How to reduce income tax based on investment in innovation?
Taxes are mandatory, but there are ways to reduce them through the application of prescribed tax deductions. It can be a significant stimulus to business and investments. That is why the state, in order to stimulate investment in innovations, has introduced incentives that allow taxpayers to reduce the amount of income tax based on these investments.
Double recognition of research and development costs in the tax balance
This tax incentive is defined by Article 22g of the Law on Income Tax of Legal Entities.
Taxpayers are given the opportunity to recognize all expenses incurred in connection with research and development activities in their tax balance in a double amount, which means that they are recognized twice, namely:
- as an expense recognized in the Income Statement in accordance with regulations on accounting;
- as a tax incentive, which is reported as a separate item in the tax balance, which will have the character of a deductible item from the income tax base.
The condition to be entitled to this tax incentive is that the research and development project is carried out in the Republic of Serbia. This specifically means that at least 90% of all employees working on research and development perform their activities on the territory of Republic of Serbia.
You can find more about this relief in the following texts:
- Uvećani odbitak za troškove istraživanja i razvoja (R&D odbitak)
- Dvostruko priznavanje troškova istraživanja i razvoja u poreskom bilansu
- Dvostruko priznavanje troškova istraživanja i razvoja
- Priznavanje troškova istraživanja i razvoja u dvostruko uvećanom iznosu
IP Box tax relief
The IP Box regime is a tax relief provided for in Article 25b the Law on Income Tax of Legal Entities.and consists in the right of the taxpayer, i.e. of the startup to exclude “qualified income” from the income tax base (taxable profits) in the amount of 80% of the income thus realized. Put simply, the income tax is reduced to 3% instead of 15%.
The right to this relief is granted to a startup that is the holder of a copyright or related right and that generates income based on royalties for the use of a copyrighted work or part of a related right. As the author’s works are the result of conducted research and development (R&D), the startup must have conducted R&D on the territory of Serbia.
In order for a startup to be able to use this benefit, it must deposit a copyright, that is, submit an application related to the invention to the Intellectual Property Office. This is especially important for IT companies that develop their own products, as software is considered intellectual property that can be protected.
You can find more about this relief in the following texts:
- Poreska olakšica “IP Box”
- Izuzimanje kvalifikovanog prihoda iz osnovice poreza na dobit pravnih lica (IP Box)
Investing in a startup
An investor who invests in the capital of a newly established company that performs innovative activities (startup) can reduce its tax liability based on a tax credit in the amount of 30% of the investment made (Article 50j Law on Income Tax of Legal Entities).
The goal of this tax incentive is to stimulate capital owners to invest in startups, given that one of the main characteristics of startups is the lack of capital.
In current investments, the investor may not own more than 25% of shares or shares, i.e. votes in the management bodies of the startup in which the capital is invested. The cash contribution that increases the capital of the startup must be paid in full.
The tax credit can be used in the first subsequent tax period following the period in which the condition is met that the investor has not reduced his investment continuously in a period of three years from the last day of the tax period in which the investment was made.
The tax credit cannot exceed 100,000,000 dinars in total, i.e. 50,000,000 dinars per tax year.
Read more about this incentive and conditions here.
Additional information regarding benefits and subsidies for business support can be found at the following links:
