Serbia and Montenegro Tax & Business Guide - Deloitte

/Home/Q-R-S Countries/Serbia and Montenegro (Country Code 381)/Serbia and Montenegro Tax Resources

Basic facts
Population 10.5m Inflation 15.6% (2005)*
Main languages Serbian GDP per head US$3,220*
Currency CSD (dinar) GDP growth 6.2% (2005)*
GDP sources 15.8% agriculture, 27.6% industry, 55.6% services
*Economist Intelligence Unit.
Political environment

The State Union of Serbia and Montenegro, formed on February 4th 2003 (replacing the former Federal Republic of Yugoslavia), was made up of two member states, the state of Montenegro and the state of Serbia. Following a referendum in May 2006, Montenegro opted for independence. Shortly thereafter, Serbia declared itself the successor state to the union of Serbia and Montenegro.

Serbia is a democratic republic. The president, Boris Tadic, is head of state. The national government is headed by the prime minister and is responsible to parliament. A minority coalition led by the prime minister, Vojislav Kostunica, of the Democratic Party of Serbia took office on March 3rd 2004.
Foreign trade and investment
Exports US$5.0bn (2005)* Imports US$11.1bn (2005)*
*Economist Intelligence Unit.

Leading export markets: Bosnia and Hercegovina, Italy, Germany, Austria and Greece.

Major exports: Fruit and vegetables, metals, and medical and pharmaceutical products.

Imports and exports of goods are free, but import quotas may be imposed for some strategic products (mainly agricultural products and textile products).

Serbia and Montenegro signed free-trade agreements with Albania, Bulgaria, Moldova and Romania in 2003. These agreements form part of the programme backed by the EU Stability Pact for South-eastern Europe to establish a free-trade zone for industrial products in the region by January 2007.
Business and financing
Business forms Limited liability company, joint stock company

In addition to the limited liability company and joint stock company, general and limited partnerships may also be formed. The minimum required capital for founding a limited liability company is ƒ500 and the maximum number of shareholders is 50. A joint stock company may be open (more than 100 shareholders) or closed (up to 100 shareholders). The minimum required founding capital is ƒ25,000 for an open joint stock company and ƒ10,000 for a closed joint stock company.
Labour environment
Unemployment rate 32.6% (2005)* Minimum wage CSD 7,973.3 (monthly)
*Economist Intelligence Unit.

Compulsory social security contributions are due by both the employer and the employee: the collective social security burden amounts to around 35.8% of gross wages. Contributions are capped.
Taxation
Corporate tax
Main rate 10%

Resident companies are taxed on their worldwide income; non-resident companies are taxed on income sourced in Serbia. A company that is registered in Serbia, or that has its management and control there, is deemed to be resident for tax purposes. Dividends received from resident companies are exempt from withholding tax. A tax credit is available for foreign tax paid on dividends. Capital gains realised from the disposal of shares, securities and real estate are taxed as income. Disposal of equipment does not give rise to capital gains/losses.
Individual tax
10Ò20%

Resident individuals pay tax on their worldwide income; non-residents are taxed only on income sourced in Serbia. Personal income taxation is carried out on two levels: tax is withheld when the income is paid at the rate of 14% (salary) or 20% (tax on other income); a 10% annual income tax is levied on worldwide income earned by tax residents on the portion of income exceeding four times the average annual salary (Serbian nationals) or ten times the average annual salary (foreign nationals).
Capital gains
Company gains taxed as income

Capital gains of companies are taxed as income. Gains of individuals are taxed at 20%.
Indirect tax
VAT standard rate 18%

Value-added tax (VAT) applies to most transactions at a standard rate of 18%. Exports are zero-rated. A lower 8% rate applies to basic foods, some medicines, fertilisers, public utilities and hotel accommodations. Exemptions include banking, financial and insurance services, medical services, education, and the supply of land and buildings (apart from the first supply).
Tax administration and compliance
Tax year Corporations and individuals: calendar year

Monthly advance tax payments are due, based on the result of the previous year. Tax returns must be filed by March 10th following the year-end. Employment income of individuals is taxed by withholding. Individual tax returns are due by March 15th. An assessment of final tax is raised on the basis of the information in the tax return.
Additional tax information
Withholding taxes Dividends, Interest, Royalties 20%.
Tax treaties Serbia continues to honour double-taxation treaties signed by the former Yugoslavia. Certain treaties have been renegotiated and some new treaties have been concluded.
Dividends Income from dividends received from residents is not included in taxable income. Income from dividends received by individuals based on their shareholding is subject to 20% tax on income from capital, the tax being levied on 50% of dividends.
Revenue protection There are transfer-pricing and thin-capitalisation rules. For thin-capitalisation purposes, the debt/equity ratio is 4:1. There are no anti-haven (CFC) rules.
Groups Consolidation is possible for resident 75% groups.
Incentives Newly established entities in underdeveloped regions; investment in fixed assets; employment of new workers.
Other taxes Customs and excise duties, Inheritance and gift tax, Real estate tax, Tax on gambling and lottery winnings, Tax on transfer of immovable property.