The tax year in Serbia is the calendar year. The Serbian tax system is comprised of  personal income tax, corporate income tax, excise duties, sales tax, taxes on property, tax on financial transactions, payroll tax and taxes on use of goods and on permission to use goods.

Taxpayers

The taxpayers are both residents and non-residents.

Definitions:

A legal entity is a Yugoslav resident if he/she is incorporated in Yugoslavia or has the seat of effective management and control in Yugoslavia.

An individual is a Yugoslav resident if he/she has a domicile or the habitual abode in Yugoslavia (i.e. if he resides in Yugoslavia at least 183 days within a period of 12 months which begins or ends in the tax year concerned).

A natural person seconded abroad to carry out business for a Yugoslav resident legal entity or natural person, or for an international organization is also considered as a Yugoslav resident.

Consequences:

Residents are taxed on their worldwide income/profit (i.e. for income/profit realized in Yugoslavia and abroad) or worldwide property (i.e. for real estate owned in Yugoslavia and abroad).

Non-residents are taxable on Yugoslav-source income/profit or property.Both residents and non-residents have to pay a sales tax on goods and services.

Personal Income Tax

Income of natural persons is taxed for the year when the income was realized. The rates of theses taxes are proportional and the definition of the taxable base depends on the kind of income.

Employment income is subject to the withholding tax at the flat rate of 14%. The taxable base is the gross wage, including fringe benefits. All other advance taxes (royalties, business income, income from agriculture and forestry, investment income, income from immovable property, capital gains and miscellaneous income) are subject to the flat rate of 20%.

Taxation of Salaries

Employment income is subject to the withholding tax at the flat rate of 14% (see above). The taxable person is the employee, but the employer is responsible for calculating and paying personal income tax on behalf of his employees. In addition to the salary tax, social security contributions based on the salary are also due.

There are three kinds of social security contributions: pension and disability insurance, health insurance and the unemployment insurance. All three kinds of contributions are payable by the employer and employees at equal proportional rates.

There are both minimum and maximum taxable bases.

Minimum: if the salary paid to an employee is below the prescribed minimum.

Maximum: five average gross salaries, according to latest official data.

The portion of the social security contribution which is payable by the employer is treated as one of his operating costs, while the portion payable by the employee is treated as part of his gross salary.  

Types of social security contributions  

Corporate Income Tax

Taxpayers:

All forms of businesses referred to in the Company Law (joint-stock company, limited liability company, general partnership, limited partnership, social enterprise, and public enterprise), as well as cooperatives and non-profit institutions (if they provide services or sell goods) are subject to the corporate profits tax regime.

Corporate tax applies to both resident and non-resident entities carrying out business in Yugoslavia through a permanent establishment.

Rates:

The profit tax rate is 20%. A tax credit is granted for investments in fixed assets (except for cars, furniture, carpets, paintings, and alike). The investment tax credit amounts to 10% of the investment in the current tax year, but may not exceed 50% of the tax liability of the taxpayer before the credit. Unused tax credits can be carried forward for 5 years. If the taxpayer is regarded as a small enterprise the investment tax credit is equal to 30% of the investment in the tax year concerned, but may not exceed 70% of the taxpayer’s liability. A taxpayer who hires new workers is entitled to a tax credit of 40% of the gross salaries paid to them in the period of 2 years from the date of their employment. Accelerated depreciation is allowed for computer equipment, equipment for environmental purposes, and equipment for training and educating of personnel.

The taxpayer is obliged to charge a withholding tax of 20% on dividends and shares in profits, as well as on royalties and interests realized by non-resident enterprises.

Indirect taxation - Sales tax

Excise duties

please see: Excise Tax Calculation

Sales tax on goods

A single-stage tax levied at the retail level on supplies of goods and services is in force in Yugoslavia. Only cigarettes, alcoholic beverages and coffee are subject to the multi-stage sales tax (“mini-VAT”). The implementation of VAT has not occurred yet.

The sales tax is not charged if the goods are imported or sold to the customer for the purposes of further sales or production.

The taxable base is the sale price of goods, or the custom value of imported goods. The single-rate sales tax on goods is 20% (17%+ 3% special federal sales tax).

Some products are tax exempt (for example, export of products, certain publications, bread, milk).

Sales tax on services

A sales tax is charged on banking services, insurance and re-insurance, transportation, agriculture, civil engineering, consulting, advertising, gambling business, tourist services, etc. The taxable base is the commission for provided services. The single-rate is 20% (17%+ 3% special federal sales tax).

Some services are tax exempt (for example, export of services, health, cultural, educational, scientific, social welfare services, public utility services, etc.)

Taxes on property

Taxes on property in Yugoslavia include: tax on immovable property and shares, inheritance and gift tax, and tax on transfers of title to property.

Tax on immovable property and shares

Taxpayers:

Resident and non-resident legal entities and natural persons who own real estate, have the right of use on it or are privileged long-term tenants, who use it on the basis of time-sharing, etc. are subject to the tax on immovable property.

Public-owned land which is not in commercial use, buildings owned or used by the government, buildings and land of foreign diplomatic and consular missions, buildings which are cultural or historical monuments, etc. are tax-exempt.

Rates:

The rate is 0,40%. The ownership of registered shares is also subject to a tax at the rate of 0,25%.

A taxpayer who resides in his apartment or house is granted a tax credit equal to 40% for her/himself and an additional 10% for each member of his/her household, but not exceeding 70% of the taxpayer’s liability.

Inheritance and gift tax

The rates of inheritance and gift tax are progressive and range from 3% to 5%, depending on the relationship between the deceased/donor and the beneficiary, and on the market value of the inheritance or gift. No tax is paid by the heir or donee who is in the first order of succession to the deceased/donor, by his/her spouse or parent.

Tax on transfers of title to property

This tax is levied at a flat rate of 5%. The taxable base is the market value of the property at the time of assessment.

Tax on financial transactions

Definitions, taxpayers:

The taxpayer is a legal entity and an entrepreneur.

All financial transactions within the payment operations, such as transfer order payments, clearing payments, barter trade, other payments from accounts, endorsement, assignment, etc. are subject to the tax.

Rate:

The rate is 0,3%. Payments of fiscal duties, and payments of pensions, wages and salaries are tax-exempt.

Taxes on use of goods and on permission to use goods

Taxes on the use of goods and on the permission to use goods include: tax on use of motor vehicles (payable at the registration, depending on the engine power), tax on use of mobile phone, tax on use of vessels and yachts (payable at registration), tax on use of aircrafts (payable at registration, depending on the purpose and type of aircraft), and tax on weapons (payable annually, depending on the type of the weapon).

Elimination of double taxation

In order to avoid double taxation of income/profit, the ordinary credit method is applied. If a Yugoslav resident has realized income/profit in another country that has been taxed there, he/she is entitled to a tax credit equivalent to the amount of such tax paid abroad.

In addition, Yugoslavia considers itself legally bound by the double taxation treaties on income and capital which former Yugoslavia had concluded with the following countries: Belgium, Cyprus, Czech Republic, Denmark, Egypt, Finland, France, Germany, Hungary, Italy, Netherlands, Norway, Philippines, Sri Lanka, Sweden and United Kingdom. Since 1996 several new double tax treaties entered into force (Russia, Macedonia, China, Poland, Belarus, and Bulgaria). In addition, Yugoslavia signed a tax treaty with Romania, Zimbabwe, Guinea, Greece, Ghana, Korea, and Slovakia, but these treaties have not become effective yet.

The rate of 20% of withholding taxes on dividends, interest and royalties is reduced by the double taxation treaty.

The indirect tax credit is given to a resident parent company for the tax paid abroad by its non-resident subsidiary on the profits distributed to the parent company, provided that the parent company held 25% or more of the shares of the non-resident subsidiary for at least one year.