Tax Guide for US Expats Living and Working in the Republic of Serbia
Who Is Liable For Income Taxes in the Republic of Serbia
Residents are subject to tax in Serbia on their worldwide income. Nonresidents are subject to tax on Serbian-source income only.
Individuals are considered to be resident for tax purposes if they have a domicile, residence or center of business and life interests in Serbia or if they spend more than 183 days within a 12-month period, which begins or ends in the tax year (that is, the calendar year). In addition, Serbian individuals seconded abroad by a resident employer or an international organization to operate in the name of the employer are also considered resident.
Income subject to tax. Tax is levied on the types of income described below.
Employment income. Salary tax is payable at a rate of 12% on income from permanent or temporary employment, benefits received in money and in kind, paid leave and other employment remuneration that exceeds a prescribed level.
Self-employment income. Tax is levied on the net earnings of self-employed individuals at a rate of 10%. For this purpose, taxable income is accounting profit adjusted in accordance with the tax regulations. The tax authorities may grant certain self-employed individuals the right to not maintain books; lump sum tax is levied on these individuals.
Grants and loans provided by employers to their employees’ children to cover their costs of education for high school or a higher level of education are taxable if the monthly installment exceeds RSD 8,685. The excess amount is grossed up and subject to an effective tax rate of 16%. No social security contributions are payable on these grants and loans.
Investment income. Tax is imposed at a rate of 10% on investment income, including the following:
- Interest
- Dividends
- Participation in profits
- Use of a company’s property or services by its owner for personal purposes
Interest derived from government bonds and deposits and savings in local currency is exempt from tax under the personal income tax law.
Withholding tax is imposed at a rate of 20% on royalties from copyrights, rights related to copyrights and industrial property rights. Deductions from royalty income may vary between 34%, 43% and 50% of the total royalty income, depending on the source of income. Actual expenses incurred by an author or interpreter are deductible if they are properly documented.
Income from property leasing is taxed at a rate of 20%. A standard deduction of 20% may be claimed with respect to this income. As an exception, a 50% deduction is allowed for income received from leasing apartments, rooms and beds in the tourist industry.
Directors’ fees. Fees received by members of a board of directors or supervisory board of a legal entity are taxed at a rate of 20%. A standard deduction of 20% may be claimed with respect to such income.
Other income. Income from insurance, reduced by paid premiums, is taxed at a rate of 10%.
Other types of income, including income from leasing movables and winnings from games of chance, are subject to tax at a rate of 20%. Certain standard deductions are allowed with respect to such income.
Capital gains and losses. Capital gains derived from the sale of real estate, industrial property rights and securities are subject to tax at a rate of 10%. Capital losses incurred in a calendar year may offset capital gains derived in that year or in the following five years.
Personal deductions. Taxpayers may claim a personal deduction in the amount of 40% of the average annual salary per employee paid in Serbia in the year for which the tax is assessed (the amount of the deduction for 2010 was RSD 227,760). In addition, individuals may claim a deduction in the amount of 15% of the average annual salary per employee paid in Serbia in the year for which the tax is assessed (the amount of the deduction for 2010 was RSD 85,410) for each dependent family member. The total amount of deductions claimed may not exceed 50% of taxable income.
Rates. Progressive income tax rates of 10% and 15% apply to the income of individuals exceeding certain thresholds. For Serbian tax resident individuals (both Serbian and foreign nationals), the 10% rate applies to annual worldwide net income from sources specified in the tax law exceeding three times the amount of the average annual salary per employee paid in Serbia in the year for which tax is assessed (the amount of the threshold for 2010 was RSD 1,708,200), but not exceeding six times such average annual salary. A 15% rate applies to income exceeding six times the average annual salary. Individuals who are nonresidents for tax purposes are not subject to annual income tax.
The above thresholds are modified each year in accordance with the annual fluctuation of average salary in Serbia.
Relief for losses. Losses incurred in self-employment activities may be carried forward for up to five years.
B. Other taxes
Property tax. Residents and nonresidents are subject to property tax at rates that may not exceed the maximum rates set by the Property Law. Each municipality may determine the rates up to these maximum rates. The maximum rates range from 0.4% to 2% on real estate owned in Serbia. The rates depend on the kind of property (land or building), kind of owner (company/entrepreneur or physical person) and, for physical persons, the value of the property. Shares and stakes in legal entities are not subject to property tax.
Inheritance and gift tax. Inheritance and gift tax is levied on the market value of property at rates ranging from 2% to 2.5% for taxpayers who are second relations to the testator or donor (depending on the value of the tax base) and 2.5% for taxpayers who are third relations or are not related to the testator or donor. Shares and stakes inherited, or received free of charge, are not subject to inheritance and gift tax.
Transfer tax. The rate of the transfer tax is 2.5%. The tax base is the higher of the contract price or market price. Sales of shares and stakes in legal entities are exempt from tax on the transfer of absolute rights.
C. Social security and other contributions
Contributions. Social security tax is imposed on salaries received by individual employees. The employee and the employer each pay contributions to the following funds at the rates noted:
- The Pension and Disability Fund (11%)
- The Health Care Fund (6.15%)
- The Unemployment Fund (0.75%)
Contributions to the Pension and Disability Fund at a rate of 22% and contributions to the Health Care Fund at a rate of 12.3% (for individuals without any other insurance) are payable by individuals on income received under contracts relating to royalties, services, additional work, agency and sports, as well as under similar contracts involving the payment of remuneration for services performed.
For expatriate employees, social security contributions are payable only on salaries received in Serbia. Under certain bilateral conventions, expatriates may pay social security contributions in their country of residence only.
Rates of contributions to the chambers of commerce of the Republic of Serbia and municipalities range from 0.19% to 0.35%.
Coverage. An employee who pays Serbian social security contributions is entitled to benefits, including health insurance for the employee and dependent family members, disability and professional illness insurance, unemployment allowances, retirement and other benefits.
Totalization agreements. To prevent double taxation and to assure benefit coverage, the Republic of Serbia currently applies social security totalization agreements with the following countries.
Austria
France
Norway
Belgium Germany Panama
Bosnia- Hungary Poland
Herzegovina
Italy
Romania*
Bulgaria Libya Slovak Republic
Croatia Luxembourg Slovenia
Czech Republic
Macedonia
Sweden
Denmark
Montenegro
Switzerland
Egypt
Netherlands
United Kingdom
* This agreement covers only the avoidance of taxation with respect to health insurance.
These agreements generally provide a 12-month exemption, which may be extended. Certain agreements provide an exemption for the full term of the individual’s assignment.
A totalization agreement with Turkey has been signed and ratified, but it is not yet effective.
E. Double tax relief and tax treaties
Although Serbia professes to honor the tax treaties concluded by the former Yugoslavia, the applicability of these treaties is in doubt in several instances. In the event of the inapplicability of a treaty, Serbian tax legislation provides for the unilateral avoidance of double taxation through tax credits.
The Republic of Serbia, as the legal successor of the Union of Serbia and Montenegro, applies treaties with the following countries that were entered into by the former Yugoslavia and the former Union of Serbia and Montenegro.
Albania
France (a)
Netherlands
Austria (b)
Germany
Norway
Azerbaijan (b)
Greece (b)
Pakistan (a)(b)
Belarus
Hungary
Poland
Belgium
India
Qatar (a)(b)
Bosnia
Ireland (a)(b)
Romania
Herzegovina
Italy
Russian Federation
Bulgaria
Korea (North)
Slovak Republic
China
Kuwait
Slovenia
Croatia
Latvia
Spain (b)
Cyprus
Libya (a)(b)
Sri Lanka
Czech Republic
Lithuania
Sweden
Denmark
Macedonia
Switzerland
Egypt (a)
Malaysia (a)
Turkey
Estonia (a)
Malta (a)(b)
Ukraine
Finland
Moldova
United Kingdom (a)
(a) These treaties cover the avoidance of double taxation on income only.
(b) This treaty is effective from 1 January 2011.
To learn more about the history, culture, economy and other information about the Republic of Serbia
We have been preparing US income tax returns for US Citizens and permanent residents living in the Republic of Serbia for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in the Republic of Serbia and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in the Republic of Serbia.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email