Taxation in Serbia: between Russia and the EU

Serbia is one of the attractive jurisdictions for Russian citizens: in 2022 alone, the Russian diaspora in the country grew from 3.5 thousand to 200 thousand people. Among the advantages: a visa-free regime, ease of company registration, a warm attitude towards Russians (including after NATO's military aggression against Serbia, when the Russian Federation acted as a sympathetic side), Orthodox culture and, of course, the prospect of joining the European Union.

Due to its small size, Serbia is a good option for a back office or logistics hub between Russia and Europe (there are no anti-Russian sanctions in Serbia), but to a lesser extent for the sale of goods and services within the country.

There are attractive conditions for international trade, there are free economic zones. Let's get acquainted with the conditions of the jurisdiction for businesses, startups, investors and individuals, as well as current benefits for 2024.

Taxes for individuals

How to become a tax resident of Serbia

To obtain the status of a tax resident of Serbia, you must meet at least one of the following conditions:

• staying in the country for at least 183 days during a calendar year;
• purchasing real estate in Serbia;
• educating minors in Serbia;
• staying with a family in Serbia.

Tax residents pay tax on their worldwide income. Individuals who are not tax residents - only from the source of income received in Serbia. Tax rates are the same for residents and non-residents.

There is a Convention on the Avoidance of Double Taxation between Serbia and the Russian Federation.

Personal Income Tax

Personal income tax is withheld from the employee's salary by the employer. The amount of tax depends on the amount of income and its type.

The annual income of non-residents of Serbia is taxed if it exceeds the amount of three average annual salaries in Serbia.

Personal income tax in Serbia is calculated on a complex progressive scale:

1. Up to three average annual salaries.Personal income tax rate: 10%. Of the income, 19,300 Serbian dinars ($179) are not subject to this tax.
2. More than three average annual salaries (about $30,650). Personal income tax rate: 10% of all income + another 10% of the amount in excess of three average annual salaries. The tax on the excess amount is paid independently.
3. More than six average annual salaries in total (about $61,300). Personal income tax rate: 10% of all income + another 15% of the amount in excess of six average annual salaries. The tax on the excess part is paid independently.

Property tax for individuals

This tax is paid on the assessed value of the property. Rates are set by local authorities — from 0.3% to 2.0%.

Social security contribution

Consists of two parts:

I) The employer withholds from the employee's salary:

• Pension and disability insurance - 14%;
• Health insurance - 5.15%;
• Unemployment insurance - 0.75%.

II) The employer pays from his own funds:

• Pension and disability insurance - 11%;
• Health insurance - 5.15%.

Total social security contributions are 36%.

Company registration and account opening

Nika Moringevich, founder of the company for relocation of businesses to Serbia AskMe

“Company registration in Serbia takes up to 10 days. You can submit documents yourself or with the help of a representative (for example, a lawyer or attorney). The application is also accepted online, but it requires a digital signature,” the founder comments.

Not all banks in Serbia work with Russian passports. “Unfortunately, a citizen of the Russian Federation will have limited functionality in a Serbian bank, since he is a non-resident bank.

Non-residents are issued Visa bank cards, which can be used to pay online in Serbia and other countries, as well as to view the balance of funds in the account. But online transfers will not be available. The list of banks that work with Russian passports is small: Halkbank, Raiffeisen, Poštanska štedionica, ALTA, Expobank and API bank,” says Nika Moringevich.

The time it takes to open a bank account depends on the specific bank and takes from three days to a month. On average, the review takes 10 days. Previously, the processing time was the same day, but due to the influx of applicants in the last year, queues and delays have appeared. “The influx of relocators to Serbia is huge: after the announcement of mobilization, we noted a multiple jump. As of today, the flow of people remains at an average level,” Nika notes.

Taxes for investors

The cost of Serbian real estate has increased by 13% in 2022.

Buying real estate

When purchasing real estate in Serbia, the buyer is obliged to pay:

• 2.5% of the value of the property;
• 10% VAT, if it is a new building;
• state duty 5,390 RSD ($52);
• registration of ownership 352 RSD ($3);
• certificate of ownership 1,172 RSD ($11).

Example. An investor purchased a one-room apartment in Belgrade on the secondary market for RSD 9,973,295 ($94,700). The tax rate will be 2.5% = RSD 249,332 ($2,368) + state fee RSD 5,390 ($52) + registration RSD 352 ($3) + certificate RSD 1,172 ($11) = RSD 256,246 ($2,434) tax deductions.

Owning Real Estate

The owner will have to pay 0.2-1% of the value of the property in Serbia. The exact rate is determined by the local tax office and communicated to the owner individually, depending on the nature of the buildings, the size of the plot, and the living space.

The tax amount is also affected by the zone where the property is located. Each region of the Republic of Serbia is divided into five zones: from the most expensive in the city center to the most budget-friendly areas outside of populated areas. By the way, a residence permit in Serbia can only be obtained by purchasing residential real estate, not commercial.

Rental

The owner of the property must pay 20% when receiving income from rent. It is possible to reduce the tax by deducting the maintenance fee for the property (repair work).

Sale of real estate

0% when selling real estate if the period of ownership is over 10 years.

15% when selling real estate if less than 10 years have passed since its acquisition or change of ownership.

Dividend tax

15% for residents and non-residents.

Royalties

20% for residents and non-residents of the country.

Taxes for legal entities

Alim Bishinov, founding partner of the legal company Bishinov&Partners

“Since Serbia — the only European country that has not joined the anti-Russian sanctions of the EU and the US, it has become a hub and a "window to Europe" and continues to increase turnover in international trade.

Serbia has signed a number of agreements with various countries, so doing business here can be very profitable, despite the obstacles in payment and logistics, Alim emphasizes. — Serbia's tax policy is very loyal, including for non-residents.

It is approximately identical to Russia's, but in some respects it is even more profitable - for example, for small businesses. Serbia has 60 agreements on the avoidance of double taxation, it is called an "onshore country".

Value Added Tax

• 20%. VAT must be paid if the company's turnover exceeds RSD 8 million ($75,936) in 12 months. Up to this point, VAT registration is voluntary.
• 10% VAT is provided for companies involved in the sale of food products, the provision of utilities and the hotel business.
• 0% VAT for goods for export.

 Medical, social, banking and insurance services are exempt from VAT.

Income tax (corporate tax)

15% income tax is paid by the company in advance on accruals for the same period of the previous year. New companies pay income tax based on the projected profit estimate.

If a company invests RSD 1 billion ($9,491,584) in development, the income tax rate is reduced to 10%.

The corporate tax is reduced to 3% for those companies that operate in the IP-Box mode — more about it.

Taxes for startups and small businesses

“Some sources mention that there is so-called self-taxation for small businesses, but in fact there are only two types in the country: lump-sum tax and income tax,” Alim Bishenov emphasizes.

Lump-sum tax system

The lump-sum tax system may be suitable for Serbian individual entrepreneurs whose annual turnover does not exceed 6 million RSD ($55 thousand). This system is notable for the fact that tax rates are set individually depending on the size of the gross average monthly salary, type of activity, number of employees, age of the entrepreneur, city, region and other conditions. The tax is calculated for a year, is constant during this period, that is, it does not fluctuate depending on revenue.

According to experts, the “lump-sum” most profitable for businesses with a turnover of at least RSD 5 million ($46 thousand) per year, but in practice there are exceptions.

This system does not require hiring an accountant: decisions on the amount of the company's liabilities are viewed in the personal account on the tax service website. The average lump-sum rate is usually 29-52 thousand Serbian dinars ($270-484) per month. For a preliminary calculation of tax liabilities, you can use the official calculator.

However, this simplified tax system does not have tax deductions. But you can withdraw money from the account freely, without official justification.

Since 2024, enterprises on the lump-sum system will pay 50% less tax than entrepreneurs on income tax (before that, the tax benefit was only 20%).

Taxation of income

The second taxation system for individual entrepreneurs is income taxation of 10% (book). An accountant is required here, unlike the lump sum taxation system. Book can be with or without salary payment.

The tax rate is 10%, and another 35% are social contributions.

Some experts recommend this system as the most profitable for maintaining individual entrepreneurs, as well as for zero-sum firms (which some create to obtain a residence permit). However, it is worth considering that the residence permit will not be extended in the future if the shell company has no turnover.

Sergey Moringevich, business consulting specialist at AskMe Agency

“Under any circumstances, companies with a financial cushion will survive the adaptation period in Serbia more calmly than a startup. And it is not about some inflated taxes and government fees, but about a very inert and conservative bureaucratic system, — comments Sergey. — Many procedures for obtaining permits or licenses, and especially tax breaks, grants and subsidies, are very complex and lengthy, which does not allow a start-up business to quickly implement its plans. Therefore, a financial cushion, as well as psychological readiness for administrative red tape, will come in handy.

Our recommendation — before entering a startup in Serbia, it is necessary to thoroughly analyze the legal and administrative aspects of its functioning. For this purpose, it is worth using the help of local specialized lawyers or consulting agencies specializing in business."

Tax incentives in Serbia

IP-Box (Intellectual Property Box) regime

IP Box (in different countries it can be called Patent Box and Knowledge Development) is a preferential tax regime to stimulate R&D. The Law on Corporate Income Tax in Serbia allows for the reduction of corporate income tax from 15% to 3% using IP Box.

Qualifying assets that fall under this regime are inventions, software, technical solutions, trademarks, design, medicines.

Egor Larichkin, lawyer at Larmann Legal

“If a company transfers or sells intellectual property rights, tax exemptions under IP Box are lost. Therefore, the taxpayer must retain copyright or related rights to the work. In addition, to receive this tax benefit, the owner of these rights is obliged to transfer the IP object for storage to the competent authority (The Intellectual Property Office).

Example. The company operates in the IP Box mode, the income from IP is RSD 100 million, and expenses are RSD 70 million, of which RSD 69.3 million are related to IP. The tax will be calculated as follows: 100 million - 69.3 million (approximate development costs) x 90% (approximate share of qualified costs) x 80% = RSD 22,104,000. 30 million RSD (tax base) - 22,104,000 RSD = 7,896,000 RSD. Thus, the tax will be 7,896,000 x 15% = 1,184,400 (3.9% of the tax base)."

Free Economic Zones

Free Economic Zones (FEZ) in Serbia are separate, physically isolated territories (unlike FEZ in the UAE, for example, where the borders are conditional) to attract investors. The Serbian FEZs have the following benefits:

• 0% VAT, including on the import of property and the sale of services in the FEZ;
• no customs duties on the import of equipment, raw materials, services for re-export;
• no customs duties on construction materials if construction is planned within the FEZ;
• income from the FEZ can be freely and without deductions withdrawn to any country;
• exemption from local taxes and fees depending on the decision of municipal authorities.

Each FEZ has a point that simplifies customs clearance. It is easier to conduct international trade in the FEZ. But if you export goods from the FEZ to the mainland of Serbia, you will need to pay customs duties.

As of 2023, there are 15 free economic zones in the Republic of Serbia: Belgrade, Pirot, Subotica, Zrenjanjin, Novi Sad, Shabat, Kragujevac, Uzice, Smederevo, Kruževac, Apatin, Vranje, Priboj, Šumadija and Sviljanac.

Both a citizen of the country and a foreigner can start a business in the Serbian FEZs. Here you can engage in any activity: production, packaging and storage of products, trade, banking and insurance.

FEZs are most popular with manufacturing and export-oriented companies.

“In Serbia, there are a number of programs to reduce the tax burden, both in terms of income tax and in terms of deductions to social funds for employed people,” emphasizes Sergey Moringevich, a business consulting specialist at AskMe Agency.

Main programs:

• Tax incentives for innovative companies engaged in research and development under the special IP Box regime.
• Companies registered in Serbian technology parks may be entitled to various tax incentives. For example, they may be exempt from certain tax payments or receive subsidies for certain expenses. Details on this should be found out from the relevant authorities.
• Tax incentives for companies registered in free economic zones.
• Grants for new startup projects from the Ministry of Finance of Serbia - depends on the grant, some are given only on the condition that a Serb owns at least 51% of the company. As a rule, grant limits are determined for each year, there is an open competition.
• There are programs to support the employment of people with disabilities, representatives of Roma communities, people who have been on the labor exchange for more than one year, cooperation with student and youth organizations. All these options allow companies to save significant amounts on deductions to social funds.

Conclusion

In 2024, Serbia remains attractive due to the lowest tax rates in Europe and a friendly attitude towards the EU and Russia, the absence of anti-Russian sanctions. However, for example, a citizen of the Russian Federation can open an account only in some banks. You can open an account or register a company remotely, among other things.

The country is especially popular with IT, manufacturing and export-oriented companies, and the presence of 15 free economic zones and a unique geographical location simplifies international trade and opens up a number of business opportunities. In 2022, trade turnover between Serbia and Russia increased by 53%. Low tax rates for individual entrepreneurs in Serbia make it attractive for small businesses as well.