Serbian Personal Income Tax Law 1 and Serbian Corporate Income Tax Law2 , as well as the Serbian Law on Mandatory Social Insurance Contributions3 prescribe tax and social insurance contributions related reliefs for companies that conduct activities of research and development in the Republic of Serbia.
These tax and contributions related reliefs, pursuant to the above laws, encompass the following reliefs: (i) approval of research and development related costs in double amount as expenditure in tax balance, in accordance with the Corporate Income Tax Law; (ii) relief of payment of 70% of calculated and suspended amounts for personal income tax for salaries of employees, directly engaged on tasks of research and development which is to be paid by the company, for the portion of salary that corresponds to the amount of time spent on these tasks compared to full working hours, in accordance with the Personal Income Tax Law; and, (iii) relief of payment of 100% of contributions for mandatory pension and disability insurance, borne both by the company and its employee, payable for the same portion of the salary as in previous point, in accordance with the Law on Mandatory Social Insurance Contributions.
All of the above laws prescribe same basic conditions for the relief prescribed under each particular law, which come down to the following:
- The company needs to conduct research and development activities on the territory of the Republic of Serbia;
- The reliefs related to personal income taxes and contributions apply only to employees directly engaged in the research and development tasks (as specified under the relevant laws), and the relief related to costs applies only to the costs directly related to research and development activities in the Republic of Serbia (as specified under the relevant law);
- The company applying for reliefs related to personal income taxes and contributions needs to conduct the research and development related activities for its own account, and it needs to remain the owner of non-material property that may be created through research and development;
- The reliefs do not apply to research activities conducted in order to find and develop oil, gas or mineral reserves in extractive industries; and
- In order to acquire relief related to personal income taxes and contributions in relation to specific employee, the company cannot use any other form of incentive based on the existence of employment relationship for such employee, safe for reliefs from point (i) to (iii) above.
Since some of the above conditions and the actual manner of exercising the right to relief required further specification, the relevant provisions of the above laws were left to be further specified through bylaws.
The first rulebook regulating the subject reliefs, particularly the one related to recognition of costs in double amount in tax balance, prescribed under the Corporate Income Tax Law – the Rulebook on the Conditions and Manner of Exercising of Right to Recognition of Costs Directly Connected to Research and Development in Double Amount in Tax Balance4 , was rendered by the Ministry of Finance in the year 2019.
Now, the Ministry of Finance rendered a second rulebook – the Rulebook on the Conditions and Manner of Exercising the Right to Tax Relief based on the Salaries of Employees Engaged in Research and Development5 , that came into force on 16 April 2022.
This latest rulebook aims to further specify the conditions for relief prescribed by the Personal Income Tax Law – the relief that consists of exclusion of the companies (and other legal persons) which employ persons on tasks of research and development from obligation of payment of 70% of calculated and suspended amounts for personal income tax for relevant portion of salaries (that correspond to the amount of time spent on the tasks of research and development) of such employees.
The most relevant specifications of conditions initially prescribed by the Personal Income Tax Law, and further conditions, i.e. requirements for exercising of the right to relief – deduction of 70% of calculated and suspended amounts for personal income tax are presented in the chart below:
In addition to specifying the conditions that were initially prescribed by the Personal Income Tax Law, the Rulebook on the Conditions and Manner of Exercising the Right to Tax Relief based on the Salaries of Employees Engaged in Research and Development, introduces additional obligations of companies, that are of rather technical nature, and are necessary to properly monitor due fulfillment of conditions for tax relief.
