles to investors in Kosovo and the region, although it has not yet concluded any projects. 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).