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Taxes in Serbia – Everything you need to know!

Old tax havens can’t serve their purpose anymore, yet popular alternatives mean you’ll have to give up much of your profits? You want to pay less taxes? Welcome to Serbia!

 

Serbian taxation system belongs to the group of jurisdictions with lowest tax rates in Europe and remained well below Europe average corporate and personal tax rate in 2019.

  • In Serbia corporate tax rate is 15% and there is no official profit to turnover ratio. Capital gains are separately taxed at the rate that is also 15%.

 

This is important news for everyone wishing to start new business, especialy having in mind tax rates in other jurisdictions in Europe, like Czech Republic (19%), Hungary (19%) and similar competing solutions, not to mention Western European jurisdictions. Average corporate tax rate in Europe is 22,5%, that puts Serbia in the group of traditionally favorable countries, like Cyprus, where tax rate is only 2,5% lower.

Tax year is the calendar year but may be shorter than 12 months in case activities start or terminate during a calendar year or there is a change in the status of the entity.

The taxable base is calculated in the tax balance sheet, based on the profit and loss account adjusted for tax purposes. Taxable income includes both business income and capital gains. Taxable base is equal to difference between income and expenses.

 

  • Dividend tax is 15% and the taxable base is 85% of the profit (profit after corporate tax). Dividend tax may be lowered to 5% by activating double taxation avoidance agreements.

 

Branch remittance to mother company is not a subject to dividend tax, given that the funds are moving inside the same legal entity, which unarguably makes this structure perfect for revitalization of old or inactive legal entities. Also, special legal arrangements between mother company and the branch give opportunity to receive funds and pay on behalf of the mother company, without generating revenue.

Serbian asset protection and pilot entities remain one of the world’s best, especially given that dividends paid by a Serbian resident company to another Serbian company are exempt from corporate income tax. Dividends received by a Serbian resident company holding at least 10% of the shares in a non-resident company for one year are eligible for a credit for foreign tax paid and the dividends.

Tax filling in Serbia is based on self-assessment.

A tax return and tax balance must be filled within 180 days after the end of the tax period for which the tax return is filled. Financial statements are submitted between February and July for the previous year.

 

  • VAT rate is 20% and is calculated and payed monthly or quarterly. VAT is paid on goods delivered and services executed in Serbia and for import of goods.

As for accounting, Serbia is up to date with international accounting standards, for example small and medium-sized entities are required to comply with IFRS rules, and medium-sized entities may elect to apply IFRS rules.

 

Serbia has more than 60 double-taxation avoidance agreements with different countries all over the world. 

 

There is no capital duty or payroll tax in Serbia!

Regarding individuals, the income tax is imposed on income, autonomous business income, authors’ rights, capital, real estate, capital gain and other types of income.

Non-residents are taxed only on income generated in Serbia. For income tax purposes, an individual is considered resident if he/she has a residence or center of business or stays in Serbia for at least 183 days in the total during the tax year. Apostilled tax residence certificate may be obtained 365 days after temporary residence is granted.

 

  • Income tax rate is maximum 15%., making Serbian income tax not only one of the lowest in Europe, but also in the world.
  • Inheritance tax is levied on inheritances and gifts at progressive rate between 1.5% (for taxpayers in the second order of succession) and 2.5% (for taxpayers in the third and subsequent orders of succession).
  • Transfer tax of 2.5% applies on transfer of immovable property (i.e. intellectual property, real property, etc.).
  • Property taxis levied on the occupation of real estate at progressive rates ranging from 0.4% to 2%, which is 2 to 15 times lower than Europe average.

There is no wealth tax in Serbia!

Using our experience and expert knowledge, our team will help you plan and optimize your business and save money using advantages of tax laws and regulations.

Grow your business freely. Welcome to Serbia.

 

 

Double taxation avoidance

Double taxation refers to situation in which the same financial assets or earnings are subject to taxation at two different levels in the same tax jurisdiction or in two different countries.

That means that there are two types of double taxation: economical and juridical (international).

Economical double taxation is related to situations where people or companies pay two or more taxes from one tax basis (e.g. when a company pays taxes over the profit the made, and after that they are paying out dividend to their stockholders which is also taxed, but with a dividend tax).

On the other hand, international double taxation occurs when same tax subject is taxed in different countries for the same object and for the same period of time.

International businesses are often faced with issues of double taxation and it can have very negative impact on investments.

There are two ways in which countries deal with the negative effects of double taxation.

  1. Unilateral, by making laws that provide collision norms that can eliminate or reduce negative effects of double taxation e.g. Serbian Property tax law states that taxes on real estate are paid only in the country in which is located.
  2. By signing multiple bilateral and international treaties for the avoidance of double taxation in which they agree to limit their taxation of international business.

Serbia alone has signed double taxation avoidance agreements ( DTAA) with following 59 countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia & Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Italy, Kazakhstan, Kuwait, Latvia, Libya, Lithuania, Luxembourg, Malta, Moldova, Montenegro, the Netherlands, North Korea, Norway, North Macedonia, Pakistan, Poland, Qatar, Romania, Russia, San Marino, Slovakia, Slovenia, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, Vietnam.

Models for this and similar treaties are often provided by the Organization for Economic Cooperation and Development (OECD).

Also, Serbia has entered Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

The network of DTAAs between Serbia and other countries has been changeing throuout the years – new treaties with San Marino and Indonesia are now in force, while treaty with Malesia is no longer in effect.

Also, as a result of Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (MLI) from 1 January 2019, treaties with the following countries are amended: Austria, France, Lithuania, Poland, Slovakia, Slovenia and United Kingdom.

Methods of double taxation avoidance

Avoidance of international double taxation can come into effect in two ways:

  1. Exemption method, that can be full exemption (the income derived may be fully exempted while determining the rate of tax to be imposed in the country) or exemption with progression (this form is applied where tax in the country of residence is computed using graduated rates, so the tax imposed by the country of residence on the income is considered for determining the effective tax rate to be applied in that country)
  2. Credit method, that can be in the form ordinary credit (tax credit is given for the foreign tax suffered by the tax payer against his domestic tax imposed on the same income so that the amount of tax credit relief is normally restricted to the lower of the paid/payable in the foreign and home country) or full credit (the tax paid in the country of source is allowed as a credit in full so if the tax in the country of source is higher than the tax in the country of residence, country of residence is giving up its tax on other income).

The legislator in Serbia choose ordinary credit method as an institutional unilateral measure for corporate income tax and income tax paid by citizens abroad.

Also, signed bilateral treaties provide solutions for double taxation, by defining tax rates on income and property for residents of one of the countries that are also under tax jurisdiction of the other.

For example, acording to DTAA Serbia signed with Ruussian Federation, dividends paid by a company resident of a contracting country to a resident of the other contracting country shall be taxable in that other country. Dividends may also be taxed in the contracting country of which the company paying the dividends is a resident, in accordance with the laws of that country, but if the recipient is the ultimate beneficiary of those dividends, the reduced tax may not exceed:

1) 5% if the ultimate beneficiary company (excluding partnership) directly owns at least 25% of the capital of the company paying dividends and invested in it at least 100,000 USD or the equivalent amount in the national currency of the contracting country;

2) 15% in all other cases.

Most of the DTAAs also apply two different rates for dividend tax, with lower tax rates for situations when recipient company holds at least 25% of the paying company.

Similar solutions are found for taxation of interests, royalties, services and capital gains.

Complete list of countries Serbia has DTAA signed with, along with the tax rates applied using those treaties can be found on the link:

https://assets.kpmg/content/dam/kpmg/rs/pdf/2019/03/Double-Taxation-Treaties-Situation-as-at-1-January-2019.pdf

 

Radmila Novakovic

Legal Advisor

Double taxation avoidance

 

Double taxation avoidance

Double taxation refers to situation in which the same financial assets or earnings are subject to taxation at two different levels in the same tax jurisdiction or in two different countries.

That means that there are two types of double taxation: economical and juridical (international).

Economical double taxation is related to situations where people or companies pay two or more taxes from one tax basis (e.g. when a company pays taxes over the profit the made, and after that they are paying out dividend to their stockholders which is also taxed, but with a dividend tax).

On the other hand, international double taxation occurs when same tax subject is taxed in different countries for the same object and for the same period of time.

International businesses are often faced with issues of double taxation and it can have very negative impact on investments.

There are two ways in which countries deal with the negative effects of double taxation.

  1. Unilateral, by making laws that provide collision norms that can eliminate or reduce negative effects of double taxation e.g. Serbian Property tax law states that taxes on real estate are paid only in the country in which is located.
  2. By signing multiple bilateral and international treaties for the avoidance of double taxation in which they agree to limit their taxation of international business.

Serbia alone has signed double taxation avoidance agreements ( DTAA) with following 59 countries: Albania, Armenia, Austria, Azerbaijan, Belarus, Belgium, Bosnia & Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Italy, Kazakhstan, Kuwait, Latvia, Libya, Lithuania, Luxembourg, Malta, Moldova, Montenegro, the Netherlands, North Korea, Norway, North Macedonia, Pakistan, Poland, Qatar, Romania, Russia, San Marino,  Slovakia, Slovenia, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, Vietnam.

Models for this and similar treaties are often provided by the Organization for Economic Cooperation and Development (OECD).

Also, Serbia has entered Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

The network of DTAAs between Serbia and other countries has been changeing throuout the years – new treaties with San Marino and Indonesia are now in force, while treaty with Malesia is no longer in effect.

Also, as a result of Multilateral convention to implement tax treaty related measures to prevent base erosion and profit shifting (MLI) from 1 January 2019, treaties with the following countries are amended: Austria, France, Lithuania, Poland, Slovakia, Slovenia and United Kingdom.

Methods of double taxation avoidance

Avoidance of international double taxation can come into effect in two ways:

  1. Exemption method, that can be full exemption (the income derived may be fully exempted while determining the rate of tax to be imposed in the country) or exemption with progression (this form is applied where tax in the country of residence is computed using graduated rates, so the tax imposed by the country of residence on the income is considered for determining the effective tax rate to be applied in that country)
  2. Credit method, that can be in the form ordinary credit (tax credit is given for the foreign tax suffered by the tax payer against his domestic tax imposed on the same income so that the amount of tax credit relief is normally restricted to the lower of the paid/payable in the foreign and home country) or full credit (the tax paid in the country of source is allowed as a credit in full so if the tax in the country of source is higher than the tax in the country of residence, country of residence is giving up its tax on other income).

The legislator in Serbia choose ordinary credit method as an institutional unilateral measure for corporate income tax and income tax paid by citizens abroad.

Also, signed bilateral treaties provide solutions for double taxation, by defining tax rates on income and property for residents of one of the countries that are also under tax jurisdiction of the other.

For example, acording to DTAA Serbia signed with Ruussian Federation, dividends paid by a company resident of a contracting country to a resident of the other contracting country shall be taxable in that other country. Dividends may also be taxed in the contracting country of which the company paying the dividends is a resident, in accordance with the laws of that country, but if the recipient is the ultimate beneficiary of those dividends, the reduced tax may not exceed:

1) 5% if the ultimate beneficiary company (excluding partnership) directly owns at least 25% of the capital of the company paying dividends and invested in it at least 100,000 USD or the equivalent amount in the national currency of the contracting country;

2) 15% in all other cases.

Most of the DTAAs also apply two different rates for dividend tax, with lower tax rates for situations when recipient company holds at least 25% of the paying company.

Similar solutions are found for taxation of interests, royalties, services and capital gains.

Complete list of countries Serbia has DTAA signed with, along with the tax rates applied using those treaties can be found on the link:

https://assets.kpmg/content/dam/kpmg/rs/pdf/2019/03/Double-Taxation-Treaties-Situation-as-at-1-January-2019.pdf

 

Radmila Novakovic

Legal Advisor