VAT in Serbia - Yes or No?
It is questionable whether a company that is defined as a small taxpayer from the aspect of the Serbian VAT Law should choose to enter the VAT system or not?
For whom is it profitable, and for whom doesn’t?
Who is a small taxpayer?
According to Article 33, paragraph 1 of the Serbian Law on value-added tax, a small taxpayer is a person who has trade of goods and services on the territory of the Republic and/or abroad, whose total turnover of goods and services in the previous 12 months hasn’t exceeded 8.000.000,00 RSD, or which when starting the activity estimates that in the next 12 months they will not have a total turnover more than 8.000.000,00 RSD.
The total turnover referred to in paragraph 1 of this Article shall be the turnover of goods and services referred to in Article 28 paragraph 1 item. 1) and 2) of this Law, except for the turnover of equipment and facilities for performing activities and investments in facilities for performing activities which are charged.
It is necessary to pay attention to this definition of total turnover, because part or even total turnover (which is often the case with IT companies operating abroad) is not included in the total turnover when calculating it from the aspect of the conditions for the inevitable entry into the VAT system.
Small taxpayer, according to the Law, is not obliged to enter VAT system, however, paragraph 3 of Article 33 of the VAT Law prescribes the possibility for a small taxpayer to voluntarily enter in VAT system, and the deadline in which it must be kept in VAT system is at least 2 years.
In the next section, we will try to show in which situations the small taxpayer should or should not use the opportunity to voluntarily enter in VAT system.
Note:
In next few lines you will see simplified views of individual situations. In the examples we presented the so-called the situation INPUT – OUTPUT. Also, all the situations in practice have not been processed, because it is impossible to encompass them.
Again, we feel that the situations listed below are appropriate to gain general knowledge about the functioning of the VAT system in Serbia.
SITUATIONS
Situation 1: Companies which are mainly exporting
For companies that are mainly exporting, either goods or services, it is more convenient to be in VAT system, especially if they buy goods or services in the Republic of Serbia with VAT or import them, because they can refund the previously paid VAT.
As for the export of goods and the services whose place of trade is abroad (from the aspect of Serbian VAT Law), VAT is not charged on the outgoing invoices, therefore VAT is being refunded on the basis of the VAT included in incoming invoices.
A taxpayer can demand refund of VAT from the Serbian Tax authorities on the company’s bank account or use it to compensate with other tax obligations.
Article 52, paragraph 4 of the Serbian VAT Law defines that the refund shall be made within 45 days for regular taxpayers or within 15 days upon expiration of the deadline for filing VAT form for the taxpayers witch mainly trade is abroad. Those, so called pretended exporters needs to be registered as pretenden exporter – possibility just for companies which exporting goods.
Situation 2: Trading (suppliers in VAT system – buyers in VAT system)
For Buyers (who are in the VAT system), the final price of, for example, 160,00 RSD from non-VAT Trader is equal to the final price of 192,00 RSD from VAT Trader because they can use 32,00 RSD of VAT as a deductible tax.
In this case, it is better for the Trader to be in the VAT system, as shown in the following table.
In this example we used goods purchased at a price of RSD 120,00 with VAT included.
| Trader in VAT system | Trader outside VAT system | |
| Purchase price of goods – the expense for the Trader |
100 – because 20,00 RSD of VAT is deductible | 120 – can not use VAT from the supplier’s invoices as a deductible |
| Selling price of goods with VAT (final price) | 192 | 160 |
| Selling price without VAT – revenue for the Trader |
160 – a reduction of 32,00 RSD of VAT obligation payable to the state | 160 – remains 160 because there is no VAT obligation |
| Gross margin realized by the Trader | 160 – 100 = 60 | 160 – 120 = 40 |
A higher gross margin of 20,00 RSD (60,00 – 40,00) realized by the Trader in VAT system is VAT that he can use as the previous (deductible) VAT.
Conclusion:
Your Suppliers and Buyers are in the VAT system or you are exporting your products or services – you should be in the VAT system.
Situation 3: Trading (suppliers outside of VAT system – buyers in VAT system)
Since there is no VAT in ingoing invoices that could be used as a deductible tax, you shouldn’t be in the VAT system because time and energy you need for making VAT reports.
Situation 4: Trading (suppliers in VAT system – Buyers outside VAT system)
For your buyers (who are not in the VAT system) the final price of 192,00 RSD from non-VAT Trader is equal to the final price of 192,00 RSD from VAT Trader because they can’t use VAT (32,00 din) as a deductible.
In this case, it is better for the Trader to be outside VAT system, as shown in the following table.
| Trader in VAT system | Trader outside VAT system | |
| Purchase price of goods – the expense for the Trader |
100 – because 20,00 RSD of VAT is deductible | 120 – can not use VAT from the supplier’s invoices as a deductible |
| Selling price of goods with VAT (final price) | 192 | 192 |
| Selling price without VAT – revenue for the Trader |
160 – a reduction of 32,00 RSD of VAT obligation payable to the state | 192 – remains 192 because there is no VAT obligation |
| Gross margin realized by the Trader | 160 – 100 = 60 | 192 – 120 = 72 |
The higher gross margin of the Trader which is not in VAT system in the amount of 12,00 RSD (72,00 – 60,00) which represents the VAT obligation (the difference between 32,00 RSD from the outgoing and 20,00 RSD of the ingoing VAT) which Trader who is outside of VAT system is not obliged to pay.
Conclusion:
In case your Buyers are not in VAT system, it is better to be outside VAT system.
Situation 5: Suppliers outside the VAT system – Buyers outside the VAT system
Extreme undesirable option for Trader to be in VAT system – no need for explanation.
Author: AKTIVA sistem
