Following the last amendments to the tax laws (which we covered in our tax news from June 2013), the Ministry of Finance has since prepared several rulebooks to help implement the amended legal provisions.
Amongst these, the Rulebook on Transfer Pricing is the most important. Other rulebooks of the Ministry prescribe new forms of tax returns for tax payable on capital gains and income from the lease of movable and immovable assets, and newly introduced withholding tax on income from the sale of scrap and waste. In the area of personal income tax new forms of tax returns have been introduced for personal income tax, mandatory social security contributions and property tax.
The Republic of Serbia continues to expand the network of treaties on the avoidance of double taxation ("DTT"). The DTT with the United Arab Emirates will begin to apply starting from 1 August 2013, while the law on the ratification of the DTT between Serbia and the Kingdom of Morocco, which was signed on 6 June in Belgrade, is currently before Parliament.
The Rulebook on Transfer Pricing defines the form and content of the transfer pricing documentation, the selection and manner of the application of transfer pricing methods, as well as the manner of assessment of the base for the calculation of the depreciation of fixed assets acquired in transactions with related parties. We remind you that starting from 2013 all taxpayers are required to file with their annual tax return transfer pricing documentation in which they should disclose the arm's length values of their transactions with related parties.
The Rulebook on Transfer Pricing provides that the documentation in relation to the calculation of transfer prices is prepared in the form of a report which should include an analysis of the taxpayer's group, analysis of business activities, functional analysis, selection of transfer pricing method, conclusion as to compliance with transfer prices with arm's length prices and related schedules. There is no obligation to file separate documentation related to specific transactions between the members of the group, unless the Tax Administration requests it. Also, when making the request for additional documentation, the tax authorities are required to take into consideration the costs imposed on the taxpayer in respect of the preparation of the tax documentation, the capacity of the taxpayer to provide the additional documentation, as well as to leave an appropriate deadline for the submission of the additional documentation.
The Rulebook on Transfer Pricing also provides for guidelines in relation to the selection of the most suitable transfer pricing method depending on the business activity of the taxpayer, and prescribes the calculations used in the application of applicable transfer pricing methods.
The Rulebook on Transfer Pricing was published in the "Official Gazette of the Republic of Serbia" no. 61/13 on 12 July 2013 and came into force on 20 July 2013.
Tax on capital gains, income from lease and income from the sale of scrap and waste
The 'Rulebook on the Content of a Tax Return for Tax Payable by Non-resident Taxpayers on Capital Gains and Income from the Lease of Assets' introduces the new form of tax return - "PPKDZ".
The form of the tax return "PPKDZ" should be submitted to the competent tax authority within 30 days of the realization of the income, regardless of whether such income is subject to tax or not. It is prescribed that when in line with the DTT, the tax is payable only in the country of residence of the recipient of income, the non-resident should also file the residence certificate along with the tax return.
The tax return for tax on capital gains and income from lease of assets should be submitted through the tax representative.
The rulebook is published in the "Official Gazette of the RS" no. 56/13 from 28 June 2013 and came into effect on 29 June 2013.
Amendments to the CIT Law from 29 May this year prescribed that income from the sale of scrap and waste is subject to a withholding tax at 1% which applies irrespectively of whether the seller of scrap and waste is a resident of Serbia or not . The "Rulebook on the Content of a Tax Return for Withholding Tax on Income from the Sale of Scrap and Waste' introduces the new form of tax return "PPDSO". The form PPDSO should be filed upon the realization of income from the sale of scrap and waste.
The form "PPDSO" should be filed to the Serbian Tax Authority within 15 days of each calendar quarter in which the consideration was paid, i.e. by 15 April (for payments made from January to March), by 15 July (for payments from April to June), by 15 October (for payments from July to September) and 15 January (for payments from October to December).
The tax return should be submitted to the office of the Tax Administration where the buyer of scrap and waste is based, or where his registered company address is (if the buyer is non-resident).
The Rulebook on scrap and waste is published in the "Official Gazette of the RS" no. 61/13 from 12 July 2013 and came into effect on 13 July 2013.
Personal Income Tax and Mandatory Social Security Contributions
The 'Rulebook on the Payment of Withholding Tax and on the Content of a Collective Tax Return for Withholding Tax' was amended to regulate the manner for the completion of tax returns for a declaration of withholding tax on personal income, in line with the last amendments to the Personal Income Tax Law ("PIT Law") from 29 May 2013.
The Rulebook prescribes the manner in which tax returns need to be completed for income generated by employees from share plans, as well as for the personal salary of the entrepreneur. The manner of filling-in the tax return for tax on income from capital is also prescribed (to accommodate the fact that as per the latest amendments to the PIT Law income from immoveable property is treated as income from capital).
Changes have also been introduced in relation to manner in which non-taxable amounts of premiums for voluntary health insurance should be disclosed in tax return.
The 'Rulebook on the Form of Collective Tax Return for Contributions for Mandatory Social Security Contributions' was amended to introduce two new forms of tax returns – the "PP OD-P" form and the "PP OD-O" form.
An entrepreneur files his or her return on a form PP OD-P, and declares in it the contributions paid on his/her personal salary. The form PP OD-O is used for the calculation and the declaration of contributions payable for shareholders on the minimal base for assessment of social security contributions.
Both rulebooks are published in the "Official Gazette of the RS" no. 61/13 from 12 July 2013 and came into effect on 13 July 2013.
The amendments to the 'Rulebook on Tax Returns for Property Taxes' ("Official Gazette of the RS" no. 59/13 from 5 July 2013) introduce changes in the form of tax returns for inheritance and gift tax (form PPI-3) and property transfer tax (form PPI-4). These amendments came into effect on 6 July 2013.
DTTs with UAE and Morocco
During July 2013 the Governments of the Republic of Serbia and the United Arab Emirates exchanged ratification instruments, meaning that the DTT between the two countries will begin to apply to income generated from 1 August 2013. We reported about the DTT itself in our tax news from April this year.
The DTT signed with Morocco is currently before Parliament. The DTT provides for withholding tax on interest, dividends and royalties at a 10% rate. Capital gains are subject to tax in the country of residency of the recipient of income, unless they are derived from sale of real property located in the territory of the other country.
Special rules in relation to the taxation of insurance companies are also provided, In certain circumstances it will be deemed that the insurance company resident in one contracting state has a permanent establishment in the other contracting state, if it charges insurance premiums or insures risks arising within the other contracting state. Compared to the majority of DTTs signed by Serbia, the rule which stands out is the withholding taxation at a 10% rate on income from provision of technical services (services of a technical, management and consultancy character). Withholding tax does not apply in Serbia as Serbian national tax laws do not impose withholding tax on service income. If Serbian tax residents supply consulting services in Morocco, consideration for the supplied services will be taxed in Morocco.
DTT with Morocco prescribes credit method for elimination of double taxation for income which under the treaty may be subject to tax in both contracting states.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.