The tax system in Serbia is established so as that each main type of tax is regulated by separate piece of legislation and a number of bylaws issued based on them, including:
These laws primarily deal with substantial issues in their respective tax areas, provided that they also prescribe certain specific procedural rules of importance for that tax are.
The current Serbian tax system was mainly modelled in 2001, by enacting main tax laws governing taxation of legal entities and individuals as well as taxation of property. The system of the VAT was introduced in 2005. The tax laws are subject to constant changes, the latest ones came into force on 1 January 2019.
In addition to the above, there are a number of laws establishing numerous so-called para-fiscal charges, such as court and administrative fees and other local fees.
The main characteristic of the Serbian tax system are low to moderate tax rates. The profit of resident legal entities is subject to corporate income tax at 15%, while the income of individuals is subject to tax at rates between 10% and 20%, depending on the type of income. The rates of social security contributions for employment income are rather high, as they are set in aggregate rate up to the 37.05%.
Certain types of income generated by non-resident legal entities are subject to special tax regime. The interests, royalties, dividends, income from services as well as capital gains are subject to tax at rate of 20%[1]. Income of legal entities from tax haven jurisdictions (except dividends) is subject to tax rate at rate of 25%.
All tax returns in Serbia may be submitted electronically as of 1 January 2018.
VAT
The Serbian VAT system is modelled after the EU VAT Directive, and majority of general VAT principles applicable throughout the EU apply also in Serbia. Serbian VAT is regulated by the Law on Value Added Tax (“VAT Law”), and a number of VAT regulations that prescribe detailed rules for implementation of general rules of the VAT Law.
The standard VAT rate is 20%. Certain goods and services (such as the supply of groceries, medicines, newspapers, utility services, etc.) are taxed at a reduced VAT rate of 10%.
Non-resident entities supplying the goods and services to Serbian consumers (B2C) are required to register for the VAT in Serbia. The VAT obligations of non-resident VAT payers are settled through the VAT representative, that has to be a Serbian legal entity or the individual registered for the VAT.
Generally, the foreign entities are entitled for the refund of the VAT paid in Serbia. However, the refund is limited to legal entities from very few countries under the reciprocity principle.
Personal income tax
Serbian system of personal income tax is based on the so-called cedular system of taxation: different types of income are taxed at the different tax rates and different rules for assessment of tax base. At the end of the year, tax payers whose annual income generated throughout the year from all sources exceed certain thresholds are required to pay additional annual income tax.
The main types of income for which the PIT Law prescribes specific rules of taxation include salaries, income from immoveable property, income from capital (dividend, interest, capital gains), income generated from IP rights, and “other income” which is in a residual category including all other income not included in one of the specific categories (including also income generated by natural persons under service agreements).
The income tax and social contributions on employees’ salaries are paid on a withholding basis, so that the employer is liable for reporting and payment.
Property taxes
Holding of the immovable property situated in Serbia is subject to tax at 0.4% tax rate. The tax base is generally the fair value of immovable property, or market value of property assessed by the local tax authorities if a taxpayer does not evaluate property under the fair value. The market value is assessed on the basis of sales prices of immovable property in similar location as respective property. The local tax authorities publish the information on market values.
Natural persons pay taxes on immovable property on tax base representing the average value of the property. The average value of the property issues local tax administration for each year. The holder of property pays a tax at rate of 0.4%. Where the value of the property is over RSD 10 million immovable property is additionally subject to progressive tax rates: (i) from RSD 10 million to RSD 25 million at rate of 0,6%, (ii) from RSD 25 million to RSD 50 million at rate of 1% and (iii) over RSD 50 million at rate of 2%.
On land natural persons pay tax at 0.3% rate.
The transfer of immovable property is subject to property transfer tax at rate of 2.5%.
Tax treaties network
International treaties are important part of Serbian legal system, including in the area of tax and social security contributions. Ratified international treaties (bilateral and multilateral) have supremacy over national legislation.
Serbia has extensive network of more than 50 (60 at the moment) treaties on avoidance of double taxation treaties (DTT), including DTTs with almost all EU countries, Russia, all regional countries and number of Asian countries. DTTs applicable in Serbia are based on OECD Model Convention. In 2017, the Serbia signed a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). Serbia adopted MLI into its legal system as of 1 October 2018. Starting from its adoption, MLI started to apply between Serbia and 7 other countries signatories to the MLI (Austria, France, Lithuania, Poland, Slovakia, Slovenia, Great Britain)
Serbia also ratified social security conventions with some 29 countries, governing the rights and obligations in relation to social security of citizens of these countries in Serbia and vice versa.
Important source of tax law in Serbia are also international treaties governing other issues – primarily status of international organizations and financial institutions or development and financing of important infrastructural projects, which provide for specific tax rules in the areas covered by treaties. These rules are primarily related to various tax exemptions.
Tax incentives
The laws regulating the taxation of the income of legal entities and individuals prescribe various tax exemptions. The supplies exempted from the VAT are mainly the same as exemptions granted in the EU.
The resident legal entities which invests or in whose new fixed assets other entity invests more than RSD 1 billion (app. EUR 8.3 mil.), and which employs at least 100 new employees during the period of investment, has the right to the reduction of tax proportionally to the participation of new fixed assets in the existing fixed assets, for the period of ten years. This is significant tax exemption, which, in practice, may lead to the full tax relief.
Companies that invest into the capital of newly incorporated companies performing innovative activities may be entitled to tax credit in the amount of 30% of the investment, but no more than RSD 100.000.000 (approx. EUR 800,000). This tax credit can be used as an offset for corporate income tax in future periods, but no more than 5 years.
Research and development costs are recognized as an expense in double amount and marketing expenses are fully deductible for tax purposes.
A resident taxpayer can reduce its capital gains tax for capital gains tax paid abroad.
Income generated from the sale of copyrights will be regarded as capital gain. However, 80% of such an income would be exempt from capital gains tax.
80% of income from the use of deposited IP rights may be exempted from tax. This incentive applies to patents as well.
Tax losses may be carried forward and offset against taxable profit in the future tax periods, but not more than 5 years.
The refund of salary tax and social security contributions (“SSC”) for new employees is an incentive that was introduced with the Law on Personal Income Tax and Law on Mandatory Social Security Contributions. Depending on the number of new employees, the eligible employer has the right to the refund of the 35% - 75% of paid taxes and SSC (both, employer’s and employee’s portion) depending on the number of new employees.
In addition, micro and small enterprises are entitled to the refund of the 75% of salary tax and contributions if they employ at least two employees. The newly incorporated companies may apply for exemption from salary tax and SSC for salaries paid to the employed shareholders and entrepreneurs. The exemptions will start to apply from 1 January 2019. Salaries will be exempted from tax for the first 12 months of employment after incorporation up to RSD 37.000 net.
The salary of employed disabled individuals is exempted from taxes and contributions for the first three years of engagement.
The VAT Law prescribes the list of exemptions from VAT including two main principal groups of exemptions:
Exemptions with the right to deduction of input VAT (0% rates supplies) such as the export of goods, supplies made under international loan or donation agreements, international transport and similar.
Exemptions without the right to a deduction of input VAT including primarily public and financial services, but also a supply of land (agricultural, forest, or construction land).
The legal deadline for the refund of the excess input VAT is 45 days, but this deadline is usually not followed in practice by the Serbian tax authorities.
Taxation procedure and disputes
The Law on Tax Procedure and Tax Administration governs general rules governing the tax procedure, including the assessment and collection of tax, rights and obligations in relation to the tax system. Since the tax procedures are essentially administrative procedures, they are also governed by the Law on General Administrative Procedure, in parts that are not covered by the Law on Tax Procedure and Tax Administration and separate tax laws.
The tax disputes are resolved in front of the Ministry of Finance as a second instance authority. The final instance for tax cases is the Administrative Court that resolves the cases in the administrative dispute process.
The tax returns for main taxes are filed only electronically which reduces the costs and make the administration of the tax easier.
[1] If the tax rate under double taxation treaty does not apply.
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