Tax Alert

New Ministry of Finance rulings

Several Ministry of finance rulings have been published in the past period, aimed at clarifying and elaborating on the implementation of provisions of the Law on Value Added Tax (hereinafter: VAT law), the Law on Corporate Income Tax, the Law on Personal Income Tax, the Serbia – Norway tax treaty, the Customs Law, the Property tax law and the Law on Tax Procedure and Tax Administration, and the following have been selected:

Withholding tax on transport services rendered in the territory of Serbia

The portion of nonresident legal entities’ revenue for transport services rendered in Serbia, is subject to withholding tax, bearing in mind that the transport service is rendered (or shall be rendered) in Serbia. However, the portion of revenue which a nonresident taxpayer realizes for transport services rendered outside Serbia is not subject to withholding tax, bearing in mind that the service was in that portion rendered and used outside Serbia. If a nonresident legal entity – provider of transport services states fee in an invoice for rendered transport services in a single amount (for transport in Serbia, as well as outside), it is considered that fee for transport service rendered in Serbia can be determined, for example, in proportion to the mileage in Serbia, whereby the proportion is determined by a ratio between the number of kilometers traveled in Serbia and the total number of kilometers traveled.

(Ministry of Finance Ruling, no. 011-00-316/2016-04 from March 17^th 2016)

Withholding tax on nonresident revenue for engineering, consulting and management services

Nonresident legal entities’ revenue for engineering, consulting and management services, regardless of whether the services were rendered abroad or in Serbia, is subject to withholding tax. However, when it comes to payments for hotel services rendered to a local taxpayer’s employee during a business trip abroad, it is considered that, in that particular situation, the fee is paid for a service that was rendered and used outside Serbia, thus fee paid in said situation is not subject to withholding tax.

(Ministry of Finance Ruling, no. 011-00-209/2016-04 from March 3^rd 2016)

Place of supply for the leasing of billboards

The place of supply when leasing immovable property, in this particular case billboards, is considered to be the place where said property is located. Hence, when a VAT payer leases the billboard to a foreign entity, stationed in Serbia, the taxpayer is obliged to calculate and pay VAT in accordance with the VAT law.

(Ministry of Finance Ruling no. 011-00-00344/2016-04 from March 25^th 2016)

Determining the VAT debtor for the supply of concrete pumping services

For the provision of concrete pumping services, tax debtor is a VAT payer who renders said services, since the services are not considered to be construction services in terms of the Article 10 para 2 item 3) of the VAT law, hence the tax debtor for said supply is VAT payer performing the supply.

(Ministry of Finance Ruling, no. 430-00-115/2016-04 from March 25^th 2016)

The right to deduct input VAT for the construction of a building intended for sale, regardless of whether the taxpayer possesses appropriate construction permits

A VAT payer who, as part of his business activities, purchases goods and services for the construction of a building intended for sale, has the right to deduct input VAT on that basis, if prescribed requirements are fulfilled, regardless of whether the taxpayer possesses appropriate construction documents. Additionally, in case of demolition of said object, as ordered by a competent authority, taxpayer is obliged to correct the deduction of input VAT.

(Ministry of Finance Ruling, no. 011-00-00298/2016-04 dated March 17^th 2016)

The right to carry forward losses from previous tax periods against increased taxable income during a tax audit

In situations when, during a tax audit, a higher amount of taxable income is determined than the amount stated in tax balance (and reduced by losses from previous tax period), taxpayer has the right to reduce newly established profit for the amount of remaining losses from previous periods. 

(Ministry of Finance Ruling, no. 413-00-16/2016-04 from March 17^th 2016)

Application of the Article 10 para 2 item 2) of the Serbia – Norway tax treaty

Withholding tax rate which the dividend source state (in this particular case, Serbia) could apply on dividends paid to legal entities (in this particular case, to residents of Norway) which have less than 25 per cent of share in capital of the company - payer of said dividends, as well as in all other situations (for example when dividends are paid to natural persons) amounts to 15%.

(Ministry of Finance Ruling, no. 413-00-26/2016-04 from March 25^th 2016)

Payment of social security contributions for an employee assigned for work abroad when personal income tax is calculated in a foreign state

When personal income tax for an assigned employee, in accordance with a double tax treaty, is calculated according to legislation of state in which the employee is assigned for work (in particular case, Belarus), while social security contributions are paid in accordance with domestic legislation in Serbia, the employer who assigned the employee for work abroad, while filling in tax return (Form PPP-PD), shall state information regarding paid contributions using OVP 199. In this particular case, it is necessary to inform the competent the tax Authority that personal income tax is paid in Belarus (with appropriate evidence issued by competent authority of Belarus) in order for the tax authority to determine the accuracy of information stated in tax return.

(Ministry of Finance Ruling, no. 430-01-90/2016-04 from March 29^th 2016)

VAT treatment of deposits received by lessor from lessee based on a lease agreement

Cash funds that, based on a lease agreement, a VAT payer – lessor receives from a VAT payer lessee, as a deposit on behalf of the eventual compensation to the lessor in case of property damage, are not subject to VAT. However, if the purpose of said cash funds changes, in terms of becoming fee for the leasing service or for any other supply of goods or services, in that particular situation, depending whether it is a fee for supply subject to VAT, VAT is calculated and paid.

(Ministry of Finance Ruling, no. 413-00-00069/2016-04 from March 16^th 2016)

The right to claim input VAT in situations when taxpayer purchases oil derivatives from a supplier without an appropriate license for oil derivatives sale

A VAT payer purchasing oil derivatives for freight vehicles used for performing supplies with right to deduct input VAT has the right to deduct input VAT for such purchases, if the taxpayer possesses an invoice issued in accordance with the VAT law by VAT payer – supplier of said goods, regardless of whether the supplier possess an appropriate license for the wholesale of oil derivatives or the retail sale of oil derivatives.

(Ministry of Finance Ruling, no. 011-00-00174/2016-04 from March 17^th 2016)

VAT treatment of supplies involving technical protection systems

The installation (by the supplier of material) for all types of technical protection systems, whose functioning requires only electrical installations – fire alarms, video surveillance, access control, working hours control, anti-burglary systems, intercom, and delivery of said equipment with installation, is considered to be a supply in the field of construction, in terms of Article 10 para 2 item 3) of the VAT law, i.e. as an activity listed in activity code 43.21 – Electrical installations. For such a supply of goods in the field of construction, performed by one VAT payer to another or to a person listed in Article 9 para 1 of the VAT law, the tax debtor is the recipient of goods, regardless of whether the supplier of goods is engaged by investor (as a contractor) or by another contractor (as a subcontractor) and regardless of whether the supplier of goods provides surveillance services afterwards. When a VAT payer renders surveillance services, tax debtor for said services is VAT payer – provider of services.

(Ministry of Finance Ruling, no. 011-00-01254/2015-04 from March 29^th 2016)

Participation of foreign entities in customs proceedings in Serbia

Entities without a seat or permanent residence in Serbia have to appoint an indirect agent acting in its own name and for the account of for such foreign entities in order to participate in customs proceedings.

(Explanation of the Customs Administration, no. 148-03-030-01-550/9/2015 from April 1^st 2016)

Determining the tax debtor for the delivery of hydraulic scissor lift platform

The delivery with installation of equipment forming an integral part of the facility (equipment incorporated in facility, which means it cannot be moved from place to place without damaging), is considered to be supply of goods in the field of construction, in terms of the Article 10 para 2 item 3) of the VAT law, as an activity listed in activity code 41.20 - Construction of residential and non-residential buildings. In that situation, the tax debtor for said supply is the VAT payer – recipient of gods. However, the delivery of hydraulic scissor lift platforms without installation, installation meaning the assembly of certain parts (elements), it is not considered to be a supply in the field of construction, meaning that the tax debtor for said supply is VAT payer – supplier.

(Ministry of Finance Ruling, no. 430-00-00009/2016-04 from March 29^th 2016)

VAT treatment of the delivery of electrical equipment with installation

If systems and equipment is considered to be systems whose functioning requires electrical installations, the setting up of installations and the delivery of equipment for such systems is considered to be a supply in the field of construction, as an activity listed in activity code 43.21 –Electrical installations. The supply of electrical equipment without installation is not considered to be a supply in the field of construction.

(Ministry of Finance Ruling, no. 430-00-500/2015-04 from April 4^th 2016)

Withholding tax on reinsurance premium paid by a resident legal entity to a nonresident legal entity

When an entity performing reinsurance activities – resident legal entity (which is obliged to, in accordance with the Insurance law, reinsure, locally or abroad, a portion of risk which cannot be covered by own funds) concludes reinsurance contract with nonresident legal entity to whom it pays reinsurance premiums, it is considered that said premium is not taxable according to the provisions of Article 40 para 1 item 5) of the Law on Corporate Income Tax.

(Ministry of Finance Ruling, no. 401-00-1270/2016-04 from April 5^th 2016)

Recognizing expenses for tax balance purposes for interest, foreign exchange losses and the negative effects of a forex variation clause in regards to a loan agreement concluded for financing purchase of related entity shares, as well as regarding expenses related to consulting services

If taxpayer states in its books interest expenses from a loan agreement concluded with commercial bank related to purchase of related entity shares, including expenses stated based on eventually incurred foreign exchange losses, i.e. negative effects of a forex variation clause (in accordance with said loan agreement), such expenses are recognized for tax balance purposes. Also, expenses stated in taxpayers books regarding consulting services used for making final decision regarding the planned purchase of related entity shares (for example legal aspect of ownership consolidation analysis services, identification and analysis of potential sellers, strategy development for ownership consolidation, compiling lists of potential sellers), are recognized for tax balance purposes.

(Ministry of Finance Ruling, no. 430-00-0402/2015-04 from April 5^th 2016)

Evidence that property is stated at fair market value for property tax purposes

The property tax base for immovable property of a taxpayer who keeps business records, which is reported at fair market value in accordance with IAS, i.e. ISFR and applied accounting policies is considered to be the fair market value of immovable property stated in the taxpayer’s business records on the last day of the business year. A legal entity’s general internal acts, regulating accounting policies, represent evidence that a legal entity kept its property at fair market value. In that situation, a legal entity is obliged to, after assessment (according to IAS-16, minimum once in 3-5 years) perform the appropriate changes in its business records, which could as well be considered as evidence that property is stated at fair value.

(Ministry of Finance Ruling, no. 011-00-00407/2016-04 from April 8^th 2016)

Recognizing expenses for tax balance purposes regarding interest on deposit received from a related entity

When a taxpayer reports expenses based on interest on deposit received from a related entity, Article 62 of the Law on Corporate Income Tax does not apply to the recognition of such expenses for tax balance purposes, bearing in mind that those provisions only provide a method of recognizing expenses based on interest paid on loan, i.e. credits from related entity. For the purposes of determining the amount of interest that would, according to the “arm’s length” principle, be calculated on deposit received from related entity, taxpayer is obliged to apply general rules on determining the price of a transaction according to the “arm’s length” principle with respect to the Article 60 and 61 para 1 and 2 of the Law on Corporate Income Tax (except in situation when requirements for the abbreviated transfer pricing report are fulfilled), bearing in mind that interest rates, which are considered to be in accordance with the “arm’s length” principle and determined by the Minister of Finance, could be applied only on loans, i.e. credits (and not deposits) between related entities.

(Ministry of Finance Ruling, no. 011-00-252/2016-04 from March 28^th 2016)

Tax treatment of accommodation and meals for participants at expert conferences organized for advertising purposes

If a taxpayer (possessing a medicine permit) advertises medicine in accordance with the appropriate legislation, and reports expenses that include, among others, accommodation and meals for participants at expert conferences, expense stated in that manner are recognized for tax balance purposes.

(Ministry of Finance Ruling, no. 413-00-0177/2015-04 from April 7^th 2016)

Applicability of the parification method for VAT base determination purposes

The tax base, when supplying goods or services, is considered to be the amount of compensation (in cash, goods or services) which the VAT payer receives or shall receive for the delivery of goods or services from the recipient or third party, including subsidies and other benefits, without VAT. The VAT base includes all public revenues (except VAT) and all other expenses which VAT payer computes to the recipient, and does not include discounts and other price reductions granted to recipient in the moment of supply, as well as the amounts charged by VAT payer in the name and for the account of other parties, if said amounts are transferred to parties in which name and for whose account of charge was made. Hence, due to the fact that the VAT base is an element in determining the amount of VAT incurred for said supply, and that assessment of tax base via the parification method stipulated by the Law on Tax Procedures and Tax Administration is used for period in which tax is determined, the parification method is not applied for the purposes of determining the VAT base.  

(Ministry of Finance Ruling, no. 011-00-299/2016-04 from March 31^th 2016)