Serbia adopts amendments to VAT Law

On December 28th, 2016, the Serbian Parliament adopted the Law on Amendments to the Law on VAT (Official Gazette of RS, No. 108/2016). The Law came into force on January 1st, 2017, and the greatest impact of this law will be felt by companies trading across borders.

The most significant change is the amendment of the criteria for determining the supply of services, as result of further harmonization to EU regulations and the avoidance of double taxation or non-taxation of certain services between resident and non-resident legal entities. Essentially, with the changes, the rules will differ depending on whether the service is provided to VAT payers or to entities which are not VAT payers and this provision will be applied as of April 1st, 2017.

Another very important change is the postponement of the obligation to submit overviews of calculation along with VAT tax return until January 1st, 2018. This has been deemed to be the most optimal solution, considering that the solution offered by the new Rulebook (Official Gazette of RS, No. 80/2016) caused a stormy reaction from the professionals due to the overwhelming reporting requirements.

The Law also amended provisions related to the determination of the tax debtor for turnover carried out by foreign entities, and their obligation to determine the VAT representative and register in the VAT system. The new provisions stipulate that the tax debtor with obligation to calculate VAT for such supply is the recipient of goods and services provided in Serbia by a foreign entity which is not registered for VAT.

If a foreign entity is performing taxable supply of goods and services in Serbia, it must appoint tax representative and register in the VAT system, irrespective of the amount of turnover. This obligation is waived if the turnover is performed exclusively to VAT taxpayers, public administration entities, or entities that provide services of passenger transport by bus.

The implementation of the provisions on representatives and registration for VAT for foreigners is now supported with amendment of the Law on Tax Procedure and Tax Administration, which provides for penalties ranging from 100,000 to 2,000,000 RSD for non-compliance.

The definition of permanent establishment, in sense of the Law on VAT, is specified as being any organizational unit of a legal entity which can perform commercial activity, meaning that the foreign entity and its permanent establishment may be treated as two separate tax payers.

There has also been a change regarding the requirements for deducting input tax, in the sense that the recipient does not need to have an invoice to exercise the right to deduct input tax in the following cases: supply of goods and services in the construction industry, supply of electricity and natural gas through networks for further selling, supply of secondary raw materials and related services, and supply of buildings.

Finally, the time of supply of electricity, natural gas, and energy for heating through networks to other entities for further selling is determined to be the date of the reading / measurement for calculation purposes, and the application of a special rate of 10% for firewood is extended to wood briquettes, pellets, and other similar products from biomass.

Aleksandra Rafailovic,
Senior Tax Advisor
T: +381 11 3241 484