Belgrade has become very attractive destination for doing business, due to operating costs which are lower in Belgrade than in other large cities in Central and Eastern Europe. Serbia’s tax regime is highly conducive to doing business. Corporate profit tax is the second lowest in Europe, while VAT, salary tax, and social insurance contributions are among the most competitive ones in Central and Eastern Europe.
Corporate Profit Tax Rate
Corporate profit tax rate in Serbia is among the lowest in Europe and it is set at 10%. The tax base is the taxable profit shown in the tax balance sheet. Capital gains are recognized for the purpose of corporate income tax assessment. Capital gains are generated by the sale or transfer of real estate, rights related to industrial property, as well as shares, stocks, securities and certain bonds. In addition, the withholding tax is calculated and paid at the rate of 20% on various forms of income (dividends, shares in profits, royalties, interest income, capital gains, lease payments for real estate and other assets) by a non–resident.
Value Added Tax Rate
The taxable base is the fee for products and services sold, including customs duties, excise taxes paid, transportation and insurance costs or any other cost relating to the sale of goods and services. Tax liability arises on the first day that any of the following events occur:
– The sale of goods and services;
– The collection of a fee, if the fee or a part of the fee has been collected prior to the sale of goods and services;
– On the date of the origin of customs duties (in case of imported goods).
The VAT is payable at each stage of the turnover of goods and services, as well as on the import of goods. The taxable base is the price of sold products and services. The tax rates prescribed by the VAT Law are as follows:
– The standard VAT rate – 18% (applicable for most taxable
– The lower VAT rate – 8% (applicable for basic food goods, daily newspapers, communal services, etc.).
In addition, a 0% tax rate is applicable in two cases:
– With the right for the deduction of input VAT – export of goods, international air transport;
– Without the right of deduction of input VAT – trading with shares and securities, insurance and reinsurance, the lease of apartments and business premises and others.
Personal Income Tax
The personal income tax rate is 12% for salaries, while other personal income is predominantly taxed at the rate of 20%. Personal income tax is payable by individuals on different sources of income generated throughout the calendar year. In case of personal income tax on salaries, the person taxed is the employee, but the employer is responsible for calculating and paying personal income tax on behalf of his employees. The taxable base is the gross salary, which includes the net salary and social security contributions.
Annual Income Tax
For non-Serbian citizens, the annual income is taxed if exceeding the amount of 5 times the average annual salary in Serbia. The tax rate is 10% for the annual income below the amount of 8 times the average annual salary, and 15% for the annual income above the amount of 8 times average annual salary. The taxable income is further reduced by 40% of the average annual salary for the taxpayer and by 15% of an average annual salary for each dependent member of the family. The total amount of deductions cannot exceed 50% of the taxable income.
The rate of property tax depends whether the taxpayer maintains business accounts. For taxpayers maintaining business accounts, the rate is 0.40%. For taxpayers who do not maintain business accounts, the rate is progressive and depends on the tax base. Legally, the property tax applies to immovable property where an individual has rights of ownership, usufruct, residence, utilization, a long term lease holding (for a period longer than 1 year), and utilization of city building land with an area of more than 10 acres. In this case, immovable properties are considered to be residential and commercial buildings, office space, garages, buildings, and recreational space.
Tax rate on transfer of ownership rights is as follows:
– A 5% tax rate is applied to transfer of ownership rights of real estate and other taxable property,
– Except for the transfer of rights over agricultural, forest land and used motor vehicles where it is set at the rate of 2.5%.
Tax rate on transfer of absolute rights are proportional and are as follows:
– For transfer of shares in legal entity and stocks and bonds: 0.3%;
– For transfer of other absolute rights: 5%.
Tax Incentives in Serbia
20% Tax Credit – The amount of tax due can be reduced by 20% of the amount invested in fixed assets for the respective tax period. This reduction cannot exceed 50% of the total tax liability and can be carried forward for a maximum period up to 10 years.
80% Tax Credit – A large number of sectors are entitled to receive a tax credit in the amount of 80% of the investment in fixed assets. The unused part can be carried forward for 10 years.
40% Tax Credit for SMEs – Tax credit of 40% is granted for fixed assets investments in the current year and may not exceed 70% of the tax due.
Incentives for Employing New Workers
A two-year tax reduction amounting to 100% of gross salaries and related employee contributions is available for the employment of new workers, providing that their number is not reduced during this period.
Tax Break for Large Investors – Companies are exempt from corporate profit tax for a period of 10 years starting from the first year in which they report taxable profit if:
– They invest in fixed assets an amount exceeding RSD 600 million (approximately €7 million), and
– They hire at least 100 additional full-time employees during the investment period.
Tax Exemption for Concessions
5-Year Tax Break – A 5-year corporate profit tax holiday is granted for concession-related investments starting from the day the concession investments have been completed. No tax is due if income is derived before the completion of the concession investment.
Carrying Forward of Losses
10-year Transfer – The tax loss stated in the tax return can be carried forward and offset against future profits over a period of 10 years.
25% Higher Rates – The taxpayer has the right to accelerated depreciation of fixed assets at rates of up to 25% above the prescribed ones. This tax relief is provided for fixed assets that are used for ecological purposes, as well as for scientific research, education and staff training, and computer hardware.
Avoiding Double Taxation
If a taxpayer already paid tax on the profit generated abroad, he is entitled to a corporate profit tax credit in Serbia in the amount already paid.
The same right is enjoyed by a taxpayer who earns revenue and pays personal income tax in another country, provided there is a Double Taxation Treaty with that country.