Tax Advisory

VAT Law amendments

Serbian National Assembly has enacted VAT Law amendments which came into force on January the 1st 2017.

Amendments of the VAT Law envisages new rules on determining place of supply of services, time of supply, simplification of the requirements for input VAT deduction and clarification of situations when foreign entity is obliged to register for VAT in Serbia.

Place of supply of services

Amendment with regards to place of supply stipulates general rule when services are provided to a tax payer. Accordingly, place of supply is considered to be the place where the taxpayer, i.e. service recipient has the registered seat or a permanent establishment (for the services rendered to permanent establishment.

In order to make a distinction from general definition of taxpayer, VAT Law has introduced new definition of tax payer which is used for purposes of determining place of supply.

Taxpayer is considered to be every person that permanently performs business activity, regardless of the purpose of performing activity, state authorities, institutions of territorial autonomy, and local self-governments with their seat in Serbia, foreign legal entities, state authorities, institutions of territorial autonomy and local self-governments, registered for payment of consumption tax in the country in which they have their seat.

The Law does not prescribe any additional explanation on how to prove the status of taxpayer for determining place of supply.

Place of supply for services provided by foreign entity (not registered for VAT in Serbia) to taxpayer are the place where the taxpayer has its registered seat or permanent establishment if the services are provided to permanent establishment).

New rules also prescribe exemption to the general rule.

Such exemption refers to services related to immovables, transportation of passengers, transportation of goods, services of attending cultural, educational, sporting, artistic, scientific, entertainment or similar events, including ancillary services in relation to aforementioned events, etc. (where the service has actually provided) and services of consultants, engineers, lawyers, auditors, supply of staff, advertising, services provided electronically, etc. (where the recipient has its seat or place of residing).

Amendments to the VAT Law does not prescribe transitional period for application of new rules. For that reason it is needed to keep track of possible changes in place of supply for services paid/charged before of April 1st which will be rendered after application of the new rules.

Time of supply

Time of supply of electricity, natural gas and energy for heating and cooling which are delivered by transmission, transport and distribution network for the purpose of future sale is to be considered the day of reading and determination of consumption.

Simplification in clarification on input VAT deduction

Taxpayers are entitled to recover input VAT calculated on the reverse charge basis in accordance to the VAT Law for the: supplies of secondary raw materials and services related to these goods; transfer buildings and economically divisible units within these buildings (with the exception of the first transfer); goods and services related to construction; electricity and natural gas acquired for the purpose of further sale.

Clarification of obligation on registering foreign entities for VAT

Furthermore with these amendments it is envisaged that a foreign entity which performs a taxable supply of goods and services exclusively to VAT taxpayers or entities referred in Article 9 of the VAT Law or performs only service of passenger transportation by buses has no obligation to register for VAT in Serbia.

Based on aforementioned stand, it draws to conclusion that foreign entities are obliged to register only when providing services to taxpayers who are not registered for VAT. Threshold of RSD 8 million does not apply for foreign entities. These amendments are being backed up with amendments to the Law on Tax Procedure and Tax Administration that introduced penalty for those foreign entities failing to register for VAT.

The new Regulation regarding attraction of direct investments entered into force

On the day of 29th December 2016, the Government of the Republic of Serbia, in accordance with the Law on Investments, passed the new Regulation on the conditions and manner of attracting direct investments (hereinafter: “the Regulation”), that has entered into force on 31 December 2016. The newly-introduced Regulation precise that the following shall not be recognized as the direct investment:

• Investment in case of significant changes in the whole production process of the legal entity;
• Acquisition of shares or stocks.

Funds envisaged by this Regulation can be used for the financing of investment projects:

•  Manufacturing and production;
• Services provision that can be subjects of the international trade in line with the Regulation (this is mainly for the IT            industry).

Further, in accordance with the said Regulation, in order the certain investment to be recognized as an investment of special importance, among other conditions, investor has to:

• Invest EUR 5 million in fixed assets or employ at least 500 employees;
• Invest EUR 2 million in fixed assets or employ at least 100 employees;
• Make the investment that is realized in the territory of one or more municipalities and that encourage realization of common   developing priorities of more municipalities with goal of improvement of their competiveness;
• Make the investment based on one of bilateral treaties or agreements on cross border cooperation.

On the occasion that the investment does not fulfill the conditions required for it to be recognized as the Investment of special importance, there is still a possibility to obtain the state aid that is awarded on the base of public invitation announced by the Ministry of Economy and Serbian Development Agency.

In this respect, the thresholds for awarding the state aid in case of investment in the municipalities of 2nd or 3th development level are decreased (EUR 500,000 and EUR 400,000), as well as for the investments in devastated areas (EUR 100,000 and 10 new employees).

On the other hand threshold for the investment in municipalities of 4th development level (from EUR 150,000 to EUR 200,000).

Moreover, the new Regulation introduces the exemption from the right on the state aid for those entities that have the obligation of refund of the illegal state aid and with whom the agreement on awarding incentive funds has been terminated

Annual personal income tax liability for 2016

The deadline for the submission is May 15th 2017. The non-taxable threshold amounts RSD 2,285,064.

Personal Income Tax Law prescribes obligation for paying annual income tax for all individuals whose total net income exceeded triple amount of average annual income per employee in Serbia in calendar year for which the tax liability is determined.

To the purpose of annual income tax as taxpayers shall be considered both – Serbian tax residents for their worldwide income, as well as non-resident individuals for Serbian sourced income.

Tax rates are progressive i.e. 10% and 15%. We remind you that refunded amount of social security contributions which are paid out to the taxpayer, under provisions of the law which regulates mandatory social security contributions shall be included in total income of the taxpayer for determining annual income tax liability.

Statistical data relevant for determining new non-taxable

thresholds for Annual Personal Income Tax payable by Serbian

tax residents and non-residents in respect of the income

earned in FY 2016 have recently been published.

Preliminary, non-taxable threshold amounts RSD 2,285,064 (cca. EUR 18,000) and by meanings of this those individuals whose net income (the one excluding income taxes and Serbian mandatory social security contributions paid) in 2016 is under the above mentioned threshold shall not be considered as taxpayers whatsoever.

Personal deductions are expected to be as follows:

• for taxpayer itself – 40% of annual average salary per employee i.e. RSD 304,675 (cca. EUR 2,400);
• for dependent family member – 15% of annual average salary per employee for each dependent family member i.e. RSD   114,253 (cca. EUR 900).

The net income that exceeds RSD 6,855,192 (cca. EUR 55,000), which represents income above mentioned threshold (after personal deductions are applied), shall be taxed by applicable 15% tax rate.

The deadline for the submission of Annual Personal Income Tax Return is May 15th 2017. Please rest assured that ZS TAX remains available for all queries and assistance which might be needed in this respect.

New Double Tax Treaties

Starting from January 2017 four new Double Tax Treaties (hereinafter: „DTT“) entered into force. Therefore, DTT’s with Luxembourg, Armenia, Kazakhstan and Republic of Korea became enforceable. With these newly introduced DTT’s Serbia expanded its DTT network to 58.

Why would you choose us?

If your business or personal finances are affected by these changes, or you have any questions regarding the above, please contact any of your regular contacts at ZS TAX & CONSULTING, or Sanja Stevanović-Polovina at sanja.stevanovic@zstax.rs.