On November 6, 2018, Ministry of Finance of the Republic of Serbia has published the draft Law on the Amendments to the Corporate Income Tax Law (“the Draft”). It is expected that the proposed CIT Law amendments will be adopted by the National Assembly of the Republic of Serbia by the end of 2018.

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The changes of significance that will apply (in the tax periods starting) as of 01.01.2019 include:

Advertising and propaganda (marketing) expenses – abolition of limits

The Draft envisions abolition of the limit(s) for recognition of advertising and propaganda (marketing) expenses. Hence, these expenses will be in future fully recognized in the amounts recorded in the Income Statement.

Tax Depreciation – new rules

The Draft normalizes new rules for calculation of tax depreciation of fixed assets and those will be applied as of 01.01.2019 (or - from the first day of the tax period starting in 2019, for those taxpayers whose tax year differs from the calendar year).

The Draft envisions that the tax depreciation of fixed assets classified in tax depreciation groups II - V, are to be calculated by using straight line depreciation method, instead declining balance method that is now in place. If amortization costs calculated in accordance with the accounting rules would be determined in the lower amount comparing to the amount of depreciation costs assessed by using tax depreciation rates, accounting depreciation is to be recognized as a tax deductible cost. 

Assets classified within groups II-V, which were acquired prior to application of these new rules, are to be depreciated in accordance with the current tax depreciation rules - by applying the declining balance method, until 31.12.2028. (or - until the last day of the tax period beginning in 2028, for the taxpayers whose tax year differs from the calendar year).

Tax Incentives

1.R & D expenses :
The Draft envisions possibility that R&D costs related to research and development performed in Serbia may be double deducted for corporate income tax purposes, except for research costs incurred in relation to finding of oil, gas or mineral resources in the extractive industry.

2.Royalty income arising from copyrights and related rights :
In accordance with the Draft, 80% of qualified royalty income generated by the copyrights or related rights holders should be excluded from the tax base, upon decreasing this income for the amount of tax deductible research and development expenses.

3.Investments in newly established companies performing innovative activities :
The Draft further states that the taxpayers making monetary equity investments to newly established business entities that perform innovative activities, will be entitled to a tax credit in the amount of 30% of the investments made. The maximum amount of tax credit cannot exceed 100,000,000 RSD. The Draft further prescribes conditions that need to be fulfilled for obtaining a right to tax credit, as well as the time period within which tax credit may be used.

Capital Gains

The subject of taxation on capital gains tax is to be extended to all intellectual property rights. The Draft envisions 20% of the capital gains arising from sale (in whole) of copyrights, other related rights, or patent rights - will be included in taxable profits, while 80% of such generated capital gains - will be exempted from taxation.

What’s more, the Draft envisage a right to a tax credit to tax residents in the amount of tax paid in another country, in relation to capital gains realised from sale of real estate located in that country.

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The mode of implementing and applying this (for taxpayers) to the encouraging Draft Amendment to the Law on Corporate Income Tax will be regulated by the Minister of Finance of the Republic of Serbia.