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Personal Income Tax Incentives and Capital Gains Tax Exemptions Proposed

Personal Income Tax Incentives and Capital Gains Tax Exemptions Proposed

Serbia
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The Government of the Republic of Serbia has recently proposed amendments to the tax laws, including amendments to the Law on Personal Income Tax (‘PIT Law’), Law on Mandatory Social Contributions (‘SSC Law’) and the Law on Corporate Income Tax (‘CIT Law’).

Several payroll tax incentives are proposed under amendments as well as tax exemption from capital gains tax in case of contribution of the IP rights into the capital of resident entity.

Personal Income Tax and Social Contributions

Extension of the term for application of incentive for employment of former entrepreneurs is proposed. Initially the incentive should last for salaries paid until the end of the 2022, but it is proposed that employers that in 2020 employed individuals formerly registered as entrepreneurs may be exempted from payment of salary tax and contribution for pension and disability until 2025 as follows:

  • 60% of salary tax and 85% of contributions for mandatory pension and disability insurance for salaries in 2022,
  • 50% of salary tax and 75% of contributions for mandatory pension and disability insurance for salaries in 2023
  • 40% of salary tax and 65% of contributions for mandatory pension and disability insurance for salaries in 2024
  • 30% of salary tax and 55% of contributions for mandatory pension and disability insurance for salaries in 2025

The same exemption will be applicable to salaries of individuals who were registered as entrepreneurs from 1 January 2019 until 31 December 2021 and who will be employed between 1 January 2022 and 30 April 2022.

Following amendments to the PIT Law and SSC Law are also proposed:

  • Employer will be exempted from payment of 70% of the salary tax and 100% of the contributions for pension and disability insurance if until 31 December 2024 it employs an employee who was unemployed in the previous period, provided that salary is higher than gross RSD 76,500;
  • Employer engaged in R&D activities will also be entitled to exemption from payment of 70% of the salary tax and 100% of the contributions for pension and disability insurance for the salaries of employees directly engaged in R&D process;
  • Employers are entitled for reimbursement of 65% to 75% of the salary tax and social security contributions paid for the salaries of employees employed until 31 December 2022 who were previously unemployed;
  • The deadline for tax exemption from salary tax and social security contributions of shareholder who holds at least 5% of share in a newly established start-up company is extended and it may be applied for start-ups established after 31 December 2021:
  • Taxpayer who transfers its IP rights as a non-monetary contribution in the capital of a Serbian company is exempt from capital gains tax for that transfer;
  • Standard non-taxable amount of salary is increased to RSD 19,300 per month;
  • Contribution rate for pension and disability insurance is reduced from 25.5% to 25%;
  • Taxpayers under the age of 40 will be entitled to reduction of the tax base for the annual personal income tax by three average salaries;
  • It is proposed that payments to students and pupils while they are working as part of learning process under laws on dual education may be exempted from income tax.

The amended provisions of the PIT Law and SSC Law shall apply as of 1 January 2022, except for the provisions which introduce new employment incentives which shall apply as of 1 March 2022.

Corporate Income Tax

According to the proposed amendments to the CIT Law, the taxpayer may opt not to include in the corporate income tax base capital gain realized by transferring its IP rights in the capital of a resident legal entity. This incentive is available under condition that the resident legal entity does not alienate such acquired rights within two years. In addition, in the same period the rights cannot be given for use to a related party at the price lower than the price determined in accordance with the “arm’s length principle”. This incentive shall be available for the tax period which starts in 2022.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Branimir Rajsic, Senior Consultant, Karanovic & Partners

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