Tax Heavens From Serbian Tax Perspective
Withholding tax and companies from jurisdictions with a preferential tax system
Obligation to calculate and pay withholding tax (“Withholding Tax”) exists when a non-resident legal entity (“NLE”) realizes income from a resident legal entity or entrepreneur who keeps business books (“RLE”) in situations provided by the Act on Corporate Income Tax (“CIT Act”), based on the income from:
- compensation for leasing and subleasing real estate and movable property on the territory of the Republic of Serbia
- services (market research services, accounting and auditing services, and legal and business consulting services);
- entertainment, entertainment, art, sports, or similar program in the Republic of Serbia.
Aldo officially taxpayer is NLE, RLE is (as tax guarantor), obliged to calculate and pay Withholding Tax. In the event that the Withholding Tax is not paid, forced collection of the tax will be initiated against the RLE.
The Withholding Tax is calculated by applying to the gross income generated by the NLE from the RLE a statutory tax rate of 20% or the benefited rate provided by the double taxation agreement (“ITA”) if such an agreement is concluded between the Republic of Serbia and the country of residence NLE.
All of the above is the general rule, however, this rule does not apply if the NLE comes from a jurisdiction with a preferential tax system (“JPTS”). Special rules apply to the taxation of NLE revenues coming from JPTS, which we will discuss below.
What are JPTSs?
JPTSs are defined by the CIT Act as territories with tax sovereignty where legislation is applied that provides opportunities for a significantly lower tax burden on corporate profits compared to the provisions of the CIT Act. JPTS legislation prevents or hinders the determination of beneficial owners of legal entities by the tax authorities of Serbia and makes it impossible or difficult to determine those tax facts that would be important for determining tax liabilities according to the regulations of the Republic of Serbia.
The states and territories that are to be considered JPTSs for the purposes of Withholding Tax in the Republic of Serbia are provided by the Rulebook on the List of Jurisdictions with Preferential Tax System.
When is NLE considered to be coming from JPTS?
According to the CIT Act, NLE is considered to be coming from JPTS if:
- it was established on the territory of JPTS;
- it has a registered office on the territory of JPTS;
- it has the seat of administration on the territory of JPTS;
- it has a place of actual administration on the territory of JPTS.
How is the revenue generated by NLEs from JPTS taxed?
The most important difference in terms of taxation of income generated by NLEs from JPTS is the fact that they are taxed at the rate of 25% provided by the CIT Act on income generated on all the above bases except in the case of dividends income which is taxed at the rate of 20%.
Another important difference is that revenues from services provided by NLEs from JPTS are taxed regardless of the type of service in question and regardless of where the services are provided.
In addition to the above, it should be noted that if RLE pays income to the permanent business unit of NLE from JPTS, there is again an obligation to calculate and pay tax at the rate provided by the CIT Act, regardless of where the business unit is located.
It is also important to note that there are no signed ITAs between the Republic of Serbia and the countries and territories that are considered to be JPTS, so there are no benefited tax rates, which means that the rates provided by the CIT Act are always applied.
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 Act on Corporate Income Tax “Official Gazette of RS”, No. 25/2001, 80/2002, 80/2002 – other law, 43/2003, 84/2004, 18/2010, 101/2011, 119 / 2012, 47/2013, 108/2013, 68/2014 – other law, 142/2014, 91/2015 – authentic interpretation, 112/2015, 113/2017, 95/2018, 86/2019, 153/2020 and 118/2021).
 Rulebook on the List of Jurisdictions with Preferential Tax System (“Official Gazette of RS”, No. 122/2012, 104/2018 and 161/2020).