Serbia narrows down list of services subject to withholding tax

February 27 2018

Important changes affecting a wide range of companies in Serbia have been introduced via amendments to the provision related to the application of withholding tax. Article 40, paragraph 1, item 5 of the Law on Corporate Profit Tax regulates the taxation of services provided by foreign entities by subjecting them to withholding tax. It will apply as of April 1 2018.

The long-awaited definition of services that are subject to withholding tax has finally been put in place. This has been an area of great uncertainty among companies who were often unsure about whether or not to pay withholding tax for services received from abroad.

The new Article 40, paragraph 1, item 5 of the Law defines that the subject of taxation as regards withholding tax is the income of foreign legal entities received from domestic (Serbian) legal entities for:

Market research services;
Accounting and auditing services; and
Other services in the field of legal and business consulting, regardless of the place where the services are provided or used, or where they will be provided or used.

It was proposed that the Minister of Finance define in even greater detail the types of services in order to eliminate any doubt as to the application of the regulations.

As a result of the amendment, starting from April 1 2018, domestic legal entities will not have to calculate and pay withholding tax for services, such as advertising services on Facebook, Google and AdWords, and goods transportation services through the territory of Serbia, etc. There will no longer be a requirement to obtain a tax residence certificate for the purpose of applying bilateral tax treaties on the avoidance of double taxation. The obligation remains solely in respect of tax-subject services: market research, accounting and auditing services and other services in the field of legal and business consulting.

This change applies to all payments made by domestic legal entities to foreign legal entities starting from April 1 2018, regardless of whether the service for which the fee is paid was supplied before or after that date. With this in mind, companies should not rush to pay for already performed services, if and when possible, but should consider postponing the payments until after April 1 2018 if the nature of the supply is exempt from withholding tax under the new rule.