Already one of Europe’s poorest countries, Kosovo was hit hard by the COVID-19 pandemic. Economic growth forecasts originally projected Kosovo’s economy to shrink by 7.2 percent or more in 2020. However, thanks to the Government of Kosovo’s swift measures – notably the decision to allow Kosovo citizens to withdraw 10 percent of their pension savings – and assistance from international donors, as of February 2021 the latest revised IMF estimate predicts a contraction of only 6 percent in 2020. Many international financial institutions remain cautious in forecasting economic growth for 2021 given the quickly changing circumstances of the pandemic, but most expect Kosovo’s GDP to grow between 3.5 and 4.5 percent in 2021.
The pandemic has not led to permanent changes in Kosovo’s investment policies. The government enacted several relief measures that are all temporary and focused on maintaining employment levels and helping businesses preserve liquidity. As such, Kosovo’s COVID-19 relief measures did not significantly affect its broader investment policy environment.
Kosovo has potential to attract foreign direct investment (FDI), 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.
In 2020, the net flow of FDI in Kosovo was estimated at USD 382 million, a significant increase over the 2019 amount of USD 302 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. (NOTE: Data on FDI stock for 2020 was not available at the time of writing. END NOTE.) 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.
One key sector of the economy that has sustained strong growth is the wood processing sector. Companies producing kitchens, baths, doors, upholstered furniture, and combined wood, metal and glass have seen increased investment since 2017. The sector is maturing and receiving support in business development services and access to finance. Kosovo is also addressing its energy security by increasing its renewable energy capacity and facilitating more bankable renewable projects.
Kosovo’s laws and regulations are consistent with international benchmarks for supporting and protecting investment, though justice sector enforcement remains weak. Kosovo has a flat corporate tax of 10 percent. In 2016, 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 legal system weaknesses and difficulties associated with establishing title to real estate, in part due to competing claims arising from the history of conflict with Serbia, 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, there is insufficient data on how widespread the issue is. The issue does not get attention in the media, and Post has not had significant complaints of IPR theft in Kosovo from U.S. companies. Anecdotally, the IPR theft that occurs tends to be mostly in lower-value items that likely do not garner significant attention.
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 the 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. However, there have been little substantive changes in legislation and regulations regarding the foreign investment and general business environment. To date, the Embassy is not aware of any damage to commercial projects or installations. In recent years, the political and economic interests of Kosovo’s elites are increasingly converging, which tend to result in corruption. However, the new government, which assumed office March 22, ran on a strong anti-corruption platform and has a strong electoral mandate to enact positive change.
The public consistently ranks Kosovo’s high unemployment rate (officially 24.6 percent in 2020) 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 are attracted by Kosovo’s relatively young population, low labor costs, relative proximity to the EU market, and natural resources. Global supply disruptions brought on by the COVID-19 pandemic have sparked greater interest recently from some businesses to utilize Kosovo as a base for near-shoring production destined for the EU market. Kosovo does provide preferential access for products to enter the EU market through a Stabilization and Association Agreement (SAA).
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Kosovo welcomes FDI. Kosovo’s laws do not discriminate against foreign investors. The current government (as the government before) – including the Prime Minister’s Office; Ministry of Economy; Ministry of Industry, Entrepreneurship and Trade; and the Ministry of Finance, Labor and Transfers – recognizes the importance of FDI to the expansion of the private sector.
The mission of the Kosovo Investment Enterprise and Support Agency (KIESA) 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. In practice, however, many foreign and local companies have complained that KIESA has extremely weak capacity to provide the services under its mandate and must be strengthened.
Foreign chambers of commerce – including the American, German, and European – regularly participate in dialogue platforms with the government.
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, though the U.S. government is actively working with Kosovo on the best practices for developing and implementing such a mechanism.
We have no reports of restrictions from U.S. investors. There are no licensing restrictions particular to foreign investors and no requirement for 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 has contributed to Kosovo’s improved ranking in the World Bank Doing Business Index over the years. Kosovo currently ranks 57 out of 190 economies 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 supports 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 Industry, Entrepreneurship and Trade, 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 March 2021, 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, Labor 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, incentivize, or restrict outward investment. There are no restrictions on investments abroad.
2. Bilateral Investment and Taxation Treaties
Kosovo is a signatory of the Central European Free Trade Agreement (CEFTA) and has a Stabilization and Association Agreement (SAA) with the European Union that serves, among other things, as a free trade agreement. Kosovo also signed a trade and cooperation agreement with United Kingdom, a free trade agreement with Turkey, and has started the accession process for the European Free Trade Association.
Businesses and the government often complain 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 of the seven CEFTA member states do not recognize Kosovo’s statehood.
The United States does not have a bilateral investment or taxation treaty with Kosovo. Kosovo is not included in UCTAD’s listings of international investment agreements, but the Embassy is not aware of any bilateral investment treaties between Kosovo and other countries.
Kosovo has signed double-taxation treaties with Albania, Austria, Croatia, Hungary, Latvia, Lithuania, Luxemburg, Malta, Netherlands, North Macedonia, Saudi Arabia, Slovenia, Switzerland, Turkey, the United Arab Emirates, and the United Kingdom. Older treaties with Belgium, Finland, and Germany from the time of the former Yugoslavia are still in effect.
3. Legal Regime
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, Labor and Transfers’ Central Procurement Agency to procure goods and/or services on its behalf. All tenders are advertised in Albanian and Serbian, and for 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 handling 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 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, Labor and Transfers regularly publishes detailed reports on Kosovo’s public finances and debt obligations. Despite the regulatory requirements, some businesses and business associations complain that regulations are still 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. 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 Affairs 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 Affairs. Commercial cases can take anywhere from six months to several 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.
The Law on Foreign Investment: provides a set of fundamental rights and guarantees to ensure protection and fair treatment in strict accordance with accepted international standards and practices.
The 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.
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.
The Law on Economic Recovery – COVID-19: makes changes to several laws on a temporary basis to help the economy recover from the negative effects of COVID-19.
Competition and Antitrust 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 Industry, Entrepreneurship and Trade is responsible for the implementation of the Law on Antidumping and Countervailing Measures. In September 2018, Kosovo’s 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 government or municipal expropriation of private property when such action is in the public interest; articles 5 through 13 of the Law 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 other than uncontroversial, undisputed expropriations for work 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. The Law on Foreign Investments grants foreign investors the right to settle investment dispute either in domestic courts or international arbitration. There is no history of extrajudicial action against foreign investors.
The Commercial Department of Pristina Basic Court has jurisdiction over investment disputes involving State-owned enterprises (SOEs). There are no records available detailing the frequency with which domestic courts have ruled in SOEs’ favor.
Over the past ten years, at least three foreign investors have brought publicly known claims against Kosovo. In 2013, the London Court of International Arbitration (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. As of March 2021, foreign investors have sued Kosovo in at least two new cases.
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. The World Bank’s 2020 Doing Business Index ranked Kosovo 48 out of 190 economies for ease of resolving insolvency.
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 Industry, Entrepreneurship and Trade offers a Pledge Registry Sector, a mechanism that records data for collateral pledges.
4. Industrial Policies
Kosovo has established a flat corporate tax of 10 percent. 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.
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.
5. Protection of Property Rights
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. The jurisdictions of government ministries, municipal authorities, and independent agencies 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. The Kosovo public generally perceives current KPCVA leadership to be unqualified and corrupt.
Resolution of residential, agricultural, and commercial property claims remains a serious and contentious issue in Kosovo and limits 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 Serbia 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 of IPR is low. 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 Industry, Entrepreneurship and Trade 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 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 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 Crime and Corruption and Cyber Crimes, the 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 U. S. Trade Representative’s (USTR’s) 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.
6. Financial Sector
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 and financial products are limited but gradually 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 11 commercial banks (of which nine are foreign) and 20 micro-finance 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.
The IMF estimates 2020 economic growth at -6 percent due to COVID-19. In spite of this shock, Kosovo’s private banking sector remains well capitalized and profitable. Difficult economic conditions, weak contract enforcement, and a risk-averse posture have traditionally limited banks’ lending activities. However, financial services and bank lending have improved markedly over the past several years, albeit from a low baseline. In March 2021, the rate of non-performing loans was 2.7 percent, only slightly above the pre-pandemic February 2020 rate of 2.5 percent. The three largest banks own 56.2 percent of the total 5.3 billion euros of assets in the entire banking sector; foreign-owned banks have 86.3 percent of the market share. 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 3.1 percent in March 2021. 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, Labor and Transfers 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 approximately 15 percent of GDP (or over USD 1.163 billion) in 2020. Despite COVID-19’s shock to all world economies, remittances to Kosovo have been very resilient and grew by 15.1% in 2020. The majority of remittances come from Kosovo’s European-based diaspora, particularly in 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.
7. State-Owned Enterprises
Kosovo has 63 state-owned enterprises (SOEs), 44 of which are municipality managed. These enterprises are typically utilities, such as water treatment and supply, waste management, energy generation and transmission, but also include SOEs involved in telecommunications, mining, and transportation. SOEs are generally governed by government-appointed boards. The Ministry of Economy 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. COVID-19 has made this situation worse, and the government has provided emergency subsidies to numerous SOEs. 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. While PAK plans to finalize all remaining privatizations over the next three to four years, different government administrations have attempted to freeze or completely stop the privatization process. The privatization process is open to foreign investors. 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.
8. Responsible Business Conduct
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 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 royalties collected in the area to the municipality. There have been reports and allegations of child and forced labor in Kosovo, but they are relatively uncommon and typically engaged in informal economy or family-run agricultural businesses.
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 disclosure responsibilities 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. Kosovo is not a signatory of The Montreux Document on Private Military and Security Companies, nor a participant in the International Code of Conduct for Private Security Service Providers’ Association.
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 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 Foreign Corrupt Practices Act (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
+383 38 518 980
Rr. “MIGJENI”, nr. 21, Pristina, Kosovo
+383 38 223 782
Executive Director, Kosovo Democratic Institute/Transparency International
Bajram Kelmendi Street, n/45, Pristina, Kosovo
+381 38 248 038
Executive Director Balkan Investigative Reporting Network Kosovo, and Editor of Kallxo.com
Menza e studenteve, kati i pare, 10000 Prishtine, Kosovo
+383 38 22 44 98
10. Political and Security Environment
Recently, the political environment has been characterized by short electoral cycles and prolonged periods of caretaker governments. Despite the political instability, there have not been substantial legislative and regulative changes, especially regarding investments and business environment. While the environment in the country is growing increasingly politicized, the Embassy is not aware of any damage to commercial projects or installations.
Kosovo held national assembly elections on February 14, 2021, after the Constitutional Court ruled in December 2020 that a convicted Member of Parliament’s (MP) decisive 61st vote to form the government was not valid. For the first time in the last 20 years, the elections produced an overwhelmingly clear victor, the Levizja Vetevendosje (“Self-Determination Movement”) led by Albin Kurti, which was able to form a government in March 2021 with the help of only a few minority MPs. This was unusual as Kosovo’s proportional electoral system typically favors coalitions and partnerships. The new government is likely to be stable and provide a much-needed break from Kosovo’s short electoral cycles.
The previous administration took up its mandate in June 2020, after a motion of no confidence led to its predecessor’s fall 50 days after its election. Faced with the COVID-19 crisis and a razor thin majority at the assembly, the administration focused mainly on day-to-day management and was unable to make substantial legislative and regulative changes. Between July 2019 and March 2021, Kosovo had three different prime ministers and cabinets and held national elections twice, with a lengthy period of coalition negotiations and certification of election results each time. All the government administrations since September 2017 had issues with narrow majorities in the assembly and found it difficult to pass substantive legislation.
Kosovo is not a member of the United Nations and regional neighbors 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 but in April 2020 dropped the 100 percent tariff in favor of “reciprocal measures.” The previous administration dropped these “reciprocal measures” temporarily in June 2020 to give way for negotiations on “economic normalization” with Serbia. Despite a White House-brokered set of commitments signed on September 4, 2020, in Washington, DC, by Kosovo’s then-Prime Minister Avdullah Hoti and Serbian President Aleksandar Vucic, there are numerous issues remaining that might lead to trade and investment barriers between the two countries.
11. Labor Policies and Practices
According to the Kosovo Statistical Agency, almost two thirds of Kosovo’s population of 1.8 million is of working age (15-64). The official unemployment rate is 24.6 percent. Youth unemployment is estimated at 46.9 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 paying 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 pay 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 ($146) for employees under 35 and €170 ($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 sector and SOEs. Although the country’s average monthly salary amounts to nearly €498 ($540) in take-home pay, there are stark differences between the private sector average of €364 ($395), the public administration average of €509 ($550), and the SOE average of €620 ($670).
The Labor Law has no nationality requirement and is 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. The government, labor unions, and private sector representatives signed a collective bargaining agreement in 2014, which has been partially implemented. Kosovo’s Statistical Agency and the Ministry of Economy 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.
The Ministry of Finance, Labor, and Transfers 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; it has 40 inspectors conducting inspections in 38 municipalities. The government 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 Ministry of Finance, Labor, and Transfers 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.
12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance or Development Finance Programs
DFC’s predecessor, the U.S. Overseas Private Investment Corporation (OPIC), had been active in Kosovo since 2000. 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. The United States and Kosovo signed a new Investment Incentive Agreement (IIA) on December 31, 2020, which entered into force on February 3, 2021, making Kosovo the first country in the Western Balkans to adopt the enhanced IIA with DFC. The enhanced IIA replaces an earlier agreement Kosovo signed with OPIC and allows DFC to utilize its full range of financial offerings in Kosovo. 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.
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). 13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other