Tax Treatment of Investment from the UAE to Serbia: Dividends, Tax Residency, and Equity Acquisition in LLCs
Acquiring a Share in a Serbian Energy Company – Is There a Tax?
In this article, we analyze the tax treatment of investment from the UAE to Serbia, focusing on key aspects such as the TRC, DTT, and taxation of individuals.
Many companies are increasingly interested in investing in green energy projects in Serbia. In our case study, a legal entity from the UAE intends to acquire a 50% share in a Serbian energy company (wind, solar, and hydro power).
Here’s the key: the acquirer is an offshore company from the UAE, ultimately owned by an individual who is a Serbian tax resident.
What Does Serbian Tax Law Say?
Good news: the UAE-based acquirer does not pay any tax in Serbia upon acquiring the share.
Whether the share is acquired with or without compensation, Serbia does not levy transfer tax on equity transfers in LLCs.
So, the tax treatment of investment from the UAE to Serbia is highly favorable.
In other words, the acquisition itself is not subject to tax—whether it is a purchase or a no-cost transfer.
When Does Tax Become Relevant?
Tax may apply later, when the UAE company sells the share to a third party.
At that point, the tax base depends on the original acquisition price.
This price is used to calculate capital gains, which may be subject to tax.
How Is Capital Gain Determined When Selling the Share?
There are two potential scenarios:
a) If the share was received for free, the acquisition price is 0.00 RSD.
➞ The full sales price is then treated as a capital gain.
b) If the share was purchased, the acquisition price equals the amount paid.
➞ This amount must be properly documented (e.g., agreement, proof of payment).
These elements are essential because they determine the taxable base if the share is sold in the future.
Does the EU Seller Pay Tax Upon Transfer of the Share?
In this case, the seller is a legal entity from the EU. Tax consequences vary depending on the nature of the transfer.
1. Transfer Without Compensation – No Tax, But With Risk
If the share is transferred free of charge:
- No revenue is generated
- No capital gain tax is due
- No capital gain tax return (PPDG-3R) is filed
This is confirmed by the Serbian Ministry of Finance opinion no. 011-00-80/2022-04 dated 07.02.2022.
However, there is a significant tax risk.
➞ The Tax Administration may treat the transaction as a simulated sale and determine a fair market value for the share.
If this value exceeds the seller’s acquisition price, tax authorities may:
- Calculate capital gains
- Impose a tax liability
This risk applies only to the EU seller. The UAE acquirer is not exposed to this risk.
2. Transfer for Compensation – Reporting Obligation Even Without Gain
If the share is sold at the same price at which it was acquired:
- No capital gain is realized
- However, a capital gain tax return must still be submitted (PPDG-3R)
Before this, the EU seller must:
- Obtain a non-resident TIN from the Serbian Tax Administration
- Open a non-resident foreign currency account in a Serbian bank
- Receive payment through that account
The bank will not transfer funds to the seller until the Tax Administration confirms that tax obligations have been settled.
This means the seller must:
- Obtain confirmation that tax was paid
- Or prove that taxation rights belong to their country of residence
➞ This process can take up to one month.
Dividend Payment to UAE Member – What Is the Tax Rate?
When the Serbian energy company pays a dividend to its UAE member, the key question is:
What is the applicable tax rate and how is it applied?
If conditions under the Double Taxation Treaty (DTT) between Serbia and the UAE are met, the tax rate is only 5%.
➞ This tax is withheld and paid by the Serbian company.
➞ It is applied to the gross dividend amount.
To apply the 5% rate, the following are required:
- A Tax Residence Certificate issued by UAE authorities
- Proof that the UAE shareholder is the beneficial owner of the income
If these conditions are not met, the standard 20% withholding tax applies under Serbian law (Article 40, CIT Law).
That is why it is essential to collect and submit the required documentation in time.
Why Is the 50% Share Important?
The Serbia-UAE DTT provides:
- 5% tax if the foreign company owns at least 5% of the capital
- 10% tax in all other cases
Since the UAE shareholder owns 50%, the conditions for the 5% preferential rate are clearly met.
What Is the Procedure?
After the dividend is paid, the Serbian company must:
- Submit form PDPO-S within 3 days
- Calculate and pay the withholding tax
- Attach the following documents:
- Translated and certified TRC
- Proof of beneficial ownership (e.g., share transfer agreement, profit distribution resolution)
Note: TRC is valid only for the year of issue. For example, a TRC issued for 2025 is valid only for 2025. A new TRC must be obtained for dividends paid in 2026.
Future Share Sale – How Is It Taxed?
If the UAE company decides to sell its share in the future, it will need to assess whether a capital gain or loss has been realized.
The structure of the Serbian company’s assets plays a crucial role.
“Land Rich” Rule – When Serbia Has the Right to Tax
If more than 50% of the company’s assets consist of real estate (land, buildings, equipment, etc.), the so-called “land rich” clause under the DTT applies.
➞ In that case, Serbia has the right to tax the capital gain.
This is confirmed by the Ministry of Finance opinion no. 011-00-1257/2021-04.
What If the Company Is Not “Land Rich”?
If real estate makes up less than 50% of assets, the right to tax capital gains belongs to the UAE.
However, regardless of who has taxing rights, the UAE company must follow Serbian procedures:
- Obtain a non-resident TIN
- File a PPDG-3R tax return electronically
- Open a non-resident bank account in Serbia
- Collect payment via that account
- Obtain a tax clearance certificate
➞ Without the certificate, the bank will not transfer funds abroad.
Transfer Pricing – When Are Two Companies Considered Related Parties?
In cross-border business, it is essential to determine whether companies are considered related parties under Serbian law.
Under Article 59 of the Serbian CIT Law, companies are related if one:
- Holds at least 25% of the capital
- Or has more than 25% of voting rights
If the UAE shareholder holds 50%, the companies are related.
What If the Share Is Less Than 25%?
They are not automatically related unless internal corporate acts grant over 25% of voting rights.
➞ Serbia allows a non-standard ratio between capital share and voting rights.
Why Does This Matter?
If companies are related and conduct intercompany transactions:
- The Serbian company must prepare a transfer pricing report
- It must prove that pricing is at arm’s length
If they are not related:
- There is no obligation to prepare transfer pricing documentation
Tax Residency of Individuals – When Are You a Serbian Tax Resident?
This often overlooked issue has significant implications.
An individual is a Serbian tax resident if they meet at least one of the following:
- Have a permanent home or center of vital interests in Serbia
- Spend 183 or more days in Serbia over a 12-month period
“Center of vital interests” includes:
- Location of spouse and children
- Place of work or business
- Social and cultural ties
- Ownership of property, especially permanent residence
Serbian tax residents are taxed on worldwide income. This includes:
- Income earned in Serbia and abroad
- Including dividends paid by UAE companies
Dividends received from abroad must be:
- Reported within 30 days via Serbia’s e-Tax portal
- Taxed as capital income by the individual
➞ The location of the bank account (UAE or elsewhere) is irrelevant.
Note: Foreign dividends are not subject to Serbia’s annual personal income tax, only to a one-time capital income tax.
BONUS: Can an Offshore Company from the UAE Obtain a Tax Residence Certificate (TRC)?
To apply the 5% dividend tax rate under the DTT, the UAE entity must have a valid TRC. But not all companies can obtain one.
Here’s the difference between UAE company types:
✅ Trade Companies (Mainland or Free Zone):
- Can operate locally and internationally
- Have physical offices and employees
- Open bank accounts in UAE
- Have income-generating activities in UAE
- Automatically qualify for TRC with economic substance
- Subject to 9% corporate income tax
❌ Offshore Companies (e.g., RAK ICC, JAFZA Offshore):
- Cannot operate locally
- Are used as holding or investment vehicles
- Do not file Economic Substance Reports (ESR)
- Rarely qualify for TRC
- Do not benefit from DTT provisions
What Are the Requirements for TRC?
To obtain TRC, a company must demonstrate economic substance, including:
- Physical presence in UAE
- Office space matching business activities
- Virtual offices may be acceptable in some cases
- Employees in UAE
- Locally employed staff in core functions
- Headcount should match business size
- Management from UAE
- Business decisions made locally
- Directors physically present in UAE
- Operational activities
- Real revenue from business in UAE
- Value-creating activities conducted domestically
- Local bank account
- Opened and actively used in UAE
- Accounting and reporting
- Maintain books and financial statements per UAE law
Economic Substance Reporting (ESR)
Since 2020, UAE companies in relevant sectors must:
- File annual notifications
- Submit ESR reports if they earn relevant income
➞ Offshore firms often aren’t required to file ESR, making TRC issuance even harder.
What Should You Do?
Check with your UAE counsel if your company can:
- Satisfy TRC requirements
- Benefit from the Serbia-UAE DTT
If not, consider:
- Restructuring via a trade company (mainland or free zone)
- Choosing an alternate ownership model
What If There’s No TRC?
The dividend structure becomes costly:
- 20% withholding tax in Serbia
- 0% tax in UAE
- 15% income tax in Serbia for the individual owner
➞ Total effective tax burden may exceed 30%.
Final Thoughts and Next Steps
The tax treatment of investment from the UAE to Serbia can offer major advantages, but only with careful planning.
Whether you are acquiring shares, distributing dividends, or defining tax residency – every detail matters.
✉ Contact our international tax advisory team today. We’ll help you find the most efficient structure for your investment.