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Changes to the Corporate Income Tax Law and the Law on Tax Procedure and Tax Administration

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Changes to the Corporate Income Tax Law and the Law on Tax Procedure and Tax Administration

The National Assembly of the Republic of Serbia has adopted the Law on changes and amendments to the Corporate Income Tax Law and the Law on changes and amendments to the Law on Tax Procedure and Tax Administration on December 29th, 2015. Most of the changes are applicable as of January 1st, 2016.

The review of the most important changes and amendments are presented below.

Changes and amendments to the Corporate Income Tax Law 

Article 9 – Salary costs

According to the amendments to Article 9 of the Corporate Income Tax Law (hereinafter: CIT Law), conditions under which salary expenses are recognized as tax deductible are more precisely described.  

Namely, according to para 2, the amount of earnings which in accordance with the Law on Personal Income Tax can be treated as salaries, including non-taxable amounts, can be deducted for tax purposes in the tax period in which they are paid, i.e. realized.

Non-taxable amounts include jubilee awards, Christmas and New Year’s Eve gifts to children up to the age of 15, solidarity aid in case of illness, etc. Such amendments have clarified some of the concerns related to the tax treatment of earnings paid to employees, which do not represent a usual liability for the company.

Article 16 – Recognition of individual receivables write-off

With respect to Article 16 of the CIT Law, paras 4, 5, 6 and 11 were added.

In accordance with para 4, a single receivable write-off will be recognized as a tax deductible expense in the case when it has been included in a previously concluded and legally verified reorganization plan, in accordance with the rules regulating bankruptcy.

Special rules for banks are introduced in order to facilitate the write-off of receivables, the recognition for tax purposes of such expenses and to increase its marketability. For loans granted to non-related parties, individual receivables write-off will be recognized as a deductible expense if at least two years have passed from the date of maturity of such receivable, and if evidence of the debtor’s insolvency are provided.

The write-off of part of the bank’s individual receivables, which have not been fully settled from the sale of real estates, performed in accordance with the law, will be recognized as a deductible expense for tax purposes.

Furthermore, para 11 states that expenses based on the write-off of individual receivables, which have not been recognized as deductible expenses in the tax period in which they were recorded, will be recognized in the tax period when the conditions for recognizing the receivables write-off have been fulfilled. The previous will be accomplished when:

  • The taxpayer acquires evidences that debtors were sued,
  • Debt collection proceedings were initiated or
  • Receivables were reported in the bankruptcy or liquidation proceedings.

Article 16a – Losses realized on transfer of receivables

Provisions under Article 16a of the CIT Law are more precisely defined in order to avoid uncertainties.

Namely, Article 16a that relates to the recognition of losses realized through the sale of receivables has been amended so that this loss could be recognized for tax purposes in the period when the sale was realized and to the amount registered in the taxpayer’s Income statement.

In accordance with Article 16 para 9 and Article 22 of the CIT Law, if a bad debt provision has been made for the aforementioned receivables in a previous tax period, such expense is recognized for tax purposes.

Article 22a – Recognition of indirect receivables write-off for insurance companies

The deletion of the provision related to the recognition of expenses based on the increase of indirect receivables write-off for insurance companies has been made.

The determination of the expense amount reported in the company’s financial data based on the indirect write-off made according to the receivables collectability is no more in competence of the National Bank of Serbia. Instead, it now represents an internal issue for insurance companies. During that proceeding, insurance companies should comply with the relevant IFRS regarding accounting and financial reporting. The amount of expenses for the receivables write-off for insurance companies should be reported in the tax balance under the conditions stated in Article 16 of the Law.

Article 22b – Recognition of expenses for long-term provisions

According to amended Article 22b of the CIT Law, long-term provisions will be tax deductible to the amount of provisions used in the tax period, i.e. liabilities settled and payments related to them.

Para 2 of the said Article is amended so that instead of long-term provisions for issued guarantees and other warranties, other long-term provisions, which fulfill the requirements for tax deduction in accordance with IAS, or IFRS and IFRS for SME are now recognized as deductible. These expenses are recognized up to the amount of provisions used in the tax period, i.e. liabilities settled and payments made on this account.

Article 27 – Capital gains and losses

Article 27 para 1 item 1) of the CIT Law now states that capital gains are realized through the sale, or other transfer with reimbursement, of real estate that the taxpayer used, or still uses, as assets for performing its business activities, including real estates in construction.

Prior to amendments, this Article referred only to real estate, which was used by the taxpayer as a fixed asset while performing its business activities.

Article 34 – Tax treatment of liquidation and bankruptcy

Within Article 34 of the CIT Law, a new paragraph was added. According to that paragraph, in the case when liquidation, bankruptcy or reorganization process continues into the next year, the taxpayer participating in them should submit the tax return and tax balance as of December 31st, in accordance with the article 63, paras 3 and 4 of the Law.

Article 40 – Withholding tax

A new provision was introduced in Article 40 of the CIT Law, according to which withholding tax should be levied on payments realized to non-resident legal entities related to services which are provided, or should be provided and used, or should be used, within Serbia.

In line with para 5 the resident legal entity should submit the tax return on the day when the payment for such services, provided by a non-resident legal entity, has been made.

Additionally, the withholding tax should be also paid on payments to non-resident legal entities related to the settlement of receivables during the execution procedure, i.e. during any other receivables settlement procedure in accordance with the law.

The application of amendments within this article starts from March 1st, 2016.

Changes and amendments to the Law on Tax Procedure and Tax Administration

Article 25 - The obligation for filing the tax returns is expanded

The obligation for filing the tax returns now also refers to the liquidation, i.e. bankruptcy administrator, which is obliged to file the tax returns in line with the tax legislation on liquidation, i.e. bankruptcy procedure, including the tax return for the tax period when the deadline for filing such returns falls after the date of commencement of the liquidation, i.e. bankruptcy procedure.

Article 36 - The obligation of the Tax Authorities to publicly disclose data regarding the delivery of tax decisions to the taxpayers is abolished

The provision of the Law on Tax Procedure and Tax Administration (hereinafter: the Law) according to which the Tax Authorities are obliged to disclose on their homepage tax identification number of the taxpayer to whom the tax decision is delivered, as well as the number of the respective tax decision is abolished. The stated obligation was applicable in case when the tax decision was delivered to the taxpayer via designated mail or regular mail.

Article 38 - The deadlines for transition into electronic filing of tax returns for specific tax forms are extended

The deadlines for commencement of filing of tax returns solely in electronic form for specific tax forms are extended, so the obligation of filing the tax returns solely in electronic form for:

  • Withholding tax, CIT payable according to the tax decision, tax on non-life insurance premium and other tax forms (mandatory social security contributions for founders, i.e. company members, as well as taxes and related contributions on salary, i.e. other types of income calculated by the individual as the taxpayer through the means of tax self-assessment) – starts from March 1st, 2016.
  • Excise duties and tax on business income earned by entrepreneurs that keep business records – starts from January 1st, 2017.
  • Tax on business income for lump sum taxation, capital gains tax (for individuals, including entrepreneurs), inheritance and gift tax, as well as real estate transfer tax – starts from January 1st, 2017.

Taxpayers – individuals are entitled to file the tax returns also in paper form after the moment of transition into electronic filing of tax returns.

In addition, taxpayers that fulfill technical conditions are allowed to, during the transition period from January 1st 2016 until February 29th 2016, simultaneously file the above mentioned tax returns in paper form along with tax returns filed in electronic form.

Article 70 - Schedule of paid tax liabilities is changed

The schedule of collection of tax liabilities is changed in a way that the amount of tax liability will be decreased first, afterwards the interest amount and lastly the amount related to collection expenses. According to the previous rule, the collection expenses were decreased at first, the interest expenses afterwards and lastly the amount of principal tax liability.

Articles 114e and 114z - Provisions on statute of limitation changed

Statute of limitation regarding the determination, collection and refund of taxes is not applied on contributions for mandatory social security contributions.

In addition, the duration of halt in the statute of limitation with respect to the right of the Tax Authorities to determine and collect taxes is not included in the absolute statute of limitation (that amounts to ten years). This change in the Law takes into account the fact that numerous administrative disputes, i.e. bankruptcy procedures last more than ten years.

Articles 177, 178, 180 and 181b - Amendments of the penalty provisions of the Law

Fine for legal entity that untimely files the tax return and untimely pays tax is reduced from 150,000 to 100,000 RSD.

Fine amounting to 10,000 RSD is prescribed for responsible person in the legal entity in cases of untimely filing of tax returns and untimely payment of tax.

In addition, fine ranging from 10,000 to 100,000 RSD is prescribed for responsible person in the legal entity in case of non-payment of tax determined by the Tax Authorities’ decision, whereas in the case of untimely payment of tax determined by the Tax Authorities’ decision the fine for responsible person in the legal entity amounts to 10,000 RSD.

Furthermore, fine ranging from 10,000 to 100,000 RSD is prescribed for responsible person in the legal entity in case of non-filing of the informative tax return, as well as in the case of incomplete data stated in such informative tax return.

Fine amounting to 10,000 RSD is introduced for responsible person in the legal entity if the difference of less paid tax amounts to 5% of the amount that is determined or that should have been determined.

Fine for tax offences of individuals, that are not considered entrepreneurs, ranges from 5,000 (instead of 15,000) to 150,000 RSD. In addition, the stated individuals that do not effect payment of tax determined in the tax return, i.e. Tax Authorities’ decision are going to be fined in the amount not less than 5,000 (instead of 50,000) RSD.

Fine ranging from 100,000 to 2,000,000 RSD is introduced for legal entity – organizer of games of chance, given that it fails to deliver the daily, monthly and annual report on the turnover stemming from the games of chance to the Tax Authorities, in paper or electronic form. Fine for responsible person in the legal entity – organizer of games of chance for the mentioned offence ranges from 15,000 to 150,000 RSD.

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