Corporate Income Tax in Serbia (CIT)
Prescribed non-deductible costs
• Major non-deductible costs are:
–non-business and non-documented costs;
–advertising costs exceeding 5% of total revenues;
–costs incurred for humanitarian, scientific, sporting, cultural and religious purposes that exceed 3.5% of revenues; Such payments are considered deductible solely provided they were made to an organization registered for the purposes in question;
–impairment of assets. Expenses related to impairment of assets are recognized as an expense for the CIT purposes in tax period when impaired assets are sold or used.
Expenses deductible on cash basis
•Deduction of expenses on cash basis applies to:
-accrued but unpaid remunerations for retirement and employment termination;
-Provisions for issued guarantees and other securities.
• Fixed assets are tangible and intangible assets of which the service life is longer than a year and the individual acquisition price at the time of acquisition was higher than gross salary per employee in Serbia (according to the latest data published by the Statistical Office).
• Depreciable assets are divided into five tax depreciation groups. Tax depreciation rates vary from 2.5% (buildings and other immovable property) to 30% (computers, billboards, etc.). Most of the equipment is in the third group (depreciated at 15% rate).
• A straight-line depreciation method is prescribed for the first group. A declining balance method is prescribed for assets in the other groups.
• CIT Law offers several types of tax incentives:
–tax credits for investments in fixed assets (20% of the investment); Business entity classified in accordance with Accounting and Auditing Law as small enterprise, is entitled to use 40% of investment as a tax credit;
–tax credits for investment in fixed assets (80% of the investment) for the companies engaged in production of textile yarn and fabrics, apparel, fur finishing and dyeing, leather processing and production of leather items.
–10 year tax holiday for investments over RSD 800 m (app. EUR 8m);
–carry forward of operational losses up to five years.
Provisions and write-offs
• Bad debt provisions are tax deductible if they are at least 60 days overdue.
• Write-offs are tax deductible if:
–they were previously recorded as income,
–the decision on write-off has been made, and
–there is evidence of unsuccessful collection via court.
Related parties and transfer pricing
• Parties are regarded as related if there is a possibility of control or influence on business decisions between them. Ownership of a majority of shares is considered as a source of potential control. Influence on business decisions exists when an associated party directly or indirectly holds 50% or more votes, or individually the greatest portion of votes, in the taxpayer’s management bodies.
• If the same persons participate in management or control of both companies, a connection between the related companies will be deemed to exist.
• CIT Law requires that all transactions at transfer prices (i.e. transactions with related parties) are disclosed in taxpaye’s tax return, as well as the value of such transactions at market prices. The difference is included in the taxable profit.
Thin cap rules
• The interest and related costs are fully deductible provided that the loans from related parties do not exceed four times of taxpayer‟s net equity (ten times for banks).
• In addition transfer pricing rules are applied up to the amount of tax deductible interest determined in accordance with thin capitalization threshold.
• Capital gains may be generated by the sale or transferring in another way against compensation (sale) of:
–industrial property rights
–stocks, shares, securities and certain bonds.
• Capital gain is determined as difference between the sale and purchase prices of the asset concerned, adjusted according to the provisions of the law. If the amount is negative, a capital loss results. Capital gains can be offset against capital losses occurring in the same period.
• Capital gains are subject to 10% capital gain tax and are taxed separately from ordinary business profits.
• Capital loss can be carried forward for five years and offset against capital gains, but not against ordinary business profit.
Withholding Tax in Serbia (WHT)
• The following types of payment to non-residents are subject to withholding tax (WHT): dividends, royalties, interest, capital gains, leasing fees and rent.
• Capital gains, sourced in Serbia, realized by non-residents from both, resident and non-resident are subject to WHT. •WHT rate envisaged by the CIT Law is 20%. However, it can be reduced or even eliminated by the provisions of applicable Double Tax Treaty (DTT) between Serbia and the country of recipient of such income.
• In order to apply beneficial rate envisaged by DTT, recipient must be beneficial owner of income and must provide Serbian counterparty with its residency certificate on the form issued by the Serbian MoF.