Tax Alert, July 2018.

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 ( hereinafter: “CIT law”), Law on Personal Income Tax ( hereinafter: “PIT law”), and the Law on Excise Duties.

Value Added Tax

Dividing the input tax according to the economic affiliation when purchasing goods and services within the construction of a hotel

A VAT payer that performs the supply of health care services for which the tax exemption is prescribed and the supply for which there is an obligation to compute VAT (e.g. tourist accommodation services, food and beverage services on site, cosmetic services ...), is obliged to divide input tax when purchasing goods and services for the construction of the hotel, in accordance with the VAT law, given that aforementioned services will be provided in the hotel that is being built.

(Ministry of Finance Ruling, no. 413-00-00231/2017-04 as of May 11,2018)

Corporate Income Tax

Profit taxation of a foreign legal entity branch that performs construction works in Serbia for a period shorter than 24 months

The profit from the execution of construction works which are being carried out by a foreign legal entity in Serbia within a period shorter than twenty-four months will not be realized through a permanent establishment. Namely, a permanent establishment of the foreign legal entity (in relation to construction or installation works) in Serbia will not exist, since the requirement that the works last longer than twenty-four months, was not met.

(Ministry of Finance Ruling, no. 430-00-164/2018-04 as of May 8, 2018)

Withholding tax treatment of interested attributed to the principal debt

When a non-resident legal entity that has a receivables towards resident legal entity based on the principal debt and interest, concludes with the same resident legal entity an annex of the contract, which stipulates that the amount of the owed interest shall be attributed to the principal debt, the resident legal entity (as the payer) is obliged to compute and pay the withholding tax for the portion that represents attributed interest, within three days from the date of repayment of the principal debt (in instalments or in total).

(Ministry of Finance Ruling, no. 011-00-205/2018-04 as of May 21, 2018)

Recognizing the expenditure in the tax balance based on expenditures of (unusable) goods

When a taxpayer presents in his books the expenditure based on unusable goods, whereby the taxpayer holds a report from the relevant institution on the manner of their destruction and disposal, such expenditure presented in the income statement (in accordance with the accounting regulations) is recognized in the tax balance sheet prepared for that tax period, pursuant to Article 7, para 1 of the CIT law.

(Ministry of Finance Ruling, no. 011-00-75/2018-04 as of May 22, 2018)

Absence of the right to deduct the computed tax for the purpose of determining the advance payments of corporate income tax if the taxpayer does not reduce the calculated tax on the basis of unused tax credit

A taxpayer that, based on the unused tax credit, does not reduce the computed tax, e.g. for 2017 (i.e. it does not present the data in the part 5.4. of the PDP form) is not entitled to any deduction of the computed tax for the purpose of determining the advance payments for 2018 (i.e. it does not present the data in the part 6.4 of the PDP form)

(Ministry of Finance Ruling, no. 413-00-85/2018-04 as of May 30, 2018)

Personal Income Tax

The obligation to compute and pay taxes based on earnings and obligation to submit a tax return

In case when a foreign individual that is assigned to work in Serbia for the purpose of carrying out the business for the needs of a company – resident legal entity, remains employed with a foreign employer who pays out the salary and who issues invoices  for the fee for provided services involving transfer of business knowledge to the resident legal entity and charges the fee in the amount of the salary increased by a commission of 5%, such individual is obliged only to compute and pay the tax based on salary earned from his foreign employer, except in cases where the double tax treaty stipulates otherwise and to submit the tax return on computed and paid tax to the competent Tax Authority.

Earnings that an assignee – foreign individual, realizes from the resident legal entity based on compensation of fees (in particular, the resident legal entity is obliged to provide accommodation – to a certain amount increased for the costs of electricity, water and heating; unlimited use of the company car and return air ticket) represent other income of that individual which is subject to personal income tax according to the provisions of Article 85 and 86 of the PIT law, for which the resident legal entity as a payer of income is obliged to determine and pay withholding tax.

(Ministry of Finance Ruling, no. 011-00-281/2018-04 as of May, 31, 2018)

Law on Excise Duties

The right to refund excise duty paid on import of excise product, used as intermediate material in the production of non-excise products for export

А business entity is entitled to refund paid excise duties on an oil derivative that is used for industrial purposes for the production of non-excise products. In other words, the right to refund paid excise exists in case of imported excise product - the oil derivative Propan Propylene Fraction that is used as an intermediate material in the production of non-excise products for export, or for the production of non – excise product - Propene (Propylene) derivative.

(Ministry of Finance Ruling, no. 430-00-00015/2018-04 as of March, 26, 2018)