The steady growth of the digital products market and an increasing demand for digital products required an adjustment to the Serbian VAT rules applicable to the supply of electronically supplied services (ESS), and that adjustment finally occurred in 2017. Combined with new rules on the VAT registrations of foreign suppliers, VAT obligations related to ESS became more straightforward.
After the introduction of VAT in Serbia in 2005, ESS were considered made at the place of the recipient (either legal entity or individual). However, until 2013, there was no definition or list of ESS, so the taxpayers had to rely on official opinions by the Ministry of Finance (MoF) explaining the nature of a particular service. In 2013, the MoF issued a rulebook listing the types of ESS – and, among other things, rules applying to the storage and maintenance of web pages, the supply of software, audio-visual content, access to data bases, and e-learning. The rulebook remains in effect at the moment.
For ESS supplied to Serbian recipients by foreign suppliers, the local recipient had to account for VAT by applying a reverse charge – unless the foreign supplier was registered for VAT. However, as foreign suppliers were not able to register in Serbia until October 2015 because there were no rules governing registration, the reverse charge was the only way to get a VAT assessment. The rules on VAT registration for foreign suppliers were enacted in 2015, but foreign suppliers of ESS were explicitly excluded from the obligation to register.
The 2017 amendments to the VAT law significantly changed the VAT position of foreign suppliers of ESS in Serbia. As of January 1, 2017, suppliers of ESS are obliged to register for VAT if they supply ESS to non-taxable persons (i.e., B2C). Foreign suppliers who provide services exclusively to taxable persons (B2B) are not obliged to register for VAT.
The VAT law now prescribes a different set of supply rules for services provided to taxable and non-taxable persons, as, for services supplied to taxable persons the place of supply is the place of the recipient, while for services supplied to non-taxable persons the place of supply is the place of the supplier. In April 2017, new rules on the supply of ESS were introduced, which – in contrast to the general VAT law – makes the place of supply for ESS provided to non-taxable persons the place of the recipient. As a consequence, foreign suppliers of ESS to consumers should register and account for VAT in Serbia.
Once registered, foreign suppliers have to account for VAT, issue VAT invoices, file VAT returns, and pay VAT. They also are required to appoint VAT representatives who will fulfill the VAT obligations on their behalf. Foreign suppliers which fail to register may be fined up to EUR 16,000.
VAT should be assessed at the moment the service is supplied. The time of supply for a one-off ESS is the time needed for the completion of the service. Continuous ESS services such as web hosting are deemed supplied at the moment of expiration or the termination of the agreement between the parties. Where parties agree on the issuing of periodical invoices, the time of supply is the last day of the invoicing period (no longer than a calendar year). If the ESS concerns the granting of a license (e.g., a software license), the time of supply would be the date of the invoice’s issuance.
The VAT base for ESS is the consideration payable to the supplier, increased for ancillary expenses, and decreased for the discounts granted at the time of supply.
Although the new VAT rules make the assessment of VAT for ESS suppliers simpler, regulation and oversight of foreign providers of ESS will be a challenging task for the STA. This is because the STA does not have efficient instruments to crosscheck cross-border transactions – especially payments made by consumers. Also, in some recent cases involving the STA’s attempts to collect VAT for supplies carried by foreign VAT payers, the STA was unsure whether to collect the VAT from a VAT representative or a foreign taxpayer.
New VAT rules would likely increase the price payable for ESS unless foreign suppliers agree to bear the VAT expense. Large global providers of digital content have obviously considered the effects of the new VAT rules, as some of them have already registered for VAT in Serbia in order to be compliant.
By Branimir Rajsic, Senior Consultant, Karanovic & Nikolic
This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.