Serbia: Does Serbia’s Tax Policy Foster Foreign Investment or Create Barriers? Local taxation rules for Portfolio Investors

The taxation framework for portfolio investors in Serbia reflects the country’s developing capital market. Most business is concentrated in direct investments through traditional LLCs dominated by majority shareholders, influencing tax policies that do not differentiate between majority and minority shareholders (portfolio investors).

Under Serbian tax regulations, dividend payments to non-residents are subject to 15% or 20% WHT (for individuals and legal entities, respectively), regardless of the investor's stake. This treats portfolio investors and majority shareholders equally, lacking tailored solutions for portfolio investors. Meanwhile, dividends received by domestic shareholders are exempt from corporate income tax, creating a more favorable environment for local investors.

Additionally, non-residents legal entities pay 20% capital gains tax (CGT) for sale of securities or investment fund units, while residents are taxed at 15% CGT. Moreover, entities established under local investment fund regulations are exempt from this tax, but foreign investment funds are excluded from this exemption.

Serbia has DTTs with all EU countries except Portugal. These treaties aim to reduce WHT rates and/or exempt capital gains from taxation, however this does not ensure complete non-discrimination for non-resident investors. Most DTTs include non-discrimination clauses under MLI principles, but their application to portfolio investors is unclear. The lack of arbitration clauses and limited information exchange mechanisms further complicates enforcement.

Do Serbia’s DTTs adequately protect EU investors from discrimination? This is key to aligning Serbia’s tax framework with international standards.

The EU principle of Free Movement of Capital prohibits discriminatory treatment between domestic and foreign investors. Paradoxically, Serbian companies investing in the EU often enjoy more favorable tax treatment than EU companies investing in Serbia.

Serbia’s tax policies appear to create disparities that may contravene these principles. Aligning tax policies with anti-discrimination standards is crucial to ensuring equitable treatment for all investors.

Ensuring fair treatment for cross-border investments requires collaboration between tax experts and legal professionals. Serbia’s current system demands tailored solutions to navigate ambiguities in legislation and practice.

By revising tax policies and aligning with global standards, Serbia can attract diverse portfolio investments and strengthen its international market position. Expert guidance is essential for investors seeking clarity and optimization in this evolving landscape.