Israel – Serbia Tax Treaty

Business Activity in Serbia

Serbia’s skilled workforce, favorable business environment, and low operating costs make it attractive to foreign investors. The country is perceived as politically and macroeconomically stable, with improved infrastructure and elevated international business rankings. Serbia’s competitive edge lies in its skilled workforce and qualified experts, facilitating duty-free exports and serving as a regional hub for business operations. Maximum support is available to investors throughout the decision-making, preparation, and realization phases of investments.

The nation’s investment appeal is particularly evident in the most attractive sectors, such as agriculture, automotive, textile, and electronics. This solidifies Serbia’s global dominance in terms of investment and highlights the nation’s potential for continued growth in the future. Also, as a bonus, many municipalities offer designated industrial zones as an added incentive for companies aiming to streamline their operations. These zones provide benefits such as simplified land acquisition processes, strategic geographical locations, and readily available infrastructure.

Currently, fifteen of these industrial zones, including Pirot, Subotica, Zrenjanin, and Belgrade, are also licensed as free customs zones. Operating in free zones comes with special advantages, including a privileged tax regime and exemptions from VAT and customs duties on the import of materials for export production. There are no limitations on the import and export of goods within these zones, but goods transferred from the zone to the domestic market adhere to foreign goods import regulations. Employers in free zones have the option to lease business premises, production space, and warehouses under favorable conditions.

Bilateral Agreements between Israel and Serbia

• Double Taxation Agreement
• International Investment Agreement

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on 27 July 20024 and went into effect on 6 February 2006. The RPPI is an agreement between Israel and Serbia (including Montenegro) that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds. 

To read the agreement in English, click here. 

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Serbia regarding avoiding double taxation was signed on November 21, 2018, and entered force on December 31, 2019.

To read the agreement in English, click here.

Applicability of the ML

Both Serbia and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019. Serbia, as well, affixed its signature to the MLI on the 7th of June 2017, and its provisions became effective as of the 1^st of October, 2018.

Residency for Tax Purposes in Serbia

Individuals

1. Lives or has their main business and personal interests in Serbia,
2. Stays in Serbia for 183 days or more (continuously or with breaks) within a 12-month period that overlaps with the tax year, or
3. Is working abroad for Serbia, such as in a diplomatic or consular office or an international organization, during their assignment.

To learn how an individual is considered a resident of Israel, click here.

Companies

A legal entity is considered a resident of Serbia if it is either registered in Serbia or has its effective management and control located within the country.

To learn how a company is considered a resident of Israel, click here.

The Tax System in Serbia

Serbia’s tax authority is called Poreska uprava Republike Srbije (Tax Administration of the Republic of Serbia).

Income Taxation: 10% to 20%

Taxation of Companies and Branches: 15%

VAT: 20%

Capital Gains Tax: 15%

Withholding Tax

Inheritance Tax in Serbia

Inheritances in Serbia are taxed at 1.5% or 2.5%, depending on the beneficiary’s relationship to the deceased. However, no tax applies to beneficiaries who are directly related to the deceased (children or parents).

Relocation to Serbia

With one of Europe’s lowest corporate profit tax rates and a competitive Value Added Tax (VAT) structure, Serbia offers an attractive setting for international businesses seeking optimal tax efficiency. The nation’s customs-free regime and duty-free export capabilities to a diverse market, including the EU and USA, position Serbia as an advantageous jurisdiction for businesses with complex transfer pricing considerations.

Strategic industrial zones, streamlined processes, and the Supplier Development Program by the Development Agency of Serbia further underscore Serbia’s commitment to facilitating seamless business operations and compliance with transfer pricing regulations. With 65 double taxation agreements and a unique intersection of major European corridors, Serbia presents an enticing proposition for businesses aiming at a transfer pricing-friendly environment that combines fiscal benefits with strategic positioning.

Serbia has around 1,400 Jews, with a stable Jewish community and official recognition of Judaism by the government. The community is represented by the Federation of Jewish Communities of Serbia, part of the World Jewish Congress.

Real Estate Taxation in Serbia

Property Tax

In Serbia, property tax applies to all immovable property. Companies and others keeping accounting records pay a 0.4% tax rate. Those without accounting records face progressive rates from 0.4% to 2%, based on the property’s value. Land ownership rights for these taxpayers are taxed at a fixed 0.3% rate, with the taxable base usually being the market or book value of the property.

Transfer Tax

The Real Estate Transfer Tax, set at a rate of 2.5% of the property’s market value, is generally payable by the seller. However, contractual agreements may shift this obligation to the buyer.

Transfer of Funds from Israel to Serbia

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in Serbia

General Partnership (O.D): Formed by two or more legal entities or individuals who agree to conduct business under a common name. The partnership is liable for its obligations with all its assets. All partners are jointly and severally liable for the partnership’s obligations with their assets unless an alternative agreement is made with the creditor.

Limited Partnership (K.D): This type of partnership includes at least one general partner with unlimited liability and at least one limited partner whose liability is restricted to their investment. The partnership itself is responsible for all its debts with its entire assets.

Limited Liability Company D.O.O: A limited liability company is a business entity where one or more members, who can be individuals or other legal entities, hold stakes in the company’s share capital. The members are not personally responsible for the company’s debts, except in instances where the rules of limited liability are misused.

Joint Stock Company (A.D.): It is formed by one or more individuals or legal entities (shareholders), with its share capital divided into stocks. Shareholders have no personal liability for the company’s obligations, barring misuse of limited liability rules. The company itself is fully liable for its obligations with all its assets.

Branches of the foreign companies: A branch, operating as a part of the company without being a separate legal entity, has its business location and authorized representatives. It conducts business with third parties in the name and on behalf of the company.

Incentive Laws in Serbia

Foreign Tax Credit

Serbian entities can claim a tax credit for withholding tax (WHT) on foreign dividends and corporate income tax (CIT) paid abroad if they own at least 10% of a subsidiary for one year. For smaller ownership stakes, the tax credit is limited to Serbia’s tax on 40% of the gross income. Unused credits can be carried forward for five years. Taxpayers can also claim credits for WHT on interest and authorship fees, but carryforward is not allowed.

Tax Holiday

Companies investing at least RSD 1 billion in property, plant, and equipment and hiring 100+ permanent employees qualify for a ten-year tax holiday proportional to the investment. Employee numbers must be maintained throughout the holiday.

R&D Double Deduction

R&D expenses within Serbia can be double deducted for corporate income tax purposes, excluding costs in extractive industries.

Royalty Income Relief

80% of qualifying royalty income can be excluded from the tax base after deducting related R&D costs.

Innovative Startups Investment Credit

Taxpayers investing in innovative startups are eligible for a 30% tax credit, capped at RSD 100 million.

Serbia Double Tax Treaties