ADOPTED AMENDMENTS TO TAX LAWS
On 9 December 2018 the Parliament adopted the proposed amendments to the following tax laws:
- Corporate Income Tax Law;
- Individual Income Tax Law;
- Law on Amendments to Mandatory Social Security Contributions;
- Property Tax Law;
- Law on Tax Procedure and Tax Administration.
An overview of the most significant amendments is provided below.
CORPORATE INCOME TAX LAW
A change in the calculation of tax depreciation
The rules for the calculation of tax depreciation have been changed:
- Depreciation of non-current assets put into use after 1 January 2019 will be calculated on a straight-line basis on a base comprised of the cost of each asset separately. The depreciation of acquired/disposed assets will be determined in proportion to the period of asset usage during the year;
- Starting with the determination of income for 2019 tax depreciation is limited mostly to the amount of accounting amortisation;
- Amortisation of intangible assets is recognised as an expense in the amount of accounting amortisation;
- New rules for determining tax depreciation will be applied for non-current assets acquired from 1 January 2019, whereas the rules from the previous law version will be applied to such assets acquired before the said date.
Recognition of marketing and advertising costs
The limitation on the recognition of marketing and advertising costs in the amount of 10% of the total income is to be derecognised. As of 2019, marketing and advertising costs will be fully recognised for tax purposes provided that other legal requirements for their recognition have been met (businesslike manner, documentedness, marketability, etc.).
Incentives for research and development costs
Expenses that are directly associated with research and development performed by a taxpayer in the Republic of Serbia can be recognised as a double amount as an expense in the tax balance sheet.
Research will mean acquiring new scientific or technical knowledge and understanding whereas development will include the application of the research results and outcomes.
Tax exemption on the income generated from concession agreements
Income from the transfer of the contribution in kind without a compensation, which was conducted by a private partner during the implementation of a concession agreement, is not included in the concessionaire’s tax base, provided that the estimated concession value is at least EUR 50 million. The incentive shall be used for defining the tax liability, starting for 2018.
Changes in the accounting policy due to the first time adoption of IAS/IFRS and IFRS for SMEs
The effects of changes in the accounting policy due to the first time adoption of IAS/IFRS and IFRS for SMEs are recognised as income / expense in the tax balance sheet, starting from the tax period in which the adjustment was made, in equal amounts in five tax periods.
Tax exemption on a portion of the income generated by a taxpayer as a copyright or related rights holder on the basis of the compensation for their usage
Qualified income generated by a copyright or related rights holder on the basis of the compensation for using copyrighted work in escrow or the subject matter of related rights, not including the compensation for the transfer of the copyright or related rights in whole, can be exempted from the tax base in the amount of 80% of the income generated in such a manner. This incentive will be applied to copyrighted works and the subject matter of related rights that will be deposited to the register as of 1 January 2019.
Capital gain reduction
Taxable profit includes 20% of the capital gain generated from the transfer of rights in whole on the basis of a copyright or related rights to copyrighted work in escrow, as well as the right to an invention.
Tax credit for equity investment in a newly incorporated company that performs an innovation activity
A tax credit will be introduced for those taxpayers that make equity investment in a newly incorporated company performing an innovation activity.
Tax credit will account for 30% of the indicated equity investment. Special terms and conditions have been established in terms of what is considered a newly incorporated company that performs an innovation activity and an entity whose investments may qualify for being entitled to a tax credit.
The largest tax credit granted to a taxpayer amounts to RSD 100 million. The largest tax credit that can be used for the purpose of reducing taxable income in one year amounts to RSD 50 million.
Tax credit for the paid capital gains tax in a foreign country
A taxpayer that paid the capital gains tax from property sale in a foreign country may reduce the corporate income tax deduction in the Republic of Serbia by the paid tax amount in the foreign country.
INDIVIDUAL INCOME TAX LAW
Income generated by a non-resident in the Republic of Serbia
Apart from the income generated from work performed in the territory of the Republic of Serbia, income of a non-resident individual is also deemed to be any revenue from using or being in possession of any right in the territory of the Republic of Serbia.
Exemptions from taxable income
The following will be exempted:
- relief which an employer pays to a family member in case of death of an employee or a retired employee (up to RSD 67,145)
- remuneration provided to pupils who learn through work.
Introduction of new tax exemptions
The tax on employee income from the employer shall not be paid on:
- own stocks, own stock options or employer’s own shares or stocks, stock options or shares with the related party employer, which the employee acquires without a compensation or at a preferential price from the employer under the following conditions:
- if an employee does not dispose of the stocks during the entire employment by selling them to the employer or its related party;
- if an employee does not dispose of the stocks during the entire employment before the expiry of two years from the day of acquiring the right of their possession, by selling them to third parties;
- if one’s employment with the employer is not terminated before the expiry of two years from the day of acquiring the right of possession of the stocks (except in case of employment termination irrespectively of both employer and employee’s will in accordance with the law governing labour and employment, retirement or starting employment with an employer’s related party).
In the event that some of the abovementioned conditions are not met, the employer is obligated to charge tax on the said income.
- solidarity allowance in case of child birth in the amount of up to the average salary, per newborn baby, paid in the Republic of Serbia according to the latest published data of the Statistical Office of the Republic of Serbia.
Tax treatment of team building activities
The payroll tax shall not be paid on:
- employer’s costs of creating and maintaining conditions for employee recreation at workplace (costs of building or procuring recreation equipment at workplace),
- remuneration of costs of collective employee recreation,
- the organisation of sports events and activities for employees with the aim of improving employees’ health and developing better relations among the employees, i.e. employees and the employer.
You can find more information on the tax treatment of employee recreation in the previous edition of our Tax Highlights on our website: www.bdo.co.rs
Amendments to the payroll tax exemption for newly incorporated companies
The tax exemption shall be revoked for nine newly employed persons. The tax exemption is now solely related to the founders of newly incorporated companies, who are employed at the said company, and/or newly incorporated entrepreneurial companies (entrepreneur’s personal income) and entrepreneurial farmers.
A monthly amount of the tax exemption for each person during the exemption period cannot exceed RSD 37 thousand (the amount does not include the accompanying payroll liabilities).
The employer that employs a person who uses such a tax exemption shall not be entitled to other reliefs (aside from the law that governs mandatory social security contributions which stipulates the same exemption), including the use of employment and self-employment subsidies.
Such an employer that gained the right to the tax exemption until the effective date of the new law based on the provisions of the old Law shall continue using such an exemption pursuant to the old Law.
Setting up the tax treatment of the income that a natural person earns from providing hospitality services
Income from providing hospitality services shall be such income that a natural person, in accordance with the laws that govern hospitality industry and tourism, earns from providing accommodation services in domestic hospitality facilities and rural tourist households in a period of up to 30 days.
A taxpayer on the income from providing hospitality services that starts providing such services during the year shall be obligated to submit a tax return within 15 days from the effective date of the decision according to which domestic hospitality facilities and rural tourist households are classified under an appropriate category in accordance with the law governing the hospitality industry.
The aforesaid shall be applied as of 1 July 2019.
Tax treatment of natural person’s income in case of writing off the remaining portion of the outstanding debt to a bank
Tax on other income shall not be paid if a bank writes off a portion of its debtor’s credit liabilities when, in accordance with an out-of-court settlement, the debtor pays out a part of its outstanding debt and the bank writes off the remaining portion of such a debt.
Amendments to the tax exemption on capital expenditures
The provision of the Law that, in the event of a change in the nominal value of the right / share in a company, a tax exemption (after a ten year ownership period) could only be exercised in relation to the amount of the right / share that was paid at least ten years before their sale. Instead, only the percentage right / share for the purpose of tax exemption is observed.
The right to tax exemption is not exercised when a member of a company transfers the stake / shares to the company itself for the purposes of the redemption of own shares.
Tax on income from games of chance
The tax on the income from games of chance shall not be paid in the future on the amount of up to RSD 100,000 instead of the currently valid amount of up to RSD 11,684. It shall be applied as of 2020.
LAW ON MANDATORY SOCIAL SECURITY CONTRIBUTIONS
Decrease in the unemployment insurance contribution rate
The unemployment insurance contribution rate has been reduced from 1.5% to 0.75%, i.e. an employer is exempt from paying this contribution.
Change in the period for determining the lowest and the highest monthly contribution base and the highest annual contribution base
The starting point is the information on the average monthly salary paid in the period for the previous 12 months, starting from October instead of November.
Amendments to the tax exemption for start-ups
A start-up may exercise the right to exemption from payment of contributions paid by the employee and the employer on the basis of the earnings of the founders employed with that company.
This exemption is no longer envisaged for the salaries of newly employed persons.
The amount of earnings on the basis of which the employer can realize the above mentioned exemption is specified.
PROPERTY TAX LAW
- It is envisaged that the property tax is payable for the right to lease, or use, a flat or a home for housing, constituted for the benefit of a natural person, under which the right to lease for a period longer than one year or for an indefinite period is considered and for which the payment of non-profit rent or rent that is calculated using the prescribed criteria is envisaged;
- When there is a right on the property, other than the property right (of usage or possession), property tax is paid on that right and not on the property right;
- It is specified what is considered to be an integral part of the land and is not taxed as a building (paths, outdoor parking, fence, playground,etc.);
- It is defined precisely what is considered to be an integral part of the building (paths, outer stairs, etc.);
- It is specified that a permanent establishment (branch) that keeps books of account should file tax returns, determine and pay the tax on immovable property of a non-resident in the Republic of Serbia, for a real estate whose holder is the branch;
- An entrepreneur who keeps records of property in its books of account, in the event of a termination of the activity for a certain period of time, does not lose the taxpayer status;
- It is specified what is considered a useful land surface (includes the surface under the object) and for the building (excludes the staircase surface outside the building's overall dimensions);
- An additional group for the classification of real estate has been introduced for the purpose of determining the tax base - Other land (land that is not classified as building, agricultural or forest land);
- The local self-government units have been authorized to, by a decision of the assembly, classify for the purpose of determining the tax base the unallocated construction land, used exclusively for growing of plants or forests, into agricultural or forest land;
- For the immovable property of a taxpayer who keeps books of accounts, for which a tax liability arises during the fiscal year, the tax base is the cost of certain real estate only (real estate carried at fair value, cableways, roads, railways and other infrastructure objects - pipelines, hot water, oil and gas pipelines, exploitation fields, etc.);
- A rule has been specified regarding the day on which the tax liability arises and the prescribed date for the termination of the tax liability;
- Tax exemption for public roads and railroads and landing routes at airports (including land below them) is specified;
- It is specified what is considered to be land under a building, which is exempt from taxation;
- An additional requirement for exercising the right to exemption for property held for sale is prescribed - that the immovable property is not used;
- A tax exemption for immovable property in the ownership of a private partner was introduced, that is, a special purpose company, for the purpose of the regulations governing public-private partnerships;
- A tax exemption is envisaged for immovable property for which the Red Cross is the taxpayer, which are used to perform the activities of the Red Cross organization
Gift and inheritance tax
- It is prescribed that the gift and inheritance tax is paid for the inheritance and gift of the right on a used motor vehicle, vessel or aircraft;
- It is now precisely prescribed what is considered to be used motor vehicle, vessel or aircraft;
- It is prescribed that the gift and inheritance of human cells, tissues and organs shall be exempt from taxation;
- It is specified what is exempt from the gift and inheritance tax (vehicles other than motor vehicles, unused motor vehicles, vessels or aircrafts);
- It is specified when a tax liability arises for the gift tax.
Tax on the transfer of absolute rights
- It has been specified that the tax on the transfer of absolute rights is paid when transferring ownership rights with compensation to used motor vehicles, vessels or aircraft;
- It is envisaged to pay taxes on the transfer of absolute rights when leasing publicly owned water land for a period longer than one year or for an indefinite period, in order to construct a building;
- It has been specified that the acquisition of property rights based on a single document of a person with public authority (e.g. a public enforcement officer) is also subject to taxation;
- Provisions relating to the creation of a tax liability for a tax on the transfer of absolute rights are specified;
- Tax exemption is specified when the right to property is acquired by the provider of lifelong support, who is a person from the first successor order of the recipient;
- Tax exemption is envisaged for the transfer of absolute rights to a person who, in accordance with the concession contract, is the provider of the concession, if the transfer in the procedure of realization of the concession contract is performed by a private partner and if the estimated value of the concession is at least EUR 50 million.
PROPERTY TAX DETERMINATION AND COLLECTION
- It is specified that the tax is determined by:
- Self-taxation – taxpayers keeping books of accounts,
- A decision by a local tax administration – a taxpayer that does not keep books of account or a taxpayer keeping books of account in whose control procedure irregularities have been identified.
- It is envisaged that a person who alienates or acquires immovable property through a document compiled, certified and confirmed by a notary, may file a tax return through a public notary;
- It is envisaged that a tax return is also filed for assets for which the taxpayer is entitled to tax exemption;
- Filing of a tax application on inheritance and gift on immovable property and a tax on the transfer of absolute rights through a public notary is enabled;
- It is envisaged that the Basic Courts in the area where the notaries are not appointed shall submit to the tax authorities and local self-government units the documents that have been compiled, certified or confirmed, based on which the right which is the subject of property tax is acquired or transferred.
Amendments to the laws are applied for the purpose of determining the property tax for 2019.
AMENDMENTS AND SUPPLEMENTS TO THE LAW ON TAX PROCEDURE AND TAX ADMINISTRATION
Games of chance
The field of games of chance will not fall under the competence of the Tax Administration starting from 1 March 2019. The Administration for Games of Chance will be established, to which all the competencies of the Tax Administration in the field of games of chance will be transferred.
Tax assessment by the decision of the Tax Administration without the prior declaration of a taxpayer
It is stipulated that when a taxpayer fails to file a tax return, the tax authority makes a decision on determining the tax without prior notice of the taxpayer on the facts that are relevant to the decision-making process. The determination of the tax liability is made on the basis of data from the records of the competent authorities, i.e., documentation issued by the competent authorities and notaries.
Obligation to provide data of importance to local self-government units
The legal obligation to submit data necessary for establishing, controlling and collecting at the request of local government units that previously referred to state bodies and organizations is extended to territorial autonomy and local self-government bodies, public enterprises and legal and natural persons entrusted with public authority.