Category: Serbia

Serbia’s JPM Jankovic, Popovic, Mitic has added a new practice to its offering – the first Corporate Criminal practice in Serbia. We reached out to JPM Partner Jelena Milinovic to learn more.

CEELM: Congratulations on the launch of this new practice. Can you walk us through the firm’s decision to do so, now?

Jelena: The practice itself was not created based on a decision we made intentionally, beforehand, but was in fact the other way around, so to speak.

The legal services we performed and the advice we provided to our clients and the types of cases in which we represented them – coupled with an ever-increasing amount of work – created a need for us, within JPM, to readjust our approach to this area of practice. Also, the increase of work demonstrated the need for such specialized practices on the legal market in Serbia. At JPM we are in a unique position to provide these services in the best and most efficient way possible, with expert knowledge, experience, and staff.

In addition, over the past few years we started noticing two things: The first was that the situation on the market of corporate legal services in Serbia related to Criminal Law was such that, in some cases, law firms have had to team-up with traditional criminal lawyers or offices that, in most cases, deal almost exclusively with Criminal Law. Some corporate law firms even made permanent cooperation arrangements with law firms specializing in Criminal Law, so that when such cases appeared, they could outsource this type of work to external associates.

The other thing we noticed was that, for several years now, foreign companies operating in Serbia have brought with them a certain set of standards that they apply to comply with Western laws and regulations. This approach seeped over to domestic/local companies and influenced the way they comply with local Serbian rules and regulations – but it also revealed the need for foreign companies to adapt their operations to Serbia’s legal framework as well.

All of this inevitably meant that state authorities – primarily public prosecutors and courts applying penal regulations – also had to make an adjustment. The sheer number of cases that could be broadly marked as corporate crimes (both misdemeanors and economic offences) increased for them as well.

All of this eventually led us to formalize our approach and to form a special department within JPM specifically dedicated to this area. In forming the practice, we have kept in mind the way law firms in the West approach this area, many of whom we’ve had the pleasure of working with for a number of years.

As far as we know, in the Serbian legal market, ours is the first dedicated practice of this kind, and JPM stands as a pioneer in the area.

CEELM: Who is leading the team and how big is it?

Jelena: A team of three stands at the helm: Senior Partners and Founders Nenad Popovic and Milos Mitic and, as the formal organizational leader, me – Jelena Milinovic.

Nenad Popovic and Milos Mitic each have nearly 30 years of legal experience, with Popovic focusing on Corporate Law and M&A and Banking and Finance, and Mitic focusing on Litigation and Dispute Resolution. As for myself, I joined JPM three years ago as partner after having previously served as a judge for 16 years – ten years in Criminal Law and six years in Civil Law matters.

The way we three partners combine our knowledge and different perspectives, allowing us to look at each case in this specific legal area from a different angle, we believe, was also a strong catalyst in forming this department.

Naturally, all other members of the entire JPM team will pitch in and help as needed, depending on the case and the legal specialization that is required, such as Tax, Banking, Environmental Protection, etc. This is, and has always been, the way that JPM does business.

CEELM: What sorts of client needs will the practice be addressing?

Jelena: Broadly speaking, there are two directions of legal services that the practice should offer clients. These are criminal – i.e., punitive aspects – as a reaction, and criminal compliance, as prevention.

The reactive end of the spectrum – the criminal and/or punitive law – includes two aspects as well. The first covers all that one could label as “defense” in punitive proceedings, from the earliest stages until the end, not only with respect to physical persons (most often the management of the company that may come under persecution for both intentional action and neglect), but also to companies themselves. Legal entities increasingly face the possibility of criminal legal responsibility. Indeed, in our experience, public prosecutors are attempting to apply the provisions of the Law on Criminal Responsibility of Legal Entities, which has been in effect for ten years now, increasingly stringently

The other aspect is related to all of the things that follow companies or individuals who find themselves being damaged by crimes. The scope of work in this begins with analyzing data and documentation regarding the identification of the criminal offense, misdemeanor, or economic offense committed at the expense of the company; identifying the culprit if possible; and representing the company in all proceedings that may follow.

Criminal compliance, as you know, requires first an analysis of company data and documentation to identify and assess the risks with respect to criminal law, followed by preventative counselling to minimize the risk of violations, and thus sanctions. This is done by establishing compliance structures within the company, which generally depend on the type of business activity and the model of the company’s operations. This would, strictly speaking, constitute criminal due diligence, and it also includes counselling and recommendations regarding the way a company is run to ensure that it is fully compliant, including managerial and employee education to this end.

Also, regarding criminal compliance, we think it is important to emphasize what we have already seen multiple times in our work so far. There have been a number of cases in which our clients – both companies and management – could have avoided public prosecutorial or judicial procedures had they had established a regulated criminal compliance system, or at least have engaged in prior counseling to that end before making a particular business decision or undertaking a particular business activity. We believe and hope that in the future, businesses and companies operating on the domestic market will start paying more attention to this legal area, because otherwise, due to the increasing interference of the state and its institutions in the business world, they will be forced to face all the consequences and burdens that these proceedings carry with them.

CEELM: In the past, has JPM been handling these matters through other practices or have you been referring the work to Criminal Law boutiques?

Jelena: We have done it more less the same. We have been assigning experienced professionals depending on the actual nature of the case. The teams were formed on a case-by-case basis. For example, our office was involved in several high-profile cases related to corporate criminal cases in the past years. On certain occasions, we cooperated with some criminal law boutiques, but only within a rather limited scope.

This is just a step forward in terms of institutionalizing the whole process.

CEELM: Finally, what are your personal feelings about this new adventure – about the upcoming challenges and opportunities involved in JPM’s Corporate Criminal practice?

Jelena: As we’ve already mentioned, JPM has been working this way for a while now, in this legal area, but we certainly are pleased to be able to offer a more narrowly specialized legal services practice to our clients. And to be able to do so first on the Serbian legal market!

This area of law in itself, given the complicated and serious possible consequences that not only companies but company executives personally may face in case of any transgressions and breaking of the law, brings with itself a special kind of responsibility, and we take it very seriously. But, with all our years of experience, we believe that our knowledge, dedication, and reputation will allow us to provide our clients with the best possible advice and legal assistance in all situations in which they can find themselves, in this area of the law.

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Former Karanovic & Partners lawyers Dusan Teodosijevic, Jovana Velickovic, and Vedran Ceric have launched a new dispute boutique in Serbia: TCV Legal.

Teodosijevic, who serves as Managing Partner of TCV Legal, had been with Karanovic & Partners since 2015. Velickovic started her career with JPM Jankovic Popovic Mitic in 2012 and moved to Karanovic & Partners in 2016. Ceric worked as a solo practitioner in 2010, and in 2012 he joined Raiffeisen Leasing as a Late Workout Officer. A year later he moved to Banca Intesa Beograd as a Senior Advisor in the Debt Collection Department. Just like Teodosijevic, he joined his former firm in 2015.

“We joined Karanovic & Partners in 2015 and 2016 where we created our friendship and gained the core of our professional experience,” Teodosijevic commented. “Mutual support and trust proven over the years and countless working hours have brought us together and encouraged us to make this groundbreaking move in our careers. Our goal, as a dispute resolution boutique, is to demonstrate personal commitment, hard work, expertise, and efficiency to earn and keep [the] trust of our clients. These are the core principles we observe in this sensitive and challenging practice area.”

The team currently consists solely of the three founding partners, although Teodosijevic says they are already looking to hire one junior and one senior associate.

The Milosevic Law Firm has advised Milos and Ruzica Krdzic, owners of Maxim Media Plus, on the sale of their shares in several radio stations in Serbia to Global Media Technology.

According to the Milosevic Law Firm, the transaction included the sale of Karolina, Jat, TDI Radio, HIT FM, and a few local radio stations. According to the firm, the stations have a daily audience of around 2.7 million people.

Maxim Media Plus provides communications, media, and radio broadcast services provider in Serbia and Montenegro.

The Milosevic Law Firm’s team included Partner Vladimir Milosevic, Senior Counsel Milinko Mijatovic, and Counsel Srdjan Vlatkovic.

 

Last month, one of the world’s largest messaging apps, WhatsApp, began notifying its users of the new Privacy Policy that would take effect as of 8 February 2021. The users were notified that they would no longer be able to use the app if they do not accept the new Privacy Policy, as of the effective date.

This has since sparked a public outcry of the users and the privacy rights advocates, as there were legitimate concerns over what this new Privacy Policy could mean for data privacy and the future of using this app.

What’s New?

The biggest change in the Privacy Policy and the one that produced the most backlash was that now, WhatsApp could share the user’s data with its Facebook family of companies, including Instagram and Messenger. A similar policy was introduced in 2016. However, users, at that time, were able to opt-out of this feature freely. The new changes require users to accept the new Privacy Policy as a precondition for using the app.

Another reason for concern was the lack of transparency surrounding the changes that were introduced. WhatsApp collects data such as user phone number, language, browser information, time zone, IP address, even phone’s battery level, internet service provider, or signal strength. At the time when the changes to the Privacy Policy were announced, it was unclear which data will be shared and for what reason. Adding to the confusion was the specific language used that was riddled with legal jargon (so-called “legalese”), not typically understandable to an average user.

However, messages or any other form of communication between users is still end-to-end encrypted, which means that not even WhatsApp can access such information. The end-to-end encryption that WhatsApp uses was praised by independent privacy experts, so the users may rest assured that their communications will remain private.

Nonetheless, other mentioned data will be shared with not only the Facebook family of companies but also with third parties where applicable.

Delays due to Backlash

In response to the backlash the app was facing, it was announced that the effective date of the new Privacy Policy shall be postponed until 15 May 2021, as there was a lot of confusion surrounding its application. After privacy rights advocates raised concerns over this new policy, many users began to turn to other competitor apps, such as Signal, which is known for valuing privacy and personal data protection of its users.

However, WhatsApp decided to delay the effective date of the new Privacy Policy as it will allow for a proper explanation of the changes and transparency with regard to its provisions.

WhatsApp has since published a blog post, stating the following: “We’ve heard from so many people how much confusion there is around about our recent update. There has been a lot of misinformation causing concern and we want to help everyone to understand our principles and the facts.”

It remains to be seen if any further clarifications will be provided in the meantime. Nonetheless, both Facebook, as a parent company, and WhatsApp have stated their commitment to protecting their users’ personal data and will place privacy at the forefront of their business going forward.

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

By Katarina Zivkovic, Senior Associate, and Dragan Martin, Junior Associate, Samardzic, Oreski & Grbovic

Samardzic, Oreski & Grbovic has helped Delta Motors and Delta Automoto ensure full compliance with the Serbian Data Protection Act as well as the General Data Protection Regulation of the EU.

SOG’s team included Partner Milos Velimirovic and Senior Associate Katarina Zivkovic.

During the course of last year and with the aim to mitigate the expected difficult economic situation in Serbia caused by COVID – 19 pandemic, the Government of the Republic of Serbia (the “Government”) issued two by-laws – Regulation on Fiscal Reliefs and Direct Payments to Commercial Subjects in Private Sector and Pecuniary Aid to the Citizens in order to Mitigate the Economic Consequences caused by COVID – 19  and accompanying Conclusion of the Government (jointly referred to as the “Relief Regulations”), providing economic aid to the private commercial sector in the form of fiscal reliefs and direct payments.

Also, the Government issued the new Regulation on Procedure and Method for Delaying the Payment of Owed Taxes and Contributions in order to Mitigate Economic Consequences caused by COVID – 19  (the “Regulation on Delayed Payments”), defining how are the delayed payments of taxes and contributions going to be repaid by the entities which opted to use this right in accordance with Relief Regulations.

The deadlines for repayment of delayed taxes and contributions prescribed under the Regulation on Delayed Payments are different from the general deadlines for payment of appropriate taxes and contributions – the same is to be repaid in 24 equal monthly installments, starting from 10^th February 2021, i.e. in regard to capital gain tax and/or tax for self-employment income, starting from 10^th of the month following the month in which the appropriate final tax application is submitted.

Having in mind that the deadlines for repayment are, in fact, additional deadlines for payment of subject taxes and contributions, the delay with payment of any installment would result in loss of the right to use delayed payment benefits. This means that companies and entrepreneurs that would fail to settle any of the installments on time would definitely lose the right to repay delayed taxes and contributions through installments and, all of the unpaid amounts that were initially delayed would become due on the day when the subject at hand lost this right.

On the other hand, the entities which opted to use the right to delayed payment are not obliged to repay the owed amounts of taxes and contributions through 24 installments, i.e. they are free to repay the owed amounts at any earlier date, provided that the same are repaid in full.

The Regulation on Delayed Payments further prescribes other conditions for delayed payment through (24) installments, such as:

• what are the minimum amounts of installments (separately for taxes and contributions for salaries, salary compensations, and personal salaries; for capital gain tax; and of taxes and contributions for self-employment income);
• what conditions do commercial subjects have to fulfill in order to exercise their right to delayed payment of capital gain tax through installments, i.e. delayed payment of taxes and contributions for self-employment income, and that is to submit the appropriate final tax application within prescribed deadlines;
• who is considered the taxpayer of delayed taxes and contributions in case of status changes, or initiated bankruptcy or liquidation proceedings; and other.

By Nikola Djordjevic, Partner, and Marija Vukcevic, Senior Associate, JPM Jankovic Popovic Mitic

The National Assembly of the Republic of Serbia adopted a set of amendments to the tax laws and laws on excises, which were published in the Official Gazette of RS no. 153/2020 of December 21, 2020.

I  LAW ON CITIZENS’ INCOME TAX

Increase of untaxable amount

The first significant novelty introduced by the Law amending the Law on Citizens’ Income Tax refers to the increase of untaxable amount. Namely, the tax base for salaries is comprised of salary under this law, reduced by the amount of RSD 18,300.00 instead of previous untaxable amount of RSD 16,300.00.

The first adjustment of untaxable amount of salary of RSD 18,300 by annual consumer price index will be enforced starting from 2022.

Extension of deadline for tax refund

Deadline was extended for employers (legal entity, entrepreneur, flat-rate entrepreneur or farming entrepreneur who employs a new person) to exercise their right to refund of part of salary tax paid for newly-employed persons, namely for salaries paid until  December 31, 2021, inclusive, instead of 2020 as the law previously prescribed.

The same applies to employers – legal entities that, in terms of the accounting law, fall into categories of micro and small legal entities, as well as to entrepreneurs, flat-rate entrepreneurs and farming entrepreneurs who start employment with minimum two new persons. Namely, such entities will be entitled to refund of 75% of taxes paid for salaries of newly-employed persons paid until December 31, 2021, inclusive.

Electronic notice on payment of personal salary

Other significant novelties refer to entrepreneurs and farming entrepreneurs paying personal salary. They shall be obliged to submit the notice through Tax Administration Portal on their decision to pay personal salary or to stop paying personal salary.

For persons registered in the APR, the notice on decision to pay personal salary shall be supplied through Tax Administration Portal within five days after the day of registration.

Alignment with other laws

For the purpose of aligning with the laws regulating open investment funds i.e. alternative investment funds, the part of the law regulating income from capital stipulates that such income shall also be deemed to include the income from ownership of an investment unit of an alternative investment fund, except for the fee for transfer of such investment unit.

For the purpose of aligning with the Law on Digital Assets, purchase price for transfer of such digital assets has been defined, as well as possible 50% tax relief for capital income for the payer receiving the funds by sale of digital assets.

Please be reminded that digital i.e. virtual assets mean digital recording of value that can be digitally purchased, sold, exchanged and transferred and that can be used as a means of exchange or for the purpose of investment; digital assets do not include digital recordings of currencies that are legal means of payment and other financial assets regulated by other laws, unless otherwise stipulated by law.

II  LAW ON VALUE ADDED TAX

Reasons for adoption of amendments to the law

For the purpose of alignment with the laws regulating open investment funds i.e. alternative investment funds, it is stipulated that open i.e. alternative investment funds without legal person capacity shall be considered taxpayers for the purpose of trade taxation by value added tax.

Second-hand goods, works of art, collector goods and antiques

Key novelties refer to the issuance of e-receipts and the decisions referring to special procedure for taxation of second-hand goods, works of art, collector goods and antiques in terms of enabling VAT payers trading such goods (trade in second-hand goods, works of art, collector goods and antiques) to opt during each transaction whether they would apply general or specific taxation.

Trade in goods and services in construction industry

For the purpose of simplifying the rules referring to definition of tax debtor for trade in goods and services in construction industry, which VAT payer has towards other VAT payer i.e. Republic, republic authorities, territorial autonomy authorities, local self-government and legal entities established by law i.e. act of republic authorities, territorial autonomy authorities, local self-government for the purpose of performing public administration or local self-government activities, it is stipulated that trade in goods and services in construction industry for the purpose of establishing tax debtor shall be considered trade in the amount exceeding RSD 500,000, excluding VAT.

Possibility to correct falsely calculated VAT

Possibility to correct falsely calculated VAT in excessive amount has been specified and it is stipulated that a taxpayer who expressed an excessive amount of VAT in statements shall be entitled to correct such amount in the following situations:

• If he issued a new receipt with corrected VAT amount,
• If he issued a receipt without VAT,
• If he reversed the receipt when the receipt should not have been issued.

In all these situations, it is necessary to have a document of receipt receiver – VAT payer or a person entitled to VAT refund – indicating that the falsely expressed VAT was not used as previous tax and that such VAT amount was not subject to request for VAT refund (when the receipt was issued to VAT payer or person entitled to VAT refund).

III  LAW ON CORPORATE PROFIT TAX

Alignment with other laws

The Law amending the Law on Corporate Profit Tax stipulates that capital profit shall be realised by sale or other transfer of investment fund unit with compensation, as well as of digital assets, unless the taxpayer has a licence for provision of services relating to digital assets under the law regulating digital assets, and which provided such digital assets exclusively for further sale within the scope of activities related to digital assets under that law.

Precise establishment of purchase price for real estate and digital assets

It is stipulated that purchase price for real estate acquired before January 1, 2004 shall be deemed as net book value established on December 31, 2003 in accordance with accounting regulations that applied to financial statements for 2003.

Novelty is that the establishment of purchase price for digital assets and purchase price of digital assets acquired by so-called “digital assets mining” has now been prescribed.

The provisions of this law apply to the establishment, calculation and payment of tax base for the tax period starting in 2021.

IV  LAW ON EXCISE

The main reason for adoption of the Law amending the Law on Excise is the need for further harmonisation of excise policy with the European Union standards, so that the minimum level of EU excise taxation would be achieved in the proposed time period (90 EUR for 1000 cigarettes). It remains to be seen whether the new solutions will be effective.

The law stipulates a plan for gradual increase of excise for cigarettes in the period 2021-2025, through increase of specific component of excise every six months by RSD 1.50/pack, whereas ad valorem rate – proportionate component of excise would remain unchanged (33%) regardless of the period of application.

Also, the base for calculating the excise for e-cigarette liquid has remained the same, whereas the amount of excise would be increased by RSD 1.00/ml each year in the next mid-term period (2021-2025).

The calendar of excise for non-combusted tobacco has also been established for the period 2021-2025; by 2025, from current 40% it should reach 100% of minimum excise for 1,000 pieces of cigarettes as established for the category of average weighed retail price for cigarettes. The excise currently applied is still one of the lowest in Europe and the world, hence the increase of this excise is aimed at reaching the EU average, which means that this excise should be 30% of excise for cigarettes.

Novelties in the Law on Excise also include the cases where refund of the paid excise can be achieved (when a person exports excise product purchased in the country).

It is noteworthy that the first subsequent harmonisation of dinar amounts of excise for cigarettes and e-cigarette liquids will be enforced starting from January 2022.

The beginning of law application

The provisions of all of the abovementioned laws will start to apply from January 1, 2021, except for the provisions in the part relating to digital assets, which will start to apply from the day of entry into force of the law regulating digital assets i.e. from December 29, 2020 (whereas the Law on Digital Assets shall start to apply upon the expiry of six months after its entry into force).

This article is to be considered as exclusively informative, with no intention to provide legal advice.
If you should need additional information, please contact us directly.

By Ivana Ruzicic, Partner, and Natalija Dukic, Associate, PR Legal

Karanovic & Partners, working with global lead counsel K&L Gates, has advised analytics company SAS Institute Inc on the acquisition of the Boemska technology company.

According to Karanovic & Partners, “Boemska is a privately held technology company specializing in low-code/no-code application deployment and analytic workload management for the SAS platform.”

The Karanovic & Partners team included Partner Ivan Nonkovic and Associate Marko Culafic.

JPM Partner Jelena Stankovic Lukic on full harmonization with international standards in this area, the obligations of providers of services, and the supervision on providers.

The reason for the adoption of the Law on Amendments to the Law on Prevention of Money Laundering and Terrorism Financing is harmonization with the new Law on digital assets, which introduces new legal institutes in the Serbian legal framework. The amendments of the Law on the Prevention of Money Laundering and the Financing of Terrorism entered into force on 29 December 2020 and shall become applicable as of 29 June 2021. By-laws should be harmonized with the new provisions within three months.

The reasons for the adoption of the Law on Amendments to the Law on Prevention of Money Laundering and Terrorist Financing are harmonization with the new Law on digital assets, which in detail regulates the issuance and trading with digital assets, services thereof and companies that can provide such services. At the same time, full harmonization with international standards in this area is defined by the FATF (Financial Action Task Force) recommendations (Recommendation 15), and the provisions of the Fifth Directive on the Prevention of Money Laundering and Terrorist Financing were also taken into account.

The Law on digital assets, applicable as of 29 June 2021, introduced new legal institutes in the Serbian legal framework such as digital assets, virtual currency, digital tokens, the offering of digital assets, services related to digital assets, etc. By the latest amendments of the AML/CFT Law, the provisions regulating actions and measures for the prevention and detection of money laundering and terrorism financing have been supplemented to include digital assets and transactions with the digital assets.

The previous definition of virtual currency has been amended in a way that terms digital assets, virtual currency, digital token, transactions with digital assets, the offering of digital assets, issuer, and address of digital assets have the meaning defined in the Law on digital assets.

The obligations of providers of services related to digital assets are regulated primarily in terms of the obligation to obtain data on the participants in the transaction, on the initiator of the transaction, or the user of the transaction. By checking the accuracy and truthfulness of the collected data and the identity of the participants in the transaction, the transaction can be further implemented.

If it is determined that accurate data are not disclosed, the service provider will proceed in accordance with the procedure for dealing with such situations. Based on a risk assessment, it would be the obligation of the service provider to refuse or suspend the execution of the transaction.

The provision of services related to digital assets that directly or indirectly allow the concealment of the identity of the client, as well as transactions with such digital assets, is prohibited.

In case that the risk analysis estimates a low risk of money laundering or terrorist financing, the provider is not obliged to establish a business relationship with the client and/or perform actions and measures of customer due diligence actions and measures in connection with that business relationship, subject to prior notification to the supervisory authority and subject to fulfillment of preconditions regarding the value of the transaction, tested technical solution enabling delivery of customer personal identity document and the possibility of identifying suspicious transactions.

In addition to data on participants in the transaction, the obligation also includes obtaining the addresses of digital assets that the party uses to execute the transaction with digital assets.

The supervision on providers of services related to digital assets is divided between the National Bank of Serbia (for services related to virtual currencies) and the Securities Commission (for services related to digital tokens).

By Jelena Stankovic Lukic, Partner, JPM Jankovic Popovic Mitic

At one of the last sessions, the Serbian Parliament adopted amendments to the tax laws governing the taxation of companies and natural persons, as well as general tax procedures. The main driver for the reform was the introduction of the taxation regime for digital assets and open-end and alternative investment funds.

Also, as part of a long-lasting initiative, the Draft Law on Administrative Procedures Register has been published with the aim to establish a public electronic database for all administrative procedures led by authorities and it is expected to be adopted soon.

Tax treatment of Digital Assets

The newly adopted Law on Digital Assets raised numerous questions about the tax treatment related to their holding and trading. As a response, key stakeholders led by the Ministry of Finance proposed amendments to the series of domestic tax laws, which were recently adopted by the Serbian Parliament.

The most important amendments relate to the following:

• Value Added Tax Law (‘VAT Law’) – Transfer or conversion of cryptocurrency for cash will be VAT exempt without the right for deduction of input VAT.
• Corporate Income Tax Law (‘CIT Law’) – Sale or other transfer against consideration of digital assets by legal companies will be subject to capital gains tax at the rate of 15%. However, there is a tax incentive if the gains are invested into the share capital of a Serbian legal entity or investment fund.
• Personal Income Tax Law (‘PIT Law’) – Similar to the CIT Law, sale or other transfer against consideration of digital assets by individual taxpayers will be subject to capital gains tax at the rate of 15% on the positive difference between contracted price, i.e. market value and acquisition value of the digital asset. Generally, acquisition value is documented actually paid price. In the case of digital assets acquired through ‘mining’, or from the employer through a share plan, acquisition value would be determined under specific rules. PIT Law prescribes tax exemption for 50% of realised capital gains gain is invested into the share capital of a Serbian legal entity or investment fund.
• Law on Property Taxes (‘PT Law’) – Digital assets will be subject to inheritance and gift tax at the rate of 2.5%, whereby the tax base is the market value of digital assets at the moment they are inherited/gifted. Property tax and property transfer tax do not apply to digital assets.

These amendments will be applicable from 1 July 2021 when Law on Digital Assets will start to apply.

Tax Treatment of Investment Funds

Amendments to the Law on Tax Procedure and Tax Administration (“LTPTA”) introduce open-end and alternative investment funds, which do not have the status of a legal entity and which are registered in the appropriate register (‘Investment Funds’) to the tax system in Serbia. Investment Funds are considered taxpayers, and their tax obligations are settled from its assets by the Investment Fund management company. As taxpayers, Investments Funds have all the rights and obligations in line with the LTPTA (need to obtain the tax identification number, submit tax returns, pay taxes, have a right to requests a deferral of tax payment, etc.).

LTPTA amendments provided a general framework for the taxation of Investment Funds and were followed with changes to major tax laws:

• CIT Law now prescribes that gains realised on the sale or other transfers against consideration of investment unit are subject to CIT on capital gains, regardless if it is an open-end or alternative fund.
• the net asset value of the Investment Fund upon its dissolution, which is distributed to its members in proportion to their investment units, should be considered a capital gain and included in the tax base in the amount of 50%.
• Income generated by the non-resident based on membership in an alternative investment fund that does not have the status of a legal entity, should be is considered a dividend, and taxed on a withholding basis (unless otherwise prescribed by a relevant double taxation treaty).
• PIT Law now specifies that income from the investment unit of an open-end investment fund, as well as income generated on the basis of ownership over investment unit in an alternative investment fund, is considered capital income.
• Also, a positive difference between net assets value and acquisition value of investment unit of an open-end or alternative Investment Fund which is being distributed to Investment Fund’s members upon its dissolution is treated as a dividend and taxed accordingly.
• Similar to CIT Law, PIT Law now prescribes that gains realised on the sale or other transfers against consideration of investment units of Investment Funds are subject to PIT on capital gains. However, a taxpayer who makes an investment in an alternative investment fund, i.e. purchases an investment unit of an alternative investment fund during the year, may be granted a tax credit (in certain %) for the annual personal income tax.
• VAT Law and PT Law introduced Investment Funds as taxpayers in line with general conditions prescribed by these laws.

Most amendments apply as of 1 January 2021.

Other important amendments

Apart the amendments aiming to regulate the taxation of digital assets and transactions involving investment funds, other significant changes are as follows:

1. LTPTA

• Introduction of electronic submission of the request for tax refund and deferral of tax payment through the e-Porezi platform as of 1 January 2021.
• Possibility to settle tax liability exceeding RSD 50 million by transferring the property to the tax authorities instead of making a payment in exceptional cases.
• Introduction of specific tax criminal act of VAT evasion which may be committed if taxpayer deliberately deducted input VAT or obtained VAT refund contrary to the law if VAT amount is RSD 1 million or more in the twelve-month period.

2. PIT Law

• The non-taxable amount of salary is increased to RSD 18,300 per month.
• The deadline for tax incentive (reimbursement of 65% to 75% of the salary tax paid for the earnings of newly employed persons), is extended until 31 December 2021.
• The exemption is introduced for income from the special games of chance, as well as from special games of chance when they are organized through the means of electronic communication, in line with the Law on Games of Chance.
• It is specified that a person assigned by a foreign employer to work in Serbia with a local employer is obliged to pay salary tax on salary and other income he/she receives from the foreign employer, through self-taxation. Only in the case when the salary tax is not previously paid through self-taxation, a local employer that pays the expenses of the assigned employee’s salary to the foreign employer is obliged to calculate and pay the salary tax on a withholding basis.
• Tax procedures regarding withholding salary tax on assigned employee’s income and those regarding tax on income from games of chance, that have not been completed by the entry into force of the PIT amendments, will be regulated by the amended PIT Law.

3. VAT Law

• Possibility for VAT payers to use electronic invoice if the recipient agrees to accept the invoice in this form. Exceptionally, where the electronic invoice is mandated by the law, such acceptance will not be required.
• VAT payers engaged in the trade of second-hand goods, works of art, collectors’ goods and antiques are enabled to opt whether to apply the general or special taxation procedure, for each specific transaction.
• For the taxpayers who achieved a total turnover exceeding the RSD 8 million thresholds in the previous twelve month period, but failed to submit the VAT registration application within the prescribed deadline, such registration application will be submitted by the competent tax administration ex officio, and the taxpayer will be entitled to deduct VAT as of the registration date.
• Tax exemption is prescribed for the sale of goods that are in the process of inward processing for which the taxpayer-acquirer would be entitled to deduct previous tax if he procured those goods with calculated VAT.
• Transfer of movables performed with the transfer of real estate is not considered as an ancillary transaction while renting or leasing of real estate is not considered as the ancillary provision of services.

4. PT Law

• Inheritance, gift and property transfer tax will be transferred under the competence of local tax administrations as of 1 January 2022.

Draft of the Law on the Register of Administrative Procedures

The main purpose of the new Law on the Register of Administrative Procedures (“Law on Administrative Register”) is to establish a safer, more transparent and predictable business environment and to reduce the share of total administrative costs in GDP.

In short, the Law on Administrative Register aims to establish the Register of Administrative Procedures (“Register”), which will be a publicly available electronic database of all administrative procedures conducted by the public authorities and will be available to the general public upon request.

The draft defines the competence for the establishment and maintenance of the Register, the principles of conducting procedures in the register, an entry in the register, as well as penalties for the competent administrative body in case of non-compliance with the provisions.

The goal is to have the Register which includes all procedures towards natural and legal persons no later than 1 January 2025, when it should be made available on the website.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Branimir Rajsic, Senior Consultant, Karanovic & Partners