At the end of 2017, the Serbian Parliament passed amendments to Serbian tax laws, including the Law on Personal Income Tax (PIT Law), the Law on Contributions on Mandatory Social Insurance (CMSI Law), the Law on Corporate Income Tax (CIT Law), and the Law on Value Added Tax (VAT Law).
These amendments introduce tax relief for salaries paid to employees in newly incorporated legal entities. Also, starting from April 2018, only service fees for business advisory services paid to non-resident legal entities will be subject to withholding tax, as opposed to all service fees paid to non-resident legal entities, as prescribed in the current CIT Law. In addition, Serbia continues to reduce the tax burden related to NPL write-offs.
The amendments are generally effective as of 1 January 2018, with some exceptions explained below.
Income tax and social security contributions
Under the amendments to the PIT Law and the CMSI Law, salaries paid to first nine employees as well as to the employed shareholders and entrepreneurs, will be fully exempted from salary tax and social security contributions. The exemptions will start to apply from 1 October 2018 and shall be applicable for salaries paid by entrepreneurs and legal entities that are established before 31 December 2020. Salaries will be exempted from tax for the first 12 months of employment.
Although the introduced relief will be of significance for small start-up companies, it is unclear whether the employees will be mandatory insured during the period of exemption since contributions for pension and disability, as well as for health insurance, will not be paid.
A collective life insurance premium – which is paid for all employees, as well as monetary support for the purpose of employee medical treatment is exempted from taxation and the payment of social contributions.
Under the amendments, the write-off of the NPLs is not subject to personal income tax as long as such a write-off is deductible for corporate income tax purposes. Also, it is prescribed that the amount of the write-off that was not collected after the sale of mortgaged real property is not subject to tax.
The position of non-resident individuals is also tackled in the recent changes in the Serbian legislation. Amendments to the PIT Law clarify that the taxable income of non-residents covers income from work done in Serbia, as well as income generated from (i) any right emerging on the territory of Serbia, or (ii) any property which is located in Serbia and which is at the disposal of a non-resident. In addition, it is now clearly prescribed that foreign employees seconded to Serbia (i.e. expatriates) are liable to pay salary tax for work done in Serbia.
The PIT Law and the CMSI Law prescribe new thresholds for tax payments and contributions in 2018 as follows:
- the general monthly salary tax deduction is increased to app. EUR 130 (RSD 15.000), from existing app. EUR 100 (RSD 11.790);
- the minimal monthly contributions base is set to a gross amount of app. EUR 200 (RSD 23,053); and,
- the highest annual contributions base for 2018 is set to a gross amount of app. EUR 2.700 (RSD 329,330).
Law on corporate income tax
The amendments to the CIT Law narrowed the list of service fees that are subject to the withholding tax. Serbian resident legal entities will have to pay withholding tax only for service fees paid to non-residents providing market research, accounting, auditing and other legal and business consulting services, irrespectively to the place of the provision or usage of those services. Also, the deadline for the payment of withholding tax is extended, so that one has to pay the tax within 3 days after paying the non-resident's fee. The amendments related to withholding tax are effective from 1 April 2018.
Amendments concerning depreciation specify that fixed assets which are comprised out of immovable and movable parts should be classified in tax depreciation groups – which corresponds to the classification made for accounting purposes. Intangible assets (concessions, patents, licences...) will be depreciated using the proportional, instead of the declining method.
Further to the decision of the National Bank of Serbia (NBS) issued earlier in 2017 and which prescribes that NPLs should be written-off by the banks and evidenced off-balance, the amendments to the CIT Law prescribe that the expenses recorded by the bank, as a consequence of the write-off, are deductible for CIT purposes. These amendments are already applicable to the assessment of CIT for 2017.
Law on value added tax
The main change introduced by the amendments to the VAT Law is related to concession agreements and public-private partnership agreements. Based on the amendments, any supply made between a concessionaire and the provider of the concession are not regarded as supply for VAT purposes, and therefore are not subject to VAT under certain conditions. This exception applies if both parties are registered VAT payers and if they would be entitled to a deduction of input VAT in case that the regular supply is carried.
An important amendment introduces the possibility for VAT payers to reduce their output VAT if the tax authority determines that there was a misapplication of the "reverse charge" calculation. If the tax authority denies the deduction of input VAT to the taxpayer that applied the "reverse charge", the taxpayer may also reduce its output VAT on the basis of such the tax resolution.
In order to align Serbian VAT rules with the VAT rules in the EU, amendments to the VAT Law introduce rules on the VAT treatment for the supply of "investment gold". Generally, the supply of investment gold and intermediation in the supply of investment gold are exempted from VAT.
Amendments also relate to the VAT position of individuals. It is prescribed that individuals are entitled to a VAT refund paid when purchasing one's first apartment, in cases when the purchase price was paid to a bank account other than the bank account of the seller, as well as when the apartment is under mortgage or when the apartment is purchased in enforcement proceedings. Also, the supply of goods to travellers that do not have a permanent or temporary address in Serbia (not only supplies to foreign citizens) is exempted from VAT, if the value of the goods exceeds EUR 100.