THE REPUBLIC OF SERBIA

NEGOTIATION CHAPTER 16 - TAXATION

CORPORATE PROFIT TAX LAW

 CONTENT
(1/2)

1. Legislation of the Republic of Serbia

2. Taxpayers
3. The subject of taxation
4. Tax base
5. Adjustment of expenditures
6. Income adjustment
7. Capital gains and losses
8. Tax treatment of operating losses
9. Tax period

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 CONTENT
(2/2)

10. Tax rate

11. Tax incentives
12. Elimination of double taxation of the profit earned in another
state
13. Group taxation – tax consolidation
14. Transfer prices
15. Determination and collection of corporate profit tax
16. Incomes subject to withholding tax, (exceptions made by a
ruling)

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 1. LEGISLATION OF
THE REPUBLIC OF SERBIA

• Corporate Profit Tax Law („Official Gazette of the RS”, Nos. 25/01, 80/02
– other law, 80/02, 43/03, 84/04, 18/10, 101/11, 119/12, 47/13, 108/13,
68/14 – other law and 142/14 - hereinafter: the Law)

• Bylaw regulations governing certain provisions of the Law

• Other regulations governing certain issues directly related to this Law (e.g.
companies law, tax procedure and tax administration law, the law
governing royalties)

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 2. TAXPAYER

• Resident of the Republic of Serbia – legal entity which is founded or has its
head office of effective management and control situated in the territory of
the Republic of Serbia, and which is in the form of:
− A company, an enterprise, or other legal entity established for performing
profitable business activity;
− A cooperative which earns its income by selling products on the market or
providing services for a fee;
− A non-profit organization, if such organization earns its income by selling
products on the market or providing services for a fee.

• Non-resident of the Republic of Serbia - legal entity which is founded and

has its head office of effective management and control situated outside the
territory of the Republic of Serbia, subject to taxation for any profit it
generates through a permanent establishment, or any other non-resident
legal entity in the sense of this Law.
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 3. SUBJECT OF TAXATION

• Of a resident– profit earned in the territory of the Republic of Serbia and

outside that territory;

• Of a non-resident:
− profit generated through a permanent establishment situated in the territory
of the Republic of Serbia
− certain incomes earned in the territory of the Republic of Serbia, without the
mediation of a permanent establishment, and which are subject to
withholding tax (exceptions made by a ruling)

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 4. TAX BASE

• Corporate profit tax base shall be taxable profit.

• Taxable profit shall be determined in the fiscal balance sheet by adjusting the
taxpayer's profit declared in the income statement which has been drawn up in
conformity with the International Accounting Standards (hereinafter: IAS),
International Financial Reporting Standards (hereinafter: IFRS) and regulations
dealing with accountancy and audit, in the manner determined by this Law.
• Taxable profit of a taxpayer who does not apply the IAS and/or IFRS pursuant to
regulations governing accounting and auditing, shall be determined in the fiscal
balance sheet by adjusting the taxpayer’s profit, declared in accordance with the
method of recognizing, measuring and estimating the revenues and expenditures
prescribed by the Minister of Finance, in the way provided by this Law (a non-profit
organization and a permanent establishment of a non-resident taxpayer).
• Taxable profit of a taxpayer in the bankruptcy proceedings shall be determined as
the positive difference of the taxpayer’s assets at the beginning and at the end of the
bankruptcy proceeding, after paying off creditors.

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 5. ADJUSTMENT OF EXPENDITURES

• The following shall not be recognized as a charge to expenditures (e.g. non-documentable

expenditures; adjustments of individual claims from persons that are also creditors, up to the
amount of the claim; gifts and donations to political organizations; gifts to an associated
person; expenditures charged to interest rates and the related costs of the loan approved to a
permanent establishment by its non-resident head office; costs of royalties, and industrial
property right which a permanent establishment pays to its non-resident head office)

• The following shall be recognized as a charge to expenditures, up to the amount stipulated by

the Law (e.g. investments in the field of culture and movie and video production shall be
recognized as expenditures, amounting up to 5% of the total revenue; the expenditures on
advertising and publicity amounting up to 10% of the total revenue; long-term reservations for
issued guarrantees and other securities up to the utilized amount of such reservations during a
taxation period, and settled commitments and resource outflow based on such reservations; tax
depreciation)

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 6. INCOME ADJUSTMENT

The following shall be exempt from tax base:

− Any income which resident taxpayer earned from dividends and a share in
the profits of another resident taxpayer;
− Any income which a resident taxpayer earns from interests on debt
securities issued, in accordance with the law, by the Republic, autonomous
province, local government or the National Bank of Serbia;
− Any income generated on the basis of non-utilized long-term reservations,
which were not recognized as expenditure during the taxation period in
which they were made;
− Any income generated from the expenditure which have not been
recognized in the fiscal balance sheet in accordance with the Law.

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 7. CAPITAL GAINS AND LOSSES
(1/2)

• Capital gain or capital loss may be made by selling or transferring against

compensation the following:
− Real estate that the taxpayer used as the primary means for carrying out activity;
− Industrial property rights;
− Holdings in the capital of legal entities and shares and other securities, apart from
bonds issued in accordance with the regulations governing settlement of
commitments of the Republic of Serbia based on the loan towards economic
development and household foreign exchange savings and debt securities issued
in accordance with law by the Republic of Serbia, autonomous province, local
government unit or the National Bank of Serbia;
− Investment units bought up by open investment funds, in accordance with the law
governing investment funds.
• A capital gain makes up the positive, and capital loss the negative difference
between the sale price of the property and its acquisition price.

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 7. CAPITAL GAINS AND LOSSES
(2/2)

• Sale price shall be understood to mean the contract price or, in the event that the
buyer is an associate person, market price, if the contract price is lower than the
market price.
• Acquisition price shall mean the price at which a taxpayer has acquired the assets,
less the depreciation.
• Sale price and/or acquisition price shall be adjusted in the manner stipulated by this
Law.
• Any capital loss incurred in the sale of a proprietary right may be offset with the
capital gain made in the sale of another proprietary right in the same taxation
period.
• It is possible to offset capital losses with future capital gains in the next five years.
• Any change of the status shall defer the onset of tax liability based on capital gains,
provided that stipulated requirements have been met.

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 8. TAX TREATMENT OF
OPERATING LOSSES

• Any losses declared in the fiscal balance sheet, with the exception of those
from which the capital gains and losses determined in accordance with this
Law originate, may be transferred to the account of the profit declared in
the tax statement in future accounting periods, but for no longer than five
years.

• The use of the tax facility of transfer of losses to the account of future
accounting periods shall not be terminated in the event of change of status
or change of legal form of companies.

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 9. TAX PERIOD

• The period for which the profit tax is to be computed is one calendar year.
• At the request of a taxpayer who has obtained the consent of the Minister
of Finance or the Governor of the National Bank of Serbia, and approved
by the competent tax authority, the tax period may be different from a
calendar year, providing that the duration of the taxation period is 12
months. The taxpayer shall be obligated to apply thus approved taxation
period for at least five years.

• In the event that a taxpayer ends their insolvency proceeding with

bankruptcy, the taxation period shall be insolvency period.

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 10. TAX RATE

• The corporate profit tax rate shall be 15%.

• The corporate profit tax rate shall be proportional.

• It shall be applied to the profit of all corporate taxpayers,

which does not allow discrimination.

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 11. TAX INCENTIVES

Tax exemptions:

− For non-profit organizations;

− For enterprises engaged in vocational training, professional

rehabilitation and employment of disabled persons;

− For fix assets investments (whose value exceeds RSD

1,000,000,000 ≈ EUR 8,000,000, with employing additional
100 workers)

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 12. ELIMINATION OF DOUBLE TAXATION
OF THE PROFIT EARNED IN ANOTHER STATE

• A resident taxpayer who earns profit by conducting business through a permanent

establishment in another state and pays tax on such profit in that state, shall be granted a tax
credit on the account of its corporate profit tax in the amount of the profit tax paid in that
state, but not higher than the amount that would be determined applying the provisions of this
Law on the profit paid in that state.

• Tax credit on the base of profit tax paid by a non-resident subsidiary on the profit from which
dividends have been paid out, may be used by the parent legal entity – a resident taxpayer- in
the amount of the profit tax paid, as well as in the amount of withholding tax that the non-
resident subsidiary has paid in the other state, an not exceeding the amount of tax that would,
providing that the stipulated requirements have been met, be calculated at 15% tax rate.

• Tax credit may be used by another resident taxpayer which earns other incomes and pays
withholding tax in that state, but not exceeding the amount that would be computed by
charging 15% tax rate on a base equal to the amount of 40% of revenues on which
withholding tax has been paid in that state.

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 13. GROUP TAXATION – TAX
CONSOLIDATION
• Parent legal entity and its affiliated legal entities, residents of the Republic of
Serbia, may apply for tax consolidation to the competent tax authority, if direct or
indirect control over at least 75% of shares or holdings exists among them.
• The competent tax authority assesses the fulfillment of requirements and reaches
the decision on tax consolidation.
• Once approved, tax consolidation shall be applied in the course of the following 5
taxation periods.
• Tax consolidation enables that the losses of one or more associated legal entities
within the taxation period can be offset on the account of gains of other associated
legal entities within that group, during that taxation period.
• Each member of a group of associated legal entities shall be the taxpayer of tax
accounted in the consolidated balance sheet, in proportion to the taxable profit
declared in individual fiscal balance sheet.

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 14. TRANSFER PRICES
(1/2)
• A transfer price shall be understood to mean the price that comes into being in
connection with transactions involving assets or making commitments among
associated persons.
• A person associated with a taxpayer shall be understood to mean an individual or a
legal entity in whose relations with the taxpayer there is a possibility of exercising
control over or exerting considerable influence on business decisions.
• The taxpayer shall be obligated to declare the transactions with the associated
persons in its fiscal balance sheet separately, as well as the interest stemming from
the deposit, loan or credit, up to the level provided by the provisions of this Law.
• The taxpayer shall be obligated to include in the tax base the amount of positive
difference between the incomes from transactions at the price calculated by
applying ‘arm’s length’ principle and the income from those transactions done at
transfer price, or the amount of positive difference between the expenditures from
transactions at the price calculated by applying ‘arm’s length’ principle and the
expenditures from those transactions done at transfer price.
• The duties referred to herein shall also apply to transactions between any
permanent establishment of a non-resident taxpayer and its non-resident head
office.
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 14. TRANSFER PRICES
(2/2)

• The following methods are used in determining the price of a transaction by applying ‘arm’s
length’ principle:
− Comparative market prices method;
− Cost price plus usual profit method (cost plus the usual gross margin method);
− Resale price method;
− Transactional net margin method;
− Profit sharing method;
− Any other method that can be used for determining transaction price by the ‘arm’s length’
principle, providing that none of the above mentioned methods can be used, or that some
other method is more appropriate to the circumstances of the case.
• The implementation of provisions stipulating transfer prices is governed relying on the
Organization for Economic Cooperation and Development sources concerning taxation of
transactions between associated persons.

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 15. DETERMINATION AND COLLECTION
OF CORPORATE PROFIT TAX

• Any taxpayer shall calculate their own profit tax for the tax period for
which the tax return is being filed.
• The taxpayer shall file the tax return and fiscal balance sheet to the
competent tax authority within 180 days of the day of termination of the
relating taxation period.
• Exceptionally, the tax return shall be filed within other deadline, when thus
stipulated by this Law (e.g. within 60 days in the event of the change of
status which resulted in closing the company).
• Payment shall be done in advance, by the fifteenth day of the current month
for the previous month.

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 16. INCOMES SUBJECT TO WITHHOLDING
TAX, EXCEPTIONS BY A RULING
• Withholding tax shall be determined and collected at 20% tax rate on all incomes of non-
resident legal entities, dividends and profit share within legal entity, royalties, related rights
and industrial property rights, interests, fees on lease and sublease of movable and immovable
property in the territory of the Republic of Serbia, fees on entertainment, artistic, sports or
other program in the Republic of Serbia, and exceptionally, if decided by a ruling, this may
include the tax on capital gains, and lease and sublease of movable and immovable property
that the payer of the income does not have to pay withholding tax on.
• 20% tax rate shall be applied, unless international treaties on avoiding double taxation stipulate
otherwise.
• The afore mentioned incomes earned by a non-resident legal entity falling within the
jurisdiction of a preferential tax system (apart from incomes from dividends and profit share),
including service fees, shall be subject to withholding tax, calculated and collected at 25% tax
rate.
• For profit earned from the sale of secondary raw materials and waste of resident or non-
resident legal entity, withholding tax shall be collected with the interest rate amounting to 1%
of the amount of agreed fee.
• The tax base of the withholding tax shall be gross income, and it is calculated by self-
assessment.

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Thank you for your attention!

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