Tax Alert, December 2018
Law on amendments to the Law on Personal Income Tax
On 7 December 2018, National Assembly of the Republic of Serbia adopted the Law on amendments to the Law on Personal Income Tax (hereinafter: PIT Law) which will be in force as of 16 December 2018.
Main reasons for the amendments to the PIT Law are suppressing “grey economy” in providing accommodation services, creating conditions for increasing the birth rate by way of providing a tax relief for the solidarity aid and increasing employees’ motivation by stimulating incentive plans.
The most significant amendments include:
- Taxation of securities, stock options and shares of the employer or employer’s related entity, which employee receives free of charge or at a discounted price from the employer and employer’s related entity
- Tax treatment of expenses for recreational activities of employees and "team building"
- Tax relief for the salary of the founder of a new company, or personal salary of a newly registered entrepreneur and entrepreneur farmer
- Taxation of income from providing accommodation services
Most of the amendments to the PIT Law should apply from the moment the law comes into force, except for the following:
- Provisions related to the shares from the Article 14 and Article 18 of the PIT Law will apply to the shares acquired as of 1 January 2019.
- Provisions related to taxation of team building and tax relief for the salary of the founder and entrepreneur – applicable as of 1 January 2019.
- Provisions related to the income from provision of accommodation services – applicable as of 1 July 2019.
Below is an overview of the most important proposed amendments:
1. Taxation of securities, stock options and shares acquired from the employer or employer’s related entity
New provisions introduce an exception from the general rules regarding the taxation of securities acquired from the employer or employers related entity. Hence, securities, stock options and shares of the employer and employer’s related entity that the employee receives free of charge or at a discounted price from the employer or employer’s related entity are exempted from salary tax if certain conditions are met.
Namely, above mentioned exemption will not be applicable in following cases:
- If the employee alienates such securities before the expiration of 2 years from the moment the employee acquires full ownership rights – employer will be obliged to calculate, withhold and pay the tax at the moment of alienation
- If the employer or employer’s related entity redeem such securities – employer will be obliged to calculate, withhold and pay the tax at the moment of redemption
- If the employment terminates before the expiration of 2 years from the moment of the employee acquires full ownership rights (except in certain cases such as retirement and disability) - employer will be obliged to calculate, withhold and pay the tax the last day of employment.
2. Expenses for recreational activities and team building
Amendments to the PIT Law prescribe that the following will be exempted from salary tax:
- Employer’s expenses with regard to creating and maintaining conditions for recreational activities of employees at the work place (building and/or acquisition of the equipment for recreation)
- Reimbursement of expenses to employees for collective recreational activities
- Reimbursement of expenses for organizing sports events and activities of employees organized in order to improve health and/or build better relationships among employees, or employees and the employer.
In order for the exemption to be applicable, collective recreational activities of the employees would need to be prescribed in the employer’s general act and all of the employees would need to be entitled to the recreational activities of the same type, quality and volume. Exceptionally, recreational activities can be provided to a certain number of employees if that is justified with the proper medical documentation.
As for the sports events i.e. activities of the employees, tax exemption will be applicable if such activities are carried out based on the employer’s decision and if a significant number of employees has the right to participate and participates in such event.
3. Tax relief – salary of founder, entrepreneurs and entrepreneurs farmers
Founder of the newly established legal entity, a newly registered entrepreneur and entrepreneur farmer, has a right to a tax relief from salary tax for a period of 12 months from the moment of establishment or registration, and for an amount of monthly net salary up to 37,000 dinars provided:
- The founder has established a working relationship with a newly established legal entity and has been registered with CROSO, respectively that the entrepreneur/entrepreneur farmer is registered at CROSO
- Prior to establishment/registration, individual has been registered with the National Employment Agency continuously for 6 months or that they have graduated from high school or college 12 months prior to the establishment/registration
With these amendments and changes scope of this tax relief has been narrowed. Tax relief can be applied for the maximum of 9 founders, and can be used by the employers that were founded by 31 December 2020.
The employer which acquired the right to a tax relief in accordance with the Article 21dj of the previous PIT Law, until the moment of PIT Law coming into force, continues to apply the tax relief in accordance with the previous Article 21dj.
4. Income from providing accommodation services
Amendments of the PIT Law introduce specific rules with respect to the taxation of income derived from providing accommodation services – i.e. income an individual receives from providing accommodation in home craft facilities and domestic country households for up to 30 days and in the accommodation facility regardless of the days.
Taxable income is 5% of average monthly salary per employee in Serbia determined in the year preceding the year for which the tax is assessed, multiplied with the number of individual beds or camping plots and a corresponding coefficient for the category of touristic place determined in accordance with the tourism and accommodation legislation. Tax rate is 20%.
Tax is paid based on a tax assessment, within 15 days from the end of the quarter.
Tax return is submitted within 15 days from the enforcement of the assessment that determines the category of home craft facility and domestic country household, within 15 days from the moment an element for determining the tax liability changes and within 15 days from the moment the accommodation services ceased to be provided.
This income is also subject to annual income tax.
Pursuant to these amendments, rules regulating taxation of rental income are harmonized, hence it is determined that the income received from renting apartments or rooms for the period longer than 30 days will be considered as rental income, if the individual that rents the accommodation is not considered to be a person providing accommodation services in accordance with the law regulating tourism and accommodation. Additionally, it has been clarified that income from providing accommodation services up to 30 days, covered by the rules of taxation of accommodations service income, will not be considered as rental income.
5. Capital gain/loss
In accordance with the amendments, the restriction on the application of tax relief on the basis of owning a share/securities for over 10 years is deleted, in case where, during the period of ownership, there was a change in the nominal value of the shares i.e. security.
On the other hand, the right to a tax relief is no longer available in the event when a member of the legal entity/shareholder transfers shares or securities or a part of the shares or securities held in the company, and on the basis of that transfer, the company acquires its own shares or securities in accordance with the Company Law.
In addition, and taking into account changes related to the taxation of shares and securities received from the employer or employer’s related entity, at the moment of the sale of such shares/securities, the purchase price is defined as the actually paid price (documented), or if the purchase price cannot be documented, the purchase price will be zero.
6. Taxation of debt write-off
This change was made at the initiative of the National Bank of Serbia, in order to realize out-of-court settlements between the bank and the housing loans users with regard to loans considered as problematic, with special emphasis on the loans indexed in Swiss franc.
Namely, Article 85 provides that the tax on other income is not due in the event of the write-off of a part of the bank's claims against the debtor on the basis of a loan, when, in accordance with mutual out-of-court settlement, the debtor pays a part of the claim that the bank holds towards him and the bank writes off the remainder of the debt.
7. Other amendments to the PIT Law
- Tax relief for solidarity aid in case of birth of a child has been introduced – up to the amount of average salary paid out in Serbia based on the last published data, per newborn child.
- Exemption from taxation of 80% of capital gain derived by way of transfer of intellectual property prescribed in the Corporate Income Tax Law, will be applicable on the entrepreneurs who keep books.
- The non-taxable amount for gambling income was increased to RSD 100,000 from RSD 11,684 per win. In procedures for assessment, collection and control of tax from gambling income which have not ended until this law came into force, tax on gambling income will be assessed in accordance with this Law.
- Compensation i.e. compensation paid to high school students who learn through studying and working will not be subject to taxation based on dual education law.
- Additionally, non-resident’s income taxable in Serbia is more precisely defined. It is stated that non – resident’s income taxable in Serbia is income derived from work performed on the territory of Serbia or income derived from the use or disposal of the right on the territory of Serbia.