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Tax Alert, December 2016

Amendments to the Law on Value Added Tax and Law on Tax Procedure and Tax Administration

Parliament of the Republic of Serbia has adopted amendments to the Law on Value Added Tax (hereinafter: VAT Law) and the Law on Tax Procedure and Tax Administration (hereinafter: Tax Procedure Law) which contain significant changes with respect to certain legal provisions, primarily with the purpose of harmonizing domestic tax legislation with the legislation of the European Union.

Most of the amendments to the VAT Law will come into force on January 1, 2017 except for the provisions concerning the place of supply of goods and services, which shall apply as of April 1, 2017 and the provision prescribing that VAT calculation breakdown shall be submitted together with VAT return, which shall apply as of January 1, 2018.  

The most important changes concern:

  • clarification of the notion of tax payer and tax debtor in specific cases,
  • fiscal representation for the purpose of VAT,
  • place of supply of services
  • postponing obligation to submit VAT calculation breakdown together with VAT return,
  • determining date of supply with respect to the supply of electricity, natural gas and heating / cooling energy,
  • exceptions regarding the right of deduction of input VAT,

Law on Amendments to the Tax Procedure Law will come into force on January 1, 2017 except for the amendments regarding the authority competent to decide in second-degree procedures, which shall apply from July 1, 2017.

Further below is an overview of the most important changes encompassed by the above stated laws.

1. Amendments to the Law on Value Added Tax

1.1 Tax debtor

Amended Article 10 of the VAT Law emphasizes that the tax debtor is the recipient of goods and services if the foreign person is not registered for VAT in the Republic of Serbia, regardless of whether the foreign person has a permanent establishment in the Republic of Serbia, and whether the permanent establishment is a VAT payer in Serbia.

1.2 Fiscal Representative 

Amendments to Article 10a of the VAT Law specify that a foreign person who makes taxable supplies in the Republic of Serbia will be obliged to designate a fiscal representative and register for VAT, regardless of the value of taxable supplies in the last twelve-month period. Exceptions are prescribed for foreign persons that make taxable supplies to:

  • VAT payers – because the VAT Law envisages application of reverse charge mechanism in this situation,
  • Persons referred to in Article 9, paragraph 1 of the VAT Law (the Republic of Serbia, its authorities and legal persons established by the Republic of Serbia) – considering that reverse charge mechanism will also be applicable in this case,
  • In case of supply of passenger transport services by buses, for which VAT base will be computed as the average fee for an individual transport.

Proposed amendments to the Tax Procedure Law also prescribe fines for non-compliance with this provision, which will be presented in the part that deals with the said amendments.

1.3 Place of supply of services

Article 12 of the VAT Law now determines the notion of taxpayer solely for the purpose of applying the rules on place of supply of services.

Primarily, Article 12 prescribes who will be regarded as the recipient of services depending on whether the service provider is a taxpayer or not. That is, if the service provider is a VAT payer, the taxpayer - recipient of services is deemed to be:

1. Any person who performs its activity continuously regardless of the purpose of that activity;

2. Legal entities, state bodies, local government bodies established in the Republic of Serbia;

3. Foreign legal entities, state bodies, local government bodies, registered for the payment of consumption tax in a foreign country.

When a service is provided by a foreign person that is not registered for VAT in the Republic of Serbia, the taxpayer – recipient of the service is deemed to be:

1. Any person who performs its activity continuously regardless of the purpose of that activity;

2. Legal entities, state bodies, local government bodies.

Furthermore, for the purpose of aligning with the legislation of the European Union, the general rule with respect to the place of supply of services has been amended, and will depend on whether the service has been provided to the person who is or is not a taxpayer

That is, if a service is provided to a taxpayer, the place of supply will be the place of the recipient’s head office or a permanent establishment.

If a service is provided to a person who is not a taxpayer, the place of supply is the place where the service provider has its head office or a permanent establishment.

In addition, the new Article 12 prescribes exceptions to the general rules (some of which remain unchanged, and some that are more precisely determined), namely:

1. Supply of services related to real estate, including also intermediation services in real estate transactions - the place of supply of services is deemed to be the place where the real property is located, as before;

2. Transport of people - the place of supply is deemed to be the place where transport is carried out; if transport is performed both in the Republic of Serbia and abroad, the VAT Law provisions apply only to the part of transport carried out in the Republic of Serbia;

3. Transport of goods, which is supplied to a person who is not a taxpayer – the place of supply is deemed to be the place where transport is carried out; if transport is performed both in the Republic of Serbia and abroad, the VAT Law provisions apply only to the part of the transport carried out in the Republic of Serbia;

4. Supply of certain services regarding which the place of supply is deemed to be the place where services are actually rendered (such as for example ancillary services related to transportation, services regarding valuation of movable property, etc.);

5. Hiring of means of transport for a shorter time period – the place of supply is the place where a transport vehicle is put at the recipient’s disposal;

6. Hiring of means of transport to a person who is not a taxpayer – the place of supply is the place of the recipient’s head office or permanent address;

7. Other exceptions  supply of certain types of services to a person who is not a taxpayer – the place of supply will be the recipient’s head office or permanent address;

The Ministry of Finance shall prescribe in detail which services will be deemed to be the services related to real estate, services related to supply of food and drinks and hiring of means of transport and other movable property. 

1.4 Date of supply of electricity, natural gas and heating / cooling energy

According to the provisions of amended Article 14 of the VAT Law, date of supply of electricity, natural gas and heating / cooling energy that is acquired for reselling, is deemed to be the moment when the balance amount is determined the purpose of calculating said supply.

1.5 Conditions for input tax deduction

The amended Article 28 of the VAT Law prescribes a deduction of input VAT without having an invoice issued by a previous participant for the following supplies between VAT payers, where the recipient of goods and services is the tax debtor (reverse charge mechanism):

1) Supplies of waste materials or services provided in connection with them;

2) Supply of real estate - buildings, economically divisible units or other divisible parts in these buildings, if it is contracted that VAT will be computed on these supplies;

3) Supply of goods and services in the field of construction, and

4) Supply of electricity, natural gas and heating / cooling energy for heating and cooling that are acquired for the purpose of resale.

2. Amendments to the Tax Procedure Law

2.1 Relation between the Tax Procedure Law and other laws

According to the amendments of Article 3 of the Tax Procedure Law, tax proceedings will be conducted based on provisions of the law governing inspection supervision.

2.2 Change of competent authority for deciding in second-degree procedures 

Pursuant to the amendments of the Tax Procedure Law, the competence of Tax Authorities to decide in second-degree procedures has been abolished in favor of a body that is to be established within the Ministry of Finance. In other words, Tax Authorities will not anymore render decisions regarding second-degree procedures. The Ministry of Finance will be responsible for appeals and all the other issues which are decided in the second instance. 

2.3 Termination of tax liability

According to the provisions of the amended Article 23 of the Tax Procedure Law, Tax Authorities are obliged to render a decision in all cases of termination of tax liability (by means of payments, write-off, due to the statute of limitations etc.)

2.4 Rendering tax assessment rulings

The amended Article 55 of the Tax Procedure Law prescribes that in the future Tax Authorities will be able to render tax assessment rulings without the prior participation of a taxpayer, in cases where the basis for the tax assessment represent the data from the records of competent authorities.

2.5 Fine for not appointing a fiscal representative 

New Article 180a prescribes a fine in the amount of 100,000 to 2,000,000 RSD for legal entities that supply goods and services in the Republic of Serbia in accordance with tax law, in case where the supply is performed and the legal entity is not established or have a permanent establishment in the Republic of Serbia, or the supply is not performed by the permanent establishment, and the legal entity has not appointed a fiscal representative and it has not registered itself for VAT purposes.

A taxpayer – natural person who supplies goods and services in the Republic of Serbia in accordance with the law and does not have a permanent address in the Republic of Serbia, will be fined for misdemeanor with a pecuniary fine in the amount of 5,000 to 150,000 RSD if in accordance with the tax law does not appoint a fiscal representative and does not register for tax purposes.

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