New Tax Benefits for Researchers in Serbia

Introduction

Research has always been the basic generator of the development of science, economy, business and society as a whole.

In that direction, the Act on Personal Income Tax[1] (“PIT Act”) in the Article 21i provides for tax relief for the employer who hires a worker in research and development (“Tax Relief”).

Research is considered original and planned research undertaken in order to acquire new scientific or technical knowledge and understanding, and development is the application of research results or the application of other scientific achievements or designs in order to produce new or significantly improved materials, devices, products, processes, systems or services. access to commercial production or use.

Pursuant to the PIT Act, in April this year, the Ministry of Finance adopted the Rulebook on Conditions and Manner of Exercising the Right to Tax Exemption Based on Salaries of Research and Development Employees[2] (“Rulebook“), regulated manner and conditions for obtaining Tax Relief.

The Tax Relief consists in the fact that the employer is released from the obligation to pay 70 percent of the calculated and suspended tax from the salaries of employees in research and development, in proportion to the time that employees spend on these jobs in relation to full time.

Who can exercise the right to Tax Relief?

The PIT Act stipulates that the right to Tax Relief is exercised by an employer in the form of a legal entity that conducts research and development within the scope of its activities on the territory of the Republic of Serbia.

The Rulebook regulates the determinant “on the territory of the Republic of Serbia” in more detail, stipulating that research and development on the territory of the Republic of Serbia is considered a project in which at least 90% of all research and development employees perform their project activities on the territory of the Republic of Serbia.

In addition to the above, the right to Tax Relief is exercised only by the employer who conducts research and development activities in his own name and for his own account, which means that after the end of the project he retains the right of ownership over the project results.

Who is considered to be employed in research and development?

An employee on research and development is an employee with whom the employer has concluded a fixed-term or indefinite employment contract, as well as an employee with whom the employer has concluded a full-time or part-time employment contract, who works on the project and is directly involved in identifying and resolving scientific, process or technical issues and problems related to a specific project.

The following are not considered employees in research and development:

• employees who perform direct or indirect supervision of the project;
• employees who perform support activities related to the implementation of the project, which includes all those activities that directly support employees who are engaged in the implementation and supervision of the project.

In addition, the Tax Relief does not apply to employees who are engaged in research activities in order to find and develop oil, gas or mineral reserves in the extractive industry.

Obligations regarding the exercise of the right to Tax Relief

The employer is obliged to make a clear distinction between employees who can be classified as employees in research and development and those who cannot.

In addition to the above, in accordance with the Rulebook, the employer is obliged to provide and keep special records for each individual employee on research and development, on the basis of whose earnings he receives Tax Relief, in which he will present data that are important for monitoring relief in relation to that employee.

An employer who is entitled to a Tax Relief is obliged to have the following documentation for each individual project:

• description (specification) of the project with specially highlighted project objectives, planned project phases, as well as planned activities within each of the project phases, with opinions of experts in charge of project implementation (including opinions of experts – employees who will work on the project);
• annual project budget and total project budget approved by the employer’s governing body, with projections of the characteristics / results expected from the specific project;
• annual report on deviations from the budget;
• report of the employee on research and development, submitted in paper or electronic form, which contains a specification of the total working time and working time spent on the direct performance of research and development in a given month, project or projects (the specification should contain information for each project separately if he worked on several projects in a given month);
• report on the status or results of the project according to the stated objectives of the project, including the reasons for withdrawal from the project or failure of the project, signed by the legal representative of the employer;
• signed statement of the employer’s legal representative, given under criminal and material responsibility, that the data from the records are complete and true, as well as that at least 90% of all employees engaged in research and development work in the Republic of Serbia;
• signed statement of the employee on research and development, given under criminal and material responsibility, that the data from the report on working hours are complete and true.

How is the right to Tax Relief exercised?

The employer determines (according to the principle of self-taxation) the amount of calculated and suspended tax from the salary of the employee on research and development and the amount of the proportional part of the determined tax which is reduced by 70%, whereby the amount of Tax Relief on research and development for a certain accounting period for which the payment of wages is made multiplied by a coefficient representing the ratio between the working time spent on research and development employees on these jobs and full working time for a given month multiplied by 70%.

When submitting each individual tax return on calculated and paid taxes and contributions for compulsory social insurance after deduction, the employer is obliged to have, in which he states data on Tax Relief, which he uses:

• Mentioned records for an employee;
• report of the employee on research and development, submitted in paper or electronic form, which contains a specification of the total working time and working time spent on the direct performance of research and development in a given month, on the project or projects and
• signed statement of the employer’s legal representative, given under criminal and material responsibility, that the data from the records are complete and true, and that at least 90% of all employees engaged in research and development work in the Republic of Serbia.

For more info on this or any other legal, tax or business topic, please feel free to write to us at [email protected] at any time OR contact us via telephone number +381113281914 during working days from 08:30 to 16:30

[1] Personal Income Tax Act (“Official Gazette of the RS”, No. 24/2001, 80/2002, 80/2002 – other law, 135/2004, 62/2006, 65/2006 – amended, 31/2009, 44/2009, 18/2010, 50/2011, 91/2011 – US decision, 7/2012 – harmonized din., 93/2012, 114/2012 – US decision, 8/2013 – harmonized din. , 47/2013, 48/2013 – amended, 108/2013, 6/2014 – harmonized din., 57/2014, 68/2014 – other law, 5/2015 – harmonized din. , 112/2015, 5/2016 – adjusted din., 7/2017 – adjusted din., 113/2017, 7/2018 – adjusted din., 95/2018, 4/2019 – adjusted din. izn., 86/2019, 5/2020 – harmonized din. izn., 153/2020, 156/2020 – harmonized din. izn., 6/2021 – harmonized din. izn., 44/2021, 118/2021, 132 / 2021 – harmonized din. Izn. And 10/2022 – harmonized din. Izn.);

[2] Rulebook on Conditions and Manner of Exercising the Right to Tax Exemption Based on Salaries of Research and Development Employees (“Official Gazette of RS”, No. 48/2022);