Legal & Tax Aspects of Operating a Foreign Company’s Branch in Serbia

Legal status and registration of a foreign branch

A branch of a foreign company is its separate organizational part through which that company carries out its activities in the Republic of Serbia.

A foreign legal entity may permanently carry out activities in Serbia through a branch established and registered in accordance with local regulations.

In terms of tax regulations, a foreign branch falls under the same regulations that apply to domestic legal entities. However, there are certain differences that are worth mentioning.

The Company Law does not stipulate that a branch has a share capital, and thus no minimum value of the capital of this legal entity. The register records the registered (share) capital of the founder of the branch. Although it does not have a share capital, or even information about the value of the invested assets, the branch is liable for its obligations with its own assets, as well as its founder is liable for its obligations, jointly and severally and without limitation.

Unlike a branch, a representative office of a foreign company is a separate organizational part of that company that does not have the status of a legal entity and can only perform preliminary and preparatory actions aimed at concluding legal transactions of that company.

A representative office cannot, as is the case with a branch, perform a specific economic activity, but can only conclude legal transactions related to its current operations. A representative office of a foreign company in Serbia operates through a non-resident account of the company – its founder and upon the authorization of its founder.

Operations of a branch of a foreign legal entity

From the perspective of the Law on Foreign Exchange Operations, it is stipulated that a branch of a foreign legal entity, registered with the competent authority in Serbia, is considered a resident within the meaning of this Law. Therefore,

• a branch of a foreign legal entity in the Republic of Serbia may take out loans and credits from abroad only from non-residents – founders, with a repayment period longer than one year, which are used by paying the loan funds into the bank account;
• resident – a legal entity, a branch of a foreign legal entity and an entrepreneur may offset debts and receivables based on the realized foreign trade turnover of goods and services of residents, which is considered commercial credits and loans;
• a branch of a foreign legal entity may offset debts or receivables arising from foreign credit transactions in foreign currency with receivables or payables arising from such transactions, realized foreign trade in goods and services, as well as from direct investments and investments in real estate, in the manner prescribed by the National Bank of Serbia;
• a branch of a foreign legal entity operating through a resident account makes a transfer from that account abroad provided that it has previously settled tax obligations from that business to the Republic of Serbia, of which it submits a confirmation from the competent tax authority.

Bookkeeping and financial reports

No special accounting regulations have been enacted for branches of foreign legal entities, and therefore branches keep daybooks and prepare financial statements in the same way as domestic business entities.

This means that a branch of a foreign entity keeps daybooks using the double-entry bookkeeping system in accordance with the Law. The branch is classified like all other business entities in accordance with the criteria for selecting a specific financial reporting framework.

A branch of a foreign company, as a subject of the Law, should have a general act (usually the Rulebook on Accounting and Accounting Policies), which will regulate the organization of accounting. The branch keeps daybooks like any other business entity subject to the Law, namely: journal, general ledger and subsidiary books.

The scope of the regular annual financial statements of a branch depends on the size of the branch, i.e. whether the branch is classified as a large, medium, small or micro legal entity.

Auditing is mandatory for regular annual financial statements of large and medium-sized legal entities, as well as all legal entities, i.e. entrepreneurs whose total income generated in the previous business year exceeds EUR 4,400,000 in dinar equivalent (statutory audit); extraordinary financial statements are also prepared in cases of deletion of a branch of a legal entity, when the branch prepares extraordinary financial statements that include a Balance Sheet and an Income Statement.

The deadline for submitting regular financial reports for statistical purposes and for public publication is no later than March 31 of the following year.

The foreign branch from the aspect of tax obligations

In accordance with the Law on Property Taxes, a property tax payer who keeps daybooks, in terms of property tax assessment, is a branch or other organizational part of a foreign legal entity that carries out economic activity in the Republic of Serbia and keeps daybooks in accordance with local regulations.

Pursuant to the Law on Tax Procedure and Tax Administration, every permanent business unit, and therefore also a branch and other organizational parts of a non-resident taxpayer, is required to have a TIN, submit a balance sheet and a tax return.

Please note that the tax return is submitted within 180 days from the end of the period for which the tax is determined, which means that the tax return for 2024 is submitted no later than June 29th, 2025.