PROPOSED LAW ON THE GLOBAL MINIMUM TAX ON PROFIT
The Ministry of Finance of the Republic of Serbia has published the Proposed Law on the Global Minimum Tax on Profit, transposing Council Directive (EU) on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union into the legal framework of the Republic of Serbia. The Law aims to ensure a minimum effective taxation of profit at a rate of 15% for enterprise groups whose consolidated annual revenue amounts to at least EUR 750 million. The law applies on the date of accession of the Republic of Serbia to the European Union.Scope of Application
The Law applies to constituent entities of multinational enterprise (MNE) groups and large-scale domestic groups whose annual revenue in the consolidated financial statements of the ultimate parent entity amounts to EUR 750 million or more in at least two out of four fiscal years immediately preceding the relevant fiscal year.
Entities that are not subject to the provisions of the aforementioned law
Governmental entities, international organisations, non-profit organisations, pension funds, investment funds that are ultimate parent entities, and real estate investment entities that are ultimate parent entities.
Mechanisms for Ensuring Minimum Taxation
The Law provides for three mechanisms ensuring that the group's profit is taxed at the minimum rate of 15%:
- Qualified Domestic Minimum Top-up Tax (QDMTT) — The Republic of Serbia itself collects the top-up tax on excess profit of constituent entities located in its territory whose effective tax rate is below 15%. The domestic top-up tax is assessed and collected prior to the application of the other mechanisms, thereby ensuring that the Republic of Serbia retains the right to collect the top-up tax rather than allowing that revenue to accrue to other jurisdictions.
- Income Inclusion Rule (IIR) - The ultimate parent entity, or an intermediate parent entity, located in the Republic of Serbia calculates and pays its allocable share of the top-up tax for constituent entities of the group that are subject to a low tax rate in another jurisdiction.
- Undertaxed Profits Rule (UTPR) - A constituent entity of an MNE group located in the Republic of Serbia is subject to a top-up tax obligation equal to its share of the top-up tax that has not been collected through the application of the IIR. The UTPR applies as a backstop mechanism.
The effective tax rate is calculated on a jurisdictional basis as the ratio of adjusted covered taxes to the net qualifying income of all constituent entities in that jurisdiction. The top-up tax percentage equals the difference between the minimum rate of 15% and the effective tax rate. The top-up tax is calculated by applying that percentage to the excess profit, with the addition of any additional top-up tax and a reduction for the domestic top-up tax.
Exclusions and Safe Harbours
- Substance-based Income Exclusion - The top-up tax base is reduced by 5% of eligible payroll costs of employees and 5% of the carrying value of eligible tangible assets in the jurisdiction. During the transitional period, these percentages are higher and decrease gradually (payroll: from 10% in 2023 to 5.8% in 2032; tangible assets: from 8% to 5.4%). This exclusion benefits taxpayers with significant economic substance in the Republic of Serbia.
- De Minimis Exclusion - The top-up tax for a jurisdiction is zero if the average qualifying revenue is less than EUR 10 million and the average qualifying income is less than EUR 1 million (average for the current and two preceding fiscal years).
- Safe Harbours - The top-up tax may be zero if the conditions of a qualifying international safe harbour agreement are met. During the transitional period, agreements based on Country-by-Country Reporting (CbCR) apply.
Constituent entities of a group located in the Republic of Serbia are required to file the Top-up Tax Information Return no later than 15 months after the end of the fiscal year (transitional year: 18 months), the Top-up Tax Return within 30 days from the expiry of that deadline, and to make the payment within the following 30 days. Where multiple constituent entities of the same group are located in the Republic of Serbia, one designated entity is appointed to file the returns, and all constituent entities are jointly and severally liable.
MNE groups in the initial phase of international activity (presence in no more than six jurisdictions and tangible assets outside the reference jurisdiction not exceeding EUR 50 million) are exempt from the IIR and UTPR top-up tax for the first five years.