Tax incentives are crucial in shaping corporate strategies in an era where intellectual property (IP) and innovation stimulate competitive advantage.
Several countries, including Serbia, have introduced a range of tax benefits to encourage investment in technology, software development, and other high-value innovations. These benefits include incentives for research and development (R&D), IP Box regimes, incentives for investing in startups, tax exemptions for the contribution of IP to domestic companies, etc.
A solid understanding of available tax incentives is key to optimizing business structures and maximizing financial benefits. Although Serbia is increasingly recognized as an innovation hub, the available tax incentives often remain underemphasized, potentially slowing the growth of the innovation market. By staying informed about new opportunities and timely leveraging the existing incentives, companies can attract even more investment, drive growth, and enhance their competitive edge in the market.
This article examines the latest Serbian tax incentives designed to promote IP development and innovation, delving into their scope, legislative trends, and key strategic considerations for navigating this evolving regulatory landscape.
1. Capital Gains Tax Exemptions
Some of the tax benefits that were introduced in recent years are intended to encourage investing of intellectual property (IP) into domestic companies. Since the lawmakers recognized a need to motivate not only natural persons but also legal entities in this direction, both the Law on Personal Income Tax and the Law on Corporate Income Tax were amended by stipulating incentives for such investments.
Both exemptions are related to the capital gains tax that is generally payable at the 15% rate. The capital gains tax obligation arises in situations where a shareholder (natural person or another entity) invests certain property into the company for consideration. The difference between such consideration and the acquiring price of the invested property represents capital gain, which is subject to capital gains tax.
1.1. Incentive for Natural Persons – Law on Personal Income Tax
Suppose the owner of an intellectual property right, such as a trademark, patent, or copyright contributes it as a non-monetary investment to a company in Serbia. In that case, they will not be subject to capital gains tax on the transaction.
To qualify for this tax benefit, the value of contributed rights must be officially assessed by a certified appraiser.
However, there is a minimum holding period for the invested rights. The company must retain ownership of the rights for at least two years from the date of investment.
During this period, the company is not allowed to:
- sell the invested rights, or
- grant a license to their affiliate, entirely or in part, at a price that is lower than the price determined accordingly with the arm’s length price.
If this condition is not met, the company will lose the right to the tax benefit. In that case, the taxpayer must notify the tax authorities within 30 days and pay all applicable taxes as if the exemption had never been granted.
1.2. Incentive for Legal Entities – Law on Corporate Income Tax
If a company owns a copyright, related right, or an invention eligible for patent protection and chooses to invest that right into another Serbian entity, it can exclude the resulting capital gains from its corporate income tax base.
As with the tax benefit described in the previous section, the investment’s value must be determined by a certified appraiser. Additionally, the invested rights cannot be sold or licensed to an affiliated party at a price below the price determined by the arm’s length rate, within two years after the date when the rights were invested in the company. If this condition is not fulfilled, the taxpayer will lose the tax incentive, and the full amount of corporate income tax will need to be calculated and paid retroactively.
It’s important to note that the types of rights eligible for these two incentives differ depending on the investor:
a) For individuals, the incentive covers copyright and related rights, as well as all industrial property rights, including trademarks, patents, and industrial designs.
b) However, for corporate shareholders, it applies only to copyrights, related rights, and inventions.
2. Incentives for Crypto Investments
Besides encouraging the investment of intellectual property into domestic companies, there is also a tax incentive for investing the money gained from selling digital assets. This benefit was introduced as a follow-up to the Serbian crypto regulations and is aimed at encouraging the owners of crypto assets to keep the capital from such assets in the country.
In practice, any sale of digital assets is subject to capital gains tax. This incentive aims to encourage reinvestment of the earned income, ensuring that the money remains within the Serbian market.
As with the capital gains tax exemption, there are two versions of this tax relief – one for natural persons and another one for legal entities.
2.1. Incentive for Natural Persons under the Law on Personal Income Tax
A taxpayer (natural person) who reinvests funds obtained from the sale of digital assets into the share capital of:
- a Serbian company or
- an investment fund operating in Serbia,
is eligible for a 50% capital gains tax exemption.
The investment described must be made within 90 days of the sale of digital assets. However, if the reinvestment is made within 12 months of the sale, the taxpayer is also entitled to a refund of 50% of the capital gains tax already paid. In other words, there is a prolonged period for the exercise of this relief so it can factually be used within 12 months from the sale of digital assets.
However, there is one restriction. If the company receiving the investment reduces its share capital within the calendar year of the investment or the following two years, the taxpayer loses the previously granted tax relief and must notify the tax authorities within 30 days of losing the right.
The Law on Personal Income Tax announced that details of this incentive will be prescribed by a separate rulebook issued by the competent Ministry. Such a rulebook has not yet been adopted, but it is expected that it will clarify the practical details of this relief.
2.2. Incentive for Legal Entities under the Law on Corporate Income Tax
Companies that sell their digital assets and reinvest the money earned into the capital of the domestic entity have the right to exclude the earnings from their corporate income tax base. The same relief applies if the investment is made into the capital of an investment fund with its business or investment activities based in Serbia.
However, unlike the version in the Law on Personal Income Tax, this incentive under the Law on Corporate Income Tax does not impose any restrictions regarding share capital reduction, nor does it include additional requirements.
3. Tax Credit for Investing in Startups
Another tax incentive, introduced by the Law on Corporate Income Tax, allows established domestic companies to reduce their corporate income tax base when investing in Serbian startups. Specifically, eligible investors can claim a tax credit equal to 30% of their investment in a domestic startup, provided they meet certain conditions.
The key requirement is that the investing company must not have owned more than 25% of the startup’s shares before the investment, either independently or together with its affiliated entities. Therefore, the incentive is evidently aimed at fostering new investments rather than benefiting existing majority shareholders.
Regarding the duration of investment, the law clearly states that the amount invested cannot be reduced for at least three years from the end of the year in which the initial investment was made. Additionally, the investment must be made through the startup’s share capital, which has to be fully paid in order to qualify for the tax credit.
The tax credit is subject to certain limits on maximum investments:
- The maximum tax credit that can be claimed in a single tax year is 50,000,000 RSD (~425,531 EUR).
- For a single taxpayer investing in a single startup, the total tax credit is capped at 100,000,000 RSD (~850,000 EUR)
4. Reliefs for Startup Founders’ Salaries
The Law on Personal Income Tax and the Law on Mandatory Social Security Contributions stipulate tax exemptions with a specific focus on the founders of startups. Namely, startup founders who conclude an employment agreement with their startup can benefit from full tax exemption and exemption from social security contributions on a salary of up to RSD 150,000.00 (~1,270 EUR).
Unlike the approach seen in many other incentives, where minimum wage thresholds are required, this model doesn’t place a heavy initial burden on employers to pay high wages to access benefits.
However, that does not mean that the founder’s salary cannot go higher. If the employed founder’s salary exceeds RSD 150,000.00, the tax exemption still applies to the portion of the salary up to that amount, whereas the remaining salary over this threshold will be subject to standard tax and contribution rates.
The time limit for this incentive is set at three years from the date the startup is registered with the Business Registers Agency.
5. IP Box
Under the Corporate Income Tax Law, up to 80% of income derived from the commercialization of intellectual property may be exempt from the tax base. In other words, companies earning income from their IP may recognize a major part of such earnings as qualified expenses and effectively reduce their corporate income tax base.
To exercise this tax relief, the IP (including copyright or related rights) must be deposited with the competent authority – the Intellectual Property Office. Bearing in mind that the definition of copyrighted work is defined widely by the Law on Copyright and Related Rights, this possibility is available to all companies developing their proprietary product, including software, music, books, movies, etc.
The holder of the copyright or related right must report the qualifying income in their tax balance, indicating the income that is subject to the tax exemption. Additionally, upon request from the tax authorities, specific documentation must be provided in the form and manner prescribed by the Ministry of Finance.
6. R&D Incentives
The rapid expansion of domestic companies involved in the development of their own products has led to the introduction of two tax incentives that directly reward research and development. One incentive enables a reduction in corporate income tax, while the other targets reducing the employment costs of individuals working on R&D activities.
6.1. Incentive for Corporate Income Tax
The Research and Development (R&D) tax incentive stipulated by the Law on Corporate Income Tax allows legal entities conducting R&D activities in Serbia to reduce their corporate income tax by double recognition of R&D expenses in the tax balance of the company. In other words, companies engaged in R&D can reduce their taxable corporate income by twice the amount of expenses they have for research and development.
A separate rulebook governing this incentive lists all the expenses eligible for this incentive, including, for example:
- costs of materials used specifically for R&D purposes,
- acquisition costs for intangible assets (such as software licenses),
- salaries for employees directly involved in R&D activities,
- third-party consulting services (e.g., outsourced expert services),
- expenses related to intellectual property protection (such as the cost of depositing copyright with the Intellectual Property Office).
The right to use this incentive is not contingent on the success of the research itself. Instead, it aims to encourage initiative and innovation, rewarding companies for taking risks and widening existing experience and knowledge, rather than focusing solely on the outcome. This incentive can be combined with the IP Box.
6.2. Incentive for Personal Income Tax and Social Security Contributions
In addition to the R&D incentive relevant from the aspect of corporate income tax, incentives stipulated under the Law on Personal Income Tax and Law on Mandatory Social Security Contributions apply to the tax payable on salaries and social security contributions for employees engaged in research and development activities.
Specifically, these incentives allow companies conducting R&D activities to receive a 70% exemption from the calculated and withheld tax on the salaries of employees directly involved in R&D activities, in proportion to the time they spend on the project. Additionally, the corresponding incentive from the law governing social security contributions allows 100% exemption from such contributions for the R&D employees. These two incentives may be used simultaneously.
For a project to be deemed an R&D project, at least 90% of the employees involved in R&D must perform their activities in Serbia.
Practical exercise of this incentive includes preparing certain documents, which must be physically kept in the employer’s offices and presented at the tax authority’s request.
Tax incentives for intellectual property development and innovation, which have been a part of Serbian tax law a few years back, provide a valuable opportunity for businesses to optimize their tax positions while fostering (technological) progress. From R&D deductions and the IP Box regime to incentives for startup investments and tax exemptions for IP contributions, these measures are designed to support the growth and development of innovations in the domestic market. By leveraging these benefits, companies can reduce costs and contribute to a stronger, more competitive economy. As Serbia continues to position itself as an innovation hub, understanding and exercising these incentives will be crucial for businesses looking to maximize their potential in the evolving market.
