The new Rulebook was published in the Official Gazette of the Republic of Serbia No. 50/2019 dated 9 July 2019. This newsletter examines some of the key novelties that the Rulebook brings, such as:
The Rulebook entered into force on 20 July 2019 and will be applied for determination of CIT liability for FY 2019.
The Rulebook further clarifies the application of Article 25b of the CIT Law. It prescribes that the qualified income generated by the taxpayer, on the basis of a deposited copyright or related rights (“copyright”) or invention, may be excluded from the tax base in the amount of 80%, under certain conditions.
The right to exclude qualified income from the tax base has a taxpayer who is a holder of deposited copyright and who generates an income on that basis. Taxpayer should deposit the copyright with the competent authorities or submit an application for the registration of the invention, no later than upon expiration of the tax period in which it first applies the CIT Law provision on exemption of qualified income from the CIT base.
Determination of Qualified Income
Qualified income is determined for the tax period in the following way: the amount of total income generated from a deposited copyright or invention, should be decreased by the amount of qualified expenses and then multiplied by the percentage of the share of qualified expenses in the total expenses incurred in relation to that copyright or invention. Determined qualified income may be excluded from the CIT base in the amount of 80%.
Determination of Qualified Expenses
Qualified expenses are consisted from the total historical or current tax-deductible expenses of R&D activities related to the creation of a deposited copyright or invention. Determination of expenses related to R&D activities should be done in accordance with the provisions of the Rulebook on exercise of the right to double recognition of research and development expenses in the tax balance, regardless whether the taxpayer applies this tax relief, or not.
In case that a deposited copyright is acquired by status change (merger, demerger or spin-off) or in-kind contribution to the equity, the taxpayer takes into account the qualifying expenses of the transferor.
The special rules of determination of qualified expenses apply for taxpayer who have deposited the copyright/submitted an application for the registration of the invention, after 1 January 2019, and those who, on 31 December 2018, had in its accounting records a fixed asset, asset in progress, intangible property or generated revenues from the copyright/invention. The amount of historical tax recognized expenses incurred before 1 January 2019 is determined according the following rules:
- in the amount of 60% of income of the deposited copyright or the invention, in the first tax period in which this tax relief is used;
- in the amount of 40% of income of the deposited copyright or the invention, in the second tax period in which this tax relief is used;
- in the amount of 20% of income of the deposited copyright or the invention, in the first tax period in which this tax relief is used.
Determination of Total Expenses
Total expenses are total qualified expenses increased by other expenses (such as, expenses related to R&D activities incurred against non-residents and a part of expenses from transactions with related parties exceeding the “arm’s length“ principle, etc.). If these expenses have not entirely been incurred for the deposited copyright/invention, but also for other purposes of the taxpayer’s business activity, the expenses related to the copyright or the invention should be included in the total expenses on pro rata basis.
In order for the qualified income to be excluded, taxpayer should have in place an appropriate documentation that should be prepared separately for each copyright/invention, in each tax period in which the exclusion was done. Documentation include confirmation from the authority that the copyright has been deposited, confirmation on submitted application for registration of the invention, records on income of generated on the basis of compensation for the exploitation of the deposited copyright/invention, record of the total R&D costs related to the creation of the deposited copyright/invention, etc.