The Serbian National Assembly passed amendments to the tax laws, introducing incentives for the IT sector, tax exemptions for the transfer of property under concession agreements and tax exemptions related to income from employee share plans.
Additionally, the new Law on Fees for the Usage of Public Goods Governing the Payment of Fees and Charges is also introduced. The Assembly also adopted amendments to the Law on Tax Procedure and Tax Administration and the Law on Inspection Supervision that are applicable in tax proceedings. The laws and amendments were passed on 7 December 2018, and most of changes will be applicable as of 1 January 2019.
Amendments to the Law on Corporate Income Tax
Amendments to the Corporate Income Tax Law ("CIT Law") introduce significant incentives for the IT industry. The amendments prescribe that expenses for Research & Development ("R&D") will be deductible for tax purposes in an amount double than that actually incurred. Research expenses are defined as original or planned research expenses undertaken for the purpose of acquiring new scientific or technical knowledge. Development is the application of the research results or other scientific achievements or the design of new materials, products or processes. More detailed definitions of R&D will be prescribed with the bylaws that are to be issued by the Minister of Finance.
In addition, the amendments provide that 80% of income from the use of deposited IP rights may be exempted from tax. Although not explicitly stated, the exemption will most likely be applicable to income from IP rights deposited at the Serbian authority. The benefit can be applied to income from patents as well.
A significant incentive for start-up investors is introduced. 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).
Income from the alienation of copyrights will be regarded as capital gain for tax purposes. However, the amendments prescribe a tax exemption from 80% of the capital gain tax that arises from the sale of deposited copyrights and related rights.
The amendments now explicitly prescribe that a resident taxpayer can reduce its capital gains tax for capital gains tax paid abroad.
The transfer of property from a private partner to an entity that granted the concession is exempted from capital gains if the total value of the concession agreement exceeds EUR 50 million.
New rules on tax depreciation prescribe that if the accounting depreciation is lower than the tax depreciation, then the amount of accounting depreciation is tax deductible. Also, a proportional method will be applicable for the depreciation of other fixed assets. New rules for the depreciation of fixed assets will start to apply for fixed assets acquired starting from 1 January 2019. Old rules for the depreciation of fixed assets for groups II to V, for tax purposes, acquired until 31 December 2018, will be applicable until 31 December 2028.
The amendments also prescribe that marketing expenses will be fully deductible for tax purposes, instead of up to 10% of the total annual income.
Amendments to the Law on Property Taxes
The amendments to the Law on Property Taxes ("PT Law") prescribe significant tax relieves in relaition to concession arrangements.
A private partner may be exempted from property tax for acquired property if the value of the concession agreement exceeds EUR 50 million. The property that may be exempted relates to the land acquired by the private partner under the concession agreement, as well as the facilities constructed on such land. The private partner may enjoy exemption if the land and the facilities will pass into the ownership of the Republic of Serbia or a state body that granted the concession after the expiration of the concession agreement.
The transfer of property by private partner to the concession grantor is additionally exempted from property transfer tax in cases when the concession agreement's value is above EUR 50 million. Similarly, transfer by a private partner to the concession grantor, without compensation, will be exempted from inheritance or gift tax.
The amendments also provide new rules on the commencement of the payment of property tax, and introduce the obligation of the payment of the tax for facilities under construction, and facilities constructed without a construction permit.
Taxpayers will still generally be able to enjoy tax exemptions from property tax for facilities constructed for further sale, but the amendments prescribe the limitation because the tax exemption will not be applied if the facilities are in use.
Tax on inheritance or gifts should be paid only for used vehicles, boats and airplanes. Used vehicles are defined as vehicles which have been registered in the Republic of Serbia at least once, starting from their production date or as of their last import into the Republic of Serbia.
The amendments further clarify the procedure for filing the tax returns for property taxes, property transfer tax and inheritance or gift tax with the notary public. The notary public is obliged to present this option to the taxpayer. If the taxpayer accepts that the notary public should file the tax return, the day of the filing of tax returns to tax authorities will be considered as the day when the taxpayer accepted this option. If the taxpayer refuses to file the tax return via the notary public, then the notary public will then immediately inform the authorities in charge on such a matter. In that case, the taxpayer will be obliged to file the respective tax return to the Tax Authorities within 30 days.
Amendments to the Law on Personal Income Tax and the Law on Mandatory Social Security Contributions
Amendments to the Personal Income Tax Law ("PIT Law") introduced a general tax exemption from salary tax for the acquisition of stocks or shares, and options on stocks or shares by employees from their employer and its related parties.
By exception, income related to the acquisition of shares may be subject to salary tax at a rate of 10% under the following conditions:
- if an employee sells stocks, shares or options within two years from their acquisition, or
- an employer or its related party purchases such stocks or shares from the employee, or
- at the termination of an employment agreement within two years after the acquisition of shares, stocks or options.
It is expected that the Minister of Finance will issue a rulebook with more detailed guidelines on tax exemption related to share plans acquired by employees.
For the purpose of the determination of capital gains tax, the purchase price of acquired stocks and shares through employee share plans will be the documented price. If the purchase price is not documented, it will be equal to 0.
Amendments to the PIT Law introduce a tax exemption for expenses related to the organisation of recreational events (team building). Tax exemption is applicable if the team building is organized under the formal decision of the employer, if this benefit is provided to all employees under the same conditions, and if a significant number of employees actually takes part in such activities.
The salaries of shareholders of newly incorporated companies, entrepreneurs and farmers will be exempted from salary tax in a period of 12 months. Exemption is granted only if the salaries do not exceed net RSD 37.000 monthly. Prior to the amendments, tax exemption was also applicable for employees of newly incorporated companies too, but is now abolished.
Amendments also prescribe that the exemption from capital gains tax for the sale of shares held at least 10 years may not be applied to sale of shares in the company for the purpose of acquiring of the company's treasury shares.
Under the amendments to the Law on Mandatory Social Security Contributions, the contribution for the protection from unemployment is reduced from 1.5% in aggregate to 0.75%.
Law on Fees for the Usage of Public Goods
After almost a year of public debate, the Serbian National Assembly passed the Law on Fees. This Law defines a fee base and a fee payer in terms of every fee individually, regulates the competency for control and collection, and prescribes penalties for the non-payment of fees.
The Law on Fees regulates fees for the following activities and/or use of public goods:
- geological research,
- usage of resources and reserves of minerals,
- energy usage,
- change of purpose of agricultural land,
- change of purpose and usage of forests and forest land,
- usage of species of wild animals protected by closed season,
- usage of natural medical factors,
- protection of environment,
- sail and usage of ports and security objects for sailing on state water roads,
- usage of public roads,
- usage of public rail infrastructure,
- usage of public areas,
- usage of tourist areas,
- electronic communication.
The fee for the protection and improvement of the environment will tackle only polluters, instead of all entities. It is levied up to 0.4% of the company's income. This is a significant change as it will lead to a substantial increase of the fee for business entities that will remain the fee payers.
The Law on Fees will start to apply as of 1 January 2019, except for the application of the provisions regulating fees for the protection and improvement of the environment (applicable as of 1 March 2019) and the fee for the pollution of water (applicable as of 1 January 2020).
Amendments of the Law on Tax Procedure and Tax Administration
Amendments to the Law on Tax Procedure and Tax Administration ("LTPTA") introduces the delegation of the Tax Administration's ("TA") competency in the area of games of chance to the Games of Chance Authority ("Authority"). The Authority is now authorised to apply the provisions regulating games of chance and to control the compliance of the business entities with the rules of games of chance. All rules regulating games of chance are now completely excluded from the LTPTA, and regulated by the Law on Games of Chance, which was also amended along with the LTPTA.
The TA will not be obliged to enable the taxpayers to participate in the tax proceedings if the tax is being determined under the documents obtained from the competent state authorities and public notaries. This represents a harmonisation of the tax laws with the recent implementation of the obligation of public notaries to submit tax returns for property taxes on behalf of their clients.
Amendments to the Law on Inspection Supervision
Amendments to the Law on Inspection Supervision ("IS Law") introduced concealed purchase as a method for providing evidence in the inspection proceedings. Inspectors shall be authorised to buy products or services from business entities without the obligation to identify themselves as state officers. After an inspector purchase the product or service, they will have to identify themselves and to deliver a written order for inspection supervision. Documents on concealed purchases may be used as evidence in the upcoming inspection proceeding.
Amendments which should affect the efficiency of the inspection supervision proceedings have been also introduced. For instance, the deadline for the delivery of the notification on the upcoming inspection supervision has been shortened from three working days to three days. Also, it will not be mandatory to issue a notification if there is a risk that the supervised business entity will destroy or reconstruct a document or other records that may be used as evidence in the inspection proceedings. The deadline for the delivery of the minutes on the inspection supervision has also been shortened from eight working days to eight days.
The amendments also introduced misdemeanours for: (i) business entities that do not enable the conducting of the execution of enforceable resolution issued by the inspector, and (ii) the second instance authority in case it annuls the first instance resolution and remands the proceeding back to the first instance authority for the second time, instead of acting upon it in the second instance proceeding.
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this document does not constitute legal advice on any particular matter and is
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