Capital gains tax is an integral part of individual income tax. In preceding articles we discussed the range of tax reforms which have been implemented in the recent years, and it was precisely the Individual Income Tax Law that has undergone the most changes, more of which you can find at https://creativefinance.rs/en/the-individual-income-tax-2/.
According to our clients’ reactions, we often refer to the capital gains tax as “surprise tax”, since this tax levy is frequently overlooked in practice.
And what is actually “surprising” about capital gains tax? Most likely it is the fact that in tax procedures related to income generated by the transfer of rights, shares and securities, capital gains tax is, in fact, the last of tax liabilities, and it applies only when there is a difference between the purchase and selling price. In tax practice, it is most often encountered in the sale of the immovable property. The Absolute Rights Transfer Tax is a postulate for our sales calculation of the immovable property (admittedly, we are usually subsidiary debtors for this tax) and usually many people stop there and are surprised when it is mentioned that it must be checked whether there is a liability for capital gains tax as well. Hence, they ask:
“Is there yet another tax to be paid?”
And the answer is: “Maybe”
Therefore, we can always refer to this tax as “maybe tax”.
There are instances in which capital gains tax is charged to the taxpayer and those in which there are tax reliefs for this tax. The Law says:
is income from the difference in price, income which arises from the transfer of:
- property rights to immovable property (apartment, shop, land…)
- copyright and related rights and industrial property rights
- shares in the capital of legal entities, shares and other securities
- investment units, except investment units of voluntary pension funds, purchased by an open investment fund, in accordance with the law regulating open investment funds
- investment units of an alternative investment fund, in accordance with the law regulating alternative investment funds
- digital assets
A sale or other transfer with monetary or non-monetary consideration is regarded as transfer. Any entry of a non-monetary contribution to a legal entity is considered as other transfer with consideration.
The taxpayer of capital gains and losses tax is any natural person, including an entrepreneur, who has transferred rights, shares and securities. Capital gains tax taxes a gain that is an end in itself. How should you understand this? Precisely like this, through the very end that is achieved by the transfer of rights, shares and securities, e.g. if our goal is to expand the housing space, we will not be liable for capital gains tax, but if we sold the immovable property with the goal of earning money, then we will have the liability to pay capital gains tax.
A capital gain, or loss in the sense of this law is not considered a difference resulting from the transfer of rights, shares or securities, when:
- they were acquired by inheritance in the first line of succession
- the transfer is made between spouses and blood relatives in the direct line
- the transfer is made between divorced spouses, and is directly related to the divorce
- the transfer of debt securities issued by the Republic, autonomous province, local self-government unit or the National Bank of Serbia is made
- the taxpayer transferred rights, shares or securities that they had continuously owned for at least ten years before the transfer
- in the change of status, the shares, i.e. the shares that the taxpayer has in the transferring company are exchanged, exclusively for shares, i.e. shares in the business to the acquiring company in accordance with the law governing companies.
Procedures for determining capital gain or loss are regulated for each type of transfer individually, particularly for the immovable property, particularly for digital assets, particularly for copyrights, shares, etc.
The capital gains tax rate is 15% on the determined difference between the purchase price and the sale price, which actually constitutes the tax base.
Tax exemption on capital gain
Capital gains tax exemption is granted in the following cases:
- When a person has had the immovable property in their ownership for more than 10 years. In that situation, when the said immovable property is sold, there is no liability to pay capital gains tax
- If the taxpayer, within 90 days from the day of the sale, invests the funds obtained from the sale of the immovable property in solving their housing issue and the housing issue of the household
- If the taxpayer invests part of the funds obtained from the sale of the immovable property in solving the housing issue, the tax liability is proportionally reduced
- If the taxpayer invests funds for the same purposes within 12 months from the date of sale of the immovable property, the paid capital gains tax will be refunded
The deadline for reporting capital gains tax is 30 days after the conclusion of the contract for the transfer of absolute rights. Capital gains tax return is submitted to the competent tax administration via PPDG-3R form. In addition to the completed PPDG-3R form (completed in the seller’s name), it is necessary to attach appropriate documentation proving the right of ownership, and the content of the documentation depends on the legal basis.
The consequences of failing to report capital gains tax, as with all other tax liabilities, unfortunately leads us to a tax offense or tax evasion. As always, and as everywhere, the proving process is painstaking and consists of establishing the facts that there was no intention of failing to report tax, because it was not even known to exist. However, this will not absolve us of the liability, but only “may” represent a mitigating circumstance. In such circumstances, the fine “may” be considered a premium.
In order to avoid “surprise tax” and “maybe tax” and all the inconveniences, it is necessary for you to consult someone before the sale takes place. Expert consultants will enable you to learn how much you would have to pay in capital gains tax if you decide to sell an apartment, shop, parking space, share in the property of a legal entity, shares, you will learn when you are legally entitled to relief, they will also find out when you are exempt from payments, and there are also cases when you have the right to a proportional deduction or refund, etc…
Thus, good advice is worth a fortune every time, and our expert team is here for all the questions and dilemmas you may have when considering the possibility of some form of transfer of the immovable property, shares and the like. Regardless of what your transfer goal is, all tax aspects should be checked, and we are here to help and determine if and how much the sale would cost you in tax terms.