Tax Alert, March 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”) and on Law on Corporate Income Tax (hereinafter “CIT Law”). Additionally, one public notice was posted regarding incentives for attracting foreign direct investment.

Value Added Tax

The obligation to compute and pay VAT for the processing of goods

A VAT payer that performs supplies to a nonresident legal entity is not obliged to compute and pay VAT when the supply involves the processing of goods (e.g. processing of hot-rolled strip and hot rolled sheet metal) that the nonresident legal entity purchased from another VAT payer in Serbia, and that are sent or shipped abroad after processing.

 (Ministry of Finance Ruling, no. 413-00-00246/2016-04 as of February 7^th 2017)

The right to input tax when a VAT payer pays the portion of value for received agricultural products

When a farmer performs the supply of agricultural products to a VAT payer and the VAT payer pays to the farmer a portion of the value of goods received and the VAT compensation related to that portion of the value of agricultural goods, the VAT payer has the right to deduct the amount of paid VAT compensation as input tax in the tax period in which the payment was performed, assuming that other conditions prescribed by the VAT Law are met.

(Ministry of Finance Ruling, no. 430-00-00468/2015-04 as of February 20^th 2017)

The obligation to calculate VAT on the amount of remuneration that a VAT payer claims from other owners of an office building

When several legal and natural entities are owners of parts of an office building, while electricity bills are addressed to one legal entity – VAT payer, considering that all owners bear the electricity cost, the amount of remuneration that a legal entity – VAT payer (responsible for the bills) claims from the other owners on this basis, is not subject to VAT due to the fact that this is not treated as consideration for a supply subject to VAT.

Additionally, the legal entity – VAT payer who is responsible for the electricity bills has a right to deduct the VAT computed and stated in the invoice of the previous supply participant, in the part related to that VAT payer. The right to deduct input VAT is not influenced by the fact that the electricity bills are paid by the legal entity – VAT payer who is responsible for the bills or another entity. VAT payers, to which the electricity bills were not addressed to, do not have the right to claim input tax.

(Ministry of Finance Ruling, no. 413-00-00265/2016-04 as of February 20^th 2017)

Determining the tax debtor for supplies involving setting up installations for all types of systems whose operation requires only electrical installation

When a VAT payer performs supplies in the field of construction to another VAT payer, which involve the setting up of installations (from supplier’s materials) for all types of systems whose operation requires only electrical installations – video surveillance, video intercom, access control, parking ramps, system of network telecommunication infrastructure, etc., and equipment delivery with installation (e.g. cameras etc.), the tax debtor for such a supply is the recipient of goods, since these activities are listed in the activity code 43.21 –  Electrical installation.

(Ministry of Finance Ruling, no. 430-00-11/2016-04 as of February 20^th 2017)

Corporate Income Tax

Recognizing expenses for corporate tax purposes based on short-term provision of compensation for annual leave earnings that an employee will use in the next tax period

The expenses that a taxpayer states in its ledger based on short-term provision of compensation for annual leave earnings that the employee will use in the next tax period, is recognized for corporate tax purposes in the amount stated in the P&L.

(Ministry of Finance Ruling, no. 011-00-1326/2015-04 as of January 24th 2017)

Determining the depreciation group for fixed asset – box truck

A fixed asset – i.e. a box truck which is not specified, as such, in any of the depreciation groups (II to V), should be classified in depreciation group III for the purpose of calculating tax depreciation.

(Ministry of Finance Ruling, no. 413-00-12/2017-04 as of February 6^th 2017)

Withholding tax on revenue realized by a nonresident legal entity from a resident legal entity based on received donations and the recognition of expenses for tax purposes

Revenue realized by a nonresident legal entity from a resident legal entity based on donations is not subject to withholding tax.

According to the provisions of the CIT law, expenses related to donations and benefits to social welfare institutions are recognized in the tax balance sheet, if executed to entities registered for this purpose in accordance with specific regulations. Considering the above, the taxpayer's expenditure based on donations to the nonresident legal entity (an association) is not recognized in the tax balance sheet, since conditions stipulated by the CIT law are not met.

The revenue of a nonresident legal entity based on sponsorship initially arises from the sponsorship contract which obliges the sponsor to give away the certain amount of money, services or goods to the sponsored party, whilst the sponsored party obliges to provide the sponsor with specific advertising and marketing services (e.g. advertising, public presentation of the sponsor etc.). Accordingly, in case when (based on the concluded sponsorship agreement) a resident legal entity (the sponsor) pays out the fee to the nonresident legal entity which performs advertising services, i.e. promoting the sponsor for the purpose of building up its reputation and image outside of Serbia, the nonresident revenue is not subject to taxation according to the provisions of the CIT law.

(Ministry of Finance Ruling, no. 401-00-393/2017-04 as of February 28^th 2017)

Public notice regarding incentives for attracting foreign direct investment

A public notice regarding incentives for attracting foreign direct investment was posted dedicated to legal entities that are realizing investment projects in the manufacturing sector and services sector which may be the subject of international trade, as well as projects in the agricultural and fishing sector. Funds in the amount of RSD 420 million will be accounted for by the financial plan of the Development Agency of Serbia.

The goal is also to support smaller investment projects, especially those in underdeveloped and devastated areas, and in this case the incentive grants may also be allocated for the realization of projects worth at least 100,000 EUR and employing at least 10 workers. More information may be found on the website of the Ministry of economy - http://www.privreda.gov.rs/javni-poziv-za-dodelu-sredstava-podsticaja-za-direktne-investicije/.