Provision of digital services by foreign companies

The tax legislation in force in the Republic of Kosovo, particularly the Law on Value Added Tax (VAT), clearly defines the rules for the tax treatment of economic transactions, including electronic commerce (“online sales or e-commerce”). This legislation contains provisions that determine the place of supply of goods and services, both for taxable and non-taxable persons.

In this context, digital services refer to the supply of the following:

• Telecommunications services;
• Broadcasting of radio and television programs;
• Services provided electronically, via the internet or similar technologies.

These services are known internationally as “TBE services” (telecommunications, broadcasting, and electronically supplied services).

According to Article 20 of the Law No. 05/L-037 on VAT, when a taxable person not established in Kosovo supplies digital services to non-taxable persons in Kosovo (B2C), the place of supply is considered as Kosovo.

This definition applies to the following:

• Telecommunications services;
• Broadcasting of radio and television programs;
• Electronic services provided via the internet or similar technologies.

According to Administrative Instruction No. 03/2015, when digital services are provided to a non-taxable person who has his or her domicile or usual residence in Kosovo, they are considered to be provided in Kosovo, regardless of whether the supplier is established in the country or not.

In these cases, the taxable person who is not established in Kosovo must appoint a tax representative as the person who is required to pay VAT in Kosovo, as well as to exercise all of his rights.

According to the Law No. 05/L-037 on Value Added Tax (VAT), any foreign legal entity that is not established and registered in the Republic of Kosovo (i.e., does not appear as a subject in the KBRA), but which provides digital services to non-taxable persons in Kosovo (consumers), has a legal obligation to register for VAT in Kosovo.

In cases where the place of supply of digital services is Kosovo, according to Article 20 of the Law on VAT, these foreign entities are obliged to:

• appoint a tax representative in Kosovo, who will act on their behalf for VAT purposes;
• register for VAT in Kosovo in their own name and that of their tax representative within five (5) days from the date of appointment of the representative, and before the commencement of the provision of services in the territory of Kosovo.

This requirement is mandatory for all foreign companies that are not registered to operate in Kosovo, but provide digital services to non-taxable persons.

Failure to comply with this legal obligation carries legal consequences and may result in sanctions for tax offenses, as provided for in the current Law on the Administration of Tax Procedures in the Republic of Kosovo.

After completing the VAT registration process with the tax representative, these companies must calculate and pay VAT on all digital services supplied to Kosovo consumers. For the provision of such digital services, the standard VAT rate of 18% applies.

E-commerce is taxed the same as regular (“traditional”) commerce. This means that all transactions carried out electronically are subject to taxes in the same way that they are carried out physically.

TAK remains committed to ensuring equal and fair treatment for all taxpayers, regardless of the manner in which goods or services are provided.

Electronic services are provided over the internet, using digital platforms, applications, or automated systems, allowing the purchase, supply, and consumption of services without the need for direct physical interaction between the provider and the customer.

It is important to note that simply communicating via electronic mail (e-mail) between the provider and the customer does not automatically make the service considered electronic, unless the content of the service is sent in an automated manner or through a digitized process.

Digital services include the following:

• those that are delivered automatically through electronic networks (such as the Internet);
• those that are delivered with minimal human intervention, without affecting the digital nature of the supply.

An example of this could be when a consumer purchases a digital service on a website and the content:

• automatically downloaded to his device; or
• sent via an automatically generated email, containing the download link or service content.

Even when there is a minor manual intervention in the process (e.g., authorization or payment confirmation), the service remains electronic if the delivery method is automated and technology-based.

According to the Law No. 05/L-037 on Value Added Tax (VAT), specifically Annex II of this law, when electronic services are provided to non-taxable persons in the Republic of Kosovo, they are considered electronically supplied services and are subject to VAT in Kosovo.

An indicative list of these services includes:

1. Providing websites, web-hosting services and remote maintenance of programs or technological equipment;
2. Supply of software and its updating;
3. Providing digital content such as images, text, data/information, as well as making databases available electronically;
4. Supply of music, movies and online games, including:
   • prize games and games of chance (gambling);
   • political, cultural, artistic, sporting and scientific events;
   • digitally transmitted entertainment shows and content;
5. Providing distance learning, through automated digital platforms and tools.

These services, when delivered in an automated manner through electronic networks and without direct human interaction, are treated for tax purposes as supplies made in Kosovo, if the beneficiary is a non-taxable person established on its territory.