Tax Alert, April 2017

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.

Value added tax

Determining the VAT debtor for installing electrical systems

When a VAT payer performs the supply in the field of construction to another VAT payer, referring to installation of electrical systems, the tax debtor for such a supply is the recipient of goods i.e. services, since these activities are listed in activity code 43.21 – Electrical installations.

However, when the supply involves replacement of intercom door panels, intercom amplifiers and intercom handsets, repair of existing installations for video surveillance and locksmith works on existing doors, the tax debtor for such a supply is the VAT payer performing the supply.

(Ministry of Finance Ruling, no. 430-00-21/2016-04 as of March 16^th, 2017)

The place of supply of services involving organization and control of transport, logistics and other related processes

When a VAT payer provides services of organization and control of transport, logistics and other processes related to so-called movement of goods to the taxpayer from Article 12 para 2 of the VAT Law, e.g. an entity that performs the activity continuously the place of supply is the place where the service recipient is located.

(Ministry of Finance Ruling, no. 011-00-01263/2016-04 as of March 16^th, 2017)

Explanatory note for determining the place of supply of services involving transport of goods provided to the taxpayer, as of April 2017

Starting from April 1 2017, the place of supply of services involving transport of goods provided to individuals considered as taxpayers in terms of the rules for determining the place of supply of services, is defined according to the place where the service recipient has its seat or residence.

The complete explanatory note can be accessed at the following link (available in Serbian language only):

Explanatory note for determining the place of supply of services involving transport of goods that are provided to the taxpayer, as of April 1^st 2017

(Ministry of Finance Ruling, no. 011-00-225/2017-04 as of March 24^th, 2017)

Explanatory note for determining the place of supply of services involving rental of vehicles and other movable items, as of April 1 2017

Starting from April 1 2017, the new rules are applied for determining the place of supply of services, regulated by Article 12 of the VAT Law. In accordance with aforementioned rules, the place of supply of services depends on whether the service is provided to a VAT payer or a non-taxpayer individual. Additionally, from April 2017, the VAT on temporary import is no longer computed by the customs authority but by a service recipient as a tax debtor, if Serbia is considered as the place of supply. 

The complete explanatory note can be accessed at the following link (available in Serbian language only):

Explanatory note for determining the place of supply of services involving rental of vehicles and other movable items, as of April 1^st 2017

(Ministry of Finance Ruling, no. 011-00-240/2017-04 as of March 24^th, 2017)

Determining the VAT debtor for the supply of control systems for automatic fire alarm

The control of systems for automatic fire alarm in a commercial building, which include checking the logbook, inspection and testing of backup power, checking and testing the indicator interferences, checking the indicator and control elements, inspection and testing of the alarms, inspection and testing line receiver elements, as well as checking and testing the installation, are not considered as services from the field of construction for VAT purposes.

(Ministry of Finance Ruling, no. 011-00-1221/2016-04 as of March 16^th, 2017)

Corporate Income Tax

Write-off of receivables

When an investor – resident legal entity executes the payment (based on invoice issued by a branch) to the headquarters (and not to the branch), in that case the investor’s obligation is settled, i.e. receivable towards investor (from the subject agreement) is collected, therefore, there is no basis for the write-off of such a receivable.

(Ministry of Finance Ruling, no. 430-00-488/2016-04 as of March 6^th, 2017)

Evidence confirming that the nonresident is a beneficial owner of the income

If a Chinese nonresident legal entity does not provide evidence that it is a Chinese resident and a beneficial owner of income, it is considered that the resident taxpayer is obliged to compute and pay withholding tax at 25% rate when paying a service fee to the nonresident legal entity account from the Cayman Islands.

(Ministry of Finance Ruling, no. 430-00-41/2017-04 as of March 3^rd, 2017)

Recognizing expenses for corporate tax purposes in case when a taxpayer states an expense in its ledger based on long-term provisions during the warranty period

When a taxpayer states an expense in its ledger based on provisions for costs during the warranty period, considering that all the requirements prescribed by IAS for the recognition of underlying provisions in the ledger are met, such an expense is recognized for corporate tax purposes.

(Ministry of Finance Ruling, no. 011-00-1057/2016-04 as of March 6^th, 2017)

The obligation to determine the capital gain during the sale of property in case a taxpayer leased said property

A taxpayer (which applies IFRS for SMEs) who constructs a building with a goal of selling it and then leases the building (due to the inability of realizing the intended sale) and generates income from leasing, such a taxpayer is obliged to determine the capital gain (loss) when selling the property, considering that the subject property was used as a fixed asset for performing an activity (leasing).

(Ministry of Finance Ruling, no. 430-00-44/2017-04 as of March 7^th, 2017)

Determining the interest amount paid out to a related nonresident legal entity for the purpose of computing withholding tax

In case a resident legal entity, at the day when the interest is paid to a related foreign entity, has no information about interest rates considered to be in accordance with the arm’s length principle (which are not published for that year), then the resident legal entity determines the amount of said interest (for the purpose of computing the withholding tax) by applying the general rules for determining the transaction price according to the arm’s length principle, and is obliged to apply the same rules in each subsequent interest payment to all related entities, until the end of the year.

(Ministry of Finance Ruling, no. 011-00-219/2017-04 as of March 27^th, 2017)

Personal Income Tax

Tax treatment of fees in case an employer at its own expense bears the cost of organizing various forms of recreation for employees

In case an employer organizes various forms of recreation for employees in order to improve the mental and physical abilities of all employees, i.e. by bearing all costs in respect to sports hall and swimming pool rental, etc., it is considered that this represent the provision of benefits to employees and is subject to income tax and social security contributions.

(Ministry of Finance Ruling, no. 011-00-1041/2016-04 as of February 28^th, 2017)

Determining the purchase price of the property built by a taxpayer for the purpose of capital gain determination

In terms of determining the purchase price of the property built by a taxpayer, an opinion and finding of an expert from the construction field may be used as an evidence.

(Ministry of Finance Ruling, no. 011-00-01029/2016-04 as of March 21th, 2017)