Treaties with Luxembourg and the Republic of Korea Ratified

Serbian Parliament ratified the double tax treaty with Luxembourg which was discussed in our recently published tax alert. If Luxembourg follow suit and ratifies the treaty this year it is likely that the treaty will be applicable from 1 January 2017.Parliament also ratified the double tax treaty with the Republic of Korea, signed in January this year. The treaty is based on the standard OECD Model Tax Convention. Withholding tax rates applicable under the treaty are as follows:

• dividends: 5% or 10% depending on the recipient's share in the company paying the dividend (a 25% shareholding threshold);
• interest: 10%; and
• royalties: 5% or 10%, depending on the type of IP right.

The treaty will come into force after Serbia and the Republic of Korea exchange ratification instruments. The provisions of the treaty will take effect from 1 January of the calendar year following the year in which the treaty came into force.

Further Amendments to the Law on Tax Procedures and Tax Administration

Following amendments in December 2015, the Law on Tax Procedures and Tax Administration was amended again on 25 February. The amendments are effective as of 4 March.The conditions for a delay in the payment of taxes are now less restrictive. Also, the period of delayed payment of taxes has been extended to a maximal of 60 monthly installments (rather than 24 monthly installments as was previously the case).Collaterals for approval of payment of tax debt in installments will now be required if an amount of tax debt is higher than RSD 1,500,000 for legal entities and entrepreneurs, and RSD 200,000 for individuals.Additionally, a taxpayer that settles his/her tax duties regularly during the period of delayed payment is entitled to the write-off of interest calculated on the delayed debt.Under the amendments, the statute of limitations is no longer applicable for the payment of social security contributions.The Tax Administration may withdraw a taxpayer's tax identification number (TIN) if the taxpayer's bank account is blocked for more than one year on the basis of a resolution on enforcement collection of a tax debt.

Arm's Length Interest Rates

The Ministry of Finance issued a rulebook prescribing arm's length interest rates for 2015 and 2016. The rates are lower than the rates used in tax calculations for 2014 and will lead to a decrease in tax deductible expenses.Under the rulebook, the arm's length interest rates for loans provided to Serbian companies are as follows:

• 10.81% for short term loans in RSD;
• 9.99% for long term loans in RSD;
• 5.34% for short term loans in EUR;
• 5.07% for long term loans in EUR;
• 6.57% for long term loans in CHF;
• 3.67% for short term loans in USD; and
• 5.71% for long term loans in USD.

New Rulebooks

At the beginning of 2016, the Ministry of Finance also issued new rulebooks related to following matters:

• assigning of TIN to legal entities – the amended rulebook prescribes a new application form for registration of new legal entities allowing for VAT registration at the same time as company registration;
• tax returns for taxes levied on non-residents' capital gains, gains from leases and subleases and income generated through enforcement procedures (taxes levied by a decision of the Tax Administration);tax returns for withholding tax paid by non-residents who generate income;
• calculation of dividends paid to shareholders of a company in liquidation or bankruptcy proceedings (where the dividend represents liquidation surplus exceeding the amount of invested share capital); and
• tax returns and payments of social contributions for founders and shareholders of a company.