Israel – Serbia Tax Treaty

Business activity in Serbia

Serbia’s skilled workforce, favourable business environment, and low operating costs make it attractive for 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 favourable conditions.

Bilateral agreements between Serbia and Israel

Several agreements were signed between Israel and Serbia:

1. Agreement between Serbia and Montenegro and the State of Israel on the mutual promotion and protection of investments.
2. Agreement between the Government of the Republic of Serbia and the Government of the State of Israel for the Avoidance of Double Taxation and Prevention of Tax Evasion with respect to Taxes on Income.

Reciprocal Promotion and Protection of Investments

The Agreement of Reciprocal Promotion and Protection of Investments was signed between Israel and Serbia (including Montenegro) on July 27, 2004, and it became effective on February 6, 2006.

This agreement requires both parties to engage and make it easier for investors from the other party to invest within their respective territories. Such investments are entitled to fair and equal treatment, complete protection, and security. Neither party is allowed to unreasonably hinder the management, maintenance, use, enjoyment, or disposal of investments made by investors from the other party within their territories.

To read the agreement in English, please click here.

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Serbia regarding the avoidance of double taxation was signed in November 2018 and entered into force on October 15, 2019.

To read the agreement in English click here.

Residency for tax purposes in Serbia

Residence of an individual

Tax residents in Serbia are required to pay taxes on their income earned worldwide, whereas non-residents are only obligated to pay taxes on the income earned within Serbia.

For an individual to be considered as a tax resident, he or she must fulfil one of the following criteria: permanently reside in Serbia, have their usual place of residence in the country (staying for at least 183 days in 12 months), be sent abroad to work for a Serbian resident or international organization, or if their centre of vital interests is in Serbia.

In Serbia, married couples are evaluated separately for tax purposes, and there is no option for group taxation for family units.

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

Residency of a company

Tax residency is established either by having a registered business or permanent establishment in Serbia, or through the management and control of the company within Serbia’s borders.

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

The tax system in Serbia

The Serbia’s Tax Authority is called Tax Administration and it is part of the Ministry of Finance.

Income taxation:10 – 20%

Taxation of companies and branches:15%

VAT: 20%

Capital gains tax: 15%

Withholding Tax

Inheritance tax and estate tax in Serbia

Inheritance tax in our jurisdiction is calculated on inheritances and gifts. It follows a progressive rate structure, with rates ranging from 3% for taxpayers in the second order of succession to 5% for taxpayers in the third and subsequent orders of succession. In addition to inheritance tax, a transfer tax ranging from 0.3% to 5% applies to the transfer of immovable property, including real estate.

There are several exemptions under the Property Tax Law for inheritance and gift tax. Immediate family members, such as spouses and parents, are typically exempt, especially in cases where the heir has resided with the deceased in the inherited dwelling or farming property. Legal entities receiving property for specific charitable purposes also qualify for exemptions. Certain special motor vehicles, including those for patient transport, driving schools, and taxi services, as well as second-hand vehicles and vessels, may be exempt under specific conditions.

It’s worth noting that the Republic of Serbia enjoys exemption as a legal heir, and the law includes specific provisions for the transfer of shares in privatization processes, as well as for settling commitments related to foreign exchange savings and economic development bonds.

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.

Real estate taxation in Serbia

In Serbia, the property tax rates are specifically structured to cater to different categories of taxpayers. For taxpayers who maintain books, the property tax rate is set at a flat 0.40% of the property value. However, for taxpayers who do not keep books, the rates are structured as below based on the property’s value in dinars (RSD):

1. For a property with a tax base of up to RSD 6,000,000, the tax rate is 0.40%.
2. For properties with a value between RSD 6,000,000 and RSD 15,000,000, the tax is RSD 24,000 plus 0.80% of the amount exceeding RSD 6,000,000.
3. For properties valued between RSD 15,000,000 and RSD 30,000,000, the tax is RSD 96,000 plus 1.50% of the amount exceeding RSD 15,000,000.
4. For properties valued over RSD 30,000,000, the tax calculation includes a base amount of RSD 321,000 plus 2.00% of the amount exceeding RSD 30,000,000.

Property tax exemptions cover state-owned properties used by government agencies, foreign diplomatic and consular missions (based on reciprocity), religious properties for rites, cultural or historical monuments, and real estate for educational, social welfare, or similar public purposes. Additionally, tax relief is granted for agricultural and forest land under restoration for five years. These exemptions aim to support public services, cultural heritage, religious activities, and land restoration efforts.

Transfer of funds from Israel to Serbia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduces or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of business entities in Serbia

1. 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 personal assets, unless an alternative agreement is made with the creditor.
2. 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.
3. 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.
4. 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.
5. Branches of the foreign companies – A branch, operating as a part of the company without being a separate legal entity, has its own business location and authorized representatives. It conducts business with third parties in the name and on behalf of the company.

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

To read about the necessary documentation that should be provided regarding each type of business activity that is to opened, please click here.

Incentive laws in Serbia

Serbia offers a comprehensive tax incentive designed to reduce labor costs and promote employment. This multifaceted incentive varies from 65% to 75% reduction in labor costs, depending on the number of new jobs created. Small and medium-sized enterprises (SMEs) generating at least two jobs benefit from an additional 75% reduction, targeting particularly those hiring individuals unemployed for six months or more.

Moreover, the incentive includes a 36-month tax exemption on salaries and mandatory contributions for owners of innovative companies established before December 31, 2021, with the owner’s salary capped at 150,000 RSD. For larger investments, companies investing over 1 billion RSD and creating over 100 jobs can enjoy a tax holiday for up to ten years. Non-innovative companies investing in innovative projects are eligible for a 30% corporate income tax deduction, extendable over five years. The incentive also allows for the transfer of tax losses to the profit account for up to five years, aiding in strategic tax planning. This singular incentive package is aimed at stimulating employment, innovation, and investment in the Serbian economy.

Serbia also provides financial support for investment projects in the production sector and shared services centers. This includes backing for software development projects that contribute to product improvement, production processes, or shared services centers. Funding is also available for investments in the food industry and spa hotel accommodation.

Serbia Double Tax Treaties