The Law on Corporate Income Tax (LCIT) in Kosovo governs the deductibility of business expenses. The general principle is that expenses incurred wholly and exclusively for generating business income are deductible. However, certain limitations and exclusions apply.
Deductible Expenses
| Expense Type | Conditions for Deductibility | Relevant Law Article |
|---|---|---|
| Operating Expenses | Must be directly related to the business activity and necessary for generating income. Includes rent, utilities, supplies, repairs and maintenance, etc. | LCIT, Article 10.1 |
| Employee Salaries and Benefits | Must be reasonable and in line with industry standards. Includes salaries, wages, bonuses, social security contributions, and other benefits. | LCIT, Article 10.2 |
| Depreciation and Amortization | Calculated based on the useful life of assets and allowable depreciation methods. Includes buildings, machinery, equipment, and intangible assets. | LCIT, Article 11 |
| Interest Expenses | Must be incurred on loans used for business purposes. Limitations may apply to interest paid to related parties. | LCIT, Article 10.3 |
| Bad Debts | Must be proven to be uncollectible and written off in accordance with accounting standards. | LCIT, Article 10.4 |
| Research and Development Expenses | Must be incurred for the purpose of creating new products, processes, or services. | LCIT, Article 10.5 |
| Travel and Entertainment Expenses | Must be directly related to business activities and reasonable in amount. Subject to specific limits and documentation requirements. | LCIT, Article 10.6 |
| Start-up Expenses | May be deductible over a period of five years. | LCIT, Article 10.7 |
Non-Deductible Expenses
| Expense Type | Reason for Non-Deductibility | Relevant Law Article |
|---|---|---|
| Fines and Penalties | Considered punitive in nature and not incurred for the purpose of generating income. | LCIT, Article 10.8 |
| Personal Expenses | Not related to business activities. Includes personal living expenses, entertainment not related to business, and personal use of company assets. | LCIT, Article 10.9 |
| Bribes and Kickbacks | Illegal and unethical practices. | LCIT, Article 10.10 |
| Political Contributions | Not considered a legitimate business expense. | LCIT, Article 10.11 |
| Excessive Remuneration to Related Parties | To prevent tax avoidance through artificial profit shifting. | LCIT, Article 10.12 |
Expenses with Limitations
| Expense Type | Limitation | Relevant Law Article |
|---|---|---|
| Interest Expenses on Loans from Related Parties | Deductible only up to the market interest rate. | LCIT, Article 10.3 |
| Travel and Entertainment Expenses | Subject to specific limits on meals, accommodation, and gifts. | LCIT, Article 10.6 |
| Depreciation of Luxury Cars | Limited to a maximum annual depreciation amount. | LCIT, Article 11.4 |
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