The double tax treaty between San Marino and Serbia came into force on 8 October 2018 and will be applicable as of 1 January 2019. Consequently, San Marino will be removed from the list of tax havens published by the Serbian Ministry of Finance. This will provide an opportunity for companies established in San Marino that want to invest or do business in Serbia.
Compared to the 25% withholding tax rate on income (20% for dividends) currently imposed on companies from San Marino, the treaty provides for lower rates and exemptions: 5% rate on dividends if the company owns at least 25% shareholder stake in the dividend payer (10% rate in other cases), 10% rate on interest, 10% on royalties, capital gains tax exemption for the sale of shares that derive less than 50% of their value from the real estate located in Serbia, etc.
Another important feature of this treaty is that it directly implements certain BEPS measures. For example, the 5% rate on dividends applies only if the company also holds shares for at least 365 days. The capital gains tax exemption for the sale of shares is granted only if the shares do not derive more than 50% of their value from the real estate located in Serbia in the entire 365-day period preceding their sale. The treaty also prescribes that holding a server or other type of electronic equipment in the other country may, under certain conditions, constitute a permanent establishment for the non-resident.
In addition to the treaty with San Marino, following the second round of negotiations, Serbia and Algeria signed a double tax treaty on 15 October 2018. The treaty defines lower tax rates and exemptions for both Algerian and Serbian companies, creating a more beneficial basis for mutual investments. The treaty will come into force following its ratification in both countries. We will inform you about the specific rates and exemptions once the final text of the treaty becomes publicly available.
Finally, the UK’s HM Revenue & Customs has published a synthesised text of the Multilateral Instrument and the Serbia-UK double tax treaty in force. As both the UK and Serbia have ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS and specified each other under the Covered Tax Agreements, the synthesised text is important for companies in order to understand how the double tax treaty between the two countries will apply in the future. The synthesised text is available here