On December 15 2015, the Republic of Serbia and the Grand Duchy of Luxembourg signed an agreement on avoidance of double taxation, which is in the process of ratification in the parliaments of both countries.
The agreement is based on a standard contract model of the OECD Model Convention and it applies to corporate profit tax, income tax and property tax.
The agreement allows a tax credit for resident taxpayers who earn income through a permanent establishment in the other country in amount of the income tax that has been paid in that other country. Per the law on corporate income tax of the Republic of Serbia, the tax credit cannot exceed the amount that would be calculated if using the standard method of tax calculation applicable for income realised abroad.
The rates of withholding tax to be applied on the basis of the agreement are as follows:
- Dividends: 5% in case of at least 25% participation or 10% in all other cases;
- Interest: 10%; and
- Royalties: 5% to 10%, depending on the type of compensation.
The newly signed agreement reduces the tax burden for taxpayers who would otherwise have to pay tax in both Serbia and Luxembourg and as such will encourage capital investments between the two countries.
The agreement shall enter into force after the ratification by both parties and will be effective from January 1 of the year after ratification occurs.
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