​The amendments to the Law on Tax Procedure and Tax Administration ("LTPTA") mainly attempt to reduce and suppress tax evasion by broadening the responsibilities for tax payments, extending the competences of tax inspectors, restricting the rights of taxpayers, and securing more efficient tax collection. The rules governing tax audits have been changed in order to simplify and unify the process. Also, the amendments introduce tax services for taxpayers that will be provided by the Tax Administration (TA), as an activity that should help them settle their taxes in proper amounts and within the legal deadline.

The amendments will generally start to apply as of 1 January 2019, although some changes have already started to apply as of 30 April 2018 (as specified below).

Below is an overview of the most important changes.

Limiting the VAT Refund

The amendments restrict the refund of VAT. If a taxpayer has unpaid dues, with respect to other tax, the amount of refundable VAT will be reduced by the amount of that unpaid tax evidenced by the TA.

The amendments do not provide further explanation on what is regarded as unpaid tax dues, and whether these tax dues have to be evidenced under a binding resolution, or whether it is enough for it to be formally evidenced by the TA. As a general rule in tax proceedings, an appeal to a tax resolution does not postpone enforcement - therefore, unpaid tax may be evidenced under the tax resolution that is under dispute and not yet final and binding. With this in mind, it is not entirely clear what criteria the TA will apply in order to assess whether there is unpaid tax and whether refundable VAT should be reduced or not.

Tax Audit

Instead of a field audit and office audit, the amendments encompass and regulate a unified tax audit, defined as the TA's control of the legality and validity of the fulfilment of the taxpayer's tax obligations, as well as an audit of the accuracy, completeness and compliance of information disclosed in a tax return, tax balance sheet, financial statements and other records of the taxpayer.

The amendments introduce novelties in the procedure itself. It is now prescribed that when taxpayer files an objection to the minutes on a tax audit and the tax inspector accepts it, the tax inspector has 5 days to draft a supplement to the minutes. The amendments also introduce the right of a tax inspector to issue an appendix to the minutes. If the tax inspector has come to some new notions or facts (either through a taxpayer's complaints to the supplement to the minutes or on its own) after the delivery or supplement to the minutes, it may draft an appendix to the minutes and change its findings in favor of the TA. The taxpayer is allowed to file objections to such an appendix within 8 days as of its receipt.

In case a major breach of tax laws is determined in the audit, the TA can now prohibit the taxpayer from conducting business activities for up to one year, which is significantly longer than the maximal 60-day period which was previously prescribed by the law.

Restrictions on the Registration of Changes with the SBRA

An important change is that the Serbian Business Registers Agency ("SBRA") is not allowed to register changes related to the status of a taxpayer once the Tax Police undertakes actions in order to determine the existence of criminal tax offences. Having in mind that the Tax Police is not obliged to inform the taxpayers on its investigation, it is unclear how this provision will be applied in practice.

Before the amendments, registering changes with the SBRA was not allowed only during a tax audit. Contrary to the recommendations from the business sector – which called for the abolishment of even the existing limitations, the amendments broadened the application of this measure. Amendments in relation to SBRA registration have already started to apply – as of 30 April 2018.

Inability to File Amended Tax Returns

Aside from their current inability to submit amended tax returns during a tax audit or after the TA renders a tax resolution, the taxpayers will now be unable to submit an amended tax return once the Tax Police starts an investigation on the existence of criminal tax offences. Again, it is unclear how this rule will be applied in practice, because the police was not obliged thus far to inform taxpayers on pending criminal investigations.

Enforced Tax Collection

Under the amendments, the TA may order preliminary security measures in order to secure tax collection. Preliminary measures may be ordered in the following cases:

  • In order to secure the collection of tax that is not due or that is not yet determined, but the TA finds that there is a risk that the taxpayer will obstruct the collection of potentially assessed taxes, the TA may in those cases restrict the taxpayer to dispose with movable and immovable property until the TA registers a pledge or mortgage over the assets of taxpayer, or until the collection of the tax; and,
  • In order to secure the collection of tax that is due, the TA may restrict the taxpayer to dispose with cash on their account, movable and immovable property, and restrict enforcement by third parties against the taxpayer, until the TA issues a resolution on enforced collection and blocks the taxpayer's bank account, or registers a pledge or mortgage over the assets, or until the collection of the tax.

The resolution on the setting of preliminary security measures is delivered to the taxpayer and to the SBRA for registration in the public registry.

Concerning enforced collection from individual taxpayers, the TA is now permitted to collect unpaid tax from all of the taxpayer's earnings, even from savings accounts, and not only salaries and pensions – which was the case before the amendments.

In addition, in the procedure of enforced tax collection, the banks will now be obligated to calculate the interest for the period from the issuance of the TA's resolution until the full payment of the debt, and transfer the funds from the taxpayer's account to the account of the TA.

Tax Offences

Criminal offences provided in the LTPTA were amended in order to introduce harsher penalties. A person unlawfully requesting a tax refund or a tax credit higher than RSD 1 million (approx. EUR 8,500) may be penalised with a fine and with a six months to five years prison sentence. If the unlawfully requested amount exceeds RSD 3 million (approx. EUR 25,000), a fine and a prison sentence of up to eight years may be ordered. A maximal penalty of up to ten years of imprisonment is now prescribed in cases when the requested tax refund exceeds RSD 10 million (approx. EUR 85,000).

Illegal production, refinement, holding or intermediating in the sale and purchase of goods subject to excise is introduced as a criminal offence, punishable with a sentence of up to five years in prison.

Another major change is that the TA cannot submit a request for the initiation of misdemeanor proceedings in cases when it has already notified the Tax Police on its suspicions that the taxpayer has committed a criminal tax offence. This is a step forward in terms of legal certainty, as the simultaneous existence of criminal proceedings and misdemeanor proceedings is breach of the non bis in idem principle.

Secondary Tax Liability

The amendments prescribe new rules on the liability of persons other than the taxpayer for tax payments (secondary tax liability). The person responsible for the calculation and payment of any tax on behalf of the taxpayer may be liable for the taxpayer's tax payment if they did not act with due diligence. Before the amendments, only persons in charge of the calculation and payment of withholding tax could be liable for the taxpayer's tax obligations.

Furthermore, entities receiving assets from a taxpayer in a transaction without remuneration or with remuneration below the market price may be liable for secondary the tax liability of the taxpayer in the five years following the transaction, compared to previously provided three years' time limit.

Tax Services

One of the novelties in favour of the taxpayers is the introduction of tax services provided by the TA. Tax services are defined as one of the TA's competences that involve the provision of legal support to the taxpayers, assistance with filling tax returns, drafting submissions and other assistance allowing taxpayers to comply with tax regulations.

Foreign Company Benefits of the Amendments to VAT Law

The amendments to Law on Value Added Tax ("VAT Law") prescribe beneficial treatment for certain transactions involving foreign entities.

Starting from 1 July 2018, supplies to foreign legal entities within the free economic zone ("FEZ"), whereby such foreign legal entities are not VAT payers in Serbia, will be exempted from VAT. The amendments provide VAT exemption for supplies to foreign legal entities conducting business in the FEZ, if such supplies are intended for the assembly of goods for export. Prior to the amendments, only supplies made within FEZ to registered VAT payers - users of FEZ, were exempted from VAT.

Foreign VAT payers that are not registered for VAT in Serbia are now entitled to VAT refunds if they carry taxable supplies in Serbia when the recipient is obliged to account for VAT by applying the reverse charge mechanism. Before the amendments, foreign VAT payers performing supplies in Serbia were allowed VAT refund if they carry (i) the transport of goods exempted from VAT or (ii) the international transport of passengers when VAT was charged by customs authorities. These amendments will start to apply from 1 January 2019.