Tax Alert, November 2016

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, Law on Personal Income Tax and Law on Fiscal Cash Registers.

Value added tax

VAT treatment of the transfer of a part of assets as a going concern against consideration

Article 6  para 1 item 1 of the VAT law cannot be applied when a VAT payer transfers a part of assets as a going concern against consideration, whereby this transfer does not prevent the transferor from performing the initial activity – in this specific case leasing the facility or economically divisible parts within the facility). This is due to the fact that the VAT payer retains the right to dispose with certain economically divisible parts within that facility.

(Ministry of Finance Ruling, no. 413-00-00113/2016-04 as of August 31^st 2016)

The right to input VAT in case when a VAT payer imports a passenger car and uses that passenger car for the realization of a sale and leaseback contract

When a VAT payer imports a passenger car and uses that passenger car for the realization of sale and leaseback contract, which involves the sale the imported passenger car to a leasing company, and the lease of the same passenger car to that VAT payer, a VAT payer has a right to deduct the paid VAT for the imported passenger car as input tax.

In order to deduct the paid VAT as input tax, the VAT payer must obtain a document on the completed import of the passenger car where the VAT is stated and a document confirming that the stated VAT was paid when importing the passenger car.

(Ministry of Finance Ruling, no. 413-00-212/2016-04 as of September 19^th 2016)

Reducing the VAT tax base in the event of complaint and return of goods due to the poor quality

When a VAT payer –  seller, the manufacturer of car seat cushions, delivers goods to another VAT payer – buyer, which is followed by a complaint by the buyer for a certain amount of goods (due to poor quality) and returning the same goods to the seller, the tax base for the performed supply is considered to be reduced. In this case, the VAT payer – seller, can reduce the amount of computed VAT if the VAT payer to whom the supply is performed corrects the input VAT and informs the VAT payer – seller about this in writing.

(Ministry of Finance Ruling, no. 413-00-00146/2016-04 as of September 20^th2016)

VAT treatment of intermediation services

The place of supply of intermediation services for the supply of goods (regardless of the title of the contract based on which the said service is provided) is determined by the place of supply of goods that are the subject of the intermediation.

Regardless of the fact that a trade agency and an intermediation agreement differ in terms of the representative’s right to conclude the agreement on behalf of the ordering party, for VAT purposes it is considered that a VAT payer – agent or intermediary performs the supply of intermediation service related to these goods in both cases.

(Ministry of Finance Ruling, no. 430-01-00317/2016-04 as of September 20^th 2016)

Determining the tax debtor for the delivery of panel fences and electric gate operators

The delivery with installation of panel fences (where installation involves digging the foundations, concrete works, etc.), performed by a VAT payer to another VAT payer, is considered to be supply of goods in the field of construction for which reverse charge applies since these activities are listed in activity code 42.99 – Construction of other civil engineering projects n.e.c.

The delivery with installation of electric gate operators i.e. automatic parking ramps is also considered to be supply of goods in the field of construction as an activity listed in activity code 42.99 – Construction of other civil engineering projects n.e.c.

(Ministry of Finance Ruling, no. 011-00-00207/2016-04 as of September 19^th 2016)

Place of supply for the visual inspection of parts

Regarding the services involving the visual inspection of parts that include the control of parts in order to determine whether they are damaged, whether they represent a single unit, whether they are adequately painted, etc., such services are not, as such, considered to be engineering services.

Hence, the place of supply for said services is determined according to the place of the headquarters, a permanent business unit, or a place of residence of a service provider. Consequently, a VAT payer- service provider for said supply is obliged to compute and pay the VAT in accordance with the VAT law, regardless of whether the services are provided to an entity with the headquarters, permanent establishment for which the service is provided, or residence in Serbia or abroad.

(Ministry of Finance Ruling, no. 430-00-00319/2016-04 as of October 6^th 2016)

VAT rate applicable to the supply of IV systems

For the supply of IV systems, that are, among other things, considered as dialysis equipment, the special VAT rate of 10% applies, whereby the determination of the tax rate is not influenced by the fact that the goods in question are used for other medical purposes, other than as materials for dialysis.

(Ministry of Finance Ruling, no. 413-00-194/2016-04 as of October 4^th 2016)

VAT treatment of quantitative rebates and their admissibility for tax balance purposes, for rebates involving the giving out of free samples

When a VAT payer - manufacturer gives out free samples of corn seed to its distributor (with individual value of more than RSD 2,000, excluding VAT), depending on the sales results and payment terms, whereby the distributor also gives out free samples of corn seed to its buyers, VAT should be computed for such a supply by the manufacturer.

The giving out of free corn seed (which was either manufactured or kept in stock), by a company that is registered for the manufacture and supply of cereal seeds and for import and export, to distributors, represents entertainment costs that are recognized for tax balance purposes in amounts not exceeding 0.5% of the total revenue, bearing in mind that such a supply is directed at business partners (distributors) with whom the taxpayer has concluded agreement on sale and distribution of imported and processed seed, as well as seed manufactured in Serbia.

(Ministry of Finance Ruling, no. 413-00-71/2015-04 as of October 3^rd 2016)

The place of supply involving software modification and development services

When a VAT payer performs the supply of software modification and development services for an existing application, by sending software code to the server of service recipient, these are considered as services from Article 12 para 3 item 4) sub item (7) and (10) of the VAT Law.

Hence, in case when the recipient of said services is an entity without headquarters or permanent establishment for which the services are provided, i.e. permanent or temporary residence in Serbia, the place of supply for the said services is considered to be abroad, which means that these services are not subject to VAT.

(Ministry of Finance Ruling, no. 413-00-00166/2016-04 as of September 27^th 2016)

Right to deduct the input VAT based on an invoice not containing the signature and stamp of the invoice issuer

Given that a signature and stamp of the invoice issuer are not mandatory elements of an invoice, a VAT payer that holds an invoice not containing signature and stamp of the invoice issuer, but containing all the required elements, has a right to deduct the input VAT based on that invoice.

(Ministry of Finance Ruling, no. 011-00-00703/2016-04 as of September 27^th 2016)

Determining the VAT debtor for the repair of existing electrical installations

Installation repair services are not considered as a supply from the field of construction according to Article 10 para 2 item 3) of the VAT Law, under the assumption that these services involve the repair of electrical installation within a building.

(Ministry of Finance Ruling, no. 430-00-00361/2016-04 as of September 27^th 2016)

Corporate Income Tax

Withholding tax on fees for agency services

Revenue realized by a nonresident legal entity from a resident legal entity based on fees for agency services (aimed at ensuring the placement of the resident’s goods abroad), is subject to withholding tax, unless otherwise indicated by the international double taxation treaty, considering that provided services are used in Serbia.

(Ministry of Finance Ruling, no. 011-00-715/2016-04 as of August 19^th 2016)

Withholding tax on business advisory service fees

Revenue realized by a nonresident legal entity from a resident legal entity based on business advisory services is subject to withholding tax unless otherwise indicated by the international double taxation treaty.

(Ministry of Finance Ruling, no. 413-00-00198/2016-04 as of August 12^th 2016)

Elimination of double taxation based on a certificate of residence issued to a company if the beneficial owner of the revenue is its permanent establishment

A Dutch certificate of residence can be addressed to the parent company from Netherlands, if the royalty fee is truly realized by its permanent business unit in Ireland. Because the invoice received from the supplier does not contain any information regarding the relationship between the supplier and the Netherlands (the evidence of its legal form, nor whether it refers to a permanent establishment of the parent company from the Netherlands), the competent tax authority will, in each particular case, determine the relevant facts for taxation.

(Ministry of Finance Ruling, no. 413-01-127/2016-04 as of May 19^th 2016)

Recognition of expenses for employee bonuses

Expenses stated for bonuses in the taxpayer’s books that are computed based on employees’ contribution to the business success of the employer, including the related tax and contributions for mandatory social security, are recognized as such in the taxpayer`s balance.

(Ministry of Finance Ruling, no. 011-00-177/2016-04 as of September 29^th 2016)

Personal Income Tax

Tax treatment of income gained by an employee in the event of unused annual leave

In case of termination of employment, an employer shall pay monetary compensation to an employee who has not used up the annual leave, in amount of the average salary for previous 12 months, in proportion to the number of days of unused leave and such compensation is treated as compensation of damages.

The monetary compensation paid by the employer to an employee who has not used the annual leave in whole or in part, is considered as salary. Personal income tax and contributions for mandatory social insurance apply, and have to be computed and paid.

(Ministry of Finance Ruling, no. 413-00-274/2014-04 as of October 17^th 2016)

Tax treatment of insurance premium in the case of a death of an employee due to illness

Life insurance premiums, for insurance in the event of employees’ death by illness, paid by the employer for all employees (employee collective insurance), which is not classified as accident insurance according to the Insurance law, is not subject to tax exemption and has the tax treatment of salary. 

(Ministry of Finance Ruling, no 430-00-41/2016-04 as of July 20^th 2016)

Tax treatment for insurance premiums for voluntary health insurance paid by the employers in full and up front for a 12 month period

In case when an employer, in accordance with the insurance agreement, pays voluntary health insurance premiums for employees in full and up front for a period of 12 months, it is entitled to use a nontaxable amount for each employee up to 5.501 RSD on monthly basis (nontaxable amount of 5.501 RSD per month – valid as of February 2^nd 2016 and to be applied until January 31^st 2017).

(Ministry of Finance Ruling, no. 011-00-497/2016-04 as of July 13^th 2016)

Law on Fiscal Cash Registers

Fiscal reporting of prepared meals for employees

In case when an employer provides meals to its employees at its own expense, free of charge, in a form of “supplementary meals” (food and drinks for employees) from another person (the supplier), there is no obligation of reporting such supplies through a fiscal cash register.

(Ministry of Finance Ruling, no. 011-00-00520/2016-04 as of Jun 10^th 2016)