Tax Alert, December 2018

On 7 December 2018 National Assembly of the Republic of Serbia has adopted Law on amendments to the Property Tax Law (hereinafter referred to as: PTL) which comes into force on 16 December 2018. The main reasons for amending the PTL were refining and further clarification to the existing rules, all with the aim of increasing the legal certainty as well as harmonizing the application of the PTL provisions.

A number of amendments have been adopted, the main ones being described below.

PTL comes into force and applies as of 16 December 2018, with the following, major, exceptions:

• Provisions related to assessment of property tax are applicable as of property tax due for 2019.
• Gift and inheritance tax and transfer tax, in cases where the tax liability was not reported within the prescribed deadline, and has therefore occurred in the moment the tax authority has detected the tax liability, but after 16 December, will be assess based on PTL provisions valid in the moment when the tax liability should have been reported.

Please find below an overview of the most important amendments of the PTL:

1. Amendments to the property tax law

Subject of taxation

• In line with the amendments to the PTL, it has been stated that the property tax is levied for the total surface of land, in case when property tax is levied based on the ownership of land over 10 acers, or, the right to use construction land over 10 acers.
• When, apart from the ownership, another right is constituted on the immovable property, such as the right to use the immovable property, property tax law is paid on such right and not on the ownership.
• The amendments specify what is to be considered as part of the land and should not taxed as a building (object) – e.g. pavement, fence, etc.
• Installations incorporated in the building and from building to the connection to the grid (under the conditions that the place of connection to the grid may be determined) will be deemed as a part of the building.

Taxpayer

Amendments to the PTL define that in case when the non-resident legal entity performs business activities through a branch established in Serbia (which keeps books in line with Serbian legislation), and such branch uses and holds the property owned by the non-resident entity, the branch will be obliged to comply with the PTL in the name of the non-resident entity (i.e. it will be deemed as a taxpayer).

Determining the value of the immovable property and the tax base

A clarification has been adopted which states that the useful surface of the land is its total surface, including the surface under the building. Property tax is still assessed for the total surface, and then decreased for the surface of the land under the building, when the taxpayer is entitled to do so.

For the purpose of assessing the tax base, immovable property is classified in the following groups:

1) construction land;

2) farm land;

3) forest land;

4) other land – any land that is not construction, farm or forest land;

5) apartment;

6) residential house;

7) business premises and other buildings (underground and other) used for performing business activities;

8) garages and parking lots.

The most important amendments in this regard refer to the amendments to the method of assessing the tax base for taxpayer that keeps books, and whose property tax liability occurs during the tax year. Instead of the current solution, wherein the property tax base in determined as the purchase price of the immovable property, as recorded in the books of the taxpayer, as of the property tax for 2019, purchase price will be the tax base only in certain cases (as listed above), while in all other cases, the tax base will be determined based on the published data. Please find below an overview of situations where the purchase price can be used as the tax base (when the tax liability occurs during the year):

• for immovable property of the taxpayer that uses the fair value method for recording the properties in its books (in line with IAS, IFRS and adopted accounting policies).
• for cableways, roads, railways and other infrastructure facilities, as well as for sewerage and other underground construction facilities, in which networks intended for the flow of water, steam, hot or boiling water for heating purposes and other needs of users are located, gas, oil and petroleum products, telecommunications and the like;
• In cases where the local authority did not publish a decision on the average price of the immovable property, per zone, until the 30 November of the previous year, and when the local authority did not publish a decision on zoning
• for exploitation fields;
• for exploitation objects or facilities for the production and distribution of electricity (other than trade and management), for gas production facilities, for steam generating facilities, for facilities for the production of gas, for facilities for the production of steam, hot water, cold air and ice, for facilities for treatment and disposal of waste, for facilities in which the processes necessary for the reuse of materials are carried out, for storage and loading facilities - provided that the taxpayer records ​​the value of those buildings and the land separately.

Tax point

When the right, based on which property tax liability arises, is acquired on the building under construction which is not capacitated for use, is not used, and for which use permit is not issued, property tax liability for such building arises on the earliest of the following moments:

• The day of commencement of use,
• The day of capacitation,
• The day of issuance of the use permit, or the day of enabling the use of the object in other way (including tenure), except for buildings under construction with surface of over 500 square meters, as explained below.

Tax liability for building under construction with surface over 500 square meters (except in certain cases), or for individual part of the building which represents technical and functional unity with surface over 500 square meters which is under construction, not capacitated for use and is not used, on which rough construction work with constructive assembly is performed, arises as of 1 January of the year following the year:

1.  In which 5-year period has passed from the date of final first construction permit or approval was issued for construction of that building, or 7 years from the date of final first construction permit for that building was issued, if the competent authority’s assessment authorizes that construction permit stays valid 2 more years after the expiry of 5 years from the date in which it became final;

2.  In which construction of constructive assembly is completed, if construction permit is not issued.

In addition, for aforementioned buildings for which more than 5 years have passed until 31 December 2018, tax liability arises as at 1 January 2019.

Additional explanations have been provided regarding what is considered as the day of acquisition of a right, for property tax purposes:

• When rights are acquired based on a legal transaction – the day of the conclusion of legal transaction, except in certain cases, which include situation when the base for acquisition is merger document, when the date of acquisition of rights is the day of registration of the merger;
• When rights are acquired based on an individual document of competent authority or other authority or person with public authority, i.e. the court’s decision (including the decision determining that the right was acquired by adverse possession) – the day on which the document became final and binding (except in certain cases);
• When rights are acquired based on a demerger plan – the date of registration of the demerger plan;
• When rights are acquired based on distribution of liquidation surplus – the day on which decision is adopted, and if there was a dispute against that decision – the day on which decision ending such dispute became final and binding;
• When rights are acquired based on a law – on the day prescribed by the law base on which the right is acquired.

The amendments clearly determine that the type of construction permit is not relevant for the occurrence of the tax liability, or whether the building and corresponding rights were registered in the appropriate cadaster, or type of such registration.

Tax exemptions

The amendments of the PTL determine that the property tax is not levied on immovable property owned by private partner, on land acquired by the private partner after conclusion of the concession agreement based on which the estimated value of concession amounts to over EUR 50 million, as well as on the buildings built on additionally acquired land, if

• the private partner acquired additional land in order to fulfil obligations arising from concession agreement;
• the private partner additionally acquired land with consent of the concession provider;
• the additionally acquired land and buildings built on such land are exclusively used for the purpose of fulfilment of obligations arising from the concession agreement;
• the private partner, in accordance with the concession agreement, is obliged to transfer without consideration additionally acquired land and buildings built on such land to the Republic of Serbia or other person (concession provider), in accordance with the concession agreement, as well as to perform such transfer no later than the day of agreement termination on any basis.

Administrative provisions

The amendments adjusted provisions regarding submission of tax returns and the procedure for determining property tax:

• One of the most important changes is introducing the possibility to submit tax return through public notary, in case that rights on immovable property were acquired or disposed based on the document issued, notarized or confirmed by the public notary.

Taxpayer is obliged to submit tax return to the local authority within 30 days, for:

• Property for which tax liability arises, and for which taxpayer did not submit tax return through public notary, starting from the day when the tax liability arose;
• Property for which tax liability ceased to exist, and for which taxpayer did not submit tax return through public notary, starting from the day when the tax liability ceased to exist;
• Property which the entrepreneur who keeps books starts to record in his books, starting from the day when the property was recorded;
• Property which the entrepreneur who keeps books stops to record in his books, starting from the day when the property was stopped being recorded;
• Property recorded in natural person’s books, who lost the status of an entrepreneur who keeps books, starting from the day when the status was lost;
• Immovable property for which the taxpayer lost the right on tax exemption, starting from the 184^th day from the day when the respective property was given to other person in order to realize income.  

Exceptionally, the taxpayer who keeps books for property for which tax liability arose or other change has occurred, in the period from 1 January to 31 March of the fiscal year, is obliged to report the tax liability within the tax return in which tax was determined for the fiscal year for all immovable property on the territory of the same local authority, or to submit tax return after submission of respective return, no later than 31 March of the fiscal year.

Tax return should also be submitted for the property on which the taxpayer uses available tax exemption.

2.  Amendments related to the gift and inheritance tax

Below is a short overview of amendments related to the gift and inheritance tax

Application of tax exemption

• Inheritance and gifting of human cells, tissue and organs.
• Further clarifications are provided with regard to the application of the non-taxable threshold of 100,000 dinars per annum – it is stated that if the value of the inheritance/gifts received from one person in one calendar year is higher than 100,000 dinars, non-taxable threshold per annum is applied for inheritance and for the gift, respectively.

Exemption from taxation

Harmonization with the provisions of other laws with regard to the tax treatment of concession contracts has been done, and it is determined that gift tax is not due for transfer of immovable property free of charge to the person (or one of the persons), which is deemed as the provider of concession under the concession contract, and the transfer is done by the private partner under the concession contract, if the assessed value of the concession is at least 50 million euros.  

Amendments to the subject of taxation

Inheritance and gift tax is due on inherited/gifted used motor vehicle and aircraft, while vehicles/aircraft not deemed as motor or used (as defined by PTL) will be exempt from tax.

Administrative provisions

The amendments adjusted provisions regarding submission of tax returns and the procedure for determining inheritance and gift tax:

• One of the most important changes is the possibility for the taxpayers to submit tax return via a public notary, in case of transfer of immovable property based on the document issued, notarized or confirmed by the public notary.

3.  Amendments to the transfer tax

Below is a short overview of the amendments related to transfer tax.

Amendments to the subject of taxation

Ownership of the used motor vehicle is subject to transfer tax – the amendment has introduced the term used.

• A novelty is that transfer tax is due on lease of water land in public possession for a period longer than one year for the purpose of construction, in accordance with the law on waters.

Tax point

• It is determined that the tax liability occurs on the day of the final and binding decision on division of bankruptcy estate, when acquiring rights from the surplus of the bankruptcy estate.
• It is determined that the tax liability occurs on the date of the adoption of the decision on distribution of the liquidation surplus, when acquiring rights by distributions of liquidations surplus. If there was a dispute against that decision – the day on which decision ending such dispute became final and binding

Exemption from taxation

• Transfer tax is not due of transfer of absolute rights to the person/one of the persons which, under the concession contract, deemed as a concession provider, and when the transfer is done by the private partner under the concession contract, if the assessed value of the concession contract is below 50 million euros.

Administrative provisions

The amendments adjusted provisions regarding submission of tax returns and the procedure for determining inheritance and gift tax:

• One of the most important changes is the possibility for the taxpayers to submit tax return via a public notary, in case of transfer of immovable property based on the document issued, notarized or confirmed by the public notary.

4. Obligation to provide documents

Amendments to the PTL introduce an obligation to certain authorities to deliver documents to the tax authorities and local authorities, within the deadlines provided by the law. This obligation is prescribed for basic courts (in localities where notary was not appointed), courts, state or other public authority or person with a public power (except for the notary), Intellectual Property Agency in cases where acquisition/disposal or right is subject to taxes encompassed in PTL.

Notaries, in cases when the taxpayer does not file the tax return via them, are obligated to prepare a notice which is forwarded to the cadaster. The cadaster needs to inform the local authority or the tax authority of the notice.