Serbia tax rates – are they more attractive then Ex Yu region?
Serbia tax rates – are they more attractive than Ex Yu region?
Each Government cabinet of Republic of Serbia since 2000 has insisted on the statement that attracting investments, foreign and domestic, is crucial for economic growth and development. According to the data of the National bank of Serbia, share of fixed investments in GDP went from 18% in 2015 to 21,8% in 2018. During the same period, fixed investments grew 40% cumulatively. One of the main factors when deciding on investments into a new country is a tax environment. In this text, we will compare Serbia tax rates with tax rates of two ex Yugoslavian countries, Croatia and Slovenia, that may be alternative investment destinations to our country. In this way, we believe we will provide adequate analysis of relative attractiveness of Serbian tax environment.
Serbia tax rates and Ex Yu rates – corporate income tax
In Serbia, corporate income tax rate is 15%. This rate is unique for all tax payers. However, effective corporate income tax rate may be reduced by using following tax incentives:
- Tax holiday of 10 years for investing at least 1 billion RSD (roughly 8,5 million EUR) and employing at least 100 permanent employees
- Tax credit for investments in innovative start-ups
- Research and development costs may be recognized in double amount
- Revenue generated from licensing intellectual property can be excluded from tax base, after certain adjustments
In Croatia, corporate income tax rate is:
- 12%, but only for taxpayers with annual revenue up to 400.000 EUR
- 18% for taxpayers with annual revenue higher than 400.000 EUR
In Slovenia, corporate income tax rate is unique for all tax payers (19% in 2019, but will grow up to 22% in 2022).
We may conclude that Serbian corporate income tax rate is the lowest among three countries, with exception of 12% rate in Croatia for companies with sales of less than 400.000 EUR.
Serbia tax rates and Ex Yu rates – withholding tax
A Serbian company is subject to withholding tax (tax rate of 20 %) in case a non-resident company generates revenue from:
- providing market research, accounting, auditing, business and legal advisory services, regardless the fact if they are provided in Serbia or not
- rental services provided in Serbia
- interest, royalties and dividends
Tax rate of 25% is applicable in case a non-resident company is from a tax haven (such as Hong Kong, Panama, Bahamas etc.).
Lower withholding tax rate is applicable in case of double tax treaties.
Croatian and Slovene withholding tax rates are lower (12% – 15%).
General withholding tax rates are lower in Croatia and Slovenia comparing to Serbia tax rates, but the analysis of double tax treaty (if applicable in a certain case) is needed for making final conclusion on applicable rate.
Concluded double tax treaties – Serbia and Ex Yu
Up to the date of this text, Serbia has signed 59 double tax treaties. Some of countries Serbia signed double tax treaties are:
- all European Union countries, except Portugal
- all Eurasian Economic Union countries (such as Russia), except Kyrgyzstan
- all Balkan states, including Turkey (please note that Republic of Kosovo is not officialy recognized by the Republic of Serbia and therefore there are no official diplomatic relations between them, i.e. there is no double tax treaty)
- two non-EU members of European Economic Area (Norway and Switzerland)
- one country from Americas (Canada)
- several Middle East countries (Iran, Egypt, Qatar, Kuwait, United Arab Emirates)
India, Sri Lanka and Pakistan
- several Far East countries (Indonesia, South Korea, North Korea, China, Vietnam)
- several North African countries (Tunisia, Lybia etc.)
We have already written more details regarding double tax treaties on our blog.
Up to the date of ’’Tax and investment facts 2019’’, prepared by our Croatian WTS partner, Croatia has signed 63 double tax treaties. Croatia signed agreements with all EU countries, all Balkan states, China, Russia, Iceland, Norway, Switzerland, Canada, Chile, several Middle East countries, India etc.
Up to the date of ’’Tax and investment facts 2019’’, prepared by our Slovene WTS partner, Slovenia has signed 59 double tax treaties. Agreements were made with all EU countries, all Balkan states, China, Russia, Iceland, Norway, Switzerland, Japan, India, Canada, several Middle East countries etc.
Serbia tax rates and Ex Yu rates – salary
Serbian salary tax rate is 10%. Salary tax is charged on a monthly gross salary minus non-taxable amount (130 EUR). Social contributions are paid by an employee and an employer. Monthly gross salary is a net salary increased by social contributions paid by an employee.
Contribution rates charged for an employee are:
- 14% of gross salary for retirement contribution
- 5,15% of gross salary for health contribution
- 0,75% of gross salary for unemployment contribution
Contribution rates charged for an employer are:
- 12% of gross salary (11,5% rate will be implemented from the beginning of 2020) for retirement contribution
- 5,15% of gross salary for health contribution
In Serbia, salary tax and contributions are approximately 65% of net salary, provided that gross salary is less than maximum base for contributions (2.800 EUR). New tax incentives for new employees, previously unemployed, are expected to be implemented in 2020.
In both Croatia and Slovenia, salary tax and contributions have similar share in net salary like in Serbia.
Serbia tax rates and Ex Yu rates – VAT
Standard Serbian VAT tax rate is 20%. Reduced 10% VAT rate is used for specific product categories, such as bread, fruit, vegetables, fish, eggs, medicine, daily newspapers etc.
In Croatia, standard VAT tax rate is 25%, while there are two types of reduced rates (13% and 5%).
In Slovenia, standard VAT tax rate is 22%, while reduced VAT rate is 9,50%.
Final remarks and disclaimer
WTS Serbia provides tax consulting services, as well as financial consulting services to both foreign and domestic investors. We are helping investors in adapting to very dynamic Serbian business environment and to achieve their financial and strategic goals.