PROPOSED LAW ON AMENDMENTS TO THE CORPORATE INCOME TAX LAW
The Ministry of Finance of the Republic of Serbia has published the Proposed Law on Amendments to the Corporate Income Tax Law, representing the most comprehensive amendments to this Law since its adoption. The Proposed Law contains two groups of provisions with different dates of application: one group of provisions applies as of 1 January 2027, while the other group of provisions applies as of the date of accession of the Republic of Serbia to the European Union.Provisions applicable as of 1 January 2027
Abolition of Tax Incentives
The Proposed Law provides for the abolition of the following tax incentives from the Corporate Income Tax Law:
- Ten-year tax holiday - tax exemption for taxpayers investing in fixed assets in the amount of at least RSD 1 billion and employing at least 100 persons;
- Tax credit for investments in startups.
Taxpayers who have acquired the right to the tax exemption under Article 50a (ten-year tax holiday) and the tax credit for investments in startups under Article 50j by 31 December 2026, and who have reported these rights in their tax balance and tax return for 2026, may continue to utilise these rights until the expiry of the statutory period, in the manner and under the conditions prescribed by the provisions of the Law that were in force at the time the rights were acquired.
Provisions Applicable as of the Date of EU Accession
The Proposed Law also provides for extensive amendments applicable as of the date of EU accession, implementing into domestic legislation the rules from the Anti-Tax Avoidance Directive (ATAD), the Merger Directive, the Parent-Subsidiary Directive and the Interest & Royalties Directive.
Interest Limitation Rule (EBITDA rule)
The Proposed Law provides for the abolition of the article prescribing the thin capitalisation rule. Replacing the current thin capitalisation rule, a new rule is introduced under which exceeding borrowing costs are deductible only up to 30% of EBITDA, or up to EUR 3,000,000 (whichever is higher). Unused exceeding borrowing costs may be carried forward for three tax periods. The rule does not apply to standalone entities without related parties, financial undertakings, and long-term public infrastructure projects.
Controlled Foreign Company (CFC) Rules
An obligation is introduced to include in the taxpayer's tax base the undistributed income of controlled foreign companies (interest, royalties, dividends, financial leasing, etc.), where the taxpayer holds more than 50% of voting rights or capital and the actual tax paid abroad is lower than the tax that would have been paid in Serbia. The rule does not apply if the controlled company carries out a genuine economic activity or if the tainted income constitutes no more than one-third of total income.
Exit Taxation
The taxpayer is required to include in the tax base the difference between the market value and the tax value of assets upon the transfer of assets or business operations to another state, or upon the change of tax residence. For transfers to EU/EEA states, deferred payment over five years is available.
Hybrid Mismatches
Rules are introduced to prevent double deductions or deductions without inclusion arising from differences in the tax qualification of financial instruments, entities or permanent establishments in two or more jurisdictions. The rules cover hybrid financial instruments, hybrid entities, reverse hybrid mismatches and tax residency mismatches.
Merger Directive
Tax-neutral treatment is ensured for cross-border mergers, divisions, partial divisions, transfers of assets and exchanges of shares between legal entities from EU Member States. Capital gains of the transferring company are not taxed, subject to the continuity of tax values at the acquiring company. An anti-abuse clause is prescribed.
Parent-Subsidiary Directive and Interest & Royalties Directive
Withholding tax on dividends between related EU legal entities is abolished (condition: minimum 10% of capital, 24 months), as well as on interest and royalties (condition: minimum 25% of capital, 24 months). Amendments to Article 25 also introduce a participation exemption — dividends between taxpayers from Serbia and taxpayers from the EU are excluded from the tax base.