Serbia Corporate Tax Guide

Serbia, Republic of

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Principal Tax Contact

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Ivan Rakic

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Business Tax Services, Tax Policy and Controversy, and Global Compliance and Reporting



Ivan Rakic

+381 (11) 209-5794

Mobile: +381 (63) 635-690 Fax: +381 (11) 209-5891 Email: ivan.rakic@rs.ey.com

The Union of Serbia and Montenegro ceased to exist on 25 May 2006. The following chapter provides information on taxation in the Republic of Serbia only.

A. At a glance

Corporate Income Tax Rate (%) 15

Capital Gains Tax Rate (%) 15 Branch Tax Rate (%) 15 Withholding Tax (%)

Dividends 20 (a) Interest 20 (a)

Royalties from Patents, Know-how, etc. 20 (b) Leasing Fees for Lease and Sublease of Property Located in Serbia 20 (c) Market Research Services, Accounting and Audit Services, and Other Legal and Business Advisory Services 20 (d) Capital Gains 20 (e)

Payments to Listed Countries with Preferable Tax Regimes Interest 25 Royalties 25 Leasing Fees 25 Services 25

Net Operating Losses (Years) Carryback 0 Carryforward 5

(a) This tax applies to nonresident companies. Under the Personal Income Tax Law, dividends and interest paid to resident and nonresident individuals are taxed at a rate of 15%.

(b) This tax applies to nonresident companies. Under the Personal Income Tax Law, royalties paid to resident and nonresident individuals are taxed at a rate of 20%.

(c) This tax applies to nonresident companies. Under the Personal Income Tax Law, individuals are taxed at a rate of 20% on rent and service fees.

(d) As of 1 April 2018, only fee payments related to market research services, accounting and audit services, and other legal and business advisory services are subject to withholding tax regardless of the place where the services were provided or used.

(e) This tax applies to nonresident companies. Under the Personal Income Tax Law, individuals are taxed at a rate of 15% on capital gains.

B. Taxes on corporate income and gains

Corporate income tax. Companies resident in the Republic of Serbia (RS) are subject to tax on their worldwide income. A company is resident in the RS if it is incorporated in the RS or if its central management and control is actually exercised in the RS. Nonresident companies are subject to tax only on their income derived from the RS. Nonresident companies are compa nies registered in other countries that have a permanent place of business in the RS. Foreign representative offices may not derive profits from their activities in the RS. However, if they do derive such profits, the profits are subject to tax in the RS.

Rate of corporate income tax. The rate of corporate income tax in the RS is 15%.

Tax incentives. A company qualifies for a 10-year tax exemption if it invests RSD1 billion (approximately EUR8 million) in its own fixed assets and if it employs at least 100 new workers in the period of investment.

Double the amount of costs directly connected to research and development (R&D) activities that the taxpayer conducts in Serbia can be deducted.

Up to 80% of income accrued in connection with use of intellectual property rights may be excluded from the tax base if certain conditions are met. Also, 80% of capital gains derived from the transfer of intellectual property is excluded from the tax base.

Taxpayers that invest in newly formed companies conducting innovative business activity can be granted a tax credit of 30% of the investment in such companies if certain conditions are met.

A taxpayer’s income deriving from the transfer of non-monetary assets without reimbursement under concession agreements is excluded from the tax base if the value of a concession agreement is more than EUR50 million. In this context, a concession agreement is an agreement between a competent state authority (in cluding a publicly owned company) and a legal entity based on which the competent state authority gives to a domestic or for eign legal entity the commercial right to use natural resources or resources in general or public use or allows it to perform activi ties of general interest for the respective period under the condi tions prescribed by law, with the payment of the concession fee.

The effects of the change of accounting policies caused by the first application of International Accounting Standards (IAS) or International Financial Reporting Standards (IFRS) for small and medium enterprises that cause changes of positions in the balance sheet are recognized as income or expense in the tax balance

sheet, starting from the tax period in which such corrections are implemented.

Under the Personal Income Tax Law and the Law on Compulsory Social Security Contributions, companies may be partially ex empted from paying salary tax and employer social security contri butions for newly employed individuals and disabled persons under the conditions specifically mentioned in the legislation.

An employer that is a legal entity and that within its activities conducts R&D in the RS may be exempt from the obligation to pay 70% of calculated and withheld tax from the salary of individuals directly engaged in R&D, proportionally for the time that such in dividuals spend on R&D in comparison to full-time work. Employers are also exempt from the obligation to pay 100% of the mandatory pension and disability insurance contributions for both the employee and employer parts.

Capital gains. Capital gains derived from the disposal of the fol lowing are included in taxable income and are subject to tax at the regular corporate income tax rate:

• Real estate that the taxpayer uses or used as a fixed asset in its business activities, including real estate under construction

• Intellectual property rights

• Capital participations and shares and other securities that are, according to IFRS and IAS, long-term financial investments (except certain bonds issued by government bodies or by the national bank)

• Investment units of an investment fund, in accordance with the law regulating investment funds

• Digital assets, unless the taxpayer, under the terms of the law governing digital assets, has a license to provide services related to digital assets and acquired digital assets solely for resale within the provision of services related to digital assets

Capital gains tax is also imposed on income derived by nonresident companies from disposals of the aforementioned assets (except intellectual property rights) and real estate in the RS that were not used as fixed assets in conducting business activities. These gains were previously subject to a 20% tax rate.

The possibility of claiming a tax credit has been introduced in cases in which a resident taxpayer realizes capital gains in another state and pays tax on such gains in that state.

Capital gains realized by resident companies may be offset against capital losses incurred in the same year, and net capital losses may be carried forward to offset capital gains in the following five years.

Administration. The tax year is the calendar year. Exceptionally, at the taxpayer’s request, the tax period may be set within any 12 months, subject to the tax authorities’ approval.

Companies must file annual tax returns within 180 days after the expiration of the period for which the tax liability is determined (usually by 30 June of the year following the tax year), except in cases of statutory changes (transactions resulting in the cessation of the legal entity), liquidation and bankruptcy. In such circum stances, companies must file returns within the following periods:

• Sixty days from the date on which the liquidation proceedings began or were completed (the companies must file two tax returns; one is related to the period before the beginning of the liquidation proceedings, while the second return covers the period during the liquidation proceedings)

• Sixty days from the date on which the bankruptcy proceedings began

• Sixty days from the date of the beginning of the implementation of the reorganization plan

Companies must make monthly advance payments of tax by the 15th day of the month following the month for which the payment is due. Companies determine advance payments based on their tax return for the preceding year. Under a self-assessment system, companies must correctly assess their tax liabilities to avoid the imposition of significant penalties.

Companies may submit an interim tax return during the tax year to increase or decrease their monthly advance payments of tax if significantly changed circumstances exist, such as changes to the company’s activities or to the tax rules.

At the time of submission of the annual tax return, companies must pay any positive difference between the tax liability calculated by the company and the total of the advance payments. They may receive a refund of any overpayment, or the overpayment may be treated as a prepayment of future monthly payments.

Dividends. Resident companies include dividends received from its nonresident affiliates in taxable income.

Corporate and dividend taxes paid abroad may be claimed as a tax credit up to the amount of domestic tax payable on the dividends. Any unused amount can be carried forward for offset against corporate profit tax in the following five years. This tax credit applies only to dividends received by companies with a share holding of 10% or more in the payer for at least one year before the tax return is submitted.

A 20% withholding tax is imposed on dividends paid to non residents.

An applicable double tax treaty may provide a reduced withhold ing tax rate for dividends (see Section F). To benefit from a double tax treaty, a nonresident must verify its tax residency status and prove that it is the true beneficiary of the income.

Foreign tax relief. Companies resident in the RS that perform business activities through permanent establishments outside the RS may claim a tax credit for corporate income tax paid in other jurisdictions, up to the amount of domestic tax payable on such income. In addition, resident companies are entitled to a tax credit for tax on interest income, income from lease fees, royalty income, dividend income (shareholding less than 10%) and service income that is withheld and paid by nonresident income payers in other jurisdictions. The tax credit is available up to the amount of do mestic tax payable on a tax base equal to 40% of foreign-source income that is included in the total income of the resident com pany.

C. Determination of trading income

General. The assessment is based on the profit or loss shown in the financial statements prepared in accordance with International Accounting Standards and domestic accounting regulations, sub ject to certain adjustments for tax purposes.

Taxable income is the positive difference between income and expenses. For tax purposes, income consists of income from the following:

• Sales of products, goods and services

• Financial income

• Capital gains

• Income resulting from transfer-pricing adjustments

Tax-deductible expenses include expenses incurred in performing business activities. Expenses must be documented. Certain expenses, such as depreciation (see Tax depreciation), donations and entertainment expenses, are deductible up to specified limits. Impairment of assets may not be deducted unless the assets were alienated or damaged as a result of force majeure.

Inventories. Inventories must be valued using average prices or the first-in, first-out (FIFO) method.

Bad debt provisions and write-offs. Legal entities may deduct as expenses write-offs of receivables if such actions are in confor mity with the Accounting Law. This conformity exists if the fol lowing conditions are satisfied:

• Receivables were included in the taxpayer’s revenues.

• Receivables have been written off from the taxpayer’s account ing books as uncollectible.

• The taxpayer has sued the debtor or claimed the debt in a liqui dation or bankruptcy procedure, or the execution procedure has been initiated.

Write-offs of receivables that were not recorded as revenues in the taxpayer’s accounting records are also tax-deductible expenses if the second and third conditions above are met.

Bad debt provisions are tax-deductible expenses in the period in which at least 60 days have elapsed since the due date for the pay ment of receivables.

Tax depreciation. Fixed assets are divided into five groups, with depreciation and amortization rates prescribed for each group. New rules for the calculation of tax amortization were introduced as of 1 January 2019 (the declining-balance method has been abandoned and the straight-line [linear] method has been intro duced). Old assets, which were present at the beginning of the application of the new rules, are depreciated using the old rules until 2028. The new rulebook on amortization has been intro duced.

The straight-line method must be used for all five groups. New depreciation rules also prescribe that if the depreciation calculated for accounting purposes is lower than the depreciation calculated in accordance with corporate income tax rules, the amount of accounting depreciation should also be used for tax purposes.

The following are the depreciation and amortization rates.

Group of assets Rate (%)

Group I includes immovable assets.

Starting from the 2018 tax year, tax depreciation of intangible assets should be equal to the accounting depreciation of such assets.

In addition, if the assets are acquired from a related party, the depreciation base is the lower of the following two amounts:

Purchase price for the transfer of the fixed assets

• Acquisition price of fixed assets determined by applying the arm’s-length principle

Relief for losses. Tax losses incurred in business operations may be carried forward for five years. Loss carrybacks are not allowed.

Groups of companies. Under group relief provisions, a group of companies consisting only of resident companies may offset prof its and losses for tax purposes. The group relief provisions are available if a parent company holds directly or indirectly at least 75% of the shares in subsidiaries. To obtain group relief, a group must file a request with the tax authorities. If tax consolidation is allowed, the group companies must apply tax-consolidation rules for five years. Each group company files its own annual income tax return, and the parent company files a consolidated tax return based on the subsidiaries’ tax returns. Any tax liability after con solidation is paid by the group companies with taxable profits on a proportional basis.

D. Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)

Value-added tax (VAT), on supplies of goods and services in the RS and on imports of goods; certain tax exemptions with or without the right to deduct input VAT are granted; VAT taxpayers are legal entities and entrepreneurs who had turnover of goods and services in excess of RSD8 million (approximately EUR65,000) in the preceding 12 months or who expect to have annual turnover greater than the threshold

Standard rate 20

Lower rate 10

Property tax, paid on ownership rights over immovable property in the RS (including residential and business buildings, apartments, garages and other underground and surface buildings) and on usage rights over city construction land; certain tax exemptions are prescribed; tax base equals the market

Nature of tax Rate (%)

value of the property; taxpayers that maintain accounting records self-assess and pay the tax quarterly; taxpayers that do not maintain accounting records pay tax quarterly based on a ruling issued by the local authority

Tax rates applicable to taxpayers that are required to maintain accounting records 0.4 Tax rates applicable to taxpayers that are not required to maintain accounting records 0.4 to 2 Transfer tax; paid on transfers of ownership rights over immovable property, intellectual property rights, ownership rights over used motor vehicles (with certain exemptions) and usage rights over city construction land; certain transfers are exempt; tax base is the contract price, unless the market value is higher 2.5 Payroll taxes, on monthly gross salaries Tax on salary; paid by employee 10

Social security contributions (for health, pension and unemployment funds); paid by Employer 16.15 Employee 19.9

E. Miscellaneous matters

Foreign-exchange controls. In the RS, the local currency is the dinar (RSD).

In the RS, all payments, collections and transfers must generally be effected in dinars, but a “currency clause” may allow conver sion from hard currency on the date of payment. In addition, the following transactions may be effected using foreign currencies:

• Sale and rental of immovable property

• Granting loans in the RS for the payment of imported goods and services and acquisition of immovable property

• Insurance premiums and transfers based on life insurance contracts

• Purchasing receivables and accepting payables specified in the law

• Payments of deposits representing collateral

• Donations for charitable, cultural and scientific purposes in accordance with the donation legislation

• Transactions involving guarantees specified by the law, if the underlying transaction is in foreign currency

• Allowances for business trips abroad

• Salary payments to resident individuals sent on temporary work abroad based on an agreement on investment projects, as well as to individuals employed at diplomatic and consular missions, United Nations organizations and international financial institutions in the RS

• Purchase of software and other digital products on the internet that are delivered exclusively through telecommunication, digital or information technology devices, provided that payment is made using a payment card or electronic money through a payment service provider that has its company seat in the RS

Residents and nonresidents may open foreign-currency accounts in RS banks or in foreign banks authorized to operate in the RS. Foreign currency may be held in such accounts and used for pay ments out of the RS, such as dividends and payments for pur chases of imports, as well as for authorized foreign-currency payments in the RS.

Transfer pricing. Under general principles, transactions between related parties must be made on an arm’s-length basis. The differ ence between the price determined by the arm’s-length principle and the taxpayer’s transfer price is included in the tax base for purposes of the computation of corporate income tax. Taxpayers must submit transfer-pricing documentation together with their corporate income tax return.

Country-by-Country reporting. Country-by-Country (CBC) reporting is applicable as of the 2020 fiscal year, with filing in the 2021 fiscal year. The Serbian resident ultimate parent legal entity of a multinational group with consolidated revenue above EUR750 million (in RSD equivalent) is subject to CBC reporting obligations.

Thin-capitalization rules. Related-party interest expenses and related expenses are limited to 4 times the value of the taxpayer’s equity (10 times value for banks and financial-leasing orga nizations).

F. Treaty withholding tax rates

The following table lists the withholding tax rates under the trea ties of the former Union of Serbia and Montenegro and under the treaties of the RS, the former Federal Republic of Yugoslavia and the former Yugoslavia that remain in force. It is suggested that taxpayers check with the tax authorities before relying on a par ticular tax treaty.

Dividends Interest Royalties % % %

Albania 5/15 10 10 Armenia 8 8 8 Austria 5/15 10 5/10

Azerbaijan 10 10 10 Belarus 5/15 8 10 Belgium 10/15 15 10 Bosnia and Herzegovina 5/10 10 10 Bulgaria 5/15 10 10 Canada 5/15 10 10 China Mainland 5 10 10 Croatia 5/10 10 10 Cyprus 10 10 10 Czech Republic 10 10 5/10 Denmark 5/15 10 10 Egypt 5/15 15 15 Estonia 5/10 10 5/10 Finland 5/15 0 10 France 5/15 0 0 Georgia 5/10 10 10 Germany 15 0 10 Greece 5/15 10 10

Hong Kong SAR 5/10 10 5/10 Hungary 5/15 10 10

Dividends Interest Royalties % % %

India 5/15 10 10

Indonesia 15 10 15

Iran 10 10 10

Ireland 5/10 10 5/10

Israel 5/15 10 5/10

Italy 10 10 10

Japan 5/10 10 5/10

Kazakhstan 10/15 10 10

Korea (North) 10 10 10

Korea (South) 5/10 10 5/10

Kuwait 5/10 10 10

Latvia 5/10 10 5/10

Libya 5/10 10 10

Lithuania 5/10 10 10

Luxembourg 5/10 10 5/10

Malta 5/10 10 5/10

Moldova 5/15 10 10

Montenegro 10 10 5/10

Netherlands 5/15 0 10

North Macedonia 5/15 10 10

Norway 5/15 10 5/10

Pakistan 10 10 10

Poland 5/15 10 10

Qatar 5/10 10 10

Romania 10 10 10

Russian Federation 5/15 10 10

San Marino 5/10 10 10

Singapore 5/10 10 5/10

Slovak Republic 5/15 10 10

Slovenia 5/10 10 5/10

Spain 5/10 10 5/10

Sri Lanka 12.5 10 10

Sweden 5/15 0 0

Switzerland 5/15 10 0/10

Tunisia 10 10 10

Turkey 5/15 10 10

Ukraine 5/10 10 10

United Arab Emirates 0/5/10 10 10

United Kingdom 5/15 10 10

Vietnam 10/15 10 10

Non-treaty jurisdictions 20 20 20