At one of the last sessions, the Serbian Parliament adopted amendments to the tax laws governing the taxation of companies and natural persons, as well as general tax procedures. The main driver for the reform was the introduction of the taxation regime for digital assets and open-end and alternative investment funds.
Also, as part of a long-lasting initiative, the Draft Law on Administrative Procedures Register has been published with the aim to establish a public electronic database for all administrative procedures led by authorities and it is expected to be adopted soon.
Tax treatment of Digital Assets
The newly adopted Law on Digital Assets raised numerous questions about the tax treatment related to their holding and trading. As a response, key stakeholders led by the Ministry of Finance proposed amendments to the series of domestic tax laws, which were recently adopted by the Serbian Parliament.
The most important amendments relate to the following:
- Value Added Tax Law (‘VAT Law’) – Transfer or conversion of cryptocurrency for cash will be VAT exempt without the right for deduction of input VAT.
- Corporate Income Tax Law (‘CIT Law’) – Sale or other transfer against consideration of digital assets by legal companies will be subject to capital gains tax at the rate of 15%. However, there is a tax incentive if the gains are invested into the share capital of a Serbian legal entity or investment fund.
- Personal Income Tax Law (‘PIT Law’) – Similar to the CIT Law, sale or other transfer against consideration of digital assets by individual taxpayers will be subject to capital gains tax at the rate of 15% on the positive difference between contracted price, i.e. market value and acquisition value of the digital asset. Generally, acquisition value is documented actually paid price. In the case of digital assets acquired through ‘mining’, or from the employer through a share plan, acquisition value would be determined under specific rules. PIT Law prescribes tax exemption for 50% of realised capital gains gain is invested into the share capital of a Serbian legal entity or investment fund.
- Law on Property Taxes (‘PT Law’) – Digital assets will be subject to inheritance and gift tax at the rate of 2.5%, whereby the tax base is the market value of digital assets at the moment they are inherited/gifted. Property tax and property transfer tax do not apply to digital assets.
These amendments will be applicable from 1 July 2021 when Law on Digital Assets will start to apply.
Tax Treatment of Investment Funds
Amendments to the Law on Tax Procedure and Tax Administration (“LTPTA”) introduce open-end and alternative investment funds, which do not have the status of a legal entity and which are registered in the appropriate register (‘Investment Funds’) to the tax system in Serbia. Investment Funds are considered taxpayers, and their tax obligations are settled from its assets by the Investment Fund management company. As taxpayers, Investments Funds have all the rights and obligations in line with the LTPTA (need to obtain the tax identification number, submit tax returns, pay taxes, have a right to requests a deferral of tax payment, etc.).
LTPTA amendments provided a general framework for the taxation of Investment Funds and were followed with changes to major tax laws:
- CIT Law now prescribes that gains realised on the sale or other transfers against consideration of investment unit are subject to CIT on capital gains, regardless if it is an open-end or alternative fund.
- the net asset value of the Investment Fund upon its dissolution, which is distributed to its members in proportion to their investment units, should be considered a capital gain and included in the tax base in the amount of 50%.
- Income generated by the non-resident based on membership in an alternative investment fund that does not have the status of a legal entity, should be is considered a dividend, and taxed on a withholding basis (unless otherwise prescribed by a relevant double taxation treaty).
- PIT Law now specifies that income from the investment unit of an open-end investment fund, as well as income generated on the basis of ownership over investment unit in an alternative investment fund, is considered capital income.
- Also, a positive difference between net assets value and acquisition value of investment unit of an open-end or alternative Investment Fund which is being distributed to Investment Fund’s members upon its dissolution is treated as a dividend and taxed accordingly.
- Similar to CIT Law, PIT Law now prescribes that gains realised on the sale or other transfers against consideration of investment units of Investment Funds are subject to PIT on capital gains. However, a taxpayer who makes an investment in an alternative investment fund, i.e. purchases an investment unit of an alternative investment fund during the year, may be granted a tax credit (in certain %) for the annual personal income tax.
- VAT Law and PT Law introduced Investment Funds as taxpayers in line with general conditions prescribed by these laws.
Most amendments apply as of 1 January 2021.
Other important amendments
Apart the amendments aiming to regulate the taxation of digital assets and transactions involving investment funds, other significant changes are as follows:
- Introduction of electronic submission of the request for tax refund and deferral of tax payment through the e-Porezi platform as of 1 January 2021.
- Possibility to settle tax liability exceeding RSD 50 million by transferring the property to the tax authorities instead of making a payment in exceptional cases.
- Introduction of specific tax criminal act of VAT evasion which may be committed if taxpayer deliberately deducted input VAT or obtained VAT refund contrary to the law if VAT amount is RSD 1 million or more in the twelve-month period.
- PIT Law
- The non-taxable amount of salary is increased to RSD 18,300 per month.
- The deadline for tax incentive (reimbursement of 65% to 75% of the salary tax paid for the earnings of newly employed persons), is extended until 31 December 2021.
- The exemption is introduced for income from the special games of chance, as well as from special games of chance when they are organized through the means of electronic communication, in line with the Law on Games of Chance.
- It is specified that a person assigned by a foreign employer to work in Serbia with a local employer is obliged to pay salary tax on salary and other income he/she receives from the foreign employer, through self-taxation. Only in the case when the salary tax is not previously paid through self-taxation, a local employer that pays the expenses of the assigned employee’s salary to the foreign employer is obliged to calculate and pay the salary tax on a withholding basis.
- Tax procedures regarding withholding salary tax on assigned employee’s income and those regarding tax on income from games of chance, that have not been completed by the entry into force of the PIT amendments, will be regulated by the amended PIT Law.
- VAT Law
- Possibility for VAT payers to use electronic invoice if the recipient agrees to accept the invoice in this form. Exceptionally, where the electronic invoice is mandated by the law, such acceptance will not be required.
- VAT payers engaged in the trade of second-hand goods, works of art, collectors’ goods and antiques are enabled to opt whether to apply the general or special taxation procedure, for each specific transaction.
- For the taxpayers who achieved a total turnover exceeding the RSD 8 million thresholds in the previous twelve month period, but failed to submit the VAT registration application within the prescribed deadline, such registration application will be submitted by the competent tax administration ex officio, and the taxpayer will be entitled to deduct VAT as of the registration date.
- Tax exemption is prescribed for the sale of goods that are in the process of inward processing for which the taxpayer-acquirer would be entitled to deduct previous tax if he procured those goods with calculated VAT.
- Transfer of movables performed with the transfer of real estate is not considered as an ancillary transaction while renting or leasing of real estate is not considered as the ancillary provision of services.
- PT Law
- Inheritance, gift and property transfer tax will be transferred under the competence of local tax administrations as of 1 January 2022.
Draft of the Law on the Register of Administrative Procedures
The main purpose of the new Law on the Register of Administrative Procedures (“Law on Administrative Register”) is to establish a safer, more transparent and predictable business environment and to reduce the share of total administrative costs in GDP.
In short, the Law on Administrative Register aims to establish the Register of Administrative Procedures (“Register”), which will be a publicly available electronic database of all administrative procedures conducted by the public authorities and will be available to the general public upon request.
The draft defines the competence for the establishment and maintenance of the Register, the principles of conducting procedures in the register, an entry in the register, as well as penalties for the competent administrative body in case of non-compliance with the provisions.
The goal is to have the Register which includes all procedures towards natural and legal persons no later than 1 January 2025, when it should be made available on the website.