Business taxes in Serbia: What You Must Know

Introduction

Serbia is becoming an increasingly attractive destination for doing business, thanks to its strategic location, competitive tax system, and support for foreign investors. Understanding the local tax system is the first step toward successfully establishing and running a business. This guide provides a detailed overview of key aspects, from corporate income tax and VAT to the tax incentives Serbia offers to investors.

For ease of navigation, the article includes a table of contents to help you quickly find the information you need:

1. Advantages of Serbia’s Tax System
2. Corporate Income Tax: Details and Opportunities
3. Value-Added Tax (VAT) in Serbia
4. Payroll Taxes and Social Contributions
5. Withholding Tax in Serbia
6. Property Tax for Businesses
7. Tax Incentives and Exemptions for Businesses
8. How to Operate in Compliance with Serbian Tax Laws
9. Conclusion

1. Advantages of Serbia’s Tax System

Serbia is actively working to attract foreign investments and create a favorable business environment. The country’s tax system is one of the key factors encouraging both local and foreign entrepreneurs. Let’s take a closer look at the main advantages::

1.1. A simple and transparent tax structure

The Serbian tax system is characterized by flat rates and clear rules, making tax planning and compliance straightforward.

Flat Rates:
– Corporate Income Tax in Serbia: 15%
– Value-Added Tax (VAT): Standard rate of 20%, reduced rate of 10% for certain goods and services

Electronic Filing: The introduction of electronic systems for submitting tax returns simplifies interactions with tax authorities and reduces the administrative burden on businesses.

1.2. Low Tax Rates

Competitive tax rates make Serbia attractive to entrepreneurs and investors.

The corporate tax rate is one of the lowest in Europe, contributing to increased net profits for companies. The chart above illustrates the difference in rates compared to other European countries, particularly when considering exceptionally high incomes.

1.3. Tax Incentives and Benefits for Investors

• Corporate Tax Exemption: Companies investing more than €8 million and creating at least 100 new jobs may qualify for a corporate tax exemption for up to 10 years.
• Benefits for Innovative Startups: Innovative companies can enjoy significant tax relief, including exemptions from payroll taxes and contributions for employees during the first 36 months of the company’s operation.
• R&D Incentives: Research and development (R&D) expenses are fully deductible from the taxable base, encouraging innovation.

1.4. Double Taxation Avoidance Agreements

Serbia has signed over 60 double taxation avoidance agreements with various countries, facilitating international trade and investment.
These agreements prevent double taxation on income earned in different jurisdictions and may offer reduced withholding tax rates on dividends, interest, and royalties.

Example: A Serbian company receiving income from a subsidiary in Germany can use the double taxation avoidance agreement between the two countries to reduce or eliminate taxes on that income in both jurisdictions.

1.5. Government Subsidies and Business Support

• Job Creation Subsidies: Companies creating new jobs can receive financial support in the form of subsidies per new employee.
• Infrastructure Development Grants: Businesses investing in production facilities or infrastructure may qualify for government grants to reduce capital costs.

Example: A manufacturing company expanding its facilities and hiring new employees can receive government subsidies covering part of the costs for employee training and equipment acquisition.

1.6. Strategic Location and Market Access

Serbia’s advantageous geographical position provides access to major international markets through trade agreements:

• Free Trade with the EU: The Free Trade Agreement with the European Union allows Serbian companies to export products to EU countries without customs duties.
• Access to EAEU Markets: The agreement with the Eurasian Economic Union (Russia, Belarus, Kazakhstan, and others) grants duty-free access to these markets for certain product categories.

Example: A Serbian company producing agricultural machinery can export its products to both EU and EAEU markets without additional tariff barriers, enhancing its competitiveness internationally.

1.7. Support for Small and Medium Enterprises (SMEs)

Serbia actively supports the development of SMEs, which constitute a significant part of the national economy. Special tax regimes and subsidy programs are available for SMEs:

• Simplified Registration: Company registration takes only a few days thanks to digital tools and streamlined procedures.
• Startup Benefits: New companies may be exempt from profit tax and social contributions for the first 12 months of operation.
• Flat Tax for Micro and Small Enterprises: Businesses with low turnover can pay a flat tax instead of the standard tax system.

Example: A startup registered in Serbia is exempt from social contributions on employee salaries for the first year, allowing it to allocate the saved funds toward business growth.

2. Corporate Income Tax in Serbia: Details and Opportunities

Corporate income tax is a cornerstone for businesses in Serbia. Its low flat rate and numerous optimization opportunities make it attractive to investors.

2.1. What is Taxed?

Corporate tax in Serbia applies to the following types of company income:

• Operating Profit: Income from the sale of goods and services provided by the company.
• Capital Gains: Income from the sale of assets such as real estate or equipment.
• Investment Income: Interest, royalties, and dividends.

2.2. Opportunities to Reduce the Tax Base

Serbia’s tax system offers significant opportunities for optimizing the taxable base:

• Asset Depreciation: Companies can deduct expenses on the depreciation of buildings, equipment, and other fixed assets.
• Payroll Expenses: Including taxes and contributions for employees.
• R&D Expenses: Costs for research and development are fully deductible from the taxable base.

Example: A company that spends €500,000 on purchasing new equipment can deduct this amount evenly over several years, reducing annual tax liabilities.

2.3. Advance Payments and Reporting

• Monthly Advance Payments: Companies must make advance payments on corporate tax based on expected profits.
• Annual Tax Return: Submitted within 180 days after the end of the fiscal year.

It is crucial to adjust advance payments on time to avoid penalties for underpayment.

2.4. Taxation of Capital Gains

Capital gains, such as from the sale of assets, are taxed under general conditions (15%). However, companies can minimize their tax burden by accounting for modernization or new asset acquisition costs.

Example: A company sells real estate for €300,000, originally purchased for €200,000. The €100,000 capital gain is subject to taxation. However, if the company reinvests the proceeds into modernizing other assets, the taxable amount can be adjusted.

2.5. New Measures for 2024

The Serbian tax system introduced updates in 2024:

• Increased Oversight of International Transactions: Companies are required to provide detailed reports on transfer pricing.
• Incentives for Green Businesses: Companies investing in green technologies and projects that reduce carbon emissions can qualify for additional tax deductions.

3. Value-Added Tax (VAT) in Serbia: Key Aspects

Value-Added Tax (VAT) is the main indirect tax in Serbia, applied to most goods and services. Transparent rules and standard rates make it easy to understand for companies of all sizes, but compliance with tax legislation is essential to avoid penalties.

3.1. VAT Rates

The Serbian VAT system has three rates, depending on the category of goods and services:

• Standard Rate (20%): Applied to most goods and services, including retail sales, service provision, and rentals.
• Reduced Rate (10%): Covers essential goods such as food, medicines, books, and certain medical services.
• Zero Rate (0%): Applied to exports of goods and services and certain transactions related to international trade.

Example: Exporting products manufactured in Serbia is subject to a zero rate, allowing companies to claim input VAT refunds.

3.2. VAT Registration Threshold

Companies are required to register as VAT payers if their annual turnover exceeds 8 million RSD (approximately €67,000).

• Registration is mandatory within 15 days of reaching the threshold.
• Voluntary registration is available for companies with lower turnover if necessary for their business model (e.g., working with international partners).

3.3. Input VAT Refunds

Companies have the right to claim refunds on VAT paid for goods and services used for business purposes, significantly reducing their tax burden:

• Input VAT: Paid on goods and services used for production or commercial purposes.
• Refund Conditions: VAT can be refunded if expenses comply with tax legislation requirements.

Example: A manufacturing company purchasing raw materials worth €10,000 with 20% VAT can claim a refund of €2,000 in its tax return.

3.4. Filing and Deadlines

• Filing Frequency: VAT returns are submitted monthly or quarterly, depending on the company’s status.
• Deadlines: Returns must be filed and paid by the 15th day of the month following the tax period.

3.5. Penalties for Non-Compliance

Violating VAT rules can result in serious penalties, including:

• Late Filing: Fines of up to €2,000.
• Calculation Errors: Fines and interest penalties may apply.
• Illegal Refund Claims: May lead to criminal charges.

3.6. VAT Updates for 2024

The Serbian VAT system introduced the following updates in 2024:

• Electronic VAT System: A new platform was introduced to automate VAT return filing and refunds.
• Simplified Registration for Startups: New companies can register online without visiting tax offices.
• Enhanced Refund Oversight: Increased audits of companies requesting VAT refunds.

Source: Official announcement from the Serbian Tax Administration (https://www.purs.gov.rs/).

4. Payroll Taxes and Social Contributions in Serbia

In Serbia, payroll taxes and social contributions are a significant part of the tax structure. Employees’ income is taxed at a flat rate of 10%, while employers cover social contributions, such as pension, health insurance, and unemployment benefits. Combined, these contributions can increase the overall cost of employment for businesses.

For professionals providing consulting and intellectual services, there is an opportunity to register as an individual entrepreneur under the flat-rate taxation system (paushalni sistem). This system simplifies tax compliance by assigning a fixed annual tax amount that varies based on the type of activity, business location, and regulatory parameters. Entrepreneurs using this system can often enjoy reduced tax rates compared to standard income taxation.

4.1. Key Types of Taxes and Contributions

Employers in Serbia pay three main types of taxes and social contributions:

• Personal Income Tax (10%): Withheld from the employee’s salary.
• Social Contributions:
  • Pension Insurance: 25% of gross salary (split equally between employer and employee at 12.5% each).
  • Health Insurance: 5.15% of gross salary.
  • Unemployment Insurance: 0.75% of gross salary.

Overall payroll tax burden: About 37% of gross salary.

Payroll Calculation Example:
If an employee’s gross salary is €1,000, the calculation is as follows:

• Personal Income Tax (10%): €1,000 × 10% = €100.
• Employee Contributions (17.65%):
  • Pension Insurance: €1,000 × 12.5% = €125.
  • Health Insurance: €1,000 × 5.15% = €51.50.
• Employer Contributions (18.4%):
  • Pension Insurance: €1,000 × 12.5% = €125.
  • Health Insurance: €1,000 × 5.15% = €51.50.
  • Unemployment Insurance: €1,000 × 0.75% = €7.50.

Summary:

• Net salary for the employee: €748.50.
• Total employer cost: €1,184 (€1,000 + employer contributions).

4.2. Deadlines for Tax and Contribution Payments

• Taxes and contributions are paid monthly.
• Deadline: Payments must be made by the 15th of the month following the reporting period.
• Late payments may result in fines, interest, and other penalties.

4.3. Employer Benefits

Serbia offers employers tax incentives to reduce payroll costs:

• Tax Exemptions for Young Employees: Companies hiring employees under 30 years old may be partially exempt from personal income tax and social contributions.
• Incentives for Underdeveloped Regions: Employers creating jobs in these areas may qualify for subsidies and reduced tax burdens.
• Benefits for Startups and Innovative Companies: New companies may be exempt from social contributions during the early stages of operation.

5. Withholding Tax in Serbia

Withholding tax applies to income paid to non-residents and is a critical part of Serbia’s tax system aimed at regulating international financial transactions.

5.1. What is Withholding Tax?

This tax is levied by Serbian companies on certain types of income paid to foreign entities. The main types of income subject to withholding tax include:

Dividends: Payments to non-residents for equity participation.

Interest: Income from financial loans, credits, and other financial instruments.

Royalties: Payments for the use of intellectual property (patents, licenses, trademarks).

Services: Certain types of services provided by foreign companies.

5.2. Tax Rates

The standard withholding tax rate is 20%. However, it can be reduced or completely eliminated through double taxation avoidance agreements (DTTs).

Example of DTT Rates:

• Germany: 5% on dividends.
• Russia: 10% on interest and royalties.
• France: 5% on dividends, 10% on interest and royalties.

5.3. Payment Requirements

• Deadlines: Withholding tax must be paid by the 15th day of the month following the month in which the income was paid.
• Reporting: Companies are required to submit reports on withholding tax to the tax authorities along with supporting documentation.

5.4. Exceptions and Exemptions

• Double Taxation Avoidance Agreements (DTTs): Serbia has signed over 60 bilateral agreements that allow for reduced rates or exemption from tax for non-residents.
• Exemption for Intra-Group Payments: Payments of dividends or royalties between related companies may be exempt if the DTT conditions are met.

Source: The complete list of agreements is available on the Serbian Ministry of Finance website.

5.5. Penalties for Non-Compliance

Failure to pay the tax on time or incorrect application of rates can lead to serious consequences:

• Fines: Up to €2,000 per violation.
• Interest: Charged for each day of delay.
• Risk of DTT Denial: If the company fails to provide correct documentation, standard rates (20%) may apply.

Changes Introduced in 2024:

• Stricter DTT Control: Companies must provide additional proof of tax residency for their foreign partners.
• Automated Reporting: An electronic system for filing withholding tax reports has been introduced to simplify administration.
• Incentives for Attracting Foreign Investments: Companies operating in strategically important sectors may receive exemptions from withholding tax on interest and royalties.

6. Property Tax for Businesses in Serbia

Property tax in Serbia applies to all companies owning commercial real estate. It is a significant element of the overall tax system, and proper administration can help avoid penalties and unnecessary costs.

6.1. Taxable Objects

Property tax is levied on real estate assets owned by companies, including:

• Buildings and Structures: Offices, warehouses, and production facilities.
• Land Plots: Land used for commercial purposes.

6.2. Tax Rates

Property tax rates vary depending on the location and market value of the property:

• Standard Rates: From 0.3% to 0.4% of the market value of the property.
• Municipal Variations: Each municipality sets its tax rates, which may differ within the established range.

Example: For property valued at €500,000 in a municipality with a 0.4% tax rate, the annual tax would be €2,000.

6.3. Property Valuation

The market value of a property is determined based on a cadastral assessment or an independent appraisal if cadastral data is outdated:

• Cadastral Assessment: Typically provided by government agencies.
• Market Appraisal: Can be conducted by a certified real estate appraiser.

6.4. Declaration and Payment Deadlines

• Property Tax Declaration: Companies are required to submit a declaration annually.
• Submission Deadline: By January 31 of each year.
• Payment Schedule: The tax is paid in four equal installments quarterly.

6.5. Tax Exemptions and Incentives

Serbia provides certain property tax benefits for companies investing in real estate or using it in strategically important projects:

• Exemption for New Properties: Newly constructed properties under investment projects may be exempt from property tax for up to 5 years.
• Incentives for Infrastructure Projects: Properties used for implementing government or municipal infrastructure projects may be exempt from taxation.

6.6. Penalties for Non-Compliance

• Late Declaration Submission: Fines of up to €1,000.
• Payment Delays: Interest is charged for each day of delay.

2024 Updates to Property Tax:

• Unified Database: Introduction of a digital platform to track cadastral property values, reducing the risk of outdated data being used.
• Increased Rates for Premium Properties: In some municipalities, rates have been raised for properties valued above €1 million.
• Green Technology Incentives: Properties equipped with energy-saving systems or renewable energy sources may qualify for tax deductions.

7. Tax Incentives and Exemptions for Businesses in Serbia

Serbia actively utilizes tax incentives to attract investments, create jobs, and develop strategically important sectors of the economy. These measures make the country attractive for both foreign and domestic investors, offering businesses opportunities to reduce tax burdens and enhance competitiveness.

7.1. Corporate Tax Exemptions

Companies meeting specific criteria may be completely exempt from paying corporate income tax for up to 10 years.

• Requirements:
  • Investments exceeding €8 million.
  • Creation of at least 100 new jobs.

7.2. Incentives for Research and Development (R&D)

Serbia promotes innovation by offering tax deductions for companies investing in scientific research and development:

• 100% Cost Deduction: All R&D-related expenses are deductible from the taxable base.
• Additional Benefits: Companies commercializing patents or other intellectual assets may qualify for reduced tax rates on income derived from these assets.

7.3. Job Creation Subsidies

The Serbian government provides financial support to companies creating new jobs, particularly in regions with low employment rates.

• Subsidy Amount: Up to €10,000 per new employee.
• Additional Benefits: Exemption from payroll contributions for the first year of employment.

7.4. Incentives for Export-Oriented Companies

Serbia supports export-oriented businesses:

• VAT Exemption: Export transactions are subject to a zero VAT rate.
• Reduced Profit Tax: Companies earning over 50% of their revenue from exports can access additional tax benefits.

7.5. Benefits for Small and Medium Enterprises (SMEs)

Small and medium-sized enterprises can leverage simplified tax regimes:

• Flat Tax: Instead of standard taxation, companies pay a fixed amount based on turnover and region of operation.
• Startup Exemptions: New companies may be exempt from payroll taxes for employees in their early years of operation.

7.6. Green Business Incentives

Serbia encourages companies investing in sustainable technologies and projects:

• Tax Deductions: Expenses on solar panels, energy-efficient equipment, or recycling systems are deductible from the taxable base.
• Property Tax Exemptions: Environmentally sustainable buildings or infrastructure projects may be exempt from property tax.

8. How to Operate in Compliance with Serbian Tax Laws

Compliance with tax legislation is a crucial factor for successfully conducting business in Serbia. Errors in calculations or delays in fulfilling obligations can lead to fines and financial losses. Below are the key steps to ensure tax transparency and efficiency:сти.

8.1. Timely Submission of Tax Declarations

• Annual Reports: Companies are required to submit annual corporate income tax declarations within 180 days after the end of the fiscal year.
• VAT Declarations: Submitted monthly or quarterly by the 15th of the month following the reporting period.
• Social Contribution Declarations: Must be filed by the 15th of each month.

Tip: Implementing automated accounting and tax planning systems can help avoid missed deadlines for filing documents.

8.2. Electronic Filing System

Serbia operates an electronic tax reporting system through the ePorezi platform, simplifying the process of filing declarations and paying taxes.

• Registration: All companies are required to register on the platform.
• System Features: Submission of tax declarations, calculation of liabilities, and access to information on company account statuses.

8.3. Regular Updates on Information

Tax laws in Serbia may change, so it is crucial to stay informed about the latest updates:

• Subscribe to official updates from the Serbian Ministry of Finance and tax authorities.
• Periodically consult with a local accountant or tax attorney.

8.4. Outsourcing Accounting and Tax Compliance

Many companies, especially foreign investors, prefer to outsource accounting and tax compliance to professional agencies.

Advantages:

• Time savings.
• Minimization of errors.
• In-depth knowledge of local laws.

8.5. Utilizing Tax Planning

Businesses can legally reduce their tax burden through effective planning:

• Take advantage of tax incentives and benefits available for your business.
• Invest in innovation and green technologies to access additional deductions.
• Optimize the company’s structure to benefit from international double taxation avoidance agreements.

8.6. Conducting Internal Audits

Regular checks of accounting records help identify and correct potential errors before filing declarations.

• Frequency: Audits are recommended every six months.
• Attention to Detail: Ensure alignment between bank statements, accounting records, and tax declarations.

8.7. Preventing Tax Penalties

To avoid fines and sanctions, follow these recommendations:

• File all declarations and pay taxes on time.
• Carefully review calculations before submitting documents.
• Retain all tax-related documents (invoices, contracts, work completion acts) for at least five years.

Conclusion

If you need assistance with tax planning, calculations, or compliance, our team of professionals is ready to offer:

• Comprehensive tax support.
• Consultation on tax burden optimization.
• Assistance with filing declarations and maintaining records.
• Auditing financial and tax data.

You can explore more about our services on the Services Page.