Taxes in Serbia are similar to taxation throughout the EU. This is amplified concerning the Value-added tax (VAT), because Serbia, as a country seeking to join the EU, undertook an obligation to harmonize its VAT regulation with the EU regulation in that respect. There are some specific differences, but the overall VAT system in Serbia is harmonized with the EU.
Taxes in Serbia for foreigners
With respect to foreign investment, Serbia ratified 63 double taxation avoidance conventions or double taxation treaties (DTA) which are currently in force while the application of treaties with several other countries is pending. These DTAs are signed with all of the EU countries (except with Portugal, which is being negotiated) - Canada, Switzerland, Russian Federation, Belarus, Israel, UAE, China, including Hong Kong, Japan, South Korea, Norway, Turkey, Singapore, and many others.
These DTAs regulate critical topics for foreign investors, such as the right of Serbia or the counterparty to tax dividends, usage of IP, company profits, and other types of taxes. Foreign investors, from the countries with which Serbia has DTA, have legal certainty and may transfer their gains abroad, via dividends, or approve a loan from abroad for their subsidiaries in Serbia and collect principal with interest, taxable in accordance with the applicable DTA.
Taxes in Serbia are not quite different for foreigners in relation to citizens of Serbia.
List of most important laws regulating taxes in Serbia for companies
• Law on personal income tax
• Law on contributions for mandatory social security
• Law on corporate income tax
• Law on Value-added tax (VAT)
Company tax in Serbia
When starting a company in any country main concern are, naturally, the taxes which the company should pay. Generally speaking, there are three main concerns concerning taxes in Serbia.
1. Corporate income (profit) tax
Corporate income tax in Serbia (sometimes referred to as corporate profit tax or company tax) is due and payable on the difference between business income and business expenses in the books (taxable income). The tax rate is 15% flat.
Corporate income tax or company tax in Serbia can be lowered for a certain types of companies. Innovative companies, doing R&D in Serbia can get their business expenses recognized as double what the company spent, which means every euro spent on R&D is recognized in the books as two euros for business expense purposes. Thereby, business expenses are increased, effectively lowering taxable income. Another tax incentive for reducing company tax in Serbia is the internationally well-known “IP box“. IP box allows companies to separately classify their income from licensing intellectual property (software, films, patents, etc.). This tax incentive enables companies to lower their corporate income tax by 80%. This tax incentive is great for tech, SaaS, and other innovative companies.
This is just one example, as there are other tax incentives applicable to various types of businesses.
2. Value-added tax (VAT) in Serbia
Value-added tax in Serbia is largely harmonized with the EU regulation on VAT. The reason for this is the fact that Serbia signed Stabilisation and Association Agreement with the EU and undertook obligations to harmonize its regulation in many areas, including the VAT. The general tax rate in Serbia is 20% with several exceptions to which a 10% rate is applicable. Moreover, there are certain types of activities to which VAT is not applicable (for instance medical clinics).
3. Personal income tax and contributions for mandatory social security in Serbia
Serbia's Personal Income Tax Law applies to all individuals who earn income in the country. The personal income tax rate is a flat rate of 10%. This means that regardless of the amount of income earned, the tax rate remains the same. It's important to note that there are some exceptions and deductions that can be applied to reduce taxable income, especially for employees in R&D, newly hired employees who were unemployed previously for a certain period, hiring people with disabilities, etc.
In terms of mandatory social security contributions, all employees and employers are required to contribute to the social security system in Serbia. Specific rates, at the time of drafting this text, are the following. The contribution rate for pension is 24%, healthcare is 10.3%, and 0,75% for unemployment insurance, of the employee's gross income. There are nuances to these calculations and application of tax rates, but for informational purposes, employers may use 60%, applied on the net income of the employee, as a rule of thumb to calculate the total expenses of hiring an employee. For instance, if the net salary is 1000 euros, the gross burden (net salary plus tax and contributions) is around 1600 euros. That is if none of the tax incentives are applicable.
Tax advisor in Serbia
Individuals and businesses in Serbia need to stay up-to-date with these regulations to ensure compliance and avoid any penalties or legal issues. Seeking advice from a professional with expertise in Serbian tax and social security laws can help ensure that all obligations are met and any applicable deductions are applied.
If you are looking to invest in Serbia, start the process of a company formation in Serbia , and wish to know your liabilities beforehand or if you have a specific question regarding taxes in Serbia and want to optimize your tax liability in Serbia, do not hesitate to contact our law office via email at [email protected], via the contact form on our website or via LinkedIn.
After all, no one should pay taxes more than they owe.