7 CATEGORIES OF TAX BENEFITS THAT MAKE SERBIA A DREAM DESTINATION FOR YOUR BUSINESS

Are you thinking about relocating your business to Serbia? Would you like to bring your employees from Ukraine, Russia, Belarus, or elsewhere? We explain why you should consider Serbia and take advantage of unparalleled tax benefits for your business.

28
Sept 2022

taxes in serbia

Serbia has a favorable geographical position, in the heart of Europe, on the Balkan peninsula. Infrastructural and geographical connections with the European Union and the rest of the world, free trade agreements, and double taxation treaties with many countries represent the great advantages that Serbia offers compared to most other countries in the world. Serbia has a stable banking system that enables cash flow, in various currencies, with the EU member states, as well as with Russia, Belarus, Ukraine, and the rest of the world. In recent years, Serbia has been recognized as a haven for foreign investment due to a wealth of tax benefits and other subsidies. In addition, Serbia still has a low cost of living and is one of the countries with the lowest utility costs in Europe, such as electricity, gas, and rental costs.

If the overall favorable economic climate consisting of unhindered cross-border money transfer, low costs of living, and trade agreements with the EU and many other countries did not catch your attention, the following very well might. Many tax incentives, subsidies, and other benefits offered in Serbia can show you exactly why Serbia is continuously at the top of the world’s most popular countries for attracting foreign investments.

1. Tax Benefits for Employment of Foreigners

Are the current geopolitical situation or the global economic circumstances forcing you to relocate? Are you thinking about bringing your employees to Serbia?

In the process of making such a decision, it will certainly help you to know that you have the right to tax benefits for the employment of foreigners in Serbia. Yes, you understood correctly…Serbia encourages the employment of highly qualified foreigners. How many other legal systems do you know that provide such a benefit?

Companies-employers in the Republic of Serbia that employ foreign workers are entitled to incentives that are paid in the amount of 70% of the personal income tax for each newly settled person and 100% of the calculated and paid contributions for mandatory pension and disability insurance. In addition to the otherwise low employment-related costs, if you establish a company in Serbia, there is the possibility of employing workers from Russia, Belarus, or Ukraine, which can be an ideal opportunity for employers who plan to move their business to Serbia, together with their employees.

Nonetheless, if you plan to hire new employees in Serbia, in addition to those employees who already work in your company, there is also a tax relief in Serbia that reduces the personal income tax base for newly settled taxpayers by 70%.

2. Research and Development (R&D) Incentives

research and development incentives

Are you working in research and development, or planning to start R&D activities?

Are you seeking the most favorable investment climate for your R&D projects?

  • By exercising the first tax incentive provided for R&D activities, the expenses incurred by a company for research and development can be recognized as a double deduction in the tax balance of the company. In that manner, the tax base is effectively reduced which will result in lowering the tax obligation based on income tax.

For example: If you log research and development expenses in the books in the amount of EUR 10,000, these expenses can be listed in the tax balance in the amount of EUR 20,000, thus lowering the tax base for income tax.

  • Further, there is a tax incentive for hiring employees to conduct research and development projects. Specifically, a company that carries out R&D activities on the territory of Serbia has the right to be exempted from paying 70% of the calculated and withheld tax for employees’ salaries who are directly engaged in R&D projects. In addition, the employer can also be exempted from paying 100% of the social security contributions for the same employees.

What is particularly significant is that the two mentioned R&D incentives can be simultaneously combined. These tax incentives may especially be of interest to IT companies due to the very nature of the activity they are engaged in.

3. IP Box Regime

If you were considering Cyprus, Hungary, or Luxembourg as destinations for relocating your business due to the favorable tax treatment of income coming from intellectual property, stop right there. Serbia offers an exceptional tax treatment of IP-related income in addition to other benefits.

In Serbia, you can use the so-called IP Box regime, which allows exemption from paying corporate income tax in the amount of 80% of the company’s income achieved by using the deposited author’s work. This means that effectively instead of 15%, you will be allowed to pay the corporate income tax at the rate of only 3% for the profit you make from intellectual property. This can be of particular importance for IT companies that have their own products since the software is (in general) protected by the Law on Copyright and Related Rights.

4. Tax Benefits Related to Startups

startup tax incentives

Are you considering starting or investing in a startup? There are tax benefits for startups as well.

  • If the founder of the company establishes an employment relationship within the startup, the startup will be able to obtain a total exemption from paying the taxes and contributions for that founder. The minimum salary of the founder must be RSD 150,000, which amounts to approx. EUR 1250.
  • In addition, a company that is not a startup is also allowed a corporate income tax reduction in case of investing in a startup, in the amount of 30% of the investment made.

5. Large-scale Incentives in Serbia

For those who plan high-value investments in Serbia, there might be a program for additional tax reduction. A 10-year exemption from paying corporate income tax is granted to those companies in Serbia that invest an amount of more than one billion dinars in the company’s fixed assets, which is approx. EUR 8,300,000, while employing at least 100 people for an indefinite period.

6. Capital Gains Tax Exemptions

  • Natural and legal persons who register their intellectual property rights as a non-monetary contribution to a company can, under certain conditions, be exempted from paying the capital gains tax.
  • Also, natural and legal persons can be exempted from paying capital gains tax for the income generated from the sales of digital assets, such as cryptocurrencies and digital tokens, if they invest that income in the company’s share capital.

7. Other Benefits and Trends

Serbia has introduced many tax benefits for various categories of the population, among which are tax exemptions for the so-called digital nomads, reduction of the annual personal income tax for persons under 40 years of age, full recognition of the marketing costs of companies, exemptions from taxes and contributions for the costs of team buildings, and many other benefits and ways of financing the companies through digital assets, etc.

There is a general trend of introducing various new tax benefits and other subsidies for employment and business development. Once you become a Serbian tax resident, there is a good chance that you will acquire many other rights and benefits that were available to companies that were already operating in Serbia in previous years. You can find out more about tax incentives for companies in Serbia and other privileges in our blog.

Also, even without all the mentioned privileges and benefits, the tax treatment of corporate income tax in Serbia is more favorable than most countries that you might have initially considered. First, the corporate income tax rate in Serbia is 15%, while in Russia it is 20%. Also, the corporate income tax rate in Serbia is lower than the tax rates of countries such as Luxembourg, Croatia, Slovenia, Turkey, as well as many other European countries.

In addition to all the above, in Serbia, there is a relatively easy and quick procedure for obtaining a residence and work permit. For more information, visit our blog on how to obtain a residence permit in Serbia, in which we answered the most frequently asked questions on this topic.

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