Income Tax in Serbia
Personal Income Tax Serbia:
The annual tax return should be filed not later than 15 May of the following year. Starting from 1 April 2015 only electronic submission is allowed. Tax year is calendar year.
An individual is deemed to be a resident of Serbia if he/she has a permanent home or center of business and vital interests in Serbia or if he/she stays in Serbia permanently or in intervals at least 183 days during the period of 12 months beginning or ending in the respective taxation year.
There are special rules for counting the number of days when residency starts or ends. Namely, the departure and the arrival days are counted as the days spent in Serbia, as well as any other day spent in Serbia (except days spent in transit through Serbia).
The days the assignee is in the country before his/her assignment begins would not be counted for purposes of computing the 183-day period.
Residents are taxable on their worldwide income, whereas non-residents are taxable on their Serbian-sourced income and worldwide income related to their work in/for the Republic of Serbia.
Tax rates are flat, range from 10% to 20%, and the definition of the taxable base depends on the type of income.
Supplementary annual taxation:
Annual tax is the additional tax in Serbia. If the individual is a Serbian tax resident, one is subject to Serbian annual tax on one's net worldwide income exceeding a prescribed threshold, whereas Serbian tax non-residents are liable to report their Serbian-sourced annual net income.
The progressive rates apply depending on the income level. For the taxable income exceeding prescribed thresholds, between three and six times the average annual salary*, the tax rate is 10%. For net income exceeding six times the average annual salary*, the tax rate is 15%.
Employment income remains subject to withholding tax (WHT) at a 10% flat rate after deducting the RSD 15,000 non-taxable salary cap. The taxable base is gross salary, including fringe benefits.
Other types of income (e.g. royalties, business income, income from agriculture and forestry, investment income, income from immovable property, capital gains, miscellaneous income) are subject to a flat rate tax that ranges from 10% to 20%, depending on the type of income concerned.
Any taxpayer who earns a salary and other revenues in or from another state, a diplomatic or consular mission of a foreign state, or an international organisation, or representatives of such a mission or organisation, shall calculate and pay WHT in accordance with the Law, provide tax has not already been charged and paid by the payer of the revenue.
The taxable person is the employee, but the employer is responsible for calculating and withholding PIT on behalf of its employees at the moment of salary payment.
The taxable base is gross salary reduced for the non-taxable salary cap of RSD 15,000 and includes fringe benefits such as company-provided housing and use of a company’s car. Use of a company’s car for both private and business purposes by an employee is taxed as salary, at a tax base equal to 1% of the car’s market value on 31 December of the previous year for each month of use. The taxable base for company-provided housing is the relevant rent fee available on the market in the location where the apartment in question is situated.
The taxable base also includes social security contributions on behalf of the employee.
Agricultural and forestry income:
As of 31 May 2013, income from agriculture and forestry is categorised as income from entrepreneurial work (i.e. self-employment income).
Income from self-employment:
Income from self-employment includes income generated from business activity and provision of professional and/or intellectual services, as well as revenue from other activities, unless such income was taxed on some other grounds under the present Law.
In addition, any individual who is a registered VAT payer is considered to be a taxpayer on income realised from self-employment.
If a sole-proprietor is unable to keep books, or in the case of certain other difficulties, the so called ‘lump-sum’ tax will be applicable.
Income subject to tax as capital gains includes income generated by the sale or other transfer with consideration of the right of ownership to real estate, permanent right of use of an urban land building, intellectual property rights and share in the assets of legal entities, and shares and other securities, other than bonds.
The taxable base is the difference between the sale price of rights, securities, shares, and their purchase price adjusted in accordance with the provisions of the PIT Law.
The tax rate applicable to capital gains is 15%.
Income subject to tax as investment income includes interest on loans, savings, and other deposits, dividends/shares in profits, receipts on a profit sharing basis, and taking from the assets and using the services of the company by the company’s owner for one’s personal needs, as well as the revenues from real estate (immovable property).
Tax is not payable on the interest accrued from savings in Serbian dinars and on government bonds.
The tax base for all types of investment income is considered to be the total gross amount of such income.
The tax rate applicable to investment income is 15%.
The tax rate applicable to real estate income is 20%.
Income subject to tax as royalty income includes revenue from copyrights, rights related to copyright, and industrial property rights.
The taxpayer is an individual who acts as a copyrighter, holder of rights related to copyright, or owner of industrial property rights and receives remuneration for any of these rights.
The tax base is the difference between gross revenue and cost incurred by the taxpayer in generating and preserving the income. Standard costs are used to reduce taxable base, and are equal to 50%, 43%, and 34% of the gross income, depending of the type of royalty.
The tax rate applicable to royalty income is 20% after deduction of standard cost.
Special types of income, up to prescribed amounts, are tax exempt. Such income includes public transportation costs incurred by an employee for home-to-office travel and daily allowances for business trips.
In certain cases, non-residents working for diplomatic and consular missions or international organisations in Serbia are not taxed on their remuneration.
The following benefits are not included in taxable income in Serbia:
· reimbursement of expenses for accommodation on a business trip up to the amount of actual expenses
· commuting costs up to the public transport monthly ticket price, but not more than RSD 3,612 (as of 1 February 2015)
· allowances for the use of a private car for business purposes up to the amount of 30 percent of a petrol liter price per driven kilometer, but not more than RSD 6,322 per month (as of 1 February 2015)
· pension severance payment in the amount of two average monthly salaries in Serbia
· damages received from property and personal insurance
· death and funeral costs compensation up to limited amount
· compensation for damages from natural disasters.
Certain expenses for accommodation:
Certain expenses for commuting costs:
Commuting costs are recognized in Serbia up to the public transport monthly ticket price, but not more than RSD3,612.
Allowances for ground transportation:
Certain funds from property and personal insurance:
Property insurance damages, other than indemnity for lost profit, as well as personal insurance damages for damage suffered, unless damages were covered by the person who caused damage are recognized as tax-exempt income in Serbia.
Allowance given in the event of death of an employee to immediate members of his/her family or retired employee is tax-exempt income up to RSD 63,214.
Natural disaster compensation:
Allowance given because of destruction of or damage to property as a consequence of natural disasters or other extraordinary occurrences is not recognized as taxable income in Serbia.
Corporate Income Tax:
Corporate income tax:
Companies resident in the Republic of Serbia (RS) are subject to tax on their worldwide income. A company is resident in the RS if it is incorporated in the RS or if its central management and control is actually exercised in the RS. Nonresident companies are subject to tax only on their income derived from the RS. Nonresident companies are companies registered in other countries that have a permanent place of business in the RS. Foreign representative offices may not derive profits from their activities in the RS. However, if they do derive such profits, the profits are subject to tax in the RS.
Rate of corporate income tax:
The rate of corporate income tax in the RS is 15%.
A company qualifies for a 10-year tax exemption if it invests RSD1 billion (approximately EUR8 million) in its own fixed assets and if it employs at least 100 new workers in the period of investment.
Under the Personal Income Tax Law and the Law on Compulsory Social Security Contributions, companies may be partially exempted from paying salary tax and employer social security contributions for newly employed individuals and disabled persons under the conditions specifically mentioned in the legislation.
Capital gains derived from the disposal of the following are included in taxable income and are subject to tax at the regular corporate income tax rate:
Real estate that the taxpayer uses or used as a fixed asset in its business activities, including real estate under construction
Industrial property rights:
Capital participations and shares and other securities that are, according to International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), long-term financial investments (except certain bonds issued by government bodies or by the national bank)
Investment units purchased by investment funds, in accordance with the law regulating investment funds
Capital gains tax is also imposed on income derived by nonresident companies from disposals of the aforementioned assets (except industrial property rights) and real estate in the RS that were not used as fixed assets in conducting business activities. These gains were previouslysubject to a 20% tax rate.
Capital gains realized by resident companies may be offset against capital losses incurred in the same year, and net capital losses may be carried forward to offset capital gains in the following five years.
The tax year is the calendar year. Exceptionally, at the taxpayer’s request, the tax period may be set within any 12 months, subject to the tax authorities’ approval.
Companies must file annual tax returns within 180 days after the expiration of the period for which the tax liability is determined (usually by 30 June of the year following the tax year), except in cases of statutory changes (transactions resulting in the cessation of the legal entity), liquidation and bankruptcy. In such circumstances, companies must file returns within the following periods:
· Sixty days from the date on which the liquidation proceedings began or were completed (the companies must file two tax returns; one is related to the period before the beginning of the liquidation proceedings, while the second return covers the period during the liquidation proceedings)
· Sixty days from the date on which the bankruptcy proceedings began
· Sixty days from the date of the beginning of the implementation of the reorganization plan
Companies must make monthly advance payments of tax by the 15th day of the month following the month for which the payment is due. Companies determine advance payments based on their tax return for the preceding year. Under a self-assessment system, companies must correctly assess their tax liabilities to avoid the imposition of significant penalties.
Companies may submit an interim tax return during the tax year to increase or decrease their monthly advance payments of tax if significantly changed circumstances exist, such as changes to the company’s activities or to the tax rules.
At the time of submission of the annual tax return, companies must pay any positive difference between the tax liability calculated by the company and the total of the advance payments. They may receive a refund of any overpayment, or the overpayment may be treated as a prepayment of future monthly payments.
Resident companies include dividends received from its nonresident affiliates in taxable income.
Corporate and dividend taxes paid abroad may be claimed as a tax credit up to the amount of domestic tax payable on the dividends. Any unused amount can be carried forward for offset against corporate profit tax in the following five years. This tax credit applies only to dividends received by companies with a shareholding of 10% or more in the payer for at least one year before the tax return is submitted.
A 20% withholding tax is imposed on dividends paid to nonresidents.
An applicable double tax treaty may provide a reduced withholding tax rate for dividends. To benefit from a double tax treaty, a nonresident must verify its tax residency status and prove that it is the true beneficiary of the income.
Foreign tax relief:
Companies resident in the RS that perform business activities through permanent establishments outside the RS may claim a tax credit for corporate income tax paid in other jurisdictions, up to the amount of domestic tax payable on such income. In addition, resident companies are entitled to a tax credit for tax on interest income, income from lease fees, royalty income and dividend income (shareholding less than 10%) that is withheld and paid by nonresident income payers in other jurisdictions. The tax credit is available up to the amount of domestic tax payable on a tax base equal to 40% of foreign-source income that is included in the total income of the resident company.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.