• Tax Highlights - November 2018
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Tax Highlights - November 2018

09 November 2018

DRAFT AMENDMENTS AND SUPPLEMENTS OF CORPORATE INCOME TAX LAW

On 7 November 2018 the Ministry of Finance published a Draft Law on Amendments to the Corporate Income Tax Law.

An overview of the most significant proposed amendments is provided below.

A change in the calculation methodology of tax depriciation

The calculation mythology concept of tax depreciation will be completely changed.

New depreciation rules will be applied to non-current assets acquired as of 1 January 2019, i.e. from the first day of the tax period starting in 2019, whereas the rules from the prior law version will be applied to the assets acquired before the indicated period.

  • In the event when accounting amortisation is determined in an amount lower than tax depreciation, accounting amortisation is recognised as an expense in the tax balance sheet;
  • A proposed plan of action is to cancel the degressive method for calculating tax depreciation of non-current assets classified under groups II-V. Depreciation of all non-current assets will be determined on a straight-line basis.
  • Depreciation of investment property that is measured at fair value after the initial recognition will be determined by applying a 2.5% rate to the cost;
  • Amortisation of intangible assets is recognised as an expense in the amount of accounting amortisation;
  • If the closing balance of groups II-V is lower than 10% for group II, 15% for group III, 20% for group IV and 30% for group V in comparison to the balance as of 31 December 2018, the overall group balance is recognised as a depreciation expense;
  • Old rules for calculating tax depreciation of non-current assets (acquired by 31 December 2018 inclusive), classified under groups II-V, will be applied until 31 December 2018 at the latest;

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.

Introducing incentives for realised 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 in a doubled 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

Incentives are not related to such research costs incurred for the purpose of finding oil, gas or mineral reserves in the extractive industry.

Tax exemption of the income generated on the basis of concession agreement

Income from the transfer of the contribution in kind without a compensation, which was conducted by a private partner during the implementation of the 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 will be used for defining the tax liability, starting for 2018.

Tax exemption of a portion of the income generated by a taxpayer as a copyright or related rights holder on the basis of the compensation for its usage

Qualified income generated by the 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 income needs to be reduced by the amount of historical or recognised current tax expenses related to research and development, which resulted in the copyrighted work or the subject matter of the related rights. The taxpayer is obligated to state the indicated income separately in its tax balance sheet. 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.

Proportional reduction of the determined capital gain

Taxable profit includes 20% of the capital gain generated from the transfer of property 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 exemption of the capital gains generated from the property transfer to the concessionaire

The tax base of the private partner does not include capital gains generated from the property transfer to the concessionaire during the implementation of the concession agreement, provided that the estimated concession value amounts to at least EUR 50 million. Capital losses incurred in this regard cannot be offset with capital gains.

Tax credit for equity investment in a newly incorporated company that performs innovation activity

A tax credit will be introduced for those taxpayers that make equity investment in a newly incorporated company performing innovation activity. The tax credit amount will account for 30% of the indicated equity investment. Furthermore, special terms and conditions have been established in terms of what is considered a newly incorporated company that performs innovation activity and an entity whose investments may qualify for being entitled to a tax credit.

  • The right to a tax credit is obtained exclusively on the basis of fully paid contributions in cash that will increase the equity of the newly incorporated company performing innovation activity. A taxpayer may use a tax credit after the expiration of a three-year period in which it did not decrease its investments.
  • The largest tax credit granted to a taxpayer amounts to RSD 100,000,000.
  • The largest tax credit that can be generated from the corporate income tax in a year amounts to RSD 50,000,000.

Tax credit introduction 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.

Amendments, which have not been previously specified, will come into effect for the purpose of determining the tax liability starting for 2019.