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 is the part of the taxable profit the lower is the business liquidity.
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.
For the better or for the worse, but classic offshores are sinking into oblivion. If you register a company in an offshore zone, you can pay nothing in taxes but you are bound to face problems of other kinds. In particular, your business mobility would be highly restricted as most of your counteragents such as banks, clients, or partners will not want to have anything to do with your company from an offshore jurisdiction. Simply because such relations may well do them harm.
Thus, it is reasonable to look for a compromising solution. 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 favorable taxation conditions.
Serbia will serve as a bright example here.
Serbia: pay less in taxes without losing your reputation
Beginning 2014, the Serbian Government has been implementing economic reforms directed at increasing the country’s attractiveness to foreign investors. The private business support measures on the part of the state (especially small- and medium-size business) are considered one of the most successful national government initiatives that create comfortable business environment in Serbia.
The Government of Serbia fully realizes that the national taxes will play a pivotal role in the entrepreneur’s decision to establish a business 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%. The only country in Europe that has a lower corporate tax is Bulgaria (10%). Investments into core assets and company working capital are not taxed in Serbia. At the same time, a 20% withholding tax is levied on royalties, interests, dividends, and property lease.
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 person who receives 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 world countries and negotiations with quite a few more are underway.
In case funds are transferred from the branch to the parent company or vice versa, no dividend 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 become rather small. This is the reason why more and more branches of foreign companies appear in Serbia over the recent years.
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 large number of taxes in Serbia, the tax load that the company has to bear is not a heavy one due to the low tax rates.
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, for example.
It is lucrative to establish an Association or a Charity Foundation for private purposes in Serbia. When transferring money to the accounts of such organizations, all you have to pay is the 2.5% gift tax.
In summer 2019, Serbia joined the automatic exchange of information group, and thus it complies with the CRS (Common Reporting Standards) requirements now. This political decision has allowed the country to become a perfectly clean jurisdiction, which tells positively on the reputation of the companies that are registered there. As we have said above, it is impossible today to avoid paying taxes without incurring heavy losses in other aspects. This has to be understood. At the same time, the reputational gains that Serbia-registered companies receive in the international arena will make up for the taxes that have to be paid.
Taxes in Serbia: additional opportunities for individuals
In addition to corporate taxes, there is individual taxation in Serbia as well. The tax rates applied in the country make it attractive for business immigration.
It is quite easy to acquire a legal and tax residency in Serbia. This move would allow you to optimize your business and diversify risks.
Physical entities 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 company 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 the issues 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.