The gift tax
What is a gift?
We are all aware that we are standing on the edge of a technological revolution that will fundamentally alter the way we live and work, as well as interact and connect with others. The value systems are changing at a pace that makes them less and less likely to recognize human connection, along with empathy, and presents or gifts that people give to each other. According to Mr. Google, a gift or a present is an unprompted gifting of things, rights or money, in order to make someone happy without any expectations, which entails without any compensation or countermeasures.
Does one pay the gift tax?
While it may be an expression of our goodwill and desire, it is important to bear in mind that gifting represents a benevolent agreement in which one Party transfers to another Party an asset (e.g., immovable property/real estate, money, or movable property) or some other right without the other party being required to take any countermeasures. As tax is a “tribute to the progress of civilization “, thus our benevolent agreement is not exempt from taxation, or as Benjamin Franklin said “… in this world nothing can be said to be certain, except death and taxes.“
Therefore, shall you have a good will to gift something to someone, you may do so by means of a Gift Agreement. The Gift Agreement represents an agreement concluded by and between the person who gifts (the donor) and the person who receives the gift (the donee). The subject of the Gift Agreement can be a specific item or property of the donor. By the Agreement itself, the donor undertakes to transfer to the donee the right of ownership of the item that is the subject of the Agreement.
What all can be the subject of the Gift Agreement?
– Movables and immovables
– Consumable and non-consumable items
– Some things whose acquisition will happen in the future
– Contractual rights
– Other things, such as – debt acquittance or debt settlement
What is impossible to gift, in a legal sense, are things related to the person themselves, e.g., copyright, inheritance right, firearms license and similar.
Form and validity of the Gift Agreement
Given that the Law of Contract and Torts requires a certain form in order for a contract/agreement to be valid, the Gift Agreement is a formal agreement. The Law of Contract and Torts emphasizes that the absence of the prescribed form of the contract/agreement results in the void contract/agreement.
The Agreement is notarized by the notary public, and after its conclusion, the obligation to pay the gift tax arises on the behalf of the donee.
Forms of taxation of the Gift Agreement
With the Gift Agreement, the right of ownership is transferred, i.e., the donee increases their property. This legal transaction is treated by the tax legislation of the Republic of Serbia through several forms of taxation, such as: VAT, gift tax, individual income tax, corporate income tax.
Inheritance and gift tax is regulated by the Property Tax Law, through its provisions in Articles 14 to 22. These provisions prescribe: the subject of taxation, tax exemptions, tax base, tax rates, taxpayer, arising of tax liability, tax relief and tax credit.
The parts regarding the inheritance and gift of the Property Tax Law are no less challenging in understanding all segments of taxation, after the Individual Income Tax Law; therefore, we will continue with this topic. Until then, for all questions regarding this topic, and all of the others, the Creative Finance Team is at your disposal.