Representative Office of a Foreign Company and the Tax Aspects of Its Operations

A representative office is a specific form of presence of a foreign company in the Republic of Serbia. Under the Serbian Company Law, it may be established for the purpose of carrying out preparatory and auxiliary activities intended to support the future business operations of the parent company. Unlike a branch, a representative office is not authorized to conduct commercial activities independently, sell goods, provide services, or generate revenue in Serbia.

Although the legislation does not provide a detailed definition of preparatory and auxiliary activities, they generally include market research, promotion of products and services, establishing and maintaining business relationships, gathering information, organizing meetings, and providing administrative support to the parent company. All activities of a representative office should be supportive in nature and should not be aimed at generating profit directly.

A representative office does not have separate legal personality and therefore does not act in its own name. Any obligations arising from its activities remain the responsibility of the foreign company that established it.

From an accounting perspective, representative offices occupy a unique position. Since they do not perform commercial activities, they are generally not subject to the provisions of Serbian accounting legislation requiring the maintenance of accounting records and the preparation of regular financial statements.

However, the tax treatment of a representative office depends on the actual nature of its activities rather than its formal status. As long as its operations remain limited to preparatory and auxiliary functions, no taxable profit is generally considered to arise in Serbia. On the other hand, if the representative office exceeds those limits and effectively engages in business activities that generate revenue or profit, tax obligations may arise in Serbia.

In such circumstances, the foreign company may become liable for corporate income tax in respect of income attributable to the activities carried out through the representative office. It would also be required to maintain appropriate records of income, expenses, and other relevant information necessary for determining the tax base, as well as to prepare and file the corresponding tax return and tax balance sheet with the competent tax authorities.