Corporate profit tax in Serbia

Practice often tells us that there is quite a number of businessmen, especially those, who have just started their business and have quite superficial understanding of the term ‘profit’ – as the assets remaining on their business account at the end of fiscal year. There is also a group of businessmen, who identify profit with earnings gained by performing a business activity. Profit is a positive business result. Profit is an economic category used to denote a positive annual result between total income and total expenses. Loss is an economic category used to denote a negative annual result between total income and total expenses.

Profit is a taxable category. Profit tax rates are defined by tax authorities of each country in compliance with their economic development policy. Currently, the profit tax rate in Serbia, which justifies the argument that Serbia is turning in the direction leading towards becoming a competitive investment destination, is moderate and unique, and it equals 15%.

Corporate profit tax in Serbia is determined through taxpayer self-taxation and the adjustment of accounting profit, shown in financial statements, which are prepared in compliance with the MF Rulebook or IFRS (International Financial Reporting Standards), to non-recognized expenses and non-taxable income. This indicates that the amount of taxable profit, shown in a tax basis balance sheet, may be equal to, smaller or larger than the profit shown in an income statement.

The Corporate Profit Tax Law stipulates which expenses shown in financial statements are recognized, which expenses are not recognized and which expenses are recognized up to a certain percentage. Non-recognized expenses expand the tax base.

The Corporate Profit Tax Law categorizes the expenses recognized in the income statement into 5 groups, namely:

• the expenses, which are not entirely recognized in the tax basis balance sheet;
• the expenses, which are recognized in the tax basis balance sheet up to a certain amount, provided that the prescribed conditions have been met (resources designated for humanitarian, medical, educational and other prescribed purposes, membership fees and representation);
• the expenses, which are recognized in compliance with the manner and terms prescribed by the Law (expenses based on specific employee personal income, severance pay and capital asset expenses, expenses based on the receivables write-off and value adjustment, impairment expenses, public fee expenses, long-term provision expenses);
• income and expenses based on the sale of fixed assets listed in the Article 27 of the Law (determining capital tax gains and losses);
• income and expenses made as a result of transactions with associated entities, which are recognized up to the amount that is in compliance with the ‘at an arm’s length’ principle.

The legislator enters into the expense policy of every company very precisely, determining the things that are considered to be the expenses recognized in the tax basis balance sheet, as well as the things that do not belong to these expenses, which clearly creates the distinction between the profit shown in accounting reports and the profit to be taxed. This is a broaden and interesting topic, and we will continue to discuss it in our blogs.