Serbia: Exemption from Capital Gains Tax on the Transfer of Copyright and Related Rights and Industrial Property Rights

Serbian economy is widely recognized as an investment destination for outsourcing activities. However, Serbian government introduced many incentives in order to attract businesses who will create intellectual property and change economic landscape.

Some of these measures are:

• Companies who perform research & development (R&D) activities on the territory of Republic of Serbia (i.e., at least 90% of employees engaged on the project of R&D perform activities in Serbia) may deduct those costs in double amount
• Companies who generate revenue from intellectual property registered in Serbia can exempt part of the profit and decrease effective tax rate
• Companies invest in innovative start-ups are granted with tax credit in amount of 30% of investment
• Individuals who sell digital assets and then reinvest those funds in a resident company are granted with tax credit in amount of 50% of investment
   

In addition, Serbian government is also introducing new capital market regulation, in order to help financing of such innovative companies, since such businesses are not attractive clients for domestic commercial banks. Some of examples such legislation are:

• Law on digital assets
• Law on alternative investment funds
• Law on crowdfunding – currently in preparation phase
   

In August, Serbian government introduced new legislation with goal of developing creative economy. The Rulebook on Exemption from Capital Gains Tax on the Transfer of Copyright and Related Rights and Industrial Property Rights was introduced. The rulebook provides more context to the Article 79b of Law of personal income tax, according to which an individual who invests copyright and related rights, as well as industrial property rights in the resident legal entity is exempt from capital gains tax.

According to the Rulebook, following conditions must be met in order to acquire capital gains tax exemption:

• The subject of transfer must be deposited/registered at the Serbian responsible state authority. This means only intellectual property deposited/registered in Serbia may be subject to capital gains tax exemption. However, an investment can be made by either Serbian tax resident or a foreign tax resident
• This transfer is registered as an increase of basic equity of a Serbian legal entity, regardless of the fact whether company is newly established or already operating
• The value of transferred rights is valued by either court - appointed financial expert registered with the competent authority, or an auditor or audit company conducting the valuation of the equity, in accordance with the law regulating auditing.
   

An individual which gets tax exemption is obliged to file the tax return and provide documents that are evidence for conditions stated in previous paragraph.

However, tax exemption can be lost in 2 cases:

• The intellectual property is sold by the company in 2 years of transferring those rights
• During the same period, the rights of using the intellectual property are transferred to a related party under conditions which are not in accordance with the ‘’arm’s length’’ principle
   

 If tax exemption is lost, the tax liability is deemed to be created in the moment of investing the intellectual property in the company’s equity.

If you wish to discuss these topics, please contact:

WTS Porezi i Finansije d.o.o