The proposed rates are applicable to loans in RSD (Serbian dinar) and loans indexed in foreign currencies such as EUR, USD and CHF.
To determine the appropriate interest rate that should be charged on loans between related parties, taxpayers may choose one of the following options:
- Use the general regulations regarding transfer pricing with one of the methods used to calculate interest rate; or
- Use the interest rates prescribed by the Ministry of Finance.
The method chosen by the taxpayer should be applied consistently to all loans provided to or from related parties.
The interest rates prescribed by the Ministry of Finance and considered to be at arm's-length are shown in the box below.
|Interest rates prescribed by the Ministry of Finance considered to be at arm’s-length|
For other taxpayers
If the use of the loan agreement-defined interest rate for one transaction with a related party is chosen, the taxpayer has to use the same method for all transactions. By the same token, if a taxpayer chooses to use the arm's-length interest rate, then that approach has to be used for all transactions.
Despite the aggressive approach of the Serbian tax authorities with regards to related party financing transactions, non-resident group companies may still opt to grant loans instead of equity contributions to their Serbian subsidiaries to take advantage of the beneficial provisions of double tax agreements between Serbia and the relevant states. For example, according to the double tax treaties concluded between Serbia and Germany, France, Norway, the Netherlands, Finland and Sweden a 0% withholding tax rate is imposed on interest payments abroad whereas a withholding tax rate ranging from 5% to 15% may be suffered on dividend payments.
In addition, according to the Serbian thin capitalisation rules, interest expense and other related expenses are allowed as deductible provided that the loans obtained from related parties do not exceed four times the net equity of the company (10 times for banks and leasing companies).
© 2019 Euromoney Institutional Investor PLC. For help please see our FAQ.