Specifics of application of Double Taxation Treaties in Serbia
1) Which principal Double Tax Treaties (DTTs) are currently in force in Serbia?
The Republic of Serbia has concluded double taxation treaties with 64 countries. These include countries worldwide, spanning all continents, including nations with which Serbia has strong bilateral relations and where the majority of Serbian citizens live. Some of the countries where these agreements have been in effect for many years include Germany, Austria, Switzerland, China, the United Arab Emirates, the Russian Federation, Belgium, Bosnia and Herzegovina, and Croatia. The treaties cover a wide range of taxes in the signatory states, including income tax, payroll tax, corporate tax, dividend tax, property tax, and others.
2) What types of income are covered by Double Taxation Treaties?
There can be different types of income: salary, pension, rent, interest, company profit or dividend – each category is specifically defined in Double Taxation Treaties. Some income is taxed only in one state, some in both, but with the right to reduce the already paid tax.
3) How is tax residency determined for DTT purposes in Serbia?
Tax residency for Double Taxation Treaty (DTT) purposes is primarily determined by the rules outlined in the specific DTT between Serbia and the other country.
Initial step is Serbia's Domestic Rules: An individual is a Serbian tax resident if their permanent residence or center of vital interests is in Serbia or alternatively, if they reside in Serbia for 183 or more days within a 12-month period. Or, if they are on a diplomatic/consular assignment for Serbia abroad.
Second step are DTT Tie-Breaker Rules (When Dual Residency Occurs): if an individual is considered a tax resident by both Serbia (under its domestic laws) and another country (under its domestic laws), the DTT's "tie-breaker rules" are applied hierarchically to determine a single tax residency for treaty purposes. These typically follow the OECD Model Convention (Permanent home available, Centre of vital interests, Habitual abode etc. ) There is also a Certificate of residency, to claim DTT benefits, a non-resident must usually provide a Certificate of Tax Residency from their country of residence.
4) How to properly prove tax residency status to apply treaty benefits?
The certificate of residency is a public document by which the recipient of income proves the status of a resident of the Republic of Serbia, or another state signatory to the double taxation treaty. The process differs slightly depending on whether you are a Serbian resident looking to claim DTT benefits abroad, or a foreign resident looking to claim DTT benefits in Serbia.
5) How to determine which Double Taxation Treaty applies to a specific transaction?
The application depends on which countries the parties participating in the transaction are from. As well as depending on what type of tax it is.
The first step would be to identify the tax residency of the parties, then check for an existing DTT between Serbia and the other country and determine the type of income.
Finally consult the specific DTT text, read its specific articles related to the type of income in question.
6) Do the provisions of the DTT take precedence over domestic tax law?
Yes, the provisions of Double Taxation Treaties (DTTs) concluded by Serbia generally take precedence over domestic tax law in Serbia when it comes to preventing double taxation.
This is a common principle in international tax law, often based on the idea that international agreements, once ratified, become part of a country's legal system and are considered lex specialis (special law) over lex generalis (general law), meaning the special law (the DTT) overrides the general law (domestic tax law) in cases of conflict.
7) What tax obligations does a resident have when receiving income from abroad under a DTT?
All income from abroad is subject to the payment of personal income tax, regardless of whether it was earned in the country or abroad.
In case the income is received from a country with which Serbia has DTT in place, the method for avoidance of the double taxation prescribed by the DTT (credit or exemption) will be applicable.
8) How are tax rates on dividends, interest, and royalties applied under a DTT?
Tax rates vary from 5% to 15% depending on the type of income. On dividends it varies from 5-15%, on interest , on interest is usually around 10%, and on royalties it’s usually from 5-10%.
9) What are the mechanisms for eliminating double taxation?
There are two methods, first one is credit method: The resident country recognizes the tax paid abroad and grants a credit equal to that tax, up to the amount of domestic tax. The second one is the exemption method: The resident country exempts this income from taxation because it has already been taxed abroad.
10) What is the dispute resolution process and Mutual Agreement Procedure (MAP) under a DTT?
The taxpayer must file a request with the Serbian Ministry of Finance – Tax Administration (MAP Competent Authority). MAP Procedure Steps are:
1. submission of the request by the taxpayer to the competent authority;
2. evaluation by the Serbian authority to determine admissibility;
3. consultation with the foreign competent authority;
4. negotiation to resolve the issue;
5. Agreement/Resolution – if reached, the solution can involve tax refunds or adjustments and is binding only if the taxpayer accepts it.
Author: Medo Zornić
