Tax Alert, January 2017

New Ministry of Finance Rulings

Several Ministry of Finance rulings have been published in the past period, aimed at clarifying and elaborating on the implementation of provisions of the Law on Value Added Tax (hereinafter “VAT Law”), Law on Corporate Income Tax and Law on Personal Income Tax. Additionally, two Judgements of the Administrative Court were published, aimed at clarifying the implementation of provisions of the Law on General Administrative Procedure.

Value added tax

Increasing the tax base for computing VAT for the lease of business premises

When a VAT payer – lessor claims the amount of incidental expenses (by issuing a debit note) from a lessee (cost of electricity, telephone, cleaning services, etc.) it refers to a subsequent increase of a tax base, meaning that the VAT payer – lessor is required to compute the VAT on the total amount of costs claimed by the lessor, without  VAT.

(Ministry of Finance Ruling, no. 011-00-909/2016-04 as of October 13^th 2016)

Obligation of the VAT payer to pay VAT stated on the invoice in case no supply was made

When a contractor issues an interim payment certificate that contains, amongst other, the value of the stock of goods intended for future construction works, after which: 1) there was a work stoppage (due to the fact that the investor did not make the payment); 2) a claim has been filled with the competent court; and 3) the court’s decision was issued that did not acknowledge the receivable for the stock of goods, the contractor does not have the right to reduce the amount of VAT paid on that account.

(Ministry of Finance Ruling, no. 011-00-00954/2016-04 as of November 1^st,  2016)

Determining the date of supply of goods and services in case when a construction contract is stipulated by the turnkey principle

When construction contract does not stipulate issuance of interim payment certificates, meaning that partial delivery of goods or services is not performed during the construction, but execution of works is done based on the turnkey principle, the date of completion of construction works is considered as the date when the supply is made.

(Ministry of Finance Ruling, no. 011-00-1043/2016-04 as of November 23^rd 2016)

Tax treatment regarding the sale of goods and services in the free zone

When a VAT payer performs the supply of goods and services in the free zone to a VAT payer – free zone user which is a tax debtor for that supply as the recipient of goods and services, the VAT payer that performs the supply is not obliged to calculate and pay the VAT.

In this case, the VAT payer – recipient of goods and services does not have to compute VAT if the prescribed requirements are met. Namely, that the free zone user has a document issued by the free zone managing  company, confirming that there is a valid contract on the use of the free zone between the company and the recipient of goods or services – the free zone user and that the recipient has the invoice from the VAT payer that performs the supply.

(Ministry of Finance Ruling, no. 011-00-00673/2016-04 as of November 4^th 2016)

Tax base for computing VAT in case the VAT payer receives compensation in the amount that is less than the purchasing value

The VAT regulations do not envisage a different way of determining the base for calculating VAT in case of a supply of goods for which a VAT payer receives compensation in the amount less than the purchasing value of the said goods. Therefore, if a VAT payer that has imported goods for the purpose of their sales in Serbia, does not claim all the costs associated with the purchase of said goods (i.e. custom costs) from the buyer of the third party, such a circumstance does not affect the determination of the tax base for calculating VAT for that supply.

(Ministry of Finance Ruling, no. 011-00-01131/2016-04 as of December 6^th 2016)

The obligation to compute VAT when a VAT payer – natural gas supplier provides delivery of natural gas reservation services

When a buyer of natural gas is obliged to buy a certain amount of natural gas, i.e. in case of purchasing smaller quantities it has to pay a fee to the supplier of natural gas for the reservation of a given quantity of natural gas, it is considered that the supplier of natural gas provides reservation services. In this case, a VAT payer – supplier of natural gas is subject to 20% VAT on the tax base consisting of the amount of fee for the supply of the said service.

In this regard, when a VAT payer holds an invoice in which the supplier computed VAT using the rate of 10% for a supply that is subject to the standard rate of 20%, such input VAT cannot be deducted.

(Ministry of Finance Ruling, no. 430-00-00047/2016-04 as of December 6^th 2016)

Right to deduct the input VAT in case when the VAT payer holds the invoice of the previous supply participant received by e-mail

If a VAT payer holds an invoice of the previous supply participant – VAT payer, which was delivered by e-mail in PDF format, the VAT payer has a right to deduct input VAT stated in that invoice if other conditions prescribed by the VAT Law are met.

(Ministry of Finance Ruling, no. 430-00-149/2016-04 as of December 12^th 2016)

Place of supply for translation services

When a domestic VAT payer provides translation services to foreign entities (e.g. translating tender, business and legal documentation, medical reports, operation manuals etc.), the place of supply is Serbia. In this case, a VAT payer is obliged to calculate and pay the VAT on the fee for the supply of this service.

(Ministry of Finance Ruling, no. 413-00-00081/2016-04 as of December 27^th 2016)

Place of supply for services involving technical operations

When a VAT payer engaged in the production of pharmaceutical products provides to its related entities – foreign companies services involving technical operations, provided in order to enable foreign companies to perform the production of medicines in accordance with the technical standards VAT should not be levied. This is due to the fact that the place of supply of these services is the place where the recipient of services is located.

(Ministry of Finance Ruling, no. 011-00-00922/2016-04 as of December 28^th 2016)

Corporate income tax

Withholding tax on marketing fees

Revenue realized by a nonresident legal entity from a resident legal entity for marketing services (e.g. development of marketing strategies, identification of potential customers) which include defining marketing objectives within the target market, as well as achieving them by ensuring the required resources, is subject to withholding tax. This is because the said services (regardless of whether the provision of services was carried out from abroad or on the territory of Serbia) are being used on the territory of Serbia (as a part of the overall marketing strategy of a resident legal entity).

(Ministry of Finance Ruling no. 011-00-669/2016-04 as of November 8^th 2016)

Withholding tax on advertising fees

When a resident legal entity pays a nonresident legal entity compensation for advertising services (particularly, in case of advertisements through internet – Google and Facebook), such paid compensation is subject to withholding tax, considering that the said services are used in Serbia.

(Ministry of Finance Ruling, no. 011-00-645/2016-04 as of December 28^th 2016)

Personal income tax

Withholding tax on fees for services performed in Serbia

When a nonresident legal entity realizes revenue from an entrepreneur based on fees for assembling and disassembling the machines, given that these services are performed in Serbia, such paid fees are subject to withholding tax of 20%.

(Ministry of Finance Ruling no. 011-00-706/2016-04 as of October 19th 2016)

General administrative procedure

Reviewing of documents in the tax procedure

Law on Tax Procedure and Tax Administration does not contain provisions on the right of the party to inspect documents; however, Article 3 para 2 prescribes that the tax procedure should be conducted in accordance with the provisions of the Law on General Administrative Procedure (unless otherwise specified). According to Article 70 of the Law on General Administrative Procedure, the right to review documents and to transcribe or photocopy certain documents at their own expense is granted to any third party who has made credible their legal interest.

In accordance with the abovementioned, reviewing and informing on the progress of the procedure is carried out according to Article 70 of the Law on General Administrative Procedure.

(Judgement of the Administrative Court, 7U 11452/2010(2009) as of December 9^th 2010)

Content of the decision rationale adopted in the administrative procedure

If the rationale of the decision in the administrative procedure does not include the reasons indicating to the wording that was provided in the disposition and does not include regulation on which the decision is based, the rules of administrative procedure that are of strong significance to the decision of an administrative matter are violated.

(Judgement of the Administrative Court, I-2 U 10443/2015 as of August 13^th 2015)