Tax System in Serbia (I)
This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case Karanovic & Partners is an excellent option in Serbia.
The tax system in Serbia is established so as that each main type of tax is regulated by a separate piece of legislation and a number of bylaws issued based on them, including:
¾ Law on Corporate Income Tax,
¾ Law on Personal Income Tax,
¾ Law on Value Added Tax,
¾ Law on Property Taxes (governing property tax, property transfer tax and tax on gifts and heritage).
These laws primarily deal with substantive matters in their respective tax areas, provided that they also prescribe certain specific procedural rules on tax assessment.
The system of mandatory social contributions is also established by laws enacted by the Parliament. The system is governed in the first place by a Law on Mandatory Social Security Contributions, while specific rules in relation to each of the type of social security are prescribed by the separate laws, as follows:
¾ Law on Pension and Disability Insurance,
¾ Law on Health Insurance, and
¾ Law on Employment and Insurance in Case of Unemployment.
In addition to the above, there are a number of laws establishing numerous so-called para-fiscal charges, such as court and administrative fees and other fees.
General rules governing the tax procedure, including the assessment and collection of tax, rights and obligations in relation to the tax system are governed by the Law on Tax Procedure and Tax Administration. Procedural rules prescribed by this law are applicable in all tax areas, unless it is otherwise prescribed by a separate law governing the specific tax area. Rules prescribed by the Law on Tax Procedure and Tax Administration are also applicable in relation to social security contributions, para-fiscal charges and other types of public revenues, unless separate laws governing these public revenues provide otherwise. Finally, since the tax procedures are essentially administrative procedures, they are also governed by the Law on General Administrative Procedure, in the parts which are not covered by the Law on Tax Procedure and Tax Administration and separate tax laws.
International treaties are an important part of the Serbian legal system, including the area of tax and social security contributions. Ratified international treaties (bilateral and multilateral) have supremacy over national legislation.
Serbia has an extensive network of more than 50 treaties on the avoidance of double taxation treaties (DTT), including DTTs with almost all EU countries, Russia, all the regional countries and a number of Asian countries. DTTs applicable in Serbia are based on OECD Model Convention. In 2017, Serbia signed a Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). MLI is a result of the OECD/G20 Project to tackle Base Erosion and Profit Shifting (BEPS). The MLI will be applied as a part of the double tax treaties that Serbia signed after reaching the agreement with the other contracting state.
Serbia also ratified social security conventions with more than 25 countries, governing the rights and obligations in relation to the social security of the citizens of these countries in Serbia and vice versa.
Finally, an important source of tax law in Serbia are also international treaties governing other issues – primarily the status of international organizations and financial institutions or the development and financing of important infrastructural projects, which provide for specific tax rules in the areas covered by the treaties. These rules are primarily related to various tax exemptions.
The main authority in charge of the enforcement of tax laws in Serbia is the Tax Authority – being the authority within the Ministry of Finance. The Tax Authority is in charge for: the registration of taxpayers, assessment of tax, tax control, collection of tax, investigations of tax criminal offences and so on.
The Compulsory Social Insurance Central Register was established in 2010 in order to maintain the registry of contribution payers, users of insurance and all changes regarding the information on these entities. Contribution payers are obliged to electronically register any relevant change with the Central Register. The Central Register further distributes information to individual social insurance funds, the Tax Authority and other bodies with an interest in the database maintained by the Central Register.
Personal income tax and social security contributions:
Rules governing the taxation of personal income are prescribed by the Law on Personal Income Tax (PIT Law) and the accompanying secondary regulations with the PIT Law. As a general note, the Serbian system of personal income tax is based on the so-called cedular system of taxation: different types of income are taxed at different tax rates and different rules for the assessment of the tax base. At the end of the year, resident tax payers whose annual income generated throughout the year from all sources exceeds the threshold prescribed by the PIT Law are required to pay additional annual income tax.
Types of income subject to personal income tax
The main types of income for which the PIT Law prescribes specific rules of taxation include salaries, the income of entrepreneurs, income from immoveable property, income from capital (dividend, interest) capital gains, royalties, and “other income” which is a residual category including any income not included in one of the specified categories (including also income generated by natural persons under service agreements).
Below we have presented the system for the taxation of salaries, as the most common type of personal income.
Taxation of income from labour
Salary tax is levied at a 10% tax rate applicable on the gross amount of salary decreased by the monthly non-taxable amount of RSD 11.790 (app. EUR 100).
The taxable person is the employee, but the employer is responsible for calculating and paying personal income tax on behalf of his employees. The taxable base is the gross salary, which includes salary tax and social security contributions. Benefits in kind, such as the use of company vehicles or apartments, as well as income from employment share plans are subject to salary tax.
Specified types of income, up to a prescribed amount, are exempt. They include public transportation costs for home to office travel and daily allowances for business trips. Also, insurance premiums for private pension and health insurance paid by the employer for its employees are exempted from the prescribed threshold (app. EUR 50 per month).
The employer who is employing individuals registered at the National Agency for Employment as unemployed, may ask for a refund of paid taxes and contributions in the range between 65% and 75% depending on the number of employed individuals.
Social security contributions
Salaries (and other similar types of income generated from work) are subject to an obligation to pay contributions for mandatory social security insurance (including social security contributions due by the employer and those due by the employee). The rates of social security contributions due on salaries are as follows:
Pension and disability
The base for social security contributions paid on salaries is subject to limitation as to the maximum monthly base of app. EUR 2,500, while the maximum annual base related to annual income generated from all sources is estimated at app. EUR 31,500 for 2016.
Tax and social security contributions are payable by the employer on the withholding basis if the employer is a resident legal entity. In this case the employer is required to pay salary tax and social security contributions on each salary payment. The tax return for withholding tax has to be filed electronically before the payment of personal income.
Annual income tax
In addition to the tax on specific types of income paid during the year, tax residents and non-residents, whose total annual income exceeds three times the annual average salary in Serbia (for 2016 app. EUR 19,000) are required to pay an annual income tax.
The tax base for annual income tax is equal to the sum of all income generated during the year (with certain exemptions, such as dividends and capital gains) reduced by a non-taxable amount (three times the average salary) and the standard deductions for taxpayers (40% of the average salary) and for the members of taxpayer’s family (15% of the average salary for each family member).
Tax rates for annual income tax are progressive:
¾ 10% for tax base up to six times the average annual salary in Serbia (for 2016 app. EUR 38,000),
¾ 15% for tax base exceeding six times the average annual salary.
The tax returns should be filed by the 15th of May for the income generated in the previous year. The tax returns may be filed electronically or in hard copy.
The position of foreign nationals within the Serbian tax system
The scope of tax liabilities of any natural person depends on whether such a person is a resident of Serbia or not. Residents of Serbia are liable to personal income tax on their worldwide income. Non-residents are liable to pay tax only on income earned in Serbia.
The residency of a natural person is established on the basis of criteria prescribed by the PIT Law. Under these rules an individual will be considered a resident of Serbia if one of the following is fulfilled:
¾ He/she resides in Serbia more than 183 days during a period of 12 months which begins or ends in the given fiscal year; or,
¾ He/she has a domicile or centre of his/hers vital interests in the territory of Serbia.
Residents of Serbia are required to pay tax on their world-wide income, irrespectively of the source of their income. Non-residents are required to pay tax on income generated in Serbia.
In addition to salary tax, foreign staff may be required to pay social security contributions on their salaries while they work in Serbia. This obligation may be eliminated on the basis of a convention on social security insurance.