The Serbian parliament adopted the Law on Amendments to the Law on VAT (Official Gazette of RS, No. 108/2016) on December 28 2016. The Law entered into force on January 1 2017 and the greatest impact of this Law will be felt by companies trading across borders.
The most significant change is the amendment to the criteria for determining the supply of services, as a result of further harmonisation with EU regulations and the avoidance of double taxation or non-taxation of certain services between resident and non-resident legal entities. This provision will be applied from April 1 2017. Essentially, with the changes, the rules will differ depending on whether the service is provided to VAT payers or to entities that are not VAT payers.
Another very important change is the postponement of the obligation to submit overviews of calculation along with the VAT tax return until January 1 2018. This has been deemed to be the most optimal solution, considering that the solution offered by the new Rulebook (Official Gazette of RS, No. 80/2016) caused a stormy reaction from the professionals due to the overwhelming reporting requirements.
The Law also amends provisions relating to the determination of the tax debtor for turnover carried out by foreign entities and their obligation to determine the VAT representative and register in the VAT system. The new provisions stipulate that the tax debtor with an obligation to calculate VAT for such supply is the recipient of goods and services provided in Serbia by a foreign entity that is not registered for VAT.
If a foreign entity is performing the taxable supply of goods and services in Serbia, it must appoint a tax representative and register in the VAT system, irrespective of the amount of turnover. This obligation is waived if the turnover is performed exclusively to VAT taxpayers, public administration entities, or entities that provide passenger transport services by bus.
The implementation of the provisions on representatives and the registration for VAT for foreigners is now supported with an amendment of the Law on Tax Procedure and Tax Administration, which provides for penalties ranging from RSD 100,000 ($857,000) to RSD 2 million for non-compliance.
The definition of permanent establishment (PE) under the Law on VAT is specified as being any organisational unit of a legal entity that can perform commercial activity, meaning that the foreign entity and its PE may be treated as two separate taxpayers.
There has also been a change to the requirements for deducting input tax, which means that the recipient does not need to have an invoice to exercise the right to deduct input tax in the following cases:
- Supply of goods and services in the construction industry;
- Supply of electricity and natural gas through networks for further selling;
- Supply of secondary raw materials and related services; and
- Supply of buildings.
Finally, the time of supply of electricity, natural gas, and energy for heating through networks to other entities for further selling is determined to be the date of the reading/measurement for calculation purposes, and the application of a special rate of 10% for firewood is extended to wood briquettes, pellets, and other similar products from biomass.
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