The new Rulebook has been published in the Official Gazette of the Republic of Serbia No. 50/2019 on 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 corporate income tax (CIT) liability for FY 2019.
The Rulebook more closely defines the application of Article 22g of the CIT Law.
The Rulebook specifies what can be considered as R&D expenses. Expenses that are particularly considered as R&D expenses and therefore eligible for double recognition are:
- salaries of employees engaged in R&D activities;
- materials directly associated with R&D activities;
- right to use of intangible assets directly related to R&D activities;
- acquisition and lease of real estates, facilities, equipment and intangible assets used directly for R&D activities;
- obtained professional opinions and advisory services directly related to R&D (beside services acquired from related entities);
- borrowings used for financing R&D activities, etc.
Expenses that cannot be considered as R&D expenses are of the following:
- marketing and advertising of a new product or service, resulted from R&D activities;
- administrative and other general expenses that cannot be directly related to R&D activities;
- employees’ education and regular maintenance of fixed assets used or created as a result of the R&D activities.
R&D expenses are tax deductible in the amounts recognized in the income statement, in accordance with accounting rules, and then are additionally included in the tax balance in the tax period when these expenses have been incurred.
R&D expenses related to purchase or lease of real estate, facilities and equipment which, in accordance with the accounting rules, should not be treated as expenses, but rather as an asset (fixed asset), should be recognized as expenses in tax balance in the period when assets are acquired, or leased. The recognized amount should be either the amount of purchase price, or the total remuneration paid during the leasing period. Same applies for additional investments made in assets created as result of R&D, which are recognized as expenses in tax balance period when the investments are made. Furthermore, the above recognition rule does not affect recognition of amortization of all mentioned assets, i.e. their impairment.
R&D expenses that are recognized as assets, have to be recognized in tax balance on pro rata basis, i.e. according to actual percentage of their utilization for R&D activities. This percentage should be determined in tax period when assets are acquired/leased. Consequently, taxpayer is liable to use this percent in duration of 10 (ten) tax periods for real estate and 5 (five) tax periods for other fixed assets. If taxpayer, prior to expiry of these periods, reduces determined percentage by more than 20%, than taxpayer is obliged to amend its taxable base for that period in the manner described in this Rulebook. In case of existing fixed assets used directly for R&D activities, expense is recognized as net tax value, proportional to utilization percentage. Consequently, this does not affect recognition of amortization for these assets.
Taxpayer that uses R&D deduction is liable to submit, along with tax balance and for each project, documentation prescribed by the Rulebook. Documentation has to be submitted in a hard copy.