The most important changes to the current provisions concern introduction of tax incentive for investments made in equipment and production facilities. Incentive will start to apply from 1 January 2020. Other changes relate to avoidance of double taxation of written-off and subsequently collected receivables, deductibility of impairment expenses, and deductibility of the depreciation for investments in fixed assets of other entity. Most of the provisions are already in effect and applicable from 17 July 2019.
The amendments bring changes with respect to the tax credit for investments in production, with the aim of creating preconditions for more successful investment in manufacturing activities. A taxpayer that invests in equipment and facilities for production activities, will be entitled to a decrease of the tax base for the value of the investment made. The Ministry of Finance will determine the activities that will be considered as production activities based on the Decree on the classification of activities of the Republika Srpska. According to the current law, the tax credit in amount of 30% of the tax liability is available for taxpayer who invests at least half of its profit into equipment, facilities and real estate in the RS.
The decrease of the tax base is conducted in the tax year in which equipment and facilities have been put in operation. Also, the amendments prescribe that taxpayer cannot reduce tax base for the value of equipment and facility received without consideration. In case that the taxpayer sells or leases the assets in the first three years as of the date of first use it will be obliged to pay the tax which would be paid it he was not using the right for decrease of the tax base. The decrease of the tax base will not be possible for the investment in the real estate necessary for the production activities.
The amendments prescribe that the income from collection of receivables that were previously written-off and not deductible should not increase the tax base.
According to amendments, expenses from impairment of inventories will be deductible for tax purposes in the tax year in which such inventories are sold or written-off.
Taxpayers investing into assets of other entity may deduct expenses of depreciation of such assets for tax purposes, provided that such investment increases the purchase price of the assets and that the rent that taxpayer pays under the lease agreements is not reduced for the value of investment.
Amendments also prescribe that taxpayer may choose to apply tax year that is different than calendar year. It is expected that the Ministry of Finance issues a rulebook governing procedure for change of tax year.
The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.