Serbia has joined the Common Reporting Standards group

On July 13, 2019, Serbia signed the OECD Convention on Mutual Administrative Assistance in Tax Matters and became the 129th country to sign this document. Thus, it has joined the group of countries that exercise automatic exchange of information. The treaty goes into effect on December 1, 2019 in Serbia.

What does this mean for business in general and what is to expect in Serbia in particular? What conclusions should we make? And most importantly: what is next? These are the questions that we will answer in this article.

Serbia has adopted Common Reporting Standards: what you have to know about it

Let us start by clarifying what the concept of the Common Reporting Standards (CRS) involves and by pinpointing the most important aspects.

The introduction of CRS is a logical extension of the European and the world policy of de-offshorization. Its central goal is combat tax evasion and make tax reporting perfectly transparent having no ‘grey’ zones left.

CRS rules oblige the so-called reporting financial institutions (such as banks, brokers, investment and insurance companies, and so on) to share their account information with the local tax authorities. The latter, in their turn, will exchange this information automatically (by uploading it onto OECD platform in camera) with the tax authorities of the account holder home country, be it the country of the person’s citizenship or the country where the corporation is registered.

Sounds frightening, does it not? Especially if you are not quite aware of the exact bits of information exchanged and the exchange conditions.

Let us clear up these questions:

  1. The information is exchanged only by the organizations that we have mentioned above – reporting financial institutions. Registration agencies, intermediary organizations or persons, etc. do not participate in the information exchange. Therefore, you will fall under the CRS requirements only when you set up a bank account in a foreign country, for example.
  2. The exchangeable information contains the following data:
  • Identification of the bank or other institution that holds the account;
  • Account number;
  • The report period;
  • Client’s data such as name, date and place of birth, residential address, and TIN (Tax Identification Number) if the client is a private individual; company name, registration address, and TIN if the client is a corporation;
  • If the client is a corporation, the controlling person’s data are also exchanged: his or her name, date and place of birth, residential address, and TIN;
  • The amounts of incoming and outgoing payments during the report period (without specifications) and the account balance at the end of the report period.  

Important: These data are for internal use only and they do not include the information about the sources of capital nor transaction destinations nor counteragents’ information. The latter data can be provided only on a special request on the part of the home country tax authorities. However, this is a much more complicated procedure as a substantial rationale is needed for such a request.  

  1. The information exchanged is related to the company controlling individual(s) exclusively. This is why the banks will want exhaustive information about the real company owner(s) when setting up corporate accounts. They will check this information diligently.
  2. Mostly the information about the so-called “passive” companies is transferred to the owner’s home country tax authorities. Dividends, interests, rent payments, etc. are referred to as ‘passive incomes’. If your company is an active one and you receive more than half of your profits from real business deals (such as trade agreements, for example), you should not bother about the CRS rules.
  3. Information on personal accounts is exchanged regardless of the amount of money on the account and its source(s).

It is crucially important to realize the following: not all countries that have signed the OECD Convention must follow the ‘everything-to-everyone’ principle of exchanging information. A necessary condition for the implementation of these practices is the availability of bilateral agreements between the jurisdictions. Both parties have to pass the relevant laws, put the appropriate procedures into place, and notify each other of their preparedness to share the information. Thus, Serbia is going to select its information exchange partners.  

There is one more significant aspect to point to: this is not a fast and easy process. The OECD Convention goes into effect on December 1, 2019 in Serbia. This means that the country is about to make the first steps in the long process of making bilateral agreements and building the database. The first bits of fiscal information to be exchanged by Serbia should not be expected to appear before 2021 or maybe even later.  

With time, you can find out what countries Serbia has made the agreements with by contacting our consultants via e-mail: info@offshore-pro.info.

Serbia has joined the CRS group: what is going to change now?

The first thing to understand is that Serbia has never been regarded as a tax haven and a high level of personal financial information confidentiality has never been its strongest point. This jurisdiction is attractive for investors for quite different reasons.

Definitely, the country is interesting for foreign investors due to the possibility to set up a non-resident bank account there – personal or corporate, – which is a rarity in Europe. But this possibility has not disappeared. The only difference is that the banks have become even more scrupulous in checking the prospective clients. Well, and the CRS adoption too.

But then again, the tendency for scrupulous checking of the prospective clients is not new at all either. Of course, now the information about your bank account will be exchanged with your home country tax authorities automatically but constantly hiding is not possible any longer anyway. The old model of tax planning is not working today and information exchange is a new reality everybody has to adopt to.  

So, what will change?

  1. Serbia reputation.

Thanks to joining the OECD Convention, Serbia has been scratched off all the black and grey lists completely, which has made it a perfectly transparent jurisdiction. This means that your Serbian company (or the Serbian branch of your foreign company) will acquire a much more attractive and much more respectable image. “A clean jurisdiction” does not necessarily equal “an impeccable jurisdiction”, of course, but your existing and potential partners and clients will have much more trust in your Serbian company now without any doubt. Besides, you are going to have much less trouble opening a bank account or making an international transaction. Thus, by joining the CRS group, Serbia has become an even more attractive jurisdiction where you can set up a business company.  

  1. Due diligence checks on the part of the banks.

We have already mentioned this issue above. Of course, the CRS requirements make the banks collect exhaustive information about the prospective clients before providing services to them. This information does not only include the passport data and other standard documents requested by the banks. The bank managers have to develop a deep understanding of the prospective client’s business. In particular, they want to know precisely who the company end beneficiaries are. In addition to that, the banks are going to keep a particularly watchful eye on the first few transactions that the new client makes.   

As you certainly understand, all banks want to protect their reputation. They are also responsible for the trustworthiness of the information that they receive. Thus, you should not be irritated by their efforts to collect a large number of documents before opening an account for anybody and their desire to watch your account operations closely. 

In Serbia in particular, it is markedly important to be able to answer the bank’s questions about a transaction within 24 hours. All new clients of Serbian banks need to make a note of it.

By the way, you can use our Belgrade office as a backup contact point. If the bank cannot reach you, they can always reach us and we will answer their questions for you. Please learn more about this additional service by contacting our consultants.

  1. Preference to active companies.

The good news is it is easy for a business company to be active in Serbia as all the conditions are in place. Trade, construction, services, transportation, etc. – all spheres of active business are currently on the rise in the country. Foreign investors establish companies in Serbia or open branch offices while the Serbian Government provides for full support and offers several incentives to entrepreneurs.  

Serbia also has a special geographical position. It is not only a linking point on the way from Europe to the East and back but also a convenient transshipment point with advanced infrastructure.

Running around the world and moving assets from one location to another is not lucrative anymore. It is time to invest into some real business. We can offer various options to you that you can use to put your dreams into reality: from purchasing a ready-made company in Serbia to setting up a business in one of the country’s Special Economic Zones.

You can learn more about these and multiple other options from our consultants at no cost at all. Please contact us via info@offshore-pro.info.

Serbia has joined the CRS group: conclusions

Since the OECD Convention was signed by 51 states in 2014, by the current moment (November 2019) it has acquired the total of 130 signatories. A few more countries are planning to join it in the near future. At present, there are over 4,000 bilateral agreements on automatic exchange of information between several pairs of the Convention signatories. This list also includes a few jurisdictions that used to be regarded offshore.

What does this suggest?

Everything changes. Old instruments sink into oblivion making way to new ones. Such are the laws of life and they are applicable to the business life too. There were times when a classical offshore jurisdiction would give everything their clients wished: asset protection, anonymity, tax avoidance, and so on.  Naturally, you can do many of these things today as well: protect your assets, diversify risks, etc. However, what you will most likely have to forget about is tax evasion.

Playing hide and seek will have gloomy perspectives in the modern world. You have to report your income to the tax authorities. Probably, the sooner you take steps in the right direction, the more beneficial your business situation will be.

In any case, it is high time you considered new methods of tax planning. Our specialists will be delighted to assist you in this endeavor. Please write to us to info@offshore-pro.info right now and find out about the wonderful opportunities that Serbia offers to business people from all around the world.