For quite some time, Serbia has been considered a country favourable for the inflow of foreign investments. Firstly, tax incentives are the ones that attract and definitely will dominantly attract foreign investors. What is more, incentives have been introduced recently for the employment of scarce staff. By reading this text, you will see a brief overview of several incentives related to foreign investors and the most important aspects of their business.

By implementing attractive tax incentives and developing a unique tax system, Serbia has positioned itself high on the list of alternatives to the famous tax havens. Namely, a favourable business environment, the implementation of well-structured measures, extremely competitive tax rates, and low operating costs justified the foreign investors' high level of interest.

As regards the tax burden, corporate income tax and personal income tax rates are among the lowest in Europe, while the value-added tax rate is significantly below the European average. Tax rates are flat, ranging from 10% to 20%, and the determination of the tax base depends on the type of income. For example, corporate income tax is paid at a rate of 15%, with non- residents being taxed only based on generated income in Serbia. The annual income of citizens is taxed just in case it exceeds three times the amount of the average annual salary in Serbia, whereby only the income that exceeds the said threshold is taxed, reduced - to a certain extent - by the number of personal deductions. As for the obligations that employers have regarding employees, the total sum of social security contributions and income tax calculated on the net income of employees amounts to about 65% of the net salary, which is twice less than in the European Union countries.

Also, Serbia has taken several steps to make its tax system more attractive and has introduced incentives for developing digital technologies and start-up companies. Namely, it is a tax incentive that provides a tax credit in the amount of 30% of the investments made in newly established companies performing innovative activities, which practically means that a newly established company can reduce its tax liability by 30%. Companies performing some innovation activity invest a lot in research and development, and more than 15% of total business expenses, which the Serbian legislator recognized, so research and development costs are recognized in double the amount in the tax balance. Furthermore, companies performing innovative activities often develop patents, software, and applications and thus generate income, which is why the exemption of qualified income from the corporate income tax base (IP box) is foreseen. That basically means that the corporate tax rate is reduced to only 3% instead of the standard 15%. In addition, some tax incentives are introduced too as support to the growing population of digital nomads, which frees them from paying tax on income for the first 90 days of their stay in Serbia.

In terms of corporate income tax, a tax holiday is provided for companies with a minimum investment of RSD 1 billion (approximately EUR 8.5 million) while employing at least 100 new employees for an indefinite period, which implies a proportional tax exemption for a period of 10 years. Financial support is also available to companies for greenfield and brownfield investments in the manufacturing and service sectors as an incentive for initial capital investments and the very beginning of a business.

The Regulation on the criteria for awarding incentives to employers who employ newly settled persons in the Republic of Serbia („Regulation“) defines another significant segment of foreign investors’ businesses. When the foreign investor evaluates the tax regime and the conditions in the specific market as favourable, it remains to decide which persons will manage the business. In this sense, the Regulation contains beneficial solutions.

Namely, the Regulation provides incentives for an employer registered in Serbia who (i) is a domestic or foreign natural person, legal entity, or an entrepreneur or (ii) has a branch or representative office. The said indicates that a foreign investor can enjoy the stipulated benefits, regardless of the form of presence on the market of the Republic of Serbia, which is, to begin with, a huge relief.

According to the Regulation, the mentioned categories of employers can obtain incentives for the employment of persons who: (i) did not stay in Serbia for more than 180 days, in a period of two years before the conclusion of the employment agreement (foreign or domestic citizen), (ii) concluded an employment agreement on an indefinite period and full-time basis and (iii) receives a basic salary of at least 300,000 dinars, defined in an employment agreement. Employees who cumulative meet all three conditions are considered newly settled persons in the terms of the Regulation. Only regarding such employees, employers can achieve incentives in the form of payment of monetary sums in the amount of 70% of salary tax and 100% of calculated and paid contributions for pension and disability insurance. The said incentives can be realized for a maximum of 5 years, no later than December 31, 2028.

In light of the above, it is pretty clear that the Regulation greatly facilitates business entities to hire persons residing outside the territory of Serbia for management positions for which there is a lack of (quality) labour in Serbia. However, this possibility seems the easiest to achieve, i.e., most receptive to foreign investors who want to start operations in the market of the Republic of Serbia with a confident, highly qualified management staff who can be more easily (from the financial aspect) relocate from one country to Serbia, in order to establish a business on solid foundations as reliable as possible.

We conclude that Serbia currently has a well-rounded business regime favourable for foreign investors in its market, which explains the trend of constantly increasing the number of foreign investors. We will continue to deal with these topics, and if you have any questions, feel free to contact us!