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Serbia: Serbia amends VAT Law, extending eligibility for VAT refund to foreign companies

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Serbia's Parliament adopted the Law on Amendments to the VAT Law on April 19 2018. The Law was published in the Official Gazette No. 30/2018 and came into force on July 1 2018, with the exception of certain provisions which will be applicable from January 1 2019.

The latest amendments to the VAT Law stem from the harmonisation of Serbian regulations with EU regulations, most notably with Council Directive 2006/112/EZ on a common system of value-added tax. The changes also aim to create more favourable conditions for business entities. The amendments relate to the moment a VAT obligation is created, especially for intellectual property (IP) rights, as well as to tax exemptions, with the right to deduct previous tax and VAT refunds to foreign taxpayers.

Rule on the chargeability of VAT on supplies of IP rights

According to the amended rule, a tax liability arising as a result of issuing an invoice before either a sale or an advance payment may also arise for services related to the transfer, assignment and use of copyright and related IP rights, if such services are performed by the same person who transfers, assigns and uses copyright and other IP rights. The most common example in practice is the service of granting the right to use software (a software license) provided together with software maintenance services and technical support to the software user.

Free trade zones: Tax exemption

The tax exemption with the right to deduct previous tax has been prescribed for the supply of goods that have entered into a free zone for a foreign entity which is not a taxpayer but has concluded a contract with a taxpayer-user of the free zone. Additionally, this new VAT exemption is prescribed for the supply of services which are related to the supply of goods stated above.

Refund of VAT to a foreign taxpayer

A foreign taxpayer has the right to refund input VAT on the turnover of goods and services bought in Serbia and which are subject to the reverse charge mechanism (i.e. when the obligation to calculate VAT rests with the recipient taxpayer) if the goods and services are sold to entities which are VAT payers in Serbia. This will allow more opportunities for foreign entities to reclaim the incurred input Serbian tax. This amendment will apply from January 1 2019.

Taxpayers that may be affected by the changes should seek advice in determining the best approach to benefit from the amendments.

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