Corporate tax in Serbia

Summary

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)
Capital Gains and Leasing Fees 20 (c)
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 fees and at a rate of 15% on capital gains.

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 companies 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 EUR9 million) in its own fixed assets and if it employs at least 100 new workers in the period of investment.

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

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

  • Real estate that the taxpayer used as a fixed asset in its business activities
  • Industrial property rights
  • Capital participations and shares and other securities that are, according to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), long-term finan­cial investments (except certain bonds issued by government bodies or by the national bank)
  • Investment units purchased by investment funds, in accordance with the law regulating investment funds

Capital gains tax is also imposed on income derived by nonresi­dent companies from disposals of the aforementioned assets (ex­cept industrial 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.

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, liquidation and bankruptcy, when com­panies must file returns by the 15th day after the date prescribed for submission of financial statements.

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 re ceive 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 shareholding 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 non­residents.

An applicable double tax treaty may provide a reduced withhold­ing 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 in come. In addition, resident companies are entitled to a tax credit for tax on interest income, income from lease fees, royalty income and dividend income (shareholding less than 10%) that is with­held and paid by nonresident income payers in other jurisdictions. The tax credit is available up to the amount of domestic tax pay­able on a tax base equal to 40% of foreign-source income that is included in the total income of the resident company.

Determination of trading income

General. The assessment is based on the profit or loss shown in the financial statements prepared in accordance with Inter nation-al Accounting Standards and domestic accounting regulations, subject 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) and dona­tions, entertainment and marketing 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 confor­mity with the Accounting Law. This conformity exists if the fol­lowing conditions are satisfied:

  • Receivables were included in the taxpayer’s revenues.
  • Receivables have been written off from the taxpayer’s account­ing books as uncollectible.
  • The taxpayer has sued the debtor or claimed the debt in a liqui­dation 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 if at least 60 days have elapsed since the due date for the payment of receivables.

Tax depreciation. Intangible and fixed assets are divided into five groups, with depreciation and amortization rates prescribed for each group. The straight-line method must be used for the first group, while the declining-balance method must be used for the assets in the other groups.

The following are the depreciation and amortization rates.

Group of assets Rate (%)
I 2.5
II 10
III 15
IV 20
V 30

Group I includes immovable 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 prof­its 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 con­solidation is paid by the group companies with taxable profits on a proportional basis.

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 EUR70,000)
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
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 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 17.9
Employee 19.9

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 conver­sion 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

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 pay­ments out of the RS, such as dividends and payments for purchas­es 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 differ­ence 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.

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

Treaty withholding tax rates

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

  Dividends

%

Interest

%

Royalties

%

Albania 5/15 10 10
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 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
Hungary 5/15 10 10
India 5/15 10 10
Iran 10 10 10
Ireland 5/10 10 5/10
Italy 10 10 10
Korea (North) 10 10 10
Kuwait 5/10 10 10
Latvia 5/10 10 5/10
Libya 5/10 10 10
Lithuania 5/10 10 10
Macedonia 5/15 10 10
Malaysia 10 10 10
Malta 5/10 10 5/10
Moldova 5/15 10 10
Montenegro 10 10 5/10
Morocco 10 10 10
Netherlands 5/15 0 10
Norway 15 0 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
Slovak Republic 5/15 10 10
Slovenia 5/10 10 5/10
Spain 5/15 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 0/10 10
United Arab Emirates 5/10 10 10
United Kingdom 5/15 10 10
Vietnam 10/15 10 10
Non-treaty countries 20 20 20