Amendments to the tax laws
Facing a significant budget deficit, the Serbian Government plans to change the tax laws for the third time in the last 12 months. The latest sets of changes are intended to increase state revenue and improve fiscal discipline. At its session held on 28 November 2013, the Government proposed to amend the laws governing corporate income tax (CIT), VAT and general tax procedures. The Government also proposed certain minor technical changes to the Law on Personal Income Tax and the Law on Mandatory Social Security Contributions.
The proposed amendments were sent to Parliament for adoption in an urgent procedure and the procedure for adoption began on 3 December 2013.
Corporate income tax
The amendments will abolish tax credits for investments in fixed assets as prescribed by Article 48 of the CIT Law, leaving the “large tax credit” (tax relief prescribed by Article 50a of the CIT Law) the only available relief for corporate tax payers in 2014.
Taxpayers will be allowed to use their accrued tax credits for investments made by the end of 2013 for a period of 10 years in line with the rules applicable at the time the right was acquired.
Beginning in January 2014, the reduced VAT rate will be increased from the current 8% to 10%. The list of goods and services subject to a reduced VAT rate will remain the same, except for computers and IT equipment which will once again be subject to the general (20%) VAT rate. Even though it was previously announced that hotel services will also be placed under the standard 20% VAT rate, after much pressure and lobbying from the hotel industry, it seems that hotel services will remain subject to the reduced VAT rate after all.
Regulations governing the submission of withholding tax returns were amended earlier this year (June 2013). Beginning on 1 January 2014, this tax return must be submitted before the payment of income subject to withholding tax. Additionally, the law introduced the obligation for banks to supervise tax paid on the salaries of their clients and to refuse to execute orders for the payment of salaries if their client has not submitted proof to the bank that a tax return for taxes payable on salaries has been filed to the Tax Administration.
The Government is now further expanding the supervisory role of banks in the payment process of withholding tax on income of individuals, with this new legislation. Under the proposed amendments, banks will be required (as of January 2014) to refuse to execute an order for the payment of any income subject to withholding tax and social security contributions (not only salaries) if the company paying such income does not provide proof that it has submitted a proper tax return. This will include, for example, dividends and interest paid by a bank’s client to a natural person, etc.
New DTTs applicable from 1 January 2014
Avoidance of double taxation treaties with Georgia, Tunisia and Canada (ratified in 2012) and Vietnam (ratified in 2013) will be applicable on 1 January 2014.
These DTTs are based on the OECD’s Model Tax Convention on Income and on Capital. Withholding tax rates on interest and royalties are 10% under all four DTTs. The withholding tax rate on dividends is 10% under the DTT with Tunisia. Under the DTTs with Georgia and Canada the withholding tax on dividends is 5% or 10% depending on the recipient’s share of the company paying the dividend (a 25% shareholding threshold). The DTT provides for 10% or 15% tax on dividends depending on the shareholding (the same 25% shareholding threshold applies).