29th November 2019
MSI's Serbian accounting member ZS Tax & Consulting d.o.o. provides a tax update on the new draft of the corporate profit tax law affecting the IT sector. Most of the measures relate to tax incentives for companies that have intellectual property registered in Serbia, as well as companies that are engaged in research and development in Serbia. The Ministry of Finance has published the Draft Law on Amendments to the Law on Corporate Income Tax. This draft has proposed several new measures and the abolition of existing ones, some of which are relevant to IT companies and startups.
Most measures relate to tax incentives for companies that have intellectual property registered in Serbia, as well as companies that are engaged in research and development in Serbia, and tax relief for companies investing in Serbian startups.
Moreover, the benefits for IT companies and startups will have a direct impact on how these measures will be applied in practice and how much the procedure for using these facilities will be simplified for small companies operating in Serbia.
Deductions for Research and Development
Under Article 22g of the new law, taxpayers are permitted to calculate their research and development costs in Serbia as tax-deductible costs for double taxation purposes. All costs related to R & D projects are in included: costs of earnings, materials, procurement of intangible and tangible assets, materials leasing, advisory services, intellectual property rights costs and depreciation costs.
The draft law defines research and development in the following way:
Research activities are considered to be; original or planned research undertaken with the aim of acquiring new scientific or technical knowledge and understanding. They are also defined as the application of newly developed research or the application of another scientific method or the production of new, significantly enhanced materials, devices, products, processes, systems or services, which are intended for use before commercial production.
Special tax treatment of intellectual property income
Article 25b, which provides for the reduction of the tax base for 80% of the income realized on the basis of “compensation for the exploitation of a deposited copyrighted work or subject of related rights”, has been added to the Law.
Qualified income is excluded from the tax base, reduced by the amount of total historical or current tax-related expenses in connection with research and development activities resulting in the creation of that copyrighted work or subject-matter of related rights.
The taxpayer is obliged to separately present these revenues in his tax balance, as well as to prepare, at the request of the tax administration, special documentation in a manner and in the form prescribed by the Minister of Finance.
Tax relief for investing in newly established startups
Article 50j, aims to facilitate startups’ access to capital, as well as to make it easier for other companies to invest in startups. The proposed amendment stipulates that the taxpayer who invests in the capital of a newly established company performing innovative activities, recognizes the right to a tax credit in the amount of 30% of the amount invested (with a limit of approx 847k EUR of tax credit).
A newly founded company that performs innovative activities is considered a company that has not been active for more than three years, and which mainly performs innovative activity in terms of the law regulating innovation activity (activities that are undertaken to create new products, technologies, processes and services or significant changes to existing ones, in line with market needs).
In addition, there are five additional requirements that a company must meet in order to qualify as a newly established innovative company, which is included in the draft law.
Recognizing the cost of marketing in full amount
Up until now, each dinar invested in advertising which exceeds 10 percent of gross income that year, is treated as company profit. This will be resolved if the new Draft Law is adopted in its current form.
Specifically, part of Article 15 of the Law on Income Tax relating to advertising and propaganda expenses will be excluded and the marketing costs will be recognized in full amount.
The complete expected changes can be found on the website of the Ministry of Finance – http://www.mfin.gov.rs/pages/article.php?id=14057
If you have any questions or need further information please contact Ms Sanja Stevanovic-Polovina, Head of Finance & Tax at ZS TAX & Consulting doo, at firstname.lastname@example.org.
ZS Tax & Consulting is consulting firm established in 2016, in cooperation with one of the leading local law offices Zivkovic Samardzic Law Office, providing tax and accounting services.
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