Tax advisory

poresko savetovanje

Tax advisory is an area that has not received much attention in the business culture of Serbia. Some of the reasons for this are systemic because most employees do not pay attention to taxes, as the employer calculates and pays taxes and contributions on the earnings of its employees. Even companies did not pay enough attention to quality advice that can save on taxes, all in accordance with the law. However, tax incentives and tax reliefs for entrepreneurs and companies are increasingly being prescribed by the Serbian government, and with that came the need for counseling in the process of applying for these incentives.

For foreign investors, it is most important that there is a Double Taxation Avoidance Agreement that Serbia signed with the country from which the investor comes or where the holding company is located.

The founder of the law office, Stefan Pekić, is a certified tax advisor by the Serbian Chamber of Commerce, and as a lawyer, he raises tax advisory to a new level. Tax regulations require a comprehensive interpretation of the regulations of the Republic of Serbia, and very often the coordinated work of lawyers and accountants.

Double Taxation Avoidance Agreement

The Republic of Serbia has 63 Double Taxation Avoidance Agreements (DTAs) that are currently valid, and several more are in the process of negotiation or awaiting entry into force. These DTAs have been signed with all EU countries (except Portugal which is being negotiated), Canada, Switzerland, Russian Federation, Belarus, Israel, UAE, China, including Hong Kong, Japan, South Korea, Norway, Turkey, Singapore, and many other countries. Every Double Taxation Avoidance Agreement represents international tax law, and these treaties, like other sources of international law, are most often concluded between states. Double taxation is a situation in which two countries, the country of residence of the person (where the taxpayer lives) and the country of source of income (where the taxpayer acquired the right to the income), both intend to tax the same income. If both countries levy the tax, double taxation would occur. For this not to happen, the states conclude a Double Taxation Avoidance Agreement.

Countries with which Serbia has a Double Taxation Avoidance Agreement

The complete list of countries, as well as the text of each Agreement, can be found on the website of the Ministry of Finance: https://mfin.gov.rs/propisi/ugovori-o-izbegavanju-dvostrukog-oporezivanja.

Double Taxation Avoidance Agreement with the United States of America

The most economically important country with which Serbia did not conclude an Agreement is America, i.e. the United States. The reasons for this are known to the competent authorities of the Republic of Serbia and the USA.

One of the most specific is the Double Taxation Avoidance Agreement signed by Germany with Yugoslavia and the implementation of which was taken over by the Republic of Serbia by accession. This agreement is specific because it contains one article more than other Double Taxation Avoidance Agreements that Serbia has signed. All agreements generally have the same structure because they were negotiated taking into account the OECD model for such Agreements. Only Germany and Yugoslavia added one article during their negotiations. The Double Taxation Avoidance Agreement, ratified by Serbia and Germany, represents an important source of law in both countries due to the fact that a large number of our citizens live and work in Germany, as well as the fact that Germany is one of the largest, if not the largest, commercial partner and investor in Serbia. The Agreement serves both Germany and Serbia to protect their residents, and it is especially important for the above-mentioned groups of citizens and companies.

Tax incentives for corporate income tax

The Republic of Serbia is interested in attracting technological companies and stimulating the creativity of Serbian citizens in the field of IT technologies. Those efforts are primarily reflected in the introduction of tax incentives and effective reduction of corporate income tax, especially those engaged in research and development. Companies that engage in research anddevelopment-related activities assign the right to use their intellectual property to other companies and private individuals. The latter is called an IP box. The IP box is a tax incentive that allows income from the licensing of the right to use intellectual property (primarily patent and copyright, which includes software) to be taxed at an 80% reduced rate compared to other income, which effectively lowers the general tax rate from 15% to 3 % for the income specified in the IP box. This tax incentive was named IP box because IP stands for intellectual property, and these revenues are reported in a separate column or section (Box) in the books. The mentioned tax incentive was created for companies that have developed software as a service (SaaS), and generate income by licensing the right to use that software.

Tax benefits for entrepreneurs and legal entities

Entrepreneurs as well as legal entities (companies) exercise the right to tax benefits under the conditions prescribed by law, primarily the Law on Personal Income Tax. For example, Article 21g of the Law on Personal Income Tax prescribes a tax deduction for wages in relation to the employment of persons with disabilities. However, other articles also prescribe other tax benefits that refer to the earnings of other categories of employees.

Tax incentives for earnings

This tax incentive is divided into several different tax incentives prescribed by the Law on Personal Income Tax and the Law on Contributions for Mandatory Social Insurance. We will mention some of them.

  • Tax incentives for new employees (hiring new employees)

The Law on Personal Income Tax, Articles 21c to 21i, regulate tax benefits for new employees, i.e. for their earnings. The Serbian Tax Administration and the entire state administration of the Republic of Serbia are interested in the full application of this tax incentive for new employees, as well as all other tax benefits and incentives prescribed by law.

Several of the aforementioned articles prescribe various tax benefits for new employees, which allows the wages of those employees to be burdened with a lower amount of taxes and contributions. The ultimate goal of the Serbian government and the economy is a reduced tax liability, for the sake of greater employment, because each of these articles of the law prescribes a slightly different model of incentive for wages. For example, the tax relief for wages from Article 21d refers to the employment of new workers by an employer who is a micro or small legal entity or entrepreneur, while other reliefs can be used by other categories of employers.

  • Tax benefits for employment of newly settled persons in Serbia (i.e. foreigners and Serbians who lived abroad)

Tax benefits for a newly settled taxpayer, for example, a foreigner or a Serbian from abroad, are prescribed in Article 15v of the Law on Personal Income Tax. These tax benefits are reflected in the reduction of the income tax base of persons who came to Serbia after a permanent stay abroad. This article prescribes the conditions under which a person is considered a newly settled taxpayer. The Law on Contributions for Mandatory Social Insurance also prescribes which contributions are reduced on the same basis.

Value Added Tax (VAT)

Value-added tax is the most specific type of tax. Regulation in Serbia regarding VAT is largely aligned with EU regulations. The most common question that arises with VAT is the place of supply of services because the jurisdiction in which VAT will be applicable depends on the place of supply of services. In general, topics related to the application of VAT are often legal and require the interpretation of the law (the Law on VAT and the VAT regulations), so it is necessary to include a lawyer, as a tax advisor, in the analysis of regulations, especially since VAT is a form of tax that directly affects the price of goods and service.

Tax advisory

The law office Pekic provides legal assistance in the territory of the largest cities - Novi Sad and Belgrade - but also in other cities where entrepreneurs and legal entities need tax advice. If you need an attorney for tax advising, if you have a specific question related to tax law or if you want to take advantage of tax incentives and tax benefits for entrepreneurs and companies, to legally pay less tax, or if you want to know the price of legal assistance provided by our law office, write to us at [email protected], on Linkedin or fill out the contact form on the website.