Tax on income from services and royalties to a non-resident legal entity – conditions for avoiding and reducing the paid tax. Article 40 of the on Corporate Profit Tax Law, among other, provides the payment of a withholding tax for services from abroad and for royalties.Payers of the accrue and paying witholding tax.
It is interesting that there is no obligation for an entrepreneur who is lump sum taxed to calculate and pay witholding tax for services from abroad as well as royalties.
This conclusion is imposed by reading Article 40, paragraph 5 of the Law on Corporate Profit Tax, which states that a resident legal entity is obliged to file a tax application form on the day of payment of the income, and this is also required by the Entrepreneur who keep business books pursuant to Article 104 of the Law on Corporate income tax that states that an entrepreneur who keep business books calculates and charges a withholding tax of income derived by a legal entity in accordance with the law governing corporate profit tax.
However, for both the “lump sum” and other recipients, there is usually a VAT obligation in Serbia when they receive services, ie. copyright and related rights from a foreigner that has not been registered for the obligation to pay VAT in Serbia, according to Article 12 of the VAT Act.
The tax is usually 20% nominal and 25% of the paid amount, and if it is related with legal entities in the jurisdiction with a preferential tax system of nominal 25%, or 33.25% of the paid amount to the foreign legal entity.
If you do business with legal entities that are residents of countries with which there is a double taxation avoidance agreement, and you can see the list through the following link Double Tax Avoidance Agreements, there is a possibility to avoid paying this type of service tax, but in the case that BEFORE PAYMENT the business partner must obtain the CERTIFICATE OF THE RESIDENCE of that partner issued by the authorized authority of their country and DECLARE THAT THIS LEGAL ENTITY IS THE REAL OWNER OF REVENUE (not transfering revenue from the sale of services (royalties) to a third party). That certificate you will get a ONES PER YEAR from a business partner and it needs to be CERTIFIED by an authorized court translator.
In the case of royalties, the registered entity is usually obliged to pay the tax beside obtaining a certificate and statement, but again in a lower amount than would be the case if you do not take those actions. What is included in the royalties can be found in Law on Copyright and Related Rights.
If, however, you do not obtain a certificate and a statement before paying to a foreign legal entity, it is possible, after getting them, to claim a refund of a paid tax.
For this, you need first to electronically submit an changed/altered tax form, then submit a request to the Tax authorities in free form, as well as to have the power of attorney of a foreign legal entity by which you, as a payer, ask for a refund of more paid tax on behalf of a foreign legal entity as a revenue recipient.
Author: AKTIVA sistem – Serbian accounting company
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