On 22 July 2021, Kosovo published the decree for the ratification of the pending income tax treaty with Ireland. The treaty, signed 25 June 2021, is the first of its kind between the two countries.

Taxes Covered

The treaty covers Irish income tax, universal social charge, corporation tax, and capital gains tax. It covers Kosovo personal income tax and corporate income tax.

Residence

If a person other than an individual is considered resident in both Contracting States, the competent authorities will determine the person's residence for the purpose of the treaty through mutual agreement, having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors. If no agreement is reached, such person shall not be entitled to any relief or exemption from tax provided by the treaty except to the extent and in such manner as may be agreed upon by the competent authorities of the Contracting States.

Withholding Tax Rates

• Dividends -
  • 5% if the beneficial owner is a company that directly holds at least 10% of the paying company's voting power throughout a 365-day period that includes the day of the payment of the dividend;
  • 15% if the dividends are paid by a Real Estate Investment Trust (REIT);
  • 0% for dividends paid by a company resident in a Contracting State to the government of the other State;
  • otherwise, 10%
• Interest - 5%, with an exemption for interest paid:
  • to the Government of that other State, a political subdivision or local authority thereof or to the Central Bank of that other State;
  • in the case of Kosovo, to the Kosovo Treasury;
  • in the case of Ireland, to the National Treasury Management Agency or bodies under its management;
  • to a statutory body or any institution wholly or mainly owned by the Government of Kosovo or the Government of Ireland as may be agreed from time to time between the competent authorities of the Contracting States;
  • to a financial institution, or by a financial institution;
  • with respect to indebtedness arising as a consequence of the sale on credit of any equipment, merchandise, or service; or
  • to a pension fund that is exempt from tax on the interest income.
• Royalties - 0%

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares or comparable interests if, at any time during the 365 days preceding the alienation, the shares or comparable interests derived more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Offshore Activities

Article 22 (Miscellaneous Rules Applicable to Certain Offshore Activities) includes that a permanent establishment will be deemed constituted if an enterprise of one Contracting State carries on offshore activities in the other State in connection with the exploration or exploitation of the seabed or subsoil or their natural resources situated in that other State if such activities continue for a period or periods aggregating more than 30 days in any 12-month period. In determining if the 30-day threshold has been met, activities of an associated person that are substantially similar will be included.

Article 22 also provides that gains from the alienation of the following by a resident of one Contracting State may be taxed by the other State:

• exploration or exploitation rights; or
• shares (or comparable instruments) deriving (at any time during the 365 days preceding the alienation) their value or the greater part of their value directly or indirectly from such rights.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Arbitration

Article 24 (Mutual Agreement Procedure) includes the provision that if any issues of a case cannot be resolved under MAP within two years from the date all required information to address the case has been presented to both competent authorities, the person that submitted the case may request that the case be submitted to arbitration.

Entitlement to Benefits

Article 29 (Entitlement to Benefits) provides that a benefit under the treaty shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Entry into Force and Effect

The treaty will enter into force once the ratification instruments are exchanged and will apply from 1 January of the year following its entry into force.