Withholding tax in term of corporate tax law
Withholding tax is regulated by the Law on Corporate Income Tax in the Republic of Serbia. The mentioned tax is paid on the statutory income that a non-resident legal entity derives from a resident legal entity. However, it should be considered that taxpayers of this tax may also be non-resident legal entities in certain cases provided for by law.
Withholding tax is calculated and paid on the following income generated by a non-resident legal entity:
- income from dividend and profit share in a legal entity
- income from copyright and related rights and industrial property rights
- interest income
- income from the lease and sub-lease of real estate and movable property on the territory of the Republic of Serbia
- income from market research, accounting and auditing services and other legal and business consulting services, regardless of where they are provided or used or where they will be provided or used
Aforementioned income from services (item 5) is described more closely by the Rulebook issued by the Ministry of Finance, so this should be taken into account when determining the existence of the withholding tax liability.
Provided legal rate at which the mentioned income is taxed is 20% if the income is generated by a non-resident legal entity outside the jurisdiction with a preferential tax system.
If the entity who receives the income from royalties, interest, lease and sub-lease fees of real estate and movable property in the territory of the Republic, as well as fees on the basis of services (all services) regardless of the place of their provision or use, or the place where they will be provided or used from a jurisdiction with a preferential tax system the rate is 25%.
A non-resident legal entity may be the taxpayer of this tax, at the rate of 20% on the basis of realized capital gains, income generated from the lease and sub-lease of real estate and movable property in the territory of the Republic of Serbia, and on the basis of all the aforementioned income generated from the settlement of claims in the process of realization, or in any other procedure of settlement of claims.
Withholding tax and Double Taxation Treaties
Double taxation treaties are generally bilateral international treaties concluded between two countries (signatory countries). As the name implies, the Treaties make it possible to avoid double taxation (on the basis of taxes defined by the Treaty itself) between signatory countries under certain conditions.
The Republic of Serbia has 61 Treaties on the avoidance of double taxation signed. Most of the Treaties have been signed with European countries.
Double taxation treaties have primacy over the Law. This means that if Serbia has a signed contract with a certain country when paying withholding tax, the rates from the Treaty have primacy over the rate defined by the Law.
Also, on the basis of DTT’s, or the provisions defined therein and on the basis of the Law, an entity may be exempted from the withholding tax in certain cases where it is possible to prove that the non-resident with whom we have the Contract is the actual owner of the income and if a certificate of the residency of a non-resident legal entity is in possession.
The general conclusion is that if an entity receives services from abroad, one should first pay attention to whether there is a Double Taxation Treaty with that particular country since in that case, the Treaty takes precedence over the Law, so if it is found that there is no Treaty then the rate should be applied from the Law.
Double taxation treaties Serbia – review all rates per countries by types of income
We have defined withholding tax rates in accordance with the Corporate Income Tax Law in the first part of this text. Also, we have outlined the importance of the Double Taxation Treaty with respect to the Law and withholding tax.
Republic of Serbia has concluded Double Taxation Treaties with the following countries:
