Taxes in Serbia
Tax planning is one of the most challenging tasks that every entrepreneur has to solve. Any commercial activity is targeted at gaining profits. The larger the taxable profit, the lower is the business liquidity. Let’s start this article on the right foot with a famous quotation from an American judge:
“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”
US Judge Learned Hand Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)
This is a copybook maxim, of course, but it makes the entrepreneur look for lines of least resistance. It is not surprising that a few years ago jurisdictions that offered low or zero taxes were very popular with business people.
The business world is usually very quick to adapt to the new requirements and when some old instruments disappear, some new ones emerge. Currently, there are e few countries in the world that are off the black and grey lists of unreliable jurisdictions but they still offer favourable taxation conditions.
Serbia will serve as a great example here.
Serbia: pay less tax without losing your reputation
Beginning 2014, the Serbian Government implemented economic reforms directed at increasing the country’s attractiveness to foreign investors. Private business support measures by the state (especially aimed at small- and medium-size business) are considered one of the most successful national government initiatives that create the right business environment in Serbia.
The Government of Serbia fully realises that taxes will play a pivotal role in the entrepreneur’s decision to establish a company in a certain jurisdiction. That is why the issue of taxation has been approached with special care in the country. Today, the tax burden in Serbia is among the lightest in Europe. Both corporate and personal income tax rates are significantly lower than average in the region.
This is one of the reasons why Serbia is so popular with foreign business investors: new companies and branches open in the country with unfailing regularity.
The corporate tax in Serbia is 15%. Investments into core assets and company working capital are not taxed in Serbia. A 20% withholding tax is levied on royalties and interest but there are many exemptions found in Serbia’s double tax avoidance treaties.
There are additional tax incentives for new corporations in Serbia as well. Under certain conditions, the corporate tax can be lowered to 10%. A large investor into the Serbian economy can enjoy a tax holiday for up to ten years. Tax credits of up to 40% of the investment value can also be obtained in the country.
The dividend tax in Serbia is also 15%. However, it can be as low as 5% if there is a double taxation agreement between Serbia and the home country of the company or person who receives the dividends. And we have some good news for you on this matter: Serbia has already signed agreements on avoidance of double taxation with nearly sixty countries around the world and negotiations with quite a few more are underway.
Taxation of a Branch of a Foreign Company in Serbia
If funds are transferred from the branch to the parent company or vice versa, no tax is payable. The possibility to build effective relationships between the parent company located abroad and its branch located in Serbia deserves special attention. You can structure these relationships in such a way that your overall tax burden will be minimal. This is the reason why more and more branches of foreign companies appear in Serbia over the recent years.
Other Taxes in Serbia
Legal entities are also subject to the following taxes in Serbia:
- Social security taxes. These include three taxes: medical insurance (5.9%), pension and disability insurance (9.8%) and unemployment insurance (0.55%). In this case, the salary is taxed while the employer and the employee contribute equal sums to the taxes. The employer in Serbia pays nearly twice as little in social security taxes as the employer in most other European countries;
- Excises. Different excise rates are applied to different excisable products. At the same time, excise payments constitute a considerable portion of income to the national budget (close to 30% of all taxes);
- The VAT is 20% in Serbia. However, the VAT on basic consumer goods is 10%;
- The tax on service provision is 12%. It is applied if the company provides insurance, medical, transportation, tourist, and other kinds of services;
- All financial transactions performed by a company are taxed at 0.3%. The payments of salaries, pensions, and taxes are not taxed. (It is good to know indeed that you do not have to pay a tax on a tax payment!)
Notwithstanding the relatively large number of taxes in Serbia, the tax load that the company has to bear is not a heavy one due to the flexible and transparent nature of the system.
Serbia offers favorable conditions to foreign business people who want to make profits in the country. At the same time, there are also some attractive opportunities for those who pursue different goals such as asset protection or family office management, for example.
Taxes in Serbia: additional opportunities for individuals
In addition to corporate taxes, there is of course individual taxation in Serbia as well. The tax rates applied make Serbia attractive for business immigration.
It is quite easy to acquire a legal and tax residency in Serbia. This move would allow you to optimise your business and diversify risks.
Physical persons have to pay the following taxes in Serbia:
- The income tax is 15% maximum and it is payable on a monthly basis. The income tax is progressive and it depends on the income amount. The income of about 100 EUR per month is not taxed. Non-residents of Serbia pay the income tax only if the income is obtained on the territory of the country;
- Inheritance tax is 1.5% for the heirs in the second order of succession and 2.5% for the heirs in the third, fourth, etc. order;
- Property tax is between 0.4% and 2%;
- Property transfer tax is 2,5%. It is levied on the transfer of real property and intellectual property too.
Optimize your business
The choice of the jurisdiction where you register your business can become the decisive factor in gaining profits. Sensible tax planning will let your business stay afloat and – ideally – grow.
Serbia offers some enticing perspectives to you whether you want to set up a branch of your foreign company there or just relocate to the country.
We will be happy to provide free consultations to you on matters related to company registration, bank account opening, and business immigration to Serbia. Please contact us via e-mail [email protected] and we will answer all your queries.