Many foreign legal entities that do business in Kosovo may wish to establish a representative office in the jurisdiction.

The purpose of a representative office is mainly to represent and protect the interests of its parent company through the collection of market information and the promotion of the parent company's activities. The representative office undertakes no economic activities of its own.

However, the Law on Business Organisations (02/L-123/2007) does not provide for the registration of a representative office as an operative foreign entity in the Kosovan territory. According to its provisions, foreign entities may establish only either a branch office or a new legal entity in Kosovo.

According to Article 2, Paragraph 1.15 of the law on Corporate Income Tax (03/L-162/2009), a 'permanent establishment' is a fixed place of business through which the business of a non-resident person is wholly or partly carried out, as described in Article 29.

Further to Article 29, the branch of a foreign entity is classified per se as a permanent establishment of the latter. However, pursuant to Article 29, Paragraph 5.5, a fixed place of business maintained "solely for the purpose of carrying out, for a non-resident person, of any other activity of a preparatory or auxiliary nature" shall not be deemed a permanent establishment.

Therefore, branches will be classified as subject to corporate income tax only if they engage in economic activity aimed at generating profit; hence, they will constitute a permanent establishment as per Article 29.

The lack of provisions concerning representative offices and the strict interpretation of legislation by the Kosovo Tax Administration have created confusion among foreign entities regarding the status of representative offices.

For further information please contact Fitore Mekaj at Boga & Associates by telephone (+355 42251050), fax (+355 42251055) or email ([email protected]).