Profit tax in Serbia and dividend payment
At the beginning, we will point out that this text will be completely free from quoting the Law and other explanations in order to remain informative and understandable for readers who have modest prior knowledge on the mentioned topics.
We will only point out that the relevant regulations are primarily Corporate Profit Tax Law, then the Law on Personal Income Tax and the confirmed bilateral Agreements on the avoidance of double taxation.
Profit tax (tax on business result) and profit tax paid in advance
Profit is the difference between income and expenses determined in the financial report of the company.
Taxable profit is the profit determined in this way, adjusted to higher for non-tax deductible expenses, i.e. lower for non-taxed income and most often (not always) does not deviate drastically from the profit from the financial report.
The taxable profit determined in this way is taxed at 15% tax rate.
15% of profit tax is paid, according to current regulations, no later than June 30th of the next year for the previous one.
In accordance with the amount of profit tax for the previous year, during next year, on monthly basic, profit tax should also be paid in advance.
Example:
Let’s say that the income tax for 2019 is 30,000.00 units.
This amount must be paid no later than 30.06.2020, but until then 5 more monthly advance payments must be paid – 30,000/12 x 5 = 12,500.00.
Advances are due for payment by the 15th of the month for the previous month.
Due to a change in market circumstances, the company may request a change in the amount of the advance payment or its cancellation.
Dividend payment
Payment of profits to the personal account of the owner of the company is the payment of dividends.
Dividend payment to individuals (both residents and non-residents) is taxed 15% on the gross amount of the dividend.
In case of payment of dividend to a domestic legal entity, no dividend tax is calculated and paid.
In case of dividend payment to a foreign legal entity, a rate of 20% is applicable.
Exceptions to the use of these tax rates (15% and 20%, respectively) when paying to non-residents natural persons or legal entities arise from the Agreement on avoiding Double Taxation, which usually defines lower tax rates on dividend payments than those established by Corporate Profit Tax Law.
It should be mentioned here that this does not mean that the government taxes non-residents less, but that the assumption (and most often the fact) is that non-residents report these dividend income in resident countries, where they further enter business income or are otherwise additionally taxed.
Example of calculation of profit tax, and then tax on dividend payment to the owner (resident and non-resident) natural person (without the possibility to use the Agreement on avoiding Double Taxation):
At 100,000.00 units of (taxed) profit, after payment of income tax, it remains 85,000.00 units:
When the dividend is paid to the owners, 12,750.00 units of dividend tax are also calculated and paid.
As we can see, the net amount of 72,250.00 units comes to the natural person from the initial 100,000.00 units of profit.
This amount of dividend does not fall under the income taxed by the annual personal income tax, and the amount of 72,250.00 units remains the net income of the natural person fully available for personal spending.
Example of calculation of profit tax, and then tax on dividend payment to the owner of a non-resident legal entity (without the possibility to use the Agreement on avoiding Double Taxation):
At 100,000.00 units of taxable profit, after payment of income tax, it remain 85,000.00 units:
When the dividend is paid to the owners, 17,000.00 units of dividend tax are also calculated and paid.
As we can see, non-resident legal entity from the initial 100,000.00 units of profit receives a net amount of 68,000.00 units.
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