The Ministry of Finance has given the explanation of Article 50a of the Corporate Income Tax Law that determines conditions for eligibility to tax holiday in this area.

Conditions to be met in order to be entitled to tax holiday when investing in fixed assets for a ten-year period, are:

- investing in fixed assets is higher than 600 million dinars;

- investing in fixed assets should be done by the taxpayer - legal entity or another legal or physical person;

- fixed assets that have been invested in should be used by the taxpayer for performing the activity registered with the Republic;

- during the investing period, the taxpayer should provide employment for at least 100 extra people.

After the above conditions have been cumulatively met, tax holiday starts from the first year in which taxable income has been made. This means that when the taxpayer has met all the aforementioned conditions, tax holiday is not applicable unless taxable income has been made in that year.

Investing in fixed assets

Investing starts with the first deposit, which does not have to be higher than 600 million dinars in the first instance. This does not mean that the deposit of over 600 million dinars has to be made in the first year, or that the investing period is limited.

Equity, which provides for the establishment of enterprises, that is, the increase of equity in fixed assets, cannot be regarded as investing in fixed assets as layed out in Article 50a of the Law.

If the aforementioned conditions are met, tax holiday is recognised only when it comes to the investments in fixed assets, but it is not when it comes to intangible investments.

The amount of the investment in fixed assets does not include the value of fixed assets such as equipment that is in the Republic already. This means that providing new equipment as well as importing second-hand equipment is recognized as investing in fixed assets.

Providing additional employment

Additional employment, according to this Law, means emplying new staff (at least 100 persons) permanently, in the period starting from the day the investing started until it finishes (investing period), where it is of no importance whether the additional employment is provided by taking people who have been unemployed until that moment or not. However, Article 50a does not regard persons who have been directly or indirectly employed as the newly employed staff.

Tax holiday referring to providing additional permanent employment (at least 100 persons), is recognized regardless of the conditions stipulated in Article 49(2) of the Law (that taxpayer has not reduced the number of employees in the period of two years after they have employed new staff, or in the period of 12 months before they have employed new staff). The conditions mentioned in the Article 49(2) of the Law refer exclusively to the tax facilitation when it comes to the employment of new staff, for the recognition of which there is no stipulation satating that the taxpayer is simultaneously obligated to invest in fixed assets.

Recognition of other tax incentives during the investing period

The Law does not stipulate the deadline for meeting both conditions (investing more than 600 million dinars in fixed assets and providing employment for extra 100 people) in order for the tax holiday to be recognized.

Until the conditions stipulated in Article 50 referring to tax holiday have been met, the taxpayer does not pay profit tax, but they are entitled to the following tax credits:

- for the investments made from one’s own funds or credit funds into fixed assets, tax credit stipulated in Article 49 of the Law.

- for the employment of new permanent staff, tax credit stipulated in Article 49 of the Law.

Tax credits stipulated in Articles 48-49 of the Law, that the tax payer was using until the conditions for exercising the right to tax holiday have been met, stipulated in Article 50a of the Law, do not affect the recognition of this right.

Proportional investing in fixed assets

The amount of tax holiday stipulated in Article 50a is determined in proportion with the amount of investment in the taxpayer’s overall fixed assets. Tax holiday is not restricted to particular amounts of calculated tax.

PROCEDURE FOR ACQUIRING THE ENTITLEMENT TO TAX HOLIDAY

After the prescribed conditions have been met, tax holiday is realized directly. This means that the responsible organizational unit of the Tax Office establishes whether the conditions for the use of tax incentives have been met, which is done by deciding on establishing the overall annual tax liability.

LOSING THE ENTITLEMENT TO TAX HOLIDAY

If the taxpayer, who has met all the conditions and started using tax holiday stipulated in Article 50a of the Law, provides additional employment for less than 100 people, they (the taxpayer) will lose the right to tax holiday for the whole tax holiday period and will be obliged to pay tax evaluated by applying the rate of the increase in retail prices according to the data provided by the republic organ responsible for statistics.

If the taxpayer stops work before the tax holiday period has expired (liquidation, bankruptcy), they will lose the right to tax holiday for the whole tax holiday period and will be obliged to pay tax evaluated by applying the rate of the increase in retail prices according to the data provided by the republic organ responsible for statistics.

If the taxpayer stops using or alienates acquired basic assets, and does not invest in them the amount equal to the market price of alienated assets, they will lose the right to tax holiday for the whole tax holiday period and will be obliged to pay tax evaluated by applying the rate of the increase in retail prices according to the data provided by the republic organ responsible for statistics.