TAXATION TRENDS IN WESTERN BALKANS, 2020

TAXATION TRENDS IN 1 TENDENCA E TATIMEVE NË

WESTERN BALKANS, 2020 BALLKANIN PERËNDIMOR, 2020

TAXATION TRENDS IN WESTERN BALKANS, 2020 A COMPARATIVE VIEW OF TAXATION AND LEGAL FRAMEWORK FOR BUSINESSES AND INDIVIDUALS IN WESTERN BALKANS

TENDENCA E TATIMEVE NË BALLKANIN PERËNDIMOR, 2020

PAMJE KRAHASUESE E SISTEMIT TATIMOR DHE KUADRIT LIGJOR PËR BIZNESET DHE INDIVIDËT NË BALLKANIN PERËNDIMOR Studime Fiskale Shqiptare Edicioni 2të Prill 2020 QENDRA ALTAX Albanian Fiscal Studies 2nd Edition April 2020 ALTAX CENTER

www.altax.al [email protected]

REGJIMET FISKALE - NDRYSHIMET LIGJORE NË BALLKANIN PERËNDIMOR, 2019-2020

FISCAL REGIMES - LEGAL CHANGES IN 2019-2020 IN THE WESTERN BALKANS

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TAXATION TRENDS IN WESTERN BALKANS, 2020 A COMPARATIVE VIEW OF TAXATION AND LEGAL FRAMEWORK FOR BUSINESSES AND INDIVIDUALS IN 6 WESTERN BALKAN COUNTRIES

TENDENCA E TATIMEVE NË BALLKANIN PERËNDIMOR, 2020 PAMJE KRAHASUESE E SISTEMIT TATIMOR DHE KUADRIT LIGJOR PËR BIZNESET DHE INDIVIDËT NË 6 VENDET E BALLKANIT PERËNDIMOR

Albanian Fiscal Studies Taxation and legal framework

2nd Edition

Studime Fiskale Shqiptare

Tatimet dhe kuadri ligjor

Edicioni 2të

FISCAL REGIMES - LEGAL CHANGES IN 2019-2020 IN THE WESTERN BALKANS

REGJIMET FISKALE DHE NDRYSHIMET LIGJORE NË BALLKANIN PERËNDIMOR, 2019-2020 ALTAX Centre is an initiative of Albanian researchers aiming at a new approach to assisting Albanian fiscal and economic policy with an approach to European fiscal policy. The main goal is to promote education of the fiscal system within taxpayers and to incentivize its adaptation to the economic environment, to assist taxpayers and stakeholders (students, field experts, researchers) through expertise in order to be informed about the fiscal environment and the economic climate. On the other side, cooperation with academics and fiscal experts helps to expand and create a full audience in helping to increase fiscal capacity in Albania and Kosovo. WE GIVE YOU THE EXPERIENCE, NOT ONLY THE SERVICE!

Qendra ALTAX është një nismë studiuesish fiskalë dhe ekonomistë shqiptarë me synimin e një qasje të re në ndihmë të politikës fiskale dhe ekonomike shqiptare me qasje drejt politikës fiskale evropiane. Qëllimi kryesor është që të promovojë edukimin me sistemin fiskal dhe përshtatjen e tij sipas ambientit ekonomik, të ndihmojë tatimpaguesit dhe palët e interesuara (studentët, ekspertët në terren, studiuesit) nëpërmjet ekspertizës të jenë të informuar mbi ambientin fiskal dhe klimën ekonomike. Nga ana tjetër bashkëpunimi me akademikë dhe ekspertë fiskale ndihmon për të zgjeruar dhe për të krijuar një audiencë të plotë në ndihmë të rritjes së kapaciteteve fiskale në Shqipëri dhe Kosovë.

JU JAPIM EKSPERIENCËN, JO VETËM SHËRBIMIN! ALBANIAN FISCAL STUDIES STUDIME FISKALE SHQIPTARE THEMATIC COLLECTION SERI TEMATIKE

TAXATION AND LEGAL FRAMEWORK TATIMET DHE KUADRI LIGJOR 2nd Edition Edicioni 2të No. 2020/04/06 Nr.2020/04/06

www.altax.al www.altax.al

[email protected] [email protected]

Date 16.04.2020 Date 16.04.2020

Tirana, ALBANIA Tiranë, SHQIPËRI


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TAXATION TRENDS IN WESTERN BALKANS, 2020

TENDENCA E TATIMEVE NË BALLKANIN PERËNDIMOR, 2020

Prepared and distributed ALTAX Center

Përgatitja dhe shpërndarja Qendra ALTAX

Keywords: Tax, fee, region, tax rate, investment, Western Balkans, Albania, Kosovo, Serbia, Montenegro, Macedonia, Bosnia and Herzegovina

Fjalë kyçe: tatime, tarifa, rajone, normë tatimore, investime, Ballkani Perëndimor, Shqipëria, Mali I Zi, Maqedonia, Kosova, Serbia, Bosnja JEL Classification: H20, H26

TERMS OF USE AND DISCLAIMER The data and information presented in this publication are developed in collaboration with leading experts and partners through a consultative process. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the ALTAX CENTER. Data in this publication is subject to change without notice. When this publication, for which the ALTAX CENTER is the source is distributed or reproduced, it must appear accurately and be attributed to the ALTAX. This source attribution requirement is attached to any use of data and comments, whether obtained directly from the ALTAX or from another user. Users who make the publication of Taxation Trends in Western Balkans,2020 available to other users through any type of distribution or download agree to make reasonable efforts to communicate and promote compliance by their end users with these terms. Users who intend to sell the Taxation Trends in Western Balkans,2020, as a standalone product, or in part must first obtain the permission from the ALTAX Center ([email protected]).

KUSHTET E PERDORIMIT DHE ZBATIMIT Materialet dhe të dhënat e paraqitura në këtë publikim janë zhvilluar në bashkëpunim me ekspertë dhe partnerë kryesorë përmes një procesi konsultativ. Gjetjet, interpretimet dhe komentet e shprehura në këtë publikim nuk pasqyrojnë domosdoshmërisht pikëpamjet e QENDRES ALTAX. Të dhënat në këtë edicion special janë objekt ndryshimi pa paralajmërim. Ky publikim, i cili është autorësi e Qendra ALTAX nëse shpërndahet ose riprodhohet duhet të paraqitet me saktësi dhe t'i atribuohet ALTAX. Kjo kërkesë për cilësinë e burimit duhet ti bashkëngjitet çdo përdorimi të të dhënave dhe komenteve, qoftë të marra direkt nga ALTAX ose nga një përdorues tjetër. Përdoruesit që e bëjnë shkarkimin e publikimit Tendencat tatimore në Ballkanin Perëndimor, 2020 dhe e vënë në dispozicion të të tjerëve përmes çdo lloj shpërndarjeje ose shkarkimi bien dakord të bëjnë përpjekje të arsyeshme për të komunikuar dhe promovuar pajtueshmërinë nga përdoruesit e tyre përfundimtarë me këto terma.Përdoruesit që synojnë të shesin, si një produkt i pavarur, ose pjesërisht duhet të marrin lejen fillimisht nga Qendra ALTAX. Dokumenti mund të lexohet te faqja online www.altax.al

The document is available on the website - www.altax.al ©

ALTAX April/Prill 2020 TIRANA – AL




Acknowledgements (ENGLISH) ALTAX CENTER specially thanks the educational and legal staff for the work done in collecting data, processing them, as well as a dedicated thanks to the designer for the formatting of this publication. ALTAX is an Albanian think-tank initiative assisted by tax experts and fiscal policy analysts, aiming at a new approach to Albanian-European fiscal and economic policy. The primary goal is to promote education in taxation, help and assist the taxpayers and interested parties (students, field experts, civil servants) with the proper expertise. On the other side, the cooperation with the academics and fiscal experts helps to expand and create a comprehensive audience in help of increasing of fiscal capacities. One of our key goals is to achieve a more efficient and less complex tax system for all. Our comments and recommendations on tax issues are made solely in order to achieve this aim; we are an entirely apolitical organization. This work is a product of the staff of ALTAX experts. The findings and conclusions expressed in this paper reflects the copy of legislation and comments done by different authors and by the own experts too. The work is a compilation of recent developments of tax rates and tax policies. ALTAX represents the interest of taxpayer and is founded to help, increasing the knowledge and education about the implementation in the right way of fiscal policies and public finances management. We are organized and work based on the principle “Right from the start”. If you want to send comments, or explanations, please contact us via email: [email protected]

WE HELP YOU TO PAY TAXES! WE HELP YOU NOT TO PAY BRIBE FOR TAXES! WE BELIEVE IN SINLESS ADVICE!

Konsiderata (ALBANIAN) Qendra ALTAX falënderon në mënyrë të veçantë stafin e edukimit dhe atë ligjor për punën e bërë në mbledhjen e të dhënave, përpunimin e tyre, si dhe një falënderim të dedikuar për dizajnin dhe për formatimin e bërë këtij publikimi. ALTAX është një nismë studiuesish dhe analistësh fiskalë shqiptarë me synimin e një qasje të re analize dhe diskutimi në ndihmë të politikës fiskale dhe ekonomike shqiptare me qasje drejt politikës fiskale evropiane. ALTAX është një qendër studimore fiskale dhe punon që të rritë mirëkuptimin e qeverisë dhe publikut për çështje të lidhura me ndershmërinë e sistemit ekonomik, fiskal ne shoqërinë civile, si dhe kryerjes së shërbimeve publike vendore dhe qendrore të duhura dhe të qëndrueshme. Një nga qëllimet tona kyçe është arritja e një sistemi tatimor më efikas dhe më pak kompleks për të gjithë. Komentet dhe rekomandimet tona për çështjet tatimore bëhen vetëm për të arritur këtë qëllim. Ne jemi një organizatë tërësisht apolitike. Kjo punë është një produkt i stafit të ekspertëve të ALTAX. Gjetjet dhe përfundimet e shprehura në këtë punim pasqyrojnë kopje te legjislacionit dhe komenteve të bëra nga autorë të ndryshëm dhe nga vetë ekspertët tanë. Puna e kryer është një përmbledhje e zhvillimeve të fundit të qasjeve tatimore dhe politikave tatimore. ALTAX përfaqëson interesat e taksapaguesve, si një qendër kërkimore të pavarur fiskale, në rolin e një komentatori të financave publike, politikës fiskale, ligjit tatimor, edukimit fiskal, politikave sociale dhe pabarazive sociale në shpërndarjen e mirëqenies duke vlerësuar zhvillimin e politikave me qëllim promovimin e zhvillimit në Shqipëri, në rajon dhe botë. Nëse doni të kontaktoni dhe të bëni komentet dhe sqarimet tuaja, lutem bëjeni tek [email protected] NE JU NDIHMOJMË TË PAGUANI TAKSAT! NE JU NDIHMOJMË TË MOS PAGUANI BAKSHISH PËR TAKSAT! NE BESOJMË NË KËSHILLIMIN PA MËKATE!

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ABSTRACT

The publication aims to present and compare the tax systems for six countries in West Balkans according to the tax policies and tax rates in 2020. The work includes the common and different elements of 6 tax systems and also new developments, investment incentives and rules about doing business in Western Balkans. The treatment of fiscal and financial incentives is presented as a special part for every country, highlighting the importance of that policy measure for investors. Every chapter is dedicated of the whole tax system of one country of western Balkans. Domestic tax rules for the taxation of cross-border income generally address two situations: the taxation of outbound investments of resident companies, and the taxation of inbound investments of non-resident companies. The PE concept effectively acts as a threshold which, by measuring the level of economic presence of a foreign enterprise in a given country through objective criteria, determines the circumstances in which the foreign enterprise can be considered sufficiently integrated into the economy of a state to justify taxation in that state. Some countries determine the residence of a corporation based on formal criteria such as place of incorporation. In other countries, the residence of a corporation is determined by reference factual criteria such as place of effective management or similar concepts. Some countries have mixed systems, where there is both a place of incorporation test and a place of effective management test. The chapters discuss the most important principles of tax policy that have traditionally guided the development of tax systems in Western Balkans for the last three decades. It is also is provided an overview of the principles underlying corporate income tax, focusing primarily on the taxation of cross-border income both under domestic laws and in the context of tax treaties. There are presented the forms of income taxes. Income tax is generally due on the net income realized by the taxpayer over an income period. Income taxes are levied at the place of source. The tax base for it is defined in a variety of ways. Corporate income tax (CIT) generally relies on a broad tax base, formulated to encompass all types of income derived by the corporation whatever their nature, which encompasses the normal return on equity capital. An important dedication is the describing of indirect taxes, as an overview of the design features of value-added tax, excise duties, and custom duties.



PËRSHKRIM Publikimi synon të paraqesë dhe krahasojë sistemet e taksave për gjashtë vendet në Ballkanin Perëndimor sipas politikave tatimore dhe niveleve tatimore në vitin 2020. Punimi përfshin elementet e zakonshme dhe të ndryshme të 6 sistemeve tatimore dhe gjithashtu zhvillime të reja, stimuj për investime dhe rregulla për të bëre biznes në Ballkanin Perëndimor. Trajtimi i stimujve fiskalë dhe financiarë paraqitet si një pjesë e veçantë për çdo vend, duke theksuar rëndësinë e kësaj mase politike për investitorët. Çdo kapitull është i dedikuar për të gjithë sistemin e taksave të secilit vend të Ballkanit Perëndimor. Rregullat e taksave vendore për taksimin e të ardhurave ndërkufitare në përgjithësi adresojnë dy situata: taksimin e investimeve në hyrje të kompanive rezidente dhe taksimin e investimeve hyrëse të kompanive jo rezidente. Koncepti vendndodhjes se përhershme vepron në mënyrë efektive si një prag, i cili, duke matur nivelin e pranisë ekonomike të një kompanie të huaj në një vend të caktuar përmes kritereve objektive, përcakton rrethanat në të cilat kompania e huaj mund të konsiderohet si mjaft e integruar në ekonominë e një shteti për të justifikuar tatimin në atë shtet. Disa vende përcaktojnë vendndodhjen e një kompanie bazuar në kritere zyrtare siç është vendi i themelimit. Në vendet e tjera, vendndodhja e një kompanie përcaktohet nga kriteret faktike referuese si vendi i menaxhimit efektiv ose konceptet e ngjashme. Disa vende kanë sisteme të përziera. Kapitujt diskutojnë parimet më të rëndësishme të politikës tatimore që tradicionalisht kanë udhëhequr zhvillimin e sistemeve tatimore në Ballkanin Perëndimor për tre dekadat e fundit. Është prezantuar gjithashtu një përmbledhje e parimeve që kanë të bëjnë me tatimin mbi të ardhurat e korporatave, duke u përqendruar kryesisht në taksimin e të ardhurave ndërkufitare si në ligjet e brendshme ashtu edhe në kontekstin e traktateve tatimore. Aty janë paraqitur format e tatimeve mbi të ardhurat. Tatimi mbi të ardhurat në përgjithësi është për shkak të të ardhurave neto të realizuara nga tatimpaguesi gjatë një periudhe tatimore. Tatimi mbi të ardhurat vendoset dhe zbatohen në vendin ku është burimi i tyre. Baza e taksave për të përcaktohet në mënyra të ndryshme. Taksat mbi të ardhurat e korporatave (CIT) në përgjithësi mbështeten në një bazë të gjerë tatimore, të formuluar për të përfshirë të gjitha llojet e të ardhurave të gjeneruara nga korporata pavarësisht nga natyra e tyre, e cila përfshin kthimin normal të kapitalit të kapitalit. Një përkushtim i rëndësishëm është edhe përshkrimi i taksave indirekte, si një përmbledhje e tipareve të projektimit të taksës së vlerës së shtuar, akcizave dhe detyrave doganore.



Terms and explanations Terms Explanation ALL Albanian Lek APA Advance Pricing Agreement ASHI Albanian Social and Health Insurance BAM Bosnian Konvertibilna marka BD Brčko District CEFTA Central European Free Trade Agreement CFC Controlled foreign companies CIT Corporate Income Tax CPT Corporate Profit Tax CUP Comparable uncontrolled price DPSHTRR General Directory of Road Transportation Services (Alb) DTT Double Tax Treaty EBITDA Earnings before interest, taxes, depreciation, and amortization EFTA European Free Trade Association EC European Council EU European Union FBiH Federation of Bosnia and Herzegovina FIFO First In – First Out (accounting acr.) FY Fiscal year IAS International Accounting Standards IFRS International Financial reporting Standards IP Intellectual Property IT Information technology JSC Joint Stock Companies MKD Macedonian Denar MP Member of Parliament OECD Organization for Economic Co-operation and Development PE Permanent Establishment Perdiem In day PIT Personal Income Tax PRO Public Revenue Office RET Real Estate Tax R&D Research and Development RS Republika Srpska RSD Serbian dinar SHC Social and Health Contributions TEDA Technical and Economic Development Areas TIEA Tax information exchange agreements TNMM Transactional net margin TP Transfer pricing UN United Nations VAT Value Added Tax WHT Withholding Tax WTO World Trade Organization



CONTENT

Page 1. ALBANIA 12

1.1. PERMANENT ESTABLISHMENT /FISCAL RESIDENCE 12

1.2. PERSONAL INCOME TAX 13

1.3. PROFIT TAX / CORPORATE INCOME TAX 17

1.4. INDIRECT TAXES 21

1.5. LOCAL TAXES 23

1.6. NATIONAL TAXES 24

1.7. TRANSFER PRICING AND TAX TREATIES 24

2. BOSNIA AND HERZEGOVINA 28

2.1. FEDERATION OF BOSNIA AND HERZEGOVINA 29

2.1.1. PERMANENT ESTABLISHMENT /FISCAL RESIDENCE 29

2.1.2. PERSONAL INCOME TAX 30

2.1.3. PROFIT TAX / CORPORATE INCOME TAX 32

2.1.4. LOCAL TAXES 35

2.1.5. TRANSFER PRICING 36

2.2. REPUBLIKA SRPSKA 37






2.3. BRČKO DISTRICT 45






2.4. TAXATION RULES AT THE LEVEL OF FEDERATION 51


3. KOSOVO 54





3.5. LOCAL TAXES 63




4. MONTENEGRO 66





4.5. LOCAL TAXES 77


5. NORTH MACEDONIA 80





5.5. LOCAL TAXES 94


6. SERBIA 101





6.5. LOCAL TAXES 113


SUMMARY 117

ANNEX TAX MEASURES AND RELIEFS FROM COVID-19 125

ALBANIA 125

BOSNIA AND HERZEGOVINA 128

KOSOVO 131

MONTENEGRO 132

NORTH MACEDONIA 133

SERBIA 135

WESTERN BALKANS

NEW DEVELOPMENTS OF TAX POLICY FOR 2020

138

ALBANIA 138

KOSOVO 139

NORTH MACEDONIA 140

SERBIA 141



Introduction The Taxation trend in Western Balkans, 2019-2020 publication is the second edition from ALTAX CENTER, in the thematic collection and publications series of tax policies and issues about the Western Balkans. The countries that compile the contents of this report are part of Western Balkans and are ranked based in alphabetic order. They are Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro and Serbia. The publication of policies and tax rates, together with the tax incentives for investors show both successful policies and reform challenges, as well as provide a good point of reference for individuals, scholars and businesses to participate in discussion around tax debates across a broader range of issues. This presentation shows that taxes on capital are not enough to give to the economy the proper incentives if the indirect taxes are not harmonized with the direct taxes. The tax policy on the other hand is only part of the picture when looking at the contribution made to investments and economy. Since taxes are a crucial component of a country’s international competitiveness there’s important to factorize the tax incentives to make the economic environment more competitive. In today’s globalized economy, the structure of a country’s tax code is an important factor for businesses when they decide where to invest, how much to invest, and which types of operations to locate in which countries. The main characteristic of tax systems in Western Balkans is the low tax rates on taxes on capitals and on labor with the objective to give to the business investment and activities the proper guarantee for their economic performance. In recent years, all the Balkan countries have recognized this fact and have moved to reform their tax legislation to be more competitive. The level of taxation in every country determines how much of the money residents earn can get to take home and how much of the wealth they accrue could get to keep. It affects the neighborhood in which we can afford to live, the luxuries we can afford to buy and our chances of getting on the property ladder. The report, which has been presented this year, factors in the time taken to pay taxes, the overall tax rate is all included in this publication.



Hyrje



1. ALBANIA

The legal forms of businesses are (i) simple traders, (ii) collective companies; (iii) limited partnership; (iv) limited liability companies (Sh.pk); (v) joint stock companies (JSC); (vi) public companies, (vii) branches and representative offices. Accounting and financial reporting rules are applicable under IAS and IFRS.A new law is implemented from January 2019 on accounting and financial statements. Consolidation of financial statements is not functional for Albania.

1.1. PERMANENT ESTABLISHMENT /FISCAL RESIDENCE The place of fiscal residence for a business is determined based on the registration as a legal entity in Albania, or is controlled and managed in Albania. Residence is also determined if the criteria for permanent residence are met. PE in Albania means a fixed place of business where an entity carries out, wholly or partly, its business activities, including, but not limited to, an administration office, a branch, a factory, a workshop, a mine, and a construction or installation site. The determination of a PE, where applicable, is based on the provisions of the double tax treaties that Albania has entered into with a number of countries. When dealing with DTT provisions, the Albanian tax authorities refer to the Organization for Economic Co-operation and Development (OECD) commentaries. An individual is considered to be a fiscal resident of Albania if he/she(a) has a permanent home in Albania or stays in Albania, either consecutively or intermittently, for more than 183 days in a calendar year irrespective of one’s citizenship or center of interests. Calendar year is the same as the fiscal year that starts on 1 January and ends on 31 December. The individual fiscal resident is taxed on income earned by him, both domestically and abroad. In case a double tax treaty between Albania and the individual’s country provides differently, the DTT provisions will prevail. Individual taxpayers, both residents and non-residents, are subject to personal income tax (PIT). Albanian law applies the principle of worldwide taxation. Resident individuals are taxed on all sources of income in and outside the territory of Albania, while non-resident individuals are taxed on income generated only in the territory of Albania. If, during a tax period, the direct or indirect ownership of the capital or the voting rights of a legal person varies by more than 20%, that legal person will be treated as if (i) sold a proportionate proportion of its assets with the value of their market, and have the same assets repurchased with the same market value. In this way, the legal entity subject to change of ownership will recognize a "taxable profit from the deemed sale of assets" and will calculate the profit tax on it. This rule applies if the legal entity subject to change of ownership has realized in the previous 3 years an average turnover of at least 500 million ALL.



Partnerships are treated as separate taxable persons, which mean that an individual participating in more than one partnership should report separately for each of the partnerships they participate in.

1.2. PERSONAL INCOME TAX

Taxable Incomes An individual is subject of taxation for varies personal incomes as mentioned below. Tax is computed separately on each category of income. The following categories are subject to income tax:

- Salaries and other remuneration in connection with current employment. - Dividends and profit shares of partnerships. - Interest, except interest received on treasury bonds and other securities issued by the

government before 21 January 1999. - License fees and other royalties. - Rental income. - Proceeds from the transfer of immovable property. - Income from copyrights and intellectual property (IP). - Gross income from lottery or other games of chance. - Capital gains resulting from investment in securities or immovable property. - Gross income realized outside the territory of Albania. - Other gross income not mentioned above.

Personal tax deductions Education expenses Interest expenses on loans obtained for the purpose of self-education, education of children, or other persons under care are deductible expenses for the purpose of calculating taxable income. Medical expenses Elements of medical expenses not covered by social security, resulting from medical services provided to the individual, their children, or other persons under their care, are deductible expenses for the purpose of calculating taxable income. Annual medical expenses incurred by and on behalf of the taxpayer, which are not covered by mandatory health insurance, are also deductible, up to the amount of ALL 8,532. In instances where the PIT declaration is compiled by the head of the family, annual medical expenses for that person, their children, or persons under their care can be up to the amount of ALL 8,532 for each family member, but cannot exceed ALL 32,000 in total. The tax rates applied to income generated from employment are presented in table below. The upper payroll segment level is taxed at the rate of 13%, since 2019 increased from 130,000 ALL / month to 150,000 ALL / month.

Taxable income (ALL) Income tax

0 to 30,000 0%

30,001 to 150,000 13% of the gross amount over ALL 30,000

Above 150,000 23% of the amount over ALL 150,000plus 15,600 ALL



Social security contributions Social security contributions are imposed on employment income. Employees pay social security contributions at the rate of 11.2%. The employee contributions are composed of 9.5% social insurance contribution and 1.7% health insurance contribution. Employers are liable to pay social security contributions for their employees at the rate of 16.7%. The employer contribution is made up of 15% social insurance contribution and 1.7% health insurance contribution. The monthly minimum and maximum salaries for social contributions are ALL 26,000 and ALL 114,670, respectively. The social security contributions are withheld and paid by the employer. The submission of monthly payrolls and tax returns, including the declaration and payment of PIT and social and health contribution (SHC), must be done electronically within the 20th day of the consecutive month. The self-employed, the self-employed in a partnership, and the self-employed that hire third parties (excluding self-employed in agriculture) are liable to pay for themselves a mandatory Social and Health Contributions(SHC) made up of social insurance contribution of no less than 23% of the monthly minimum salary of ALL 26,000 and health insurance contribution of 3.4% on no less than the double minimum salary, i.e. ALL 52,000. For purposes of SHCs, a company’s shareholders who also have administrative roles in the company are considered to be employees. The company is required to calculate and pay SHCs for such individuals at the same rates applicable for all other employees. In case an employee is employed in two entities, they pay SHCs in both entities but not more than the maximum SHC salary. In case the employee pays SHCs on the maximum salary in one entity, then the salary received by the second entity will not be subject to SHCs. In case both salaries do not exceed the maximum salary for SHCs, then the contributions will be paid in full by the entity paying the highest salary and only for the difference with the maximum salary from the second entity. The law states that all registered entities should electronically submit to the tax authorities a declaration for every newly hired staff 24 hours before the employment start date and a declaration for every employee leaving the entity within ten days after the employment relationship ends. In addition, entities are required to electronically submit a list of their existing employees. Foreign individuals working in Albania under a local employment contract are required to pay SHCs in the same manner as local employees. However, foreign employees working under a foreign employment contract in Albania (with some exemptions) have the right to choose between the Albanian Social and Health Insurance (ASHI) scheme and another scheme in their home country, whichever is more favorable for them.

Employment expenses SHCs and voluntary pension contributions, up to the limits provided by the Law ‘On Voluntary Pension Funds’, are deductible for the purpose of calculating taxable income.

Exemption on personal tax income The following incomes are exempt when determining taxable income for PIT purposes:



- Benefits in kind earned by employment relationships (which are taxed via payroll). - Lump-sum allowances for business travel, according to the amounts determined by the

fiscal legislation. - Income received from social and health insurance schemes. - Student scholarships. - Remunerations received in case of diseases or misfortunes. - Compensation received as a result of expropriation. - Income exempted according to international agreements. - Compensation received from ex-proprietors or political prisoners. - Payment of contributions made by any member of a voluntary pension fund, as well as

payments of contributions made by the employer or any other contributor up to the limits provided by the Law ‘On Voluntary Pension Funds’

- Income resulting from the return on investment, including capital gains from investments to the pension fund.

- Income from pensions and other similar remuneration of foreign citizens of Albanian origin or those of the European Union.

Personal Tax returns For declaration purposes, a tax return is filed by employers with the tax authorities. This tax return is a summary of all individual taxes withheld from each employee of the entity according to payroll calculations. Individuals resident in Albania who generate income sourced not only in that territory but also from other countries, and non-residents who generate income sourced in Albania, are required to submit an annual income declaration to the central tax administration. Individuals who generate annual gross taxable income (of all types) of under ALL 2 million are exempted from the requirement to submit an annual income declaration. However, individuals who are employed by more than one employer are required to submit an annual income declaration, although their total income may be less than ALL 2 million. Such individuals declare the income in the annual income declaration as being from a single source and calculate the personal income tax liability arising from the progressive rates. Individuals exempted from the annual income declaration requirement who generate annual gross taxable income (of all types) of ALL 1.05 million or less can opt to submit the declaration in order to benefit from deductible expenses. Individuals are required to submit an annual income declaration at the tax administration not later than 30 April of the year following the tax period for which the declaration is made.

Payment of personal income tax Employers are required to withhold PIT for salaries and other compensations related to current employment. Whereas the declaration is made on an annual basis, the taxpayer has the obligation to pay the respective tax to the tax authorities by the 20th day of the month following the month when the income was received. The tax paid during the year will be deducted from the amount of tax calculated. In the event that the individual declaration results in tax liability, the individual should make the payment of the tax due not later than 30 April of the year following the tax period for which the declaration is made. Personal income tax (PIT) due dates



Withholding Tax The 15% tax rate is levied on the gross amount of payments for technical, management, installation, assembly, or supervisory work, as well as payments to management and board members. If a non-resident company does not create a PE in Albania, and a DTT exists between Albania and the home country of the non-resident company, no WHT payment may arise. Capital gains on the sale of shares are taxable at rate of 15%. The taxable base is the difference between the sale price and the purchase price of the shares (or the nominal value). The transfer of ownership of real estate, either land or buildings, is subject to 15% tax on the capital gain realized from the sale transaction. In cases where capital gains realized by shareholders from the direct or indirect sale of the capital or voting rights of a legal person in Albania are considered as source income in Albania and the legal entity subject to change of ownership calculates and pays the profit tax considered by the sale of assets, according to the foregoing projections, then the share capital gain will not be subject to profit tax in Albania. Dividends and other profit distributions received by a resident entity from another resident entity or from a non-resident entity are not subject to CIT for the resident beneficiary of such income. This applies despite the participation quote (in amounts or number of shares) of the entity distributing profits in the shareholder capital, voting rights, or its participation in initial capital of the beneficiary. Dividends are taxed at source at the rate of 15%. Dividends paid to a non-resident are taxed at source at the rate of 15%. Dividends received by resident companies are exempt from profit tax. The tax rate on dividends distributed to shareholders and the profits distributed to partners decreased from 15% to 8% since the January 2019. For the dividends / profits distributed by resident companies in Albania, this reduced rate will apply to retained earnings realized in 2018 before, including reserves and capitalized gains, provided that (a) the dividend tax, pertains to undistributed profits of 2017 and beforehand, be paid by 30 September 2019, and the dividend tax for 2018 will be paid by 20.08.2019. Income from services rendered by non-resident persons shall be considered with source in Albania if they are carried out for a resident person, regardless of where they are physically carried out and regardless of where they are paid. Earlier, they were considered source in Albania, and thus taxable in Albania, only income generated by services rendered in the territory of the Republic of Albania by non-resident persons. The proceeds of ownership (and other rights deriving from ownership) on immovable property located in the territory of the Republic of Albania shall be considered source income in Albania, and therefore taxable in Albania, and income (i) the rights to use mineral resources, (ii) the rights to use hydrocarbon resources, (iii) other rights to use natural and terrestrial natural resources including the sea in the Republic of Albania, and information that it belongs to these rights. The above rights and related information will be treated for tax purposes in Albania as if they were immovable property. As such, in addition to the proceeds from their use, the proceeds from their alienation (transfer of ownership over them) will also be considered with source in Albania, thus taxable in Albania. Revenue from shareholdings in Albania. The income realized by non-resident persons from the transfer of ownership over shares or interest interests, wherever they are located, will be



considered with source in Albania and thus taxable in Albania, if (i) over a year before the transfer of ownership, more than 50% of the value of those shares or interests is attributed directly or indirectly to the immovable property, rights or information mentioned above. Bank interests, patents, copyrights paid to a resident or non-resident are taxed at source at the rate of 15%. The transfer of ownership of immovable property is applied at the rate of 2% of the sale price for immovable property, except for buildings with a tax of 2.4 € / m² up to 16 € / m². The inheritance and transfer tax are applied to the transaction value at the rate of 15%. A new anti-avoidance rule is in effect since January 2019, where the tax administration is given the right not to accept suspected transactions based on restrictive criteria for the parties involved in transactions.

1.3. PROFIT TAX / CORPORATE INCOME TAX Profit tax is applied at the standard rate of 15% and with the reduced rate for tourist and information activities. Albanian law applies the principle of worldwide taxation. Resident entities are taxed on all sources of income in and outside the territory of Albania, while non-resident entities are taxed on income generated only in the territory of Albania. The CIT rate in Albania is 15%. CIT is assessed on the taxable profits calculated as taxable income minus deductible expenses. Taxpayers with annual turnover up to ALL 5 million are exempt from CIT, whereas taxpayers with annual turnover from ALL 5 million to ALL 14 million are subject to a reduced CIT rate of 5%. Other taxpayers with annual turnover greater than ALL 14 million are subject to a 15% CIT rate. However, taxpayers whose activity is software production and development are subject to a 5% CIT. Similarly, taxpayers whose activity is based on agricultural co-operation and those whose activity is certified as 'agro tourism', in accordance with the respective laws, are subject to a 5% CIT. From January 2019 businesses registered for profit tax with turnover ranging from € 64,000 to € 112,000 will pay the 5% tax rate on profit instead of the previous 15%. Businesses with annual turnover ranging from € 40,000 to € 64,000 will pay 5% tax rate.

Bad debt Bad debts are only deductible if the following conditions are met simultaneously:

- An amount corresponding with the bad debt was included earlier in income. - The bad debt is removed from the taxpayer’s accounting books. - All possible legal action to recover the debt has been taken.

This applies to all entities except those operating in the financial sector.

In Albania, there’s no tax treatment of charitable contributions. In general, contributions are considered as non-deductible expenses for CIT purposes, except what are deductible expenses the sponsorship.



Deductible expenditures for profit tax All the expenditures, which are based in an invoice as described by VAT law are known expenses with the conditions that they have to been carried out for purpose of the activity of business. The amounts allocated to special reserve accounts in banks and insurance companies which are calculated under IFRS are deductible. In the case of banks, branches of foreign banks and non-bank financial entities licensed by the Bank of Albania to conduct lending activities, in determining taxable profit, write off bad debt is recognized as a deductible expense upon fulfillment of these conditions:

1. 365 days after filing the request for commencement of enforcement proceedings with the bailiff, if the loan is secured by movable or immovable property.

2. 365 days after the court has issued the enforcement order, in case the loan is not guaranteed with movable or immovable property.

3. if the movable or immovable property securing the loan is executed before the time limits set out in (a) and (b) above, the previous banking provisions, recognized as deductible expenses, shall continue to be recognized as such.

Employers’ contributions towards the life and health insurance of employees are deductible.

Non-deductible expenditures for profit tax The Albanian legislation also defines the following specific costs as non-deductible:

- Expenses not supported with fiscal invoices. - Expenses paid in cash of amounts exceeding ALL 150,000. - Benefits in kind and gifts. - Wages, bonuses, and any other form of income deriving from an employment

relationship and paid to the employees in cash. - Provisions and reserves (with some exemptions applicable to the financial sector). - Expenses for technical services, consultancy, and management received from foreign

entities that are not registered for tax purposes in Albania and for which no withholding tax (WHT) has been paid by 20 January of the following year, at the latest.

- Losses, damages, and wastage incurred during production, transiting, or warehousing exceeding the norms defined by laws and related instructions.

- Impairment losses on fixed assets. - Representation and reception expenses exceeding 0.3% of annual turnover. Exporters

who have generated 70% of their revenue from exports in the last three years, can deduct up to 3% of their annual turnover the expenses incurred for representation abroad (attending fairs or exhibitions). Perdiem allowances which surpass 50% of the employee’s salary. Sponsorship expenses exceeding 3% of profit before tax and sponsorships of press and publications exceeding 15% of profit before tax. Excluded from this rule are entities which generate an annual taxable income above ALL 100 million and sponsor sport team activities. These entities are able to deduct as much as 3 times the amount of the sponsorship but are not able to carry it forward in the upcoming tax periods.

- Donations for recovery from natural disasters exceeding 5% of profit before tax, done on the occasions of the announcement of “natural disasters”.

- Fines and other tax-related sanctions are non-deductible expenses. - Income tax, VAT, and excise duties are non-deductible expenses.



- Interest paid in excess of the average 12-month credit interest rate applied in the banking system, as determined by the Bank of Albania, is a non-deductible expense. The amount of deductible interest expense may also be limited by thin capitalization rules. Additional to the above, any interest expenses that take at least 30% or more of earnings before interest, taxes, depreciation, and amortization (EBITDA) are recognized as non-deductible for CIT purposes if these interest expenses arise from loans or financing from related parties.

Thin capitalization applies to the level of recognizing the deductible interest on loans not exceeding 4: 1 of the debt / equity ratios and exceeding the net interest rates by 30% on the profit before EBITDA is unrecognized for taxation as an expense.

Net operating fiscal losses Fiscal losses may be carried forward up to three consecutive years. However, losses may not be carried forward if more than 50% of direct or indirect ownership of the share capital or voting rights of the company is transferred during the tax year. Albanian legislation does not allow losses to be carried back. For taxpayers investing in business projects valued over ALL 1 billion, losses can be carried forward for five consecutive years.

Payments to foreign affiliates Payments to foreign affiliates are subject to WHT unless tax relief is requested in accordance with the local legislation or any DTT in place. These payments are tax deductible if they are properly documented and incurred for business purposes only. Payments to foreign affiliates made for the purpose of profit transfer might be subject to price revaluation by the tax authorities. Any transactions/payments made to foreign affiliates shall be performed on an arm’s-length basis. Corporate income tax (CIT) due dates

Foreign income Albanian resident corporations are taxed on their worldwide income. If a DTT is in force, double taxation is avoided either through an exemption or by granting a tax credit up to the amount of the applicable Albanian CIT rate. Albanian legislation does not contain any provisions under which income earned abroad may be tax deferred.

Foreign tax credit Albania does not apply foreign tax credits except in the case of DTTs.

Tax credits and incentives The following entities are exempt from CIT:

- Legal entities that conduct religious, humanitarian, charitable, scientific, or educational activities.

- Trade unions or chambers of commerce, industry, or agriculture. - International organizations, agencies for technical cooperation, and their representatives,

the tax exemptions of which are established by specific agreements. - Foundations or non-banking financial institutions established to support development

policies of the government through credit activities. - Film studios and cinematographic productions (among other types of entity/activity) that

are licensed and funded by the National Cinematographic Centre.



- Voluntary pension funds administrated from the competent companies. - Accommodation structures "four- and five-star hotel and resort with special status", are

exempt from income tax for a 10-year period, provided they receive special status until December 2024. The effects of the exemption commence at the moment of commencement of the economic activity of the accommodation structure, but not later than 3 years after the receipt of the special status.

Investment incentives are provided in various forms implemented under the laws that define them, such as: (i) low tax rates (5%) without prerequisites; (ii) a special scheme for farmers; (iii) reduced VAT rates for tourist and information services; (iv) the economic sector excluded from VAT (hydrocarbon search); (v) tax exemption for 10 years for 4-5-star tourist hotels; (vi) tax-benefit relief based on investment projects on a case-by-case basis such as infrastructure construction, tourism, clothing industry, oil production and new ventures; (vii) duplication of spending on research and development investments in the free economic zones.

Technical and Economic Development Areas Further incentives are provided supporting the businesses that invest in TEDA with fiscal incentives, which are outlined below:

- The entry and exit of goods to / from the area, the formalities and procedures conducted under the provisions of the Code.

- Developers and users are exempt from paying 50% of the normal profit tax amount due for the first 5 years from the start of their activity in the area.

- Developers to invest in the area, within 3 years from the date of commencement of work, or users who invests in the area, within 3 years from the beginning of the economic activity of the area, is recognized as deductible expenses of tax period,20% of annual capital expenditure, regardless of the amount of depreciation, under the law on income tax for a period of 2 years.

- Supply of Albanian goods, intended to be placed in area, regarded as a supply for export with zero rate tax, in accordance with the provisions of the law on value added tax and customs legislation.

- Project developers exempt from local tax of impact in infrastructure. - Construction made in this area, according to project of developers are exempt from real

estate tax for a period of five years. - Developers or users of the area are exempt from taxes on transferring the right of

ownership of immovable property. - Costs of wages and social and health contributions, which the employer pays for the

employee, are recognized 150% of value during the first fiscal year of activity. In years following, additional costs for wages, compared to the previous year, for the purposes of calculating taxable profit, recognized as known expenses with 150% of their value.

- Costs of employee training in areas of technology and economic development, for the purposes of calculating taxable profit are recognized as a deductible expense for the tax period with their double value, for a period of 10 years from the beginning of activity economic.

- Expenses for research and development are recognized as known costs at twice the value, for a period 10 years from the start of economic activity.

Profit Tax returns The final CIT return is due by 31 March of the year following the tax year.



Payment of profit tax Predetermined advance payments of CIT are due either by the 15th day of each month or by the end of each quarter. According to the tax laws, CIT is paid during the year on a prepayment basis. The amount of monthly CIT prepayments is determined as follows:

- For each of the following months: January, February, and March of the following fiscal period, the income tax amount of the fiscal period two years prior to the current period, divided by 12.

- For each of the next nine months of the following fiscal period, the income tax amount of the previous fiscal period divided by 12.

The final due date for the payment of the final CIT for a fiscal year is 31 March of the following year. Note that this payment is calculated as the total amount of CIT self-assessed from the taxpayer for that particular fiscal year less total CIT installments paid related to that year. Penalties for non-compliance with CIT prepayment deadlines are 10% of the unpaid liability. Companies have the obligation to pay the non-resident WHT on dividends to the tax authorities no later than 20 August of the year the financial results are approved, regardless of the fact of whether the dividend has been distributed or not to the shareholders.

1.4. INDIRECT TAXES VAT is applied at a standard rate of 20%, while the reduced rate is 6% (electric minibuses, tourist hotels, advertising for audio-visual media, books, accommodation and restaurants for agro-tourism units). The VAT registration threshold is € 16,000. Some activities like licensed professionals do not have a turnover threshold for VAT registration. The activity of agricultural producers has a threshold of € 40,000 to be registered on VAT. VAT exemptions include some goods and services. Exports are at 0% VAT rate. Reduced VAT rate The reduced VAT rate of 6% is applied to the following:

- accommodation services. - services certified as "agro tourism". - advertising services by audio-visual media. - supply of books.

Zero-rated goods and services The following goods and services are subject to 0% VAT in Albania:

- Exports. - The supply of goods transported in the personal luggage of travelers. - International transport. - Supply of gold for the Bank of Albania.

VAT-exempt goods and services The VAT Law provides a list of supplies that are considered as VAT-exempt:



- The supply by the public postal services of services, and the supply of goods incidental thereto.

- Hospital and medical care and closely related activities. - The provision of medical care in the exercise of the medical and paramedical professions. - The supply of human organs, blood, and milk. - The supply of services by dental technicians in their professional capacity. - The supply of services by independent groups of persons who are carrying on an activity

that is exempt from VAT. - The supply of services and of goods closely linked to welfare and social security work. - The supply of services and of goods closely linked to the protection of children and

young persons. - The provision of children's or young people's school or university education. - Tuition given privately by teachers and covering school or university education. - The supply of agricultural machines. - The supply of agricultural inputs - The supply of veterinary services, except for veterinary services for pets.

VAT calculation The amount of VAT to be paid is calculated as the difference between the VAT applied to purchases (input VAT) and the VAT applied to sales (output VAT). If the input is higher than the output, then the difference is a VAT credit that can be carried forward to subsequent months. Otherwise, if the output VAT is higher than the input VAT, the difference represents VAT payable to the state. Taxpayers, who carry out taxable VAT activities, as well as VAT-exempt activities, can credit only that portion of their input VAT that corresponds to the taxable activities. To determine the amount of input VAT that can be claimed from the state, the taxpayer should estimate a VAT credit coefficient (i.e. the rate of the taxable VAT activities over total activities). VAT refund Taxable entities have the right to claim VAT reimbursement if the period in which VAT credits are carried forward exceeds three consecutive months and the total amount of accumulated VAT credit is equal to or above ALL 400,000. Following the request for VAT reimbursement, taxable entities have the right to obtain the reimbursement of VAT credit within 60 days after the request is submitted. For all taxable persons who are considered as exporters based on the criteria established by the Instruction of Council of Ministers, the deadline for tax authority approval, or not, of VAT reimbursement requests is within 30 days. VAT returns The submission of VAT returns and sales and purchase books must be done electronically by all taxpayers, including VAT representatives. Electronic submission deadlines fall on the dates below:

- For VAT books, the deadline is the tenth day of the following month. - For VAT returns and for the payment of the related VAT liability, the deadline is the

14th day of the following month.

Excise duties Excise duty is a tax applicable to certain goods consumed in Albania, whether imported or produced in the country.



Albanian excise legislation is based on EU Council Directive 2008/118/EC, which defines common provisions applicable for all excisable goods. It also integrates specific provisions applicable for each category of excise products. Categories of products subject to excise duty in Albania are:

- Energy products (e.g. petroleum, gasoil, gas). - Tobacco products (e.g. tobacco, cigarettes). - Alcohol and alcoholic beverages (e.g. beer, wine, spirits). - Other products (e.g. baked coffee, fireworks).

Excise duty is usually calculated as an amount per quantitative measuring unit defined for that product (e.g. per liter, per kilogram, per hectoliter, per 1,000 pieces). Reimbursement of excise tax can be obtained on:

- Goods that are used in a process previously approved by the customs authorities. - Exported products that have previously been subject to excise duty in Albania. - Fuel used by companies involved in the construction of electric energy resources, with an

installed power of not less than five MW per source. - Fuel used in greenhouses, for the production of industrial and agri-industrial products. - Biodiesel used in transportation.

The reimbursement procedure is subject to special provisions and pre-defined criteria on the basis of which the amount to be reimbursed is calculated.

Customs duties Albania uses the Harmonized Code System for tariff classification. The customs duty rates range from 0% to 15%, depending on the type of goods. Import of machinery and equipment for use in the taxpayer's business activity are generally subject to customs duties at the zero rate. Import of vehicles is subject to customs duties at a rate of 0%.

1.5. LOCAL TAXES

Real estate tax Entities that own real estate property in Albania are subject to real estate tax. Real estate tax on buildings Real estate tax on buildings is calculated based on the type of activity the business entity owning the building carries out. The basis for this tax is the value of the building. Tax due is calculated on a yearly basis as a percentage of the value of the building, depending on the use of the latter, as outlined below:

Type of building Tax rate (%) I. Residential buildings 0.05

II. Buildings used for commercial purposes 0.20

III. Construction sites for which building has not been finalized within the deadline outlined in the construction permit

30.00



Real estate tax on agricultural land Real estate tax on agricultural land is levied on each hectare and varies depending on the district where the agricultural land is located and on the land productivity categorization. Real estate tax on land (non-agricultural) Real estate tax on land (non-agricultural) is levied per square metre and varies depending on the district where the land is located. Property tax on construction projects used for business purposes is applied (a) 4% -8% of the sale price per m² for residential and commercial buildings, (b) 2% -4% over the investment value for the capital and 1% -3% for other municipalities, for tourism, agroindustry, industry, for personal housing purposes and for public purposes (c) 0.1% of the investment value for infrastructure projects for the construction of national roads, airports, ports etc.

1.6. NATIONAL TAXES

Stamp duties and notary taxes There are no stamp duties on the sale contract of land or other properties. There are, however, notary taxes that are, in nature, similar to stamp duties. The notary tax on sales contracts that relate to change in ownership of immovable properties is ALL 1,000. The notary tax on sales contracts that relate to change in ownership of movable properties is ALL 700. Depending on the agreement reached between the seller and the buyer, the notary tax can be paid either by the seller, or by the buyer, or shared between both of them.

Registration taxes The fee for the registration of a business entity is ALL 100; however, it can be reduced to ALL 0 if the registration is made online.

1.7. TRANSFER PRICING AND TAX TREATIES

Transfer Pricing The law on transfer pricing in Albania emphasizes the following:

- The general rule provides the application of the arm’s-length principle. - The taxpayer is subject to transfer pricing rules if the taxpayer performs controlled

transactions with its related parties where: Controlled transactions are considered the cross-border transactions only. Related parties are considered the situations where:

o one person participates, directly or indirectly, in the management, control, or capital of the other person, and

o the same person or persons participate(s), directly or indirectly, in the management, control, or capital of both persons.

The taxpayer subject to transfer pricing rules must have in place the following information:

- Documented information and analysis to verify that its controlled transactions are performed in consistency with the arm’s-length principle. Transfer pricing documentation shall be provided to the tax administration upon its request within 30



days of receiving the tax administration’s request. The content and form of the transfer pricing documentation is specified by instruction of the Minister of Finance.

- Taxpayers engaged in controlled transactions above ALL 50 million are required to submit an annual controlled transactions template by 31 March of the year following the year subject to documentation.

- The consistency of a controlled transaction(s) with the arm’s-length principle shall be determined by applying the most appropriate transfer pricing method from the methods provided below:

o Comparable uncontrolled price method. o Resale price method. o Cost plus method. o Transactional net margin method. o Transactional profit split method. o Other methods.

Taxpayers with a total value of related-party transactions of over 30 million Euros in a five-year period can enter into an Advance Pricing Agreement (APA) with the tax authority.



Tax Treaties1 Albania has signed 43 DTTs, of which 39 are in force. WHT rates envisaged by applicable DTTs are provided in the following table:

Recipient WHT (%) Applicable

from Dividends Interest Royalties

Non-treaty 8 15 15

Treaty:

Austria 5/8 (6) 5 5 1/1/2009

Belgium 5/8 (6) 5 5 1/1/2005

Bosnia and Herzegovina 5/8 (5) 10 10 1/1/2009

Bulgaria 5/8 (6) 10 10 1/1/2000

China 8 10 10 1/1/2006

Croatia 8 10 10 1/1/1999

Czech Republic 5/8 (6) 5 10 1/1/1997

Egypt 8 10 10 1/1/2006

Estonia 5/8(5) 5 5 1/1/2018

France 5/8 (6) 10 5 1/1/2006

Germany 5/8 (6) 5 5 1/1/2012

Greece 5 5 5 1/1/2001

1

1. If the recipient company directly or indirectly owns 50% of the capital of the paying company, a 0% rate of the gross amount of the dividends applies. If the recipient company directly or indirectly owns 25% of the capital of the paying company, a 5% rate of the gross amount of the dividends applies. A tax rate of 8% of the gross amount of the dividends applies in all other cases.

2. A tax rate of 5% of the gross amount of the interests applies in case of interests in a contracting state, which are paid to a loan granted by a bank or any other financial institution of the other contracting state, including investment banks and savings banks and insurance. A tax rate of 8% of the gross amount of the interests applies in all other cases.

3. If the recipient company or any other governmental body is a resident of the other contracting state, a 0% rate of the gross amount of the dividend applies. If the recipient company (other than a partnership) directly or indirectly owns at least 10% of the capital of the paying company, a 5% rate of the gross amount of the dividends applies. A tax rate of 8% of the gross amount of the dividends applies in all other cases.

4. If the recipient company (other than a partnership) directly or indirectly owns at least 75% of the capital of the paying company, a 0% rate of the gross amount of the dividends applies. If the recipient company (other than a partnership) directly or indirectly owns at least 10% of the capital of the paying company, a 5% rate of the gross amount of the dividends applies. A tax rate of 8% of the gross amount of the dividends applies in all other cases.

5. If the recipient company (other than a partnership) directly or indirectly owns at least 25% of the capital of the paying company, a 5% rate of the gross amount of the dividends applies. A tax rate of 8% of the gross amount of the dividends applies in all other cases.



8. If the recipient company (other than a partnership) directly or indirectly owns at least 25% of the capital of the paying company or is a pension scheme, a 5% rate of the gross amount of the dividends applies. The tax rate switches to 15% of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle that distributes most of this income annually and whose income from such immovable property is exempted from tax. A tax rate of 8% of the gross amount of the dividends is applied in all other cases.

9. 5 % for royalties which are paid for the use of, or the right to use industrial, commercial or scientific equipment and 8% in all other cases.



Recipient WHT (%) Applicable

from Dividends Interest Royalties

Hungary 5/8 (5) N/A 5 1/1/1996

Iceland 5/8 (5) 10 10 1/1/2017

India 8 10 10 -

Ireland 5/8 (5) 7 7 1/1/2012

Italy 8 5 5 1/1/2000

Korea 5/8 (5) 10 10 1/1/2009

Kosovo 8 10 10 1/1/2006

Kuwait 0/5/8 (3) 10 10 1/1/2014

Latvia 5/8 (5) 5/10 (2) 5 1/1/2009

Luxembourg 5/8 (5) 5 5 -

Macedonia 8 10 10 1/1/1999

Malaysia 5/8 (6) 10 10 1/1/1995

Malta 5/8 (6) 5 5 1/1/2001

Moldova 5/8 (5) 5 10 1/1/2004

Netherlands 0/5/8 (1) 5/10 (2) 10 1/1/2006

Norway 5/8 (6) 10 10 1/1/2000

Poland 5/8 (5) 10 5 1/1/1995

Qatar 5 5 6 3/5/2012

Romania 8 (7) 10 15 1/1/1995

Russia 8 10 10 1/1/1998

Serbia and Montenegro 8 (6) 10 10 1/1/2006

Singapore 5 5 5 1/1/2012

Slovenia 5/8 (5) 7 7 1/1/2010

Spain 0/5/8 (4) 6 0 4/5/2011

Sweden 5/8 (6) 5 5 1/1/2000

Switzerland 5/8 (6) 5 5 1/1/2001

Turkey 5/8 (6) 10 10 1/1/1997

United Arab Emirates 0/5/8 (3) N/A 5 1/1/2014

Morocco 8 10 10 -

Saudi Arabia 5 6 5/8(9) -

United Kingdom 5/8 (8) 6 N/A 1/1/2014

Payments are made at the Albanian LEK (ALL), the local currency.



2. BOSNIA and HERZEGOVINA

Bosnia and Herzegovina consist of two entities: Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS), with a third region, the Brčko District (BD), being administered by both. Bosnia and Herzegovina comprise tax administration 4 structures that implement the tax legislation: Indirect Tax Authority; the Tax Administration of Bosnia and Herzegovina; the District Administration of Brcko; the Tax Administration of Republika Srpska. From all of tax jurisdictions, two of them are the main: Federal Tax Administration of Bosnia and Herzegovina and Tax Administration of Republika Srpska. Legal changes and the legal framework are mostly a reference for implementation of the Bosnia and Herzegovina tax administration. The regulatory framework between administrations of different jurisdictions has harmonization, but with certain differences regarding direct taxes. Minimum capital requirement for the company foundation in FBiH is:

- EUR 500 for LLC; - EUR 25,000 for JSC.

Minimum capital requirement for the company foundation in RS is:

- EUR 0.5 for LLC; - EUR 10,000 for closed JSC; - EUR 25,000 for opened JSC.

The accounting and financial reporting rules under the Law on Accounting and Auditing are applicable under IAS and IFRS throughout the territory of Bosnia and Herzegovina. Tax grouping is allowed in the FBiH under the following conditions:

- if there is more than 50 percent direct/indirect control between the parent company and subsidiaries;

- all of the legal entities under consideration are FBiH residents; - the legal entities under consideration prepare a statement of consent with regard to the

consolidation. Tax consolidation applies for at least 5 years once chosen and approved by the tax authorities. Representative offices of foreign companies can be registered in all three administrative units. A branch of a foreign legal entity can be registered in the Federation of Bosnia and Herzegovina and in Republika Srpska. The tax treatment of the branch of a foreign legal entity is still quite unclear from the local perspective, so we recommend contacting a tax and accounting specialist. BD regulations do not allow registration of branch of a foreign legal entity. The place of the fiscal residence for businesses is determined based on the registration of a business as a legal entity, or where it has the principal place of business by applying the criteria of permanent residence, or whether they are subject to withholding tax. Repatriation of post-tax profit is permitted.



2.1. FEDERATION OF BOSNIA AND HERZEGOVINA

2.1.1. PERMANENT ESTABLISHMENT / FISCAL RESIDENCE According toCIT law, a resident business is a legal entity that meets one of the following criteria:

- Headquarters (registration) is entered into a court registry of the Federation of Bosnia and Herzegovina.

- Management and supervision over the business activities is located in the Federation of Bosnia and Herzegovina.

A PE of a non-resident business is a permanent place of business through which the non-resident performs activity in whole or partially throughout the territory of the Federation of Bosnia and Herzegovina. A PE under CIT law is considered to be one of the following:

- Management headquarters. - Branch office. - Business office. - Factory. - Workshop. - Location of natural resources extraction. - Construction site (construction or mounting project) when the work is performed during

a period exceeding six months. - Providing consulting or business services lasting for a period exceeding three months

consecutively over a 12-month period. - A representative acting independently on behalf of a non-resident related to the activities

of signing a contract or keeping supplies of products delivered on behalf of a non-resident.

The term PE shall be deemed not to include the following:

- The use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise.

- The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or delivery.

- The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of processing and finishing by another enterprise.

- Maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise.

- Maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.

- Maintenance of a fixed place of business solely for any combination of above-mentioned activities, provided that the overall activity of a fixed place of business is of a preparatory or auxiliary character.

A non-resident legal person shall not be deemed to have a PE in the Federation of Bosnia and Herzegovina merely because it carries on business through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.



A non-resident legal person shall not be deemed to have a PE in the Federation of Bosnia and Herzegovina merely because it controls or is controlled by a legal person resident of the Federation of Bosnia and Herzegovina. Provisions of a double tax treaty shall prevail over domestic law when identifying a PE. A fiscal resident is a physical person who:

- has residency in the Federation of Bosnia and Herzegovina, or - resides in the Federation of Bosnia and Herzegovina, continuously or in intervals, for

183 days or more during one calendar year.

2.1.2. PERSONAL INCOME TAX Personal income tax (PIT) payers are considered to be:

- Residents, subjecting them to tax on their worldwide income. - Non-residents who perform independent business activity through a permanent place of

business activities in the territory of the Federation of Bosnia and Herzegovina, subjecting them to tax on income generated from such permanent place of business.

- Non-residents who perform dependent business activity in the territory of the Federation of Bosnia and Herzegovina, subjecting them to tax on income generated from such dependent business activity.

- Non-residents who earn income from movable and immovable property, royalties, patents, licenses, and capital investments where ownership of the underlying property is in the territory of the Federation of Bosnia and Herzegovina, subjecting them to tax on income earned from such property.

The following income is subject to PIT:

- Income from dependent business activities. - Income from independent business activities. - Income from property and property rights. - Income from capital investments. - Income from prize winning games and lottery games.

The PIT rate is a flat rate of 10%.

Tax deductions for personal incomes The following deductions from the PIT base are available in the Federation of Bosnia and Herzegovina. Personal deductions Interest paid on a mortgage loan is deductible up to the full amount. Premium pad on life insurance is deductible up to the full amount.

Allowances Monthly (BAM) Personal allowance 300

Dependent family member - spouse 150

Dependent family member - first child 150

Dependent family member - second child 270



Allowances Monthly (BAM) Dependent family member - third and every next child 90

Dependent family member - parent (whose monthly income does not exceed BAM 300) 90

Taxable income for the personal income tax purposes in the Federation of Bosnia and Herzegovina is the income determined in the financial statements, increased for tax non-deductible costs and other tax non-deductible items and decreased for non-taxable items in accordance with the CIT Law of the Federation of Bosnia and Herzegovina. Income on the basis of collected written-off debt, in the event that it was included in income in a previous period and was not subject to tax allowable or recognized expenditure, shall not be included in the tax base. Capital gains that increase the CIT base are all amounts that directly increase the accumulated or current profit in the balance sheet in accordance with IAS. Capital gains that increase the CIT base are also considered to be gains from transactions of sales or transfers of assets if such profit is not included in the balance sheet. Such capital gains are determined as the difference between the value of the transaction and the purchase value, deducted for tax depreciation. If such difference is negative, it is considered as a capital loss. For the purpose of determining the capital gains, the price of the transaction is the price stipulated in the contract, or the market price of the transaction if the stipulated price is lower than the market price. Increase or decrease of taxpayer's equity performed in accordance with the Company Law is not considered as capital gain or loss. Dividends realized based on participation in the capital of other taxpayers shall not be included in the tax base. Shares in the profit of a business association will be considered dividends. Dividends are taxed at a flat rate of 10%. For dividends paid to non-resident companies, 5% and 10% are taxed. Dividends, which benefit from business branches within the same fiscal jurisdiction, are exempt from profit tax. Meanwhile, dividends obtained from foreign sources are included in taxable income. Fiscal residents are allowed to credit the tax paid abroad. Interest income is generally included in the taxable base. The exception, is for interest income realized from state bonds issued for war claims, which should not be included in the taxable base2. Royalty income in the Federation of Bosnia and Herzegovina is generally included in the taxable base. The Federation of Bosnia and Herzegovina taxes resident corporations on a worldwide basis. There are no deferral or anti-deferral provisions in the Federation of Bosnia and Herzegovina.

Social security contributions Mandatory social security contributions in the Federation of Bosnia and Herzegovina are due by the following rates:

2the CIT law does not explicitly allow for this, which may lead to discussion with the tax authority



Type of contribution Employee’s contributions (%)

Employer’s contributions (%)

Contribution for pension and invalid insurance 17.0 6.0

Contribution for health insurance 12.5 4.0

Contribution for unemployment insurance 1.5 0.5

The base for calculation of social security contributions is the gross salary. In the Federation of Bosnia and Herzegovina, the employer also pays 0.5% of contribution for protection from natural and other disasters, as well as 0.5% of the water protection charge, calculated on net salary. Social security contributions have to be calculated and withheld by an employer with the salary payment.

2.1.3. PROFIT TAX/ CORPORATE INCOME TAX A CIT payer is:

- A resident company or other legal entity performing independent and permanent business activity through the sale of products and provision of services in the domestic or foreign markets for the purpose of generating profit.

- A legal entity from Republika Srpska and Brčko District that is registered in the territory of the Federation of Bosnia and Herzegovina for the income generated in the territory of the Federation of Bosnia and Herzegovina.

- A business unit of a non-resident legal entity that performs activities through a permanent establishment (PE) in the territory of the Federation of Bosnia and Herzegovina and is a resident of the Federation of Bosnia and Herzegovina.

- A non-resident in respect to the income generated from a resident of the Federation of Bosnia and Herzegovina.

Profit tax/ CIT is applied at the rate of 10%.

Deductible expenditures for profit tax Tax deductible expenditures are all documented expenditures, decreased for the deductible VAT that a taxpayer incurred for the purpose of generation of profit, provided they are properly presented in the financial statements. Expenditures are deductible from revenue in computing the BD tax base if the expenditures directly relate to the realized revenue. Depreciation cost is deductible only if it relates to the property subject to depreciation and being used. Depreciation of fixed assets is deductible up to the amount established by proportionate application of the highest annual depreciation rates using the linear method, as follows:

Assets Rate (%) Buildings 5

Roads, communal objects, and upper railway rails machines 10

Equipment, vehicles, and facilities 15

Equipment for water management, water-supply, and canalisation 15



Assets Rate (%) Hardware, software, and equipment for environment protection 33.3

Crops 15

Livestock units 40

Intangible non-current assets 20

Property being depreciated with a value of less than BAM 1,000 may be fully deducted in the purchase year, on condition that that the property was put in use. Depreciated assets, once depreciated, shall not be re-included in the depreciation calculation for the purposes of the tax balance. Expenditure arisen from devaluation of fixed assets, which are determined as the difference between current net value and the estimated retrievable value, is tax deductible in the tax period when the assets are sold or destroyed by force majeure. Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection. Interest expense is generally tax deductible, except for interest from a related-party loan, which can be tax non-deductible if it does not meet the criteria set by the thin capitalization rule The expenses occurring based on the write-off of doubtful debts are tax deductible. Debts are considered doubtful under the following conditions:

- The debts have been included in the taxpayer’s revenue in the previous tax period and they have not been collected within 12 months from the due date.

- The taxpayer has started court procedures in regard to the receivable, started the enforced collection procedure, or the receivable has been registered in the liquidation or bankruptcy procedure.

Costs of humanitarian, cultural, educational, scientific, and sports purposes (except professional sports) are deductible in the amount of up to 3% of total income. Tax reserves The following costs related to provisions are tax-deductible costs:

- Provisions for future costs related to environment protection of up to 30% of taxable income before provision was made, provided there is a legal obligation for the taxpayer to undertake the measures for environment protection. The total provision for environment protection cannot exceed the amount of the taxpayer’s registered capital.

- Provisions for future costs in the guarantee period of up to 4% of the taxpayer’s annual turnover relating to products subject to guarantee in the tax period.

Taxes are generally tax-deductible expenses Representation costs pertaining to business activity are deductible in the amount of 30% of representation costs. Expenses of membership fees to the chambers are deductible in the amount not exceeding 0.1% of total income, with the exception of membership fees regulated by the law. Expenses based on sponsorship are deductible in the amount of 3% of total income.



Non-deductible expenditures for profit tax Fines and penalties are not tax deductible. CIT is not tax deductible. Amortization of goodwill is not tax deductible.

Net operating losses Tax losses may be offset against profits in a future tax period, not exceeding five years. Tax losses are utilized on a FIFO basis. Tax losses cannot be carried back.

Payments to foreign affiliates Payments to foreign affiliates are generally allowed if they relate to realized revenue.

Tax incentives When a taxpayer generates income or profit through business activities outside of the Federation of Bosnia and Herzegovina (directly or through a business unit) and pays the profit tax on such activities, the tax paid abroad shall be credited, up to the amount of the profit tax that would have been paid for the income or profit generated by the same activities in the Federation of Bosnia and Herzegovina. CIT incentives are as below:

- 30 percent CPT incentive in the year of investment is available when the taxpayer invests in production equipment (excluding passenger vehicles) amounting to 50 percent of the current year’s profit and the investment is made by using the taxpayer’s own resources (funds).

- 50 percent CPT incentive is available for a five-year period when the taxpayer invests BAM 20 million (approximately EUR 10 million) from its own funds in fixed assets used for production activities. BAM 4 million (approximately EUR 2 million) must be invested in the first year.

Employment incentive A taxpayer who employed new employees is entitled to a tax-deductible expense in the double amount of gross salary paid to newly employed employees if the following conditions are met:

- Employment contract has to be concluded on a full-time basis for period of minimum 12 months.

- Newly employed employee has not been employed by the taxpayer or by a related legal entity in the past five years.

Financial expenses for interest per financial agreements and instruments to related parties are generally recognized for tax purposes. Under the thin capitalization rule of the CIT Law of the Federation of Bosnia and Herzegovina, in order to be entitled to deduct interest expenses on loans received from a related party, a company's ratio between total liabilities from related-party loans and the company's registered equity should not exceed 4:1. However, if the ratio between these obligations per financial agreements and the registered share capital of a taxpayer exceeds



the ratio of 4:1, then the financial expenses exceeding the 4:1 are not recognized for tax purposes and cannot be transferred to another tax period. The CIT Law prescribes that this rule does not apply to banks and insurance companies.

Withholding taxes WHT is calculated on income generated by a non-resident through performance of occasional business activity in the territory of the Federation of Bosnia and Herzegovina. WHT is due on payment or any other settlement of the following:

- Dividends (i.e. shares in profit). - Interest or the functional equivalent to interest. - Royalties and intellectual property (IP) rights. - Fees for management, technical, and educational services (including fees for market

research, tax consulting, audit services, and consulting services). - Compensations for lease of movable and immovable property. - Compensation for fun and sport events. - Insurance or reinsurance premiums from risks in the Federation of Bosnia and

Herzegovina. - Compensation for telecommunication services. - Other service fees, but only for non-residents from the countries that do not have a

signed DTT with Bosnia and Herzegovina. WHT shall be paid at the rate of 5% on dividend payments and 10% for interest, royalties, and other, if not reduced under a tax treaty. The inheritance and gift tax are set at regional level and range from 2% to 10%, as in the case of determining the market value.

2.1.4. LOCAL TAXES A real estate transfer tax applies (amounts to 5 percent of the estimated value of a real estate). The cantonal laws determine the property tax rate according to the value and size of the immovable property. FBiH property taxes are imposed at the cantonal level (ten cantons in total), and the rates as well as the taxpayers are different between the cantons. The taxes are paid in the range of BAM 0.5 to BAM 3 per square metre. In the FBiH, the real estate tax applies to, inter alia, vacation real estate and rented real estate. RET is regulated at the cantonal level in the FBiH (i.e. there are currently 10 different laws applicable in the FBiH) and further regulated by municipal decisions. The sale of immovable property is subject to the taxation of the transfer of ownership right located at the regional level, varying from 0.05% to 0.5% of the transaction value, according to the open market reference. Responsible for paying this tax may be both the seller and the buyer. This responsibility is defined by the rules established by the regions.



There are several other taxes introduced at the entity, cantonal, and municipality level. The duties differentiate based on company location, business size, and type of business. FBiH other taxes include the communal tax, fire prevention contribution, tourist community contribution, forestry contribution fee, Foreign Trade Chamber of Bosnia and Herzegovina duty, Chamber of Commerce FBiH duty, and administrative stamp duties.

2.1.5. TRANSFER PRICING Transfer pricing requirements are imposed at the entity level. The Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District have different regulations in place, including different rules in regard to applicable methods, related parties, and documentation. The regulations in place do not differ if the transactions are within one entity, cross-border, or international. Basically, this means that all transactions can fall under the transfer pricing scope. In both the FBiH and the RS, prices for the sale of goods and services between related parties should be at arm’s length. If not, the difference exceeding the arm’s length value will be added to the tax base and is therefore taxable. New CPT Laws for both the RS and the FBiH took effect as of January 1, 2016 and March 5, 2016 respectively. The new FBiH and RS CPT Laws contain more detailed transfer pricing rules. Both CPT Laws require taxpayers to include transfer pricing documentation in their tax returns as proof that transactions with related parties were at arm's length. Further details with regard to transfer pricing rulings are set out in applicable Rulebooks on transfer prices of the FBiH and the RS. With Bosnia and Herzegovina not being an EU or an OECD member, the local legislation does not have the same requirements with respect to transfer pricing documentation as in EU countries nor does the legislation refer to the OECD guidelines. Related parties A related party is considered to be an individual or legal person who has the possibility of control or significant influence on the business decisions of the taxpayer. Owning more than 25% of stocks or shares in a company is considered to be enabled control. Significant influence is considered to be mutually high sales turnover, technical dependence, or otherwise gained control over the management. Prescribed methods The CIT law recognizes the following methods:

- Comparable uncontrolled price (CUP) method (primary method). - Cost plus method. - Resale price method.

Alternatively, in case these methods cannot be applied, the following methods can be used:

- Profit split method. - Transaction net margin method.

In case that none of the above-mentioned methods can be applied, any other method that can reasonably be applied for determination of the arm’s-length principle is allowed.



Country-by-country (CbC) reporting regime The parent company is required to submit Form CBC-901 if the company is a resident of the Federation of Bosnia and Herzegovina and generates gross consolidated income of a minimum of BAM 1.5 billion.

2.2. REPUBLIKA SRPSKA

2.2.1. PERMANENT ESTABLISHMENT/ FISCAL RESIDENCE According to CIT law, a fiscal resident of Republika Srpska is a legal entity that meets one of the following criteria:

- Headquarters of a legal entity is registered at the registry of business entities of Republika Srpska.

- The place of actual management and supervision over the business activities of a legal entity is located in Republika Srpska.

A PE is considered to be a place of business in Republika Srpska through which the business of a foreign legal entity is wholly or partially carried on. The term PE includes the following, especially:

- A place of management, a branch, an office, a factory, a store, a workshop, a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources in the territory of Republika Srpska.

- A building site, installation, or assembly works in Republika Srpska, as well as a place of infrastructure used for research or extraction of natural resources or supervisory of the same.

- A place of business where an individual or legal person has the authority to conclude contracts in the name of the non-resident enterprise.

- A place where a resident individual or legal person, without authority to conclude contracts in the name of the non-resident enterprise, does business in the name of the non-resident enterprise by holding stock of goods or merchandise and carries out deliveries on a regular basis in the name of the non-resident enterprise.

The term PE shall be deemed not to include the following:

- The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise.

- The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display.

- The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of processing and finishing by another enterprise.

- Sale of goods or merchandise belonging to the enterprise, provided that it was displayed during fairs or exhibitions under condition that the sale was executed within a month of closing a fair or an exhibition.

- Maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise.

- Maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character.



- Maintenance of a fixed place of business solely for any combination of above-mentioned activities, provided that the overall activity of a fixed place of business is of a preparatory or auxiliary character.

A foreign legal entity shall not be deemed to have a PE in Republika Srpska merely because it carries on business through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. A foreign legal entity shall not be deemed to have a PE in Republika Srpska merely because it is controlled by a legal person that is a resident or by a person carrying out business in Republika Srpska, whether through a PE or otherwise. Provisions of a DTT shall prevail over domestic law when identifying a PE. A fiscal resident is a physical person who fulfils one of the following principles of residency:

- has permanent residence in Republika Srpska, - lives in the territory of Republika Srpska, continuously or with interruptions, for 183 days

or more in a 12-month period starting or completing in the tax year, or - has a permanent place of living and centre of vital interests in Republika Srpska.

2.2.2. PERSONAL INCOME TAX PIT is calculated and paid on the following types of income:

- Personal income. - Income from independent business activities. - Income from royalties and rights similar to royalty rights and rights of industrial

property. - Income from capital. - Capital gain income. - Income from foreign source. - Other income.

PIT payers are residents, as well as non-residents who earn income in the territory of Republika Srpska. PIT of 10%, in addition to social security contributions, has to be calculated and withheld by an employer with the salary payment. There are no additional payroll taxes due. Small entrepreneurs are taxed at a 2% rate on their total annual revenue. Foreign-source income is taxed at the gross amount.

Tax deductions for personal incomes The following deductions from the PIT base are available in Republika Srpska. Interest paid on a mortgage loan is deductible up to the full amount. Premium pad on life insurance to an insurance company licensed in Republika Srpska is deductible up to BAM 1,200. The paid contribution for voluntary retirement insurance is deductible up to BAM 1,200.

Allowances Annually (BAM)



Allowances Annually (BAM) Personal allowance 2,400

Dependent family members 900

Tax credits and incentives With an aim to improve the demographic picture, a tax exemption for remuneration of child birth has been introduced in the amount of one average net salary.

Social security contributions The following rates of mandatory employee’s social security contributions have to be applied:

Type of contribution % of gross salary Contribution for pension and invalid insurance 18.5

Contribution for health insurance 12.0

Contribution for unemployment insurance 1.0

Contribution for child protection 1.5

Mandatory social security contributions are calculated on gross salary and have to be withheld by the employer, as an income payer. There are no employer’s social security contributions. There is additional special contribution due for solidarity and repair of damages caused by floods in May 2014. This contribution is due in the amount of 3% of an employee’s net salary, where 50% of the contribution is borne by employee and the remaining 50% of the contribution is borne by employer. Various amendments to the Labor Law, Income Tax Law, and laws relating to salaries in the public sector have been adopted in the Republic of Srpska (RS)—one of two self-governed entities within Bosnia and Herzegovina. The changes increase the non-taxable part of salary from KM 200 to KM 500 per month, a favorable change to employees who should pay less tax as a result. The amendments to the RS Labor Law stipulate a new definition of salary and an obligation on employers to update existing employment contracts in line with these amendments—in particular to specify salary on a gross rather than net basis. Failure to update contracts may result in a fine of up to KM 12,000 for the employer. In order to ensure that employers pass on the tax saving to employees, changes in tax legislation introduce sanctions of up to KM 9,000 on employers for nonpayment of the increased net salary. The changed amount of personal deduction must also be reported when completing income tax returns. If not, the tax return will not be recorded with the tax administration, which means that the tax will not be declared, and therefore will not be paid. In these cases, the sanction on the employer will include the amount of unpaid tax.


- A legal entity, a resident for income generated from any source in Republika Srpska, Federation of Bosnia and Herzegovina, Brčko District, or abroad.



- A business unit of a legal entity from Federation of Bosnia and Herzegovina or Brčko District, which is registered in the territory of Republika Srpska, in respect to the income generated from sources in Republika Srpska.

- A legal entity from Federation of Bosnia and Herzegovina or Brčko District for income generated from real estate’s located in the territory of Republika Srpska.

- A non-resident legal entity that conducts business activity through a PE in Republika Srpska, in respect to the income generated from sources in Republika Srpska.

- A non-resident legal entity for revenue (i.e. income) generated from sources in Republika Srpska.

Republika Srpska taxes resident corporations on a worldwide basis. There are no deferral or anti-deferral provisions. Taxable revenue for the purpose of computing the tax base includes total revenue presented in the income statement, with the exemption of revenue that has different tax treatment under the CIT Law. Income from dividends is not included in the taxable base. Interest income is generally included in the taxable base. Income in the form of interest or its functional equivalent from securities issued by Republika Srpska or by local authority is excluded from the taxable base. Royalty income is generally included in the taxable base. The CIT rate is 10%.

Deductible expenditures for profit tax Expenditures deductible from revenue in computing the RS tax base are the expenditures presented in the income statement, with the exception of expenditures that have a different tax treatment under the provisions of the CIT Law. Depreciation deductions are allowed only with respect to depreciable assets that are owned by a taxpayer or acquired through a financial lease that are being used for performance of registered business activities. Depreciation deduction is also allowed for investments made in fixed assets not owned by a taxpayer, under the condition that such investments increase purchase value of the asset and do not decrease rent from the lease agreement. A depreciable asset is any tangible or intangible asset (except goodwill) with useful economic life longer than 12 months. Land or any other asset that does not decrease in value through wear and tear or obsolescence is not considered a depreciable asset. Assets are depreciated using the proportional method of depreciation by applying the annual depreciation rates in the following amounts:

- 3% for property and plant. - 10% for intangible assets, except software.

Group of assets are depreciated using the digressive method of depreciation by applying the annual depreciation rates in the following amounts:



- 40% for computers, IT systems, software, and servers. - 20% for equipment and other assets.

Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection. Interest on loans used for generation of taxable revenue is generally tax deductible. The exceptions are interest that is not at arm’s length, interest on loans for private use, and interest on overdue tax payments. Interest expense is not tax deductible for the amount in which net interest expense exceeds 30% of the tax base, in which are not included interest income and expense. Net interest expense represents a positive difference between interest costs and interest revenue. Legal entities, other than banks, authorized credit institutions, or insurance companies, are entitled to a bad debt provision that arose in connection with a sale of goods or services but only if the revenue from the sale was previously included in the tax base of the legal entity. The bad debt provision is allowed in the following manner:

- Up to 25% of amount receivable that is older than 12 months. - Up to 50% of amount receivable that is older than 18 months. - Up to 75% of amount receivable that is older than 24 months.

Exceptionally from this, a bad debt receivable will be considered in full as a tax-deductible cost if such receivable has not been collected within 12 months from the due date and if the taxpayer undertook at least one of the following activities for collection of the receivable:

- the taxpayer started court litigation for the receivables - the taxpayer requested execution of the receivable from the competent court - the taxpayer initiated enforced collection procedures - the receivables are registered in the bankruptcy procedures of the debtor, or - an agreement has been reached with the debtor who is in the bankruptcy or liquidation

procedures. In the case of a bank or other authorized credit institution, a deduction is allowed for indirect write-off of placement presented in the income statement of a tax period, maximum to the amount prescribed by the Banking Agency of Republika Srpska, with exception for placements that have the most quality characteristics under those regulations. Insurance and reinsurance companies are allowed a deduction of costs of mathematical reserves that these companies are obligated to create under the regulations of the Insurance Agency of Republika Srpska, under the condition that the reserve was included in the income statement. Costs arising from technical reserves of insurance companies are tax deductible at up to 20% of the amount of reserves created under the regulations of the Insurance Agency of Republika Srpska, under the condition that the reserve was included in the income statement. Contributions to public institutions and humanitarian, cultural, and educational organizations are deductible in an amount not exceeding 3% of the fiscal year’s total revenue. Any excess contribution may be carried forward three years.



Expenditures that are recognized and deductible from revenue also include the following:

- 30% of the cost of entertainment, meals, and amusements related to the legal person’s economic activity.

- Sponsorship expenses in an amount not exceeding 2% of the fiscal year’s total revenue. - Costs of reclamation of goods and services in the amount not exceeding 3% of the

business revenue in that tax year. Taxes are generally tax-deductible expenses

Non-deductible expenditures for profit tax Fines and penalties are not tax deductible. Amortization of goodwill is not tax deductible. CIT is not tax deductible. Losses may be carried forward and offset against income in the following five years. Tax losses are utilized on a FIFO basis. Tax losses cannot be carried back. Payments to foreign affiliates are generally allowed if they relate to realized revenue. The CIT Law of Republika Srpska does not envisage a possibility of group taxation in Republika Srpska. There are no thin capitalization rules in Republika Srpska. Bosnia and Herzegovina have no rules on Controlled foreign companies.

Tax incentives If a legal entity resident of Republika Srpska generates revenue in a foreign state and that revenue is taxable both in Republika Srpska and in the foreign state, then the tax paid in the foreign state will be deducted from the tax liability of the resident in Republika Srpska. Incentive for investment in production For a taxpayer who in the territory of Republika Srpska invests in plant and equipment for performing registered production activity, the tax base will be decreased for the amount of performed investment. Tax base can be decreased in the tax period in which the plant and equipment were put in use. If the taxpayer disposes the property and equipment before expiry of three years from the date when they were put in use, the taxpayer losses right to incentive and will have to pay the additional tax as if they never used the incentive, as well as penalty interest for late payments.

Withholding tax As per the CIT Law, WHT in Republika Srpska is due on the following income payments to a foreign legal entity:

- Payment of dividends and shares in profit. - Payment of interest.



- Payment of royalties and other payments for IP rights. - Payment for performance of entertainment, art, or sports program in Republika Srpska. - Payment for professional, scientific, technical, and educational services (market research,

advertising and promotion, management, consulting, tax and business consulting, services of auditors, accountants, lawyers, education, and other similar services).

- Payments for market research, advertising and promotion, management, consulting, tax and business consulting, and services of auditors, accountants, and lawyers.

- Payments for insurance and reinsurance premiums in Republika Srpska. - Payments for telecommunication services between Republika Srpska and another

country. - Payments for lease of movable property.

WHT is also due on the income from services that is paid by a resident of Republika Srpska to a resident of a country that has not concluded a DTT with Bosnia and Herzegovina. WHT is also due in case that income subject to WHT is settled to a non-resident in some other way. The WHT rate in Republika Srpska is 10%. Capital gain is realized through the sale or other type of transfer of capital or investment assets and represents a difference between the sales price and adjusted base of an asset. The sales price is the contracted price (i.e. the market price established by the competent tax authority in case it finds the contracted price to be lower than the market price). Capital gains or losses realized during the fiscal year can be offset, and the realized net gain or loss is added or subtracted from the taxable base, if they are not already included in the income or expense. Total interest expense is not deductible for CPT purposes in the amount of net interest expense (i.e. interest expense over interest income), which exceeds 30 percent of the tax base that excludes interest income and interest expense. The real estate tax rate is set at a maximum of 0.20 percent and applies on an annual basis to all real estate situated in the RS, except for real estate that is used for production where the RET rate is set at a maximum of 0.10 percent. The RET base is the market value of real estate, whose market value is determined in accordance with municipal decisions.

2.2.4. LOCAL TAXES No real estate transfer applies in the RS. First transfer of new building is subject to VAT at the flat rate of 17 percent. Property taxes are imposed at the entity level. The applicable tax rate is determined every year by the municipalities. A person who obtains ownership rights over immovable property is a taxpayer of property tax. When tax liability occurs, the taxpayer must submit an application for registration in the fiscal registry of immovable property to the tax authorities. The tax rate cannot be lower than 0.05% or higher than 0.5% of the evaluated value of immovable property. Municipalities shall publish property tax rates no later than 31 December of the current year for the following year. Property tax is to be paid in two parts, first by 30 June and second by 31 December of the current year for the previous year, based on the receipt issued by the tax authorities no later than 31 March of the current year.



There is no tax on transfer of land and real estate. Other taxes include the special republic tax, communal tax, forestry contribution fee, fire prevention contribution, Foreign Trade Chamber of Bosnia and Herzegovina duty, Chamber of Commerce RS duty, and administrative stamp duties.

2.2.5. TRANSFER PRICING Transfer pricing requirements are imposed at the entity level. The Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District have different regulations in place, including different rules in regard to applicable methods, related parties, and documentation. The regulations in place do not differ if the transactions are within one entity, cross-border, or international. Basically, this means that all transactions can fall under the transfer pricing scope. In both the FBiH and the RS, prices for the sale of goods and services between related parties should be at arm’s length. If not, the difference exceeding the arm’s length value will be added to the tax base and is therefore taxable. New CPT Laws for both the RS and the FBiH took effect as of January 1, 2016 and March 5, 2016 respectively. The new FBiH and RS CPT Laws contain more detailed transfer pricing rules. Both CPT Laws require taxpayers to include transfer pricing documentation in their tax returns as proof that transactions with related parties were at arm's length. Further details with regard to transfer pricing rulings are set out in applicable Rulebooks on transfer prices of the FBiH and the RS. Related parties According the CIT Law, a related party is a person or legal entity that directly or indirectly participates in management, control, or capital of another legal entity. Also, two legal entities are considered to be related if the same person(s) directly or indirectly participates in management, control, or capital of both legal entities. It is considered that a person directly or indirectly participates in management, control, or capital of a legal entity when it directly or indirectly owns at least 25% of the shares in that legal entity or when it has a factual possibility to control business decisions of that other legal entity. A person is considered to have a factual possibility of control on business decisions of another legal entity when one:

- has or controls 25% or more of the voting rights in another legal entity - has a control on assembly of the management board of another legal entity - has a right to participate in the profit of another legal entity of 25% or more - is a family member or a related person to a family member, or; - in any other way has a factual control on business decisions of another legal entity.

CbC reporting regime The transfer pricing documentation must provide an overview of the distribution of income, taxes, and business activities and a list of all units of the group by area of tax jurisdiction, the CbC form, if the income of the group to which the taxpayer belongs is more than 750 million euros.



Prescribed methods The RS and BD regulations prescribe the following five methods that can be used in order to establish whether the prices are in accordance with the arm’s-length principle:

- CUP method (primary method). - Cost plus method. - Resale price method. - Profit split method. - Transactional net margin method.

2.3. BRČKO DISTRICT

2.3.1. PERMANENT ESTABLISHMENT The BD CIT law prescribes that a resident is a legal entity registered in Brčko District. A PE of a non-resident in Brčko District is considered to be:

- construction works, installation and assembly works, infrastructure used for research or exploitation of natural resources, or supervisory of the same, or

- a place of business where an individual or legal person has the authorization to conclude contracts for a foreign legal entity.

In Brčko District, a fiscal resident is a physical person who:

- has residence in the territory of Brčko District, - is dwelling in the territory of Brčko District, continuously or with interruptions, for 183

or more days in any tax period, or - has residence in Brčko District, and obtains income from the Brčko District budget

based on dependent activity performed outside of the Brčko District territory.

2.3.2. PERSONAL INCOME TAX The following income is subject to PIT:

- Income from dependent business activities. - Income from independent business activities - Income from property and property rights. - Income from capital investments. - Income from prize winning games and lottery games.

Personal income tax (PIT) of 10%, in addition to social security contributions, has to be calculated and withheld by an employer with the salary payment. There are no additional payroll taxes due in Brčko District There are no additional payroll taxes due in the Federation of Bosnia and Herzegovina.



Tax deductions for personal incomes The deductions from the PIT base available in Brčko District are additional pension insurance up to BAM 1,800.

Allowances Annually (BAM) Personal allowance 3,600

Dependent family members and persons receiving aliment based on the agreement on life-long aliment (50% of personal allowance)

1,800

Deduction for invalidity of taxpayer or dependent family member 10% of personal allowance for every

determined 20% of invalidity

Taxable income includes all income from any source (domestic or foreign), whether in cash or in kind, independent of the relationship to the business activity of the legal person. The purchase value of inventories can be determined by using the FIFO method or the average cost method. Capital gain is realized by sale or transfer of capital and investment goods and represents the positive difference between the sales price and adjusted property base. Capital gains or losses realized during the fiscal year can be offset, and the realized net gain or loss added or subtracted from the taxable base, if they are not already included in the income or expense. Income from dividends is not included in the taxable base. Income from securities issued by or guaranteed by the state authority, Central Bank BiH, or local authority is excluded from the taxable base. Royalty income in Brčko District is generally included in the taxable base. Brčko District taxes resident corporations on a worldwide basis. There are no deferral or anti-deferral provisions in Brčko District.

Social security contributions Persons who are working in Brčko District can opt to which fund of pension insurance, either the fund of Republika Srpska or fund of the Federation of Bosnia and Herzegovina, they would like to pay pension and invalid insurance contributions. Health insurance contributions are calculated in the amount of 12% on gross salary. The table below provides an overview of mandatory social security contributions in Brčko District in a scenario when an employee opts to pay pension and invalid insurance contributions to the Pension Insurance Fund of the Federation of Bosnia and Herzegovina.

Type of contribution Employee’s

contributions (%) Employer's

contributions (%) Contribution for pension and invalid insurance 17.0 6.0

Contribution for health insurance 12.0 -

Contribution for unemployment insurance 1.5 -



The table below provides an overview of mandatory social security contributions in Brčko District in a scenario when an employee opts to pay pension and invalid insurance contributions to the Pension Insurance Fund of Republika Srpska.

Type of contribution % of gross salary Contribution for pension and invalid insurance 18.5

Contribution for health insurance 12.0

Contribution for unemployment insurance 1.5

Persons who are working in Brčko District can opt to which fund of pension insurance, either the fund of Republika Srpska or fund of the Federation of Bosnia and Herzegovina, they would like to pay pension and invalid insurance contributions. Health insurance contributions are calculated in the amount of 12% on gross salary.


- A legal entity from Brčko District that generates income from any source in Bosnia and Herzegovina or abroad.

- A business unit of a legal entity with headquarters in the Federation of Bosnia and Herzegovina or Republika Srpska, for income generated in Brčko District.

- A non-resident legal entity that conducts business activity and has a PE in Brčko District, for income that is related to that PE.

- A non-resident legal entity that generates income from immovable property in Brčko District, for the income generated in Brčko District.

- A non-resident legal entity that generates income in Brčko District, not mentioned above, and is subject to WHT in accordance with the CIT law of Brčko District.

The CIT rate in Brčko District is 10%.

Deductible expenditures for profit tax Expenditures are deductible from revenue in computing the BD tax base if the expenditures directly relate to the realized revenue. Depreciation deductions are allowed only with respect to depreciable assets that are being used. A depreciable asset is any tangible or intangible asset that is held for use in the production or supply of goods and services, for rental to others, or for administrative purposes. Land or any other asset that does not decrease in value through wear and tear or obsolescence is not considered a depreciable asset. The calculation of depreciation for newly purchased property starts the following month from the day when it was put to use. The calculation of depreciation for newly constructed buildings starts from the first day of the following year in which it was put to use. Assets are depreciated using the linear method of depreciation, except for machines and equipment, which can be depreciated with acceleration (first year at 40%, second year at 30%, and third year at 30%). The CIT Rulebook prescribes a wide range of accepted depreciation rates, depending on type of assets.



Start-up expenses are tax deductible if the expenses occurred, were necessary and related to the registered company, and if original documentation with regard to those expenses are available for inspection. Interest on loans used for business purposes are tax deductible. The exceptions are interest that is not at arm’s length, interest on loans for private use, and interest on overdue tax payments. Legal persons, other than banks, authorized credit institutions, or insurance companies, shall be entitled to a bad debt deduction that arose in connection with a sale of goods or services but only if the revenue from the sale was previously included in the tax base of the legal person. For this purpose, a credit or trade receivable is considered a bad debt only if one of the following is true:

- It is more than 12 months past the due date for payment of the invoiced receivable and the creditor has sued for the receivables or an enforced collection procedure is initiated due to receivables.

- The receivables are registered in the bankruptcy procedure of the debtor or an agreement has been reached with the debtor who is not a physical or related person in the bankruptcy or liquidation procedure.

In the case of a bank or other authorized credit institution, a deduction is allowed for increases in the reserve account for customary losses due to unpaid loans, and the amount may not exceed 20% of the tax base. In the case of an insurance or reinsurance company, a deduction is allowed for increases in reserves as registered in accounting documents and as authorized according to applicable law. For insurance contracts pertaining to reinsurance, reserves are to be reduced so that they cover only part of the risk remaining with the insurer, and the amount may not exceed 20% of the tax base. Contributions to public institutions and humanitarian, cultural, and educational organizations are deductible in an amount not exceeding 3% of the fiscal year’s total revenue. Expenditures that are recognized and deductible from revenue also include the following:

- 30% of the cost of entertainment related to the legal person’s economic activity. - Awards to employees, up to the prescribed amount. - Costs of business trips, meal allowance, transportation, and holiday allowance, up to the

prescribed amount. - Sponsorship expenses in an amount not exceeding 2% of the fiscal year’s total revenue. - Scholarships to students in an amount up to 75% of average monthly net salary in Brčko

District. - Committee membership fees, up to 0.2% of total revenue in the tax year. - Expenses for research and development (R&D) in accordance with the Rulebook.

Taxes are generally tax-deductible expenses

Non-deductible expenditures for profit tax Fines and penalties are not tax deductible. CIT is not deductible as expenditure for tax purposes.



Amortization of goodwill is not tax deductible.

Net operating losses Losses may be carried forward and offset against income in the following five years. Tax losses are utilized on a FIFO basis. Tax losses cannot be carried back.

Payments to foreign affiliates Payment to foreign affiliates is generally allowed if it relates to realized revenue. There are no thin capitalization rules. An affiliated group of legal persons located within Brčko District may elect to file a consolidated annual tax declaration. An affiliated group of legal persons is a group of one or more legal entities from Brčko District that are connected through the ownership of stock with a common parent, provided that the common parent owns at least 80% of the stock in a legal person that is included in the affiliated group.

Tax incentives Foreign tax credit If a legal entity from Brčko District obtains revenue from a foreign state and the revenue is taxed both in Brčko District and in the foreign state, then the tax paid to the foreign state, whether paid directly or withheld and remitted by another person, is to be credited from the BD CIT, unless such legal entity from Brčko District elects to treat the foreign tax as a deductible expenditure in determining the fiscal year tax base. Investment incentive For a taxpayer who invests in machines and equipment for performing its own registered business activity on the territory of Brčko District, a deduction is allowed for the amount of the investment. Employment incentive For a taxpayer who employs new employees for an indefinite period of time during the tax period, a second deduction is allowed for the total amount of paid gross salaries for the new employees. Any legal or physical person from Brčko District, as well as any non-resident legal or physical person with PE in Brčko District, who pays revenue to a non-resident legal person is to withhold tax from the total payment of revenue and is to remit the withheld tax to the Public Revenues Account of Brčko District.

Withholding tax The WHT applies to the following revenue payments, regardless of whether the revenue is received in Brčko District or abroad:

- Payment of interest or its functional equivalent under financial instruments and arrangements from a resident.

- Payment for entertainment or sporting activities carried out in Brčko District, regardless of whether the revenue is received by the entertainer or sportsman or by another person.



- Payment for the performance of management, consulting, financial, technical, or administrative services if the revenue is from a resident or if the revenue is paid by or included in the books and records of a PE in Brčko District or if such payment is deducted for the purpose of determining the tax base.

- Payment in the form of insurance premiums for the insuring or reinsuring of risks in Brčko District.

- Payment for telecommunication services between Brčko District and a foreign state. - Payment of royalties. - Payment of lease for movable property. - Payment for the performance of other services in Brčko District.

WHT is not due on dividend payments. The WHT rate is 10%.

2.3.4. LOCAL TAXES Property taxes are imposed by the BD assembly. The annual tax rate is between 0.05% and 1% of the market value of the property. The rate is adopted by the assembly for every year based on the proposed annual budget. There is no tax on transfer of land and real estate in Brčko District Other taxes include the communal tax, fire prevention contribution, forestry contribution fee, Foreign Trade Chamber of Bosnia and Herzegovina duty, and administrative stamp duties.

2.3.5. TRANSFER PRICING Transfer pricing requirements are imposed at the entity level. The Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District have different regulations in place, including different rules in regard to applicable methods, related parties, and documentation. The regulations in place do not differ if the transactions are within one entity, cross-border, or international. Basically, this means that all transactions can fall under the transfer pricing scope. In both the FBiH and the RS, prices for the sale of goods and services between related parties should be at arm’s length. If not, the difference exceeding the arm’s length value will be added to the tax base and is therefore taxable. Related parties Under the CIT Law of Brčko District, related parties of a legal person are considered to be physical or legal persons if those persons possess more than 10% of active shares with voting rights. A legal person can be a related party if it directly or indirectly possesses more than 10% active shares in the other person. Indirect ownership is considered to be:

- If a legal person possesses more than 10% of a dependent company, and that dependent company possesses more than 10% in the other legal person.

- If both legal persons have a common shareholder who possesses more than 10% active shares with voting rights in both legal persons.

CbC reporting regime The Brčko District has not enacted a CbC reporting regime.



Prescribed methods The RS and BD regulations prescribe the following five methods that can be used in order to establish whether the prices are in accordance with the arm’s-length principle:

- CUP method (primary method). - Cost plus method. - Resale price method. - Profit split method. - Transactional net margin method.

2.4. TAXATION RULES AT THE LEVEL OF FEDERATION Taxation of a fiscal resident is done by taking into consideration incomes generated within and outside the country. Non-resident companies are only taxed for incomes deriving from the activity within the country's jurisdiction.

Foreign tax relief In the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, tax credit is granted for tax paid outside of the territory of the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, respectively. The amount of tax credit cannot exceed the amount of tax that would be calculated in the event when the same income would be earned in the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, respectively. In the event when Bosnia and Herzegovina have signed a double tax treaty (DTT) with another state, then provisions of the tax treaty apply.

Tax declaration and payment due dates

Personal income tax (PIT) declarationand payment dates

PIT return FBiH and RS in 31 March; BD in 28 February

PIT final payment Not provided

PIT estimated payment Not provided

The Profit Tax return submission deadline is:

- March 30 of the current year for the previous tax year in the FBiH - March 31 of the current year for the previous tax year in the RS.

Corporate income tax (CIT) declaration and payment dates

CIT return Federation of Bosnia and Herzegovina in 31 March; Republika Srpska and Brčko District - no later than 90 days following the end of the tax year (31 March in the case of a calendar year).

CIT final payment Federation of Bosnia and Herzegovina in 31 March; Republika Srpska and Brčko District - no later than 90 days following the



Corporate income tax (CIT) declaration and payment dates

end of the tax year (31 March in the case of a calendar year).

CIT estimated payment Monthly installments.

Tax losses can be carried forward for a period of 5 years. Losses can be reduced by the profit of the following year. WHT rates based on DTTs available3

Recipient WHT (%)

Dividends Interest Royalties Albania 5/10 (1) 10 10

Algeria 10 10 10

Austria 5/10 (1) 5 5

Azerbaijan 10 10 10

Belgium 10/15 (1) 15 10

China 10 10 10

Croatia 5/10 (1) 10 10

Cyprus 10 10 10

Czech Republic 5 0 10

Egypt 5/15 (1) 15 15

Finland 5/15 (1) 0 10

France 5/15 (1) 0 0

Germany 15 0 10

Greece 5/15 (1) 10 10

Hungary 10 0 10

Iran 10 10 15

Ireland 0 0 0

Italy 10 10 10

Jordan 5/10 (1) 10 10

Kuwait 5 5 10

Macedonia 5/15 (1) 10 10

Malaysia 5/10 (2) 10 8

Moldova 5/10 (1) 10 10

Netherlands 5/15 (1) 0 10

Norway 15 0 10

Pakistan 10 20 15

Poland 5/15 (1) 10 10

Qatar 5/10 (2) 7 7

Romania 5 7.5 10

Serbia and Montenegro 5/10 (1) 10 10

3 1. The lower rate applies if the beneficial owner is a company (other than a partnership) that directly holds at least

25% of the capital of the company paying the dividends. 2. The lower rate applies if the beneficial owner is a company (other than a partnership) that directly holds at least

20% of the capital of the company paying the dividends. 3. The lower rates apply if the beneficial owner is a company (other than a partnership) that directly holds at least

10% of the capital of the company paying the dividends. The competent authorities of the contracting state shall, by mutual agreement, settle the mode of application of these concessions.



Recipient WHT (%)

Dividends Interest Royalties Slovakia 5/15 (1) 0 10

Slovenia 5/10 (1) 7 5

Spain 5/10 (2) 7 7

Sri Lanka 12.5 10 10

Sweden 5/15 (1) 0 0

Turkey 5/15 (1) 10 10

United Arab Emirates 0/5/10 (3) 10 10

United Kingdom 5/15 (1) 10 10

2.5. INDIRECT TAXES VAT is applied throughout the country of Bosnia and Herzegovina with the same rules and exceptions. The standard VAT rate is 17%. There is no reduced VAT rate in Bosnia and Herzegovina. The VAT registration threshold applies to businesses and individuals who transact on the value of € 25,560 per year. However, VAT registration can be done voluntarily, even if an annual turnover is not above the threshold set. VAT, public services, health services and financial services are excluded from VAT. Exports are taxed at a rate of 0%.

Excise duties There is a single excise regime throughout Bosnia and Herzegovina, which levies excise tax on the following products:

- Petroleum products: BAM 0.3 to BAM 0.4 per litre. - Tobacco products: 42% on retail price and an additional BAM 0.75 per pack of 20

cigarettes. If the calculated excise duty is lower than the minimally prescribed excise duty, then the minimal excise duty should be paid (the minimal duty is determined every year by the indirect tax authorities by special regulation).

- Non-alcoholic drinks: BAM 0.1 per litre. - Alcohol and alcoholic drinks: BAM 8 to BAM 15 per litre of absolute alcohol. - Beer and wine: BAM 0.2 to BAM 0.25 per litre. - Coffee (unroasted, roasted, and ground coffee and coffee extracts): BAM 1.5 to BAM 3.5

per kilogram. Payments are made at the Bosnian Mark (BAM), the local currency.



3. KOSOVO Business entities that may be registered with the Business Registration Agency in Kosovo are the following:

- Personal business enterprise. - General partnership. - Limited partnership. - Limited liability company - Joint stock company.

Apart from the above forms of establishment, foreign business organizations may also carry out economic activity in Kosovo through a branch office, upon registration with the Business Registration Agency in Kosovo. The partnership is not taxed for itself. However, the members of the partnership are taxed separately at the standard CIT rate of 10% depending on their share in the partnership.

The tax system in Kosovo consists of a set of tax laws and administrative instructions, including: (a) Corporate Income Tax (CIT), (b) Personal Income Tax (PIT), (c) Value Added Tax (VAT), (d) Customs Obligations, (e) Excise Taxes and Special Provisions, Pricing Transfer, and Double Taxation Avoidance Agreements. The fiscal year is the same as the calendar year (i.e. 1 January to 31 December). Accounting and financial reporting rules are applicable under the Kosovo Accounting Standards, based on IAS and IFRS. Taxpayers with gross annual income of € 50,000 or more and those with annual gross income of less than € 50,000 who opt to be taxed on the basis of real income keeps books and records compliant with the requirements set out in the Law for Corporate Income Tax and the Law on Tax Administration and Procedures. IFRS is adopted and recognized under Law No.06/L-032 on Accounting, Financial Reporting and Audit. Anyhow, not all provisions foreseen by IFRS are recognized and allowed for tax purposes. Specific Tax information exchange agreements have not been signed with any country, except for standard information exchange provisions within existing DTTs.

3.1. PERMANENT ESTABLISHMENT and INCOME TAXES The fiscal residence is determined according to the principles of the OECD permanent residence. A PE is considered a fixed place of business through which the business of an enterprise is wholly or partly carried on in Kosovo for a period longer than six months within any twelve-month period. It includes any place of management, branch, office, factory, workshop, mine, oil or gas source, quarry, or other place of exploitation of natural resources.



A PE is deemed to have been created by any building site, construction, assembling or installation project, or supervisory activity in connection therewith, but only if such site, project, or activity lasts longer than 183 days within any 12-month period. Similarly, furnishing consultancy services for a period of 90 days or more in any 12-month period by a non-resident person triggers a PE, as well as owning immovable property by a non-resident. An individual is considered resident for tax purposes if one is an individual with a principal residence in Kosovo or is physically present in Kosovo for 183 days or more in any tax period. Taxpayers for PIT purposes are considered resident and non-resident individuals, personal business enterprises, partnerships, or associations. Resident taxpayers are taxed on foreign and Kosovo-source income. Non-resident taxpayers are taxed only on their Kosovo-source income. For countries with which Kosovo has DTTs, PE rules are as per the relevant provisions in such treaties.

3.2. PERSONAL INCOME TAX Individual - Income determination Subject to PIT are the following categories or sources of income:

- Wages. - Rents. - The use of intangible property. - Interest, except interest that is exempted under the PIT law. - Replacement income, such as reimbursement or compensation for medical treatment and

expenses. - Capital gains resulting from sale of a capital asset, including movable property,

immovable property, and securities. - Lottery winnings and winnings in games of chance. - Pensions paid according to the respective Law on Pensions in Kosovo. - Monetary gifts or gifts given as benefits in kind received by residents are treated as taxable

income if the value of such gift exceeds EUR 5,000 in a tax period. The tax rates applied to income generated from employment are presented in table below. Taxable income (Euro/Year) Personal Income tax 0 to 960 0% 960 to 3,000 4% of the gross amount over Euro 960 3,000 to 5,400 8% of the gross amount over Euro 3,000 > 5,400 10% of the gross amount over Euro 5,400

In addition to wages, income from employment includes bonuses, per-diems, health and life insurance premiums, employee debt forgiveness, payment of employee’s personal expenses, and benefits in kind exceeding EUR 65/month. Income from wages does not include reimbursement of business travel expenses; indemnity for accidents at work; reimbursement of public transportation costs or 0.16 EUR/km for distances



longer than 20km; and compensation for food and transportation when organized by the employer. Any compensation in addition to the wage, monetary or non-monetary, provided by an employer to an employee is subject to PIT. There are no specific rules on the manner of taxation of employee stock-option plans.

Social security contributions Both employer and employee are subject to compulsory pension contributions. The total compulsory contribution is 10%, where 5% represents the employee’s share (withheld from gross wages) and 5% the employer’s share. Employers and employees may contribute additional pension contribution up to 30% (15% + 15%). The compulsory pension contributions are deductible for CIT purposes of the employer, whereas voluntary contributions and those exceeding 15% of the annual salary are not deductible.

Personal income tax deductions Contributions made by a taxpayer in the form of donations or sponsorship for humanitarian, health, education, religious, scientific, cultural, environmental protection, and sports in accordance with the PIT law are considered as contributions given for public interest and are allowed as a deduction up to a maximum of 10% of taxable income computed before these contributions are deducted. An additional 10% deduction may be applicable if prescribed so by other laws pertaining to sponsorships of certain activities. A taxpayer who claims a deduction in respect of charitable contributions made during the tax period shall furnish receipts signed and stamped by the beneficiaries of the charitable contributions, confirming the purpose of those donations, the amounts of the donations, and the times when the donations were made. A charitable contribution deduction can only be claimed by a taxpayer who pays tax on an accrual or real income basis. Personal allowances are not a deductible expenditure for PIT. Exempt income for PIT purposes includes:

- Wages earned by foreign staff of diplomatic missions, international organizations, donor agencies or their contractors, the United Nations (UN) and its agencies.

- Wages of persons with disabilities. - Compensation received from expropriation. - Compensation received from court decisions. - Compensation received from state institutions for achievements in science, sports, and

culture. - Inherited assets (subject to certain rules). - Education, scholarship, and training expenses paid for by the employer and subsistence

expenses, subject to certain restrictions. - Assets received as a result of inheritance (regardless of value) if the person inheriting (i.e. the

heir) is a spouse, biological or adopted child, or parent of the deceased are exempt from PIT.



In cases where the heir is a person other than the above-mentioned and the inherited value exceeds EUR 5,000, the amount above shall be taxed according to the PIT rates applicable (i.e. 0% to 10%).

- Gifts either monetary or as benefits in kind between spouses, a parent to their natural born or legally adopted children, or from children to their parents are exempt from income regardless of the amount or value of the gift.

3.3. PROFIT TAX / CORPORATE INCOME TAX The tax system of the Republic of Kosovo consists of tax treaties, tax laws, administrative instructions, regulations, individual and public rulings, decisions, and other official documents pertaining to the application of the CIT provisions. Taxpayers subject to CIT are the following:

- Corporations and other legal persons. - Business organizations operating with public/state-owned assets. - Non-resident persons with a PE in Kosovo.

Resident taxpayers are generally subject to tax on foreign and Kosovo-source income, whereas non-resident taxpayers are generally subject to tax only on their Kosovo-source income. The CIT rate is 10%. Corporate Income Tax applies to corporate taxable income. The standard rate of Corporate Income Tax is 10% of taxable income. Foreign tax credit is allowed. Taxpayers with annual gross income of € 50,000 or less are taxed at a rate of 3% (for activities such as trade, transport, agriculture and similar commercial activities) or 9% (for service, professional, crafts, entertainment and similar). Taxpayers with annual gross income over €50,000 are taxed at 10% in taxable income. Capital gains and losses are realized through the sale or other disposal of capital assets, including real estate and securities. Capital gains and losses are recognized as business income and business losses, respectively, and the latter can be carried forward for up to six successive tax periods. Capital gains are taxed at the standard CIT rate of 10% (i.e. are taxed at the same rate). Foreign currency exchange gains are subject to tax as capital gains. Dividends received by residents and non-residents are exempt from any form of taxation. Kosovo resident corporations are taxed on their worldwide income. If a DTT is in force, double taxation is avoided either through an exemption or by granting a tax credit up to the amount of the applicable Kosovo CIT rate. Kosovo legislation does not contain any provisions under which income earned abroad may be tax deferred.

Deductible expenditures for profit tax Expenses paid or incurred in relation to business activities are deductible for CIT purposes. Business representation expenses with elements of entertainment cannot exceed 1% of annual gross income. Bad debt expenses are allowable under certain conditions. Business travel expenses are allowable if documented properly.



Expenses that are subject to withholding tax on rent (such as payments for lease) are only CIT deductible if the corresponding WHT is paid by 31 March of the period following that in which they were incurred, at the latest. Depreciation expenses are calculated via the straight-line method, depending on the category of asset concerned. For buildings, the rate is 5%; for vehicles, furniture, and equipment, the rate is 20%; and for plant and machinery, the rate is 10%. Amortization expenses are allowed in accordance with the useful life of the intangible asset, but, at most, 20 years if not specified. When you start up a business, only expenses incurred in the current tax period reported can be deducted. No specific tax provisions cover the treatment of goodwill. Interest expenses are deductible, provided that such expenses have been paid or incurred in relation to business activities and any WHT due has been paid on or before 31 March of the year following that in which interest expense arose. A bad debt shall be considered an expense if it meets all of the following conditions:

- The amount that corresponds to the debt has previously been included in income. - The debt is written off in the taxpayer ‘s books as worthless for accounting purposes. - There is no dispute of the legal validity of the debt. - At least six months of the debt term have been exceeded. - There is adequate evidence of substantial attempts made by the taxpayer to collect the

debt (i.e. including final decision of a competent court certifying that the debt is uncollectible).

- Payment has not been received in whole or in part and has been declared as uncollectable thus initiating procedures with judicial bodies.

- For the amount up to EUR 500 treated as a bad debt, there shall not be required the initiation of procedures at judicial bodies.

- Uncollected amount shall not be considered as bad debt if: o transactions with the same debtor have been repeated after the announcement of

bad debt, excluding public services o bad debt is between the related parties o there is no sufficient evidence that there were substantial attempts made to

collect debt, including any applicable action to maximize the debt collection, or o the obligation for payment is 24 months overdue.

Contributions made by a taxpayer in the form of donations or sponsorship for humanitarian, health, education, religious, scientific, cultural, environmental protection, and sports in accordance with the CIT law are considered as contributions given for public interest and are allowed as a deduction up to a maximum of 10% of taxable income, computed before these contributions are deducted. An additional 10% deduction may be applicable if prescribed so by other laws pertaining to sponsorships of certain activities. Taxpayers making contributions to sports have the right to deduct up to 30% of corporate income tax, meanwhile those contributing to youth and culture will be granted a deduction of up to 20% similarly from corporate income tax.



A taxpayer who claims a deduction in respect of charitable contributions made during the tax period shall furnish receipts signed and stamped by the beneficiaries of the charitable contributions, confirming the purpose of those donations, the amounts of the donations, and the times when the donations were made. A charitable contribution deduction can only be claimed by a taxpayer who pays tax on an accrual or real income basis. Pension contributions are deductible up to the limit of 15% of gross salary. Provision expenses are only allowable for banks and insurance companies as per the rules prescribed by the Central Bank of Kosovo and only up to 80% of the statutory provision expenses.

Non-deductible expenditures for profit tax Fines and other tax-related sanctions are non-deductible expenses. Income tax, VAT, and excise duties are non-deductible expenses. Tax losses can be carried forward for up to four consecutive tax years. However, restrictions may apply in cases of change of business or change of ownership; if the business changes its type of business organization or has an ownership change of more than 50%, the tax loss is not allowed to be carried forward. Carry back loss provisions are not allowable.

Payments to foreign affiliates Payments to foreign affiliates are subject to WHT at 5% if they represent services provided with physical presence in Kosovo by the affiliate, unless tax relief is requested in accordance with the local legislation or any DTT in place. These payments are tax deductible if they are properly documented and incurred for business purposes only. Payments to foreign affiliates made for the purpose of transferring profits may be subject to revaluation by the tax authorities. Any transactions/payments made to foreign affiliates shall be performed on an arm’s-length basis.

Withholding taxes Resident taxpayers paying rent, interest, royalties, and non-resident services shall withhold tax at the time of payment and shall transfer the amount of the tax withheld not later than the 15th day of the month following the tax period. Taxpayers shall withhold tax at the time of payment or credit. A WHT obligation applies only when the underlying amount (e.g. rent, interest) is actually paid, not when it accrues. WHT rates are provided below:

- Interest and royalties: 10%. - Rent: 9%. - Services provided from non-residents: 5%. - Payments to non-business natural persons, farmers, recycled materials collectors, etc.:

1%. For payments made to recipients in countries with which Kosovo has a DTT, the rates of WHT may be eliminated/ reduced under the terms of the treaty.



There is no WHT on dividends, as dividends received by residents and non-residents are exempt from taxation in Kosovo. Self-employment income is taxed in accordance with the PIT rates. Gross incomes from capital gains are realized through the sale or other disposition of capital assets, including real estate and securities. Capital gains are taxed in accordance with the PIT rates. Gross income from interest includes:

- Interest from loans made to persons or entities. - Interest from bonds or other securities issued by business organizations. - Interest from (savings) accounts that accrue interest (where tax is usually withheld by

banks or other financial institutions). Gross income from interest does not include interest earned from the assets of the Kosovo Pension Savings Trust or any other pension fund defined under legislation on pension savings in Kosovo. Interest on financial instruments that are issued or guaranteed by a Public Authority of Kosovo (i.e. government bonds) paid to resident or non-resident taxpayers are exempted from PIT. Gross income from rents includes the following:

- Income generated by rental of real estate, such as buildings, land, or apartments. - Income generated by rental of equipment, transport vehicles, and other kinds of

property. Regardless of the above, income from rent generated by persons involved in economic activities of rental of movable or immovable property for clients shall be treated and taxed as income from economic activities. Business deductions for personal business enterprises are the same as for corporations.

Foreign tax relief The resident taxpayer who receives income from economic activities outside of Kosovo and who pays income tax on that income to any other state shall be allowed a tax credit under the PIT for the amount of income tax paid to such state that is attributable to the income generated from the other state. The tax credit allowed is limited to the amount of foreign tax paid on the income earned outside Kosovo and shall not exceed the amount of obligatory tax in Kosovo on that same income. To the extent that Kosovo tax on that income exceeds the foreign tax paid, the excess amount must be included in the computation of Kosovo obligatory tax. Taxpayers that purchase new heavy machinery categorized under the 10% depreciation rate group enjoy an additional one-time 10% deduction for CIT purposes. Wages of persons with disabilities are exempt from employment taxes.



There are no thin capitalization rules applicable in Kosovo. There is no Controlled foreign company’s regime in Kosovo.

Foreign tax credit Taxpayers who receive income from sources outside Kosovo and pay tax on such income in other countries are allowed the right to a tax credit for the amount of the tax paid abroad or up to the applicable Kosovo income tax rate, whichever is lower. Foreign tax credits can be claimed even if there is no DTT between Kosovo and the respective country where such income arose, subject to proper documentation.

3.4. INDIRECT TAXES VAT is scaled up in two rates: the standard rate of 18% and the reduced rate of 8% of the value of imported supplies and domestic taxable supplies for basic food and electricity, with the exception of exempt supplies and supplies treated as exports. All taxable persons who import/export and taxable persons whose turnover is above EUR 30,000 within a calendar year are required to register for VAT. Where turnover is less than the threshold, voluntary registration for VAT is possible. VAT registration for foreign entities or persons not established in Kosovo should be completed from the beginning of their economic activity in Kosovo, regardless of the threshold. Nonetheless, this is not required of persons who make supplies for which the place of supply is considered to be Kosovo and the recipient is liable for the payment of VAT. VAT is levied on:

- supplies of goods or services with place of supply in Kosovo, and - importation of goods.

The standard VAT rate is 18%. A reduced rate of 8% applies to the following supplies:

- Supply of water, except bottled water. - Supply of electricity, including transmission and distribution services, with central

heating, waste collection, and other waste treatment. - Grains, such as barley, corn, maize varieties, oats, rye, rice, and wheat. - Products made from grain for human consumption, such as flour, pasta, bread, and

similar products. - Cooking oils made from grains or oilseeds for use in cooking for human consumption. - Dairy and dairy products intended for human consumption. - Salt used for human consumption. - Eggs for consumption. - Textbooks and serial publications. - Supply, including lending, of books from libraries, including brochures, leaflets and

similar printed materials, children's picture books, drawing and coloring books, music printed texts or manuscripts, maps, and hydro graphic charts, and similar.

- IT equipment.



- Supply of medicines, pharmaceutical products, instruments, and medical and surgical devices.

- Medical equipment, ambulances, aids, and other medical devices to facilitate or treat inability for exclusive use by the disabled, including the repair of such goods and supply of children’s vehicle seats.

- Live animals and poultry VAT generally becomes chargeable when the goods or services are supplied. Specific rules apply in cases where supply of goods or services occurs over a period of time, where successive payments are made, and in case of long-term contracts. VAT becomes chargeable whichever of the following conditions is fulfilled first: payment is made, invoice is issued, or the supply of goods/services is carried out. VAT refunds Taxable entities have the right to carry forward to following tax periods the VAT credit or to claim VAT refund if the following conditions are met:

- The taxable person is in VAT credit position for three consecutive months. - At the end of the third month the amount of VAT credit exceeds EUR 3,000. - All VAT and other tax returns for all past tax periods have been submitted.

While taxable persons that have exports may claim VAT refund on a monthly basis after each tax period if the following conditions are met:

- The amount of VAT credit exceeds EUR 3,000 at the end of the tax period. - The taxable person complies with all applicable customs and VAT provisions. - All VAT and other tax returns for all past tax periods have been submitted.

The Tax Administration of Kosovo shall review the VAT refund claim request within a maximum of 30 days. Reverse charge is applied on supplies of goods and/or services that are supplied from a taxable person not established in Kosovo. When the recipient of such services/goods is registered for VAT in Kosovo, the place of supply of such services/goods is considered to be Kosovo, and the recipient will be liable for paying the VAT. In cases where the recipient is not registered for VAT in Kosovo, the supplier is liable to pay VAT and is obligated to register for VAT in Kosovo via a tax representative. A special reverse-charge scheme is applicable for the supply of construction and construction-related works, as well as supplies where personnel are engaged in construction activities. Similar to the regular reverse-charge mechanism, the person liable to pay the VAT on the supply is the recipient of the construction services. VAT exemptions without the right to deduction are applicable to activities in the public interest, welfare, education, culture, sports and religious activities, media, and public transportation. Other activities exempt from VAT include financial services, health and life insurance, lottery, land, housing for residential purposes, etc. VAT exemptions with the right to deduction include exports, international transport, intermediary services, and special customs arrangements. Importing of production lines and machinery for use in the production process, raw material used in the production process, as well as IT equipment, newspapers, and periodic publications,



and equipment required for electronic and printed media benefit from VAT exemption (with crediting rights) on importation. Supplying goods and services that are co-financed by donations from foreign governments and the Kosovo government and destined for projects with the public as the beneficiary are exempt from VAT (with deduction rights) if such exemption is foreseen between the parties and the participation from the Kosovo government is not more than 20%. Monthly submission of VAT returns to the tax administration and monthly payment of VAT are due by the 20th day of the month following the end of each tax period. In addition, VAT records have to be kept for six years after the end of the tax period to which they relate.

Customs import duties The customs tax is 0% - 10%. Most of the raw materials are released. Also, most of the equipment for production is exempt. Some of the raw agricultural materials (such as seeds, etc.) and equipment are exempt from Customs and VAT. The rate of customs import duty is zero on goods that originate in the territory of a country that is a party to the CEFTA, and for some goods imported from the European Union as per the provisions of the Stabilization and Association Agreement. A reduced customs rate is applicable for some goods imported from Turkey, which is subject to gradual reduction and will become zero in six or eight years, as foreseen by the Free Trade Agreement between Republic of Kosovo and Republic of Turkey. Most rates of import duty on goods that originate outside of CEFTA/EU/Turkey are 10% ad valorem (10% of the price paid or payable for the imported goods); however, some imported goods are exempt from the payment of the 10% import duty. The Integrated Tariff Code of Kosovo (TARIK) provides detailed information on import duty rates, VAT rates, and excise tax rates (if any), as well as any required certificates or licenses that pertain to all imported goods.

Excise taxes Excise tax is levied as a percentage of the value of the goods or represents a fixed amount per specified quantity. Excise tax in Kosovo is applicable on certain goods like beer, wines, alcohol, liquors, and other alcoholic beverages, cigarettes, other tobacco products, cars, petrol, diesel, etc.

3.5. LOCAL TAXES The property tax payable depends on the type of use of the property, on the area the property is located, and on the market value of the property. Property taxes are levied and collected at the municipal level. Property tax rates also vary for each municipality. For the capital city of Pristina, the following rates are applicable based on the category of the real estate and activity undertaken:

Category Tax (%)

Buildings Parcels of land Agricultural 0.15 0

Forest 0 0.15

Residential 0.15 0.15

Commercial 0.17 0.17

Industrial 0.17 0.17

Public 0 0



The valuation of the property for property tax purposes (calculated in EUR/m2) depends on the location and type of property. Transfer of immovable property is subject to a property transaction fee levied at the municipal level at EUR 150 per unit. One unit equals 100m² of residential/commercial building or 1 hectare of land. Taxes are collected by the municipalities and vary on the activity and location of the business. Such taxes include vehicle tax, property tax, ecological tax, and advertising tax.

3.6. TRANSFER PRICING AND TAX TREATIES Transfer pricing In July 2017, Kosovo introduced transfer pricing rules, which are applicable from fiscal year 2017. These rules apply to Kosovo CIT payers that have entered into controlled transactions with related parties established in foreign tax jurisdictions. The transfer pricing rules generally follow the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, whereas documentation requirements are as per the EU Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union (2006/C 176/01). Recognized transfer pricing methods include the comparable uncontrolled price (CUP) method, resale price (RP) method, cost plus (C+) method, transactional net margin (TNM) method, and profit split (PS) method. A simplified approach is applicable for low value-adding intra-group services. Taxpayers with controlled transactions exceeding EUR 300,000 in a calendar year are required to:

- prepare transfer pricing documentation as per the EU Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union (2006/C 176/01), and

- submit an Annual Controlled Transactions Notice by 31 March of the following year, along with statutory financial statements and CIT declaration.

Taxpayers with controlled transactions of EUR 300,000 or less in a calendar year are required to prepare documentation, but are not required to submit an Annual Controlled Transactions Notice.

Tax treaties Kosovo currently has DTTs in place with the following countries: Albania, Austria, Belgium, Croatia, Finland, Germany, Hungary, Luxembourg, Malta, North Macedonia, Slovenia, Switzerland, Turkey, the United Arab Emirates and the United Kingdom.



Double tax treaties (DTTs) Currently, Kosovo has DTTs in place4 with the following countries:

Recipient WHT (%)

Interest Royalties Non-treaty 10 10

Treaty:

Albania 10 10

Austria 10 0 (1)

Belgium 10 (2) 10

Croatia 5 5

Finland 0 (1) 10

Germany 0 (1) 10

Hungary 0 (1) 0 (1)

Luxembourg 5 0 (1)

Malta 5 0 (1)

North Macedonia 10 10

Slovenia 5 5

Switzerland 5 0 (1)

Turkey 10 10

United Arab Emirates 5 0 (1)

United Kingdom 0 (1) 0 (1)

Payments are made at the Euro (EUR), the European Union currency

4Only taxable in the state of residence As per the DTT, it is not to exceed 15%, but the non-treaty domestic rate is 10%.



4. MONTENEGRO

Legal business forms are (a) joint-stock companies, (b) limited liability companies, (c) partnerships, (d) branches and representative offices. The tax year is the calendar year. Accounting and financial reporting rules are applicable under IAS. Tax consolidation is permitted for a group of companies in which all of the members are Montenegrin residents and the parent company directly or indirectly controls at least 75% of the shares in the other companies. Each company files its own tax return, and the parent company files a consolidated tax return for the entire group. Each company is taxed based on its contribution to the consolidated taxable profit (or loss) of the group. Tax consolidation is binding for at least five years.

4.1. PERMANENT ESTABLISHMENT AND FICAL RESIDENCE The place of fiscal residence is determined based on registration as a legal entity in Montenegro, or if controlled and managed in Montenegro. Residence is determined if the criteria for permanent residence are met. Tax legislation includes basic PE rules following, in main features, the guidelines set out in the Commentary to the OECD Model Tax Treaty. An individual is considered by PIT Law when:

- spends at least 183 days in a tax year in Montenegro - has domicile in Montenegro, or - has a center of personal and economic activities in Montenegro.

Resident taxpayers are taxed on their worldwide profit. Non-resident taxpayers are taxed on their Montenegrin-sourced income or income attributed to their Montenegrin permanent establishment. Non-residents are also subject to withholding tax (WHT) on income sourced in Montenegro. A legal entity is considered to be a tax resident, if it is incorporated in Montenegro. In addition, a foreign corporation may also be deemed a Montenegrin tax resident if the corporation has a place of effective management in Montenegro. No explicit rules exist for determination of effective management. In practice, it usually is the place where key managerial decisions are made or where the board of directors sits. PE is defined as a fixed place of business through which a non-resident carries out business in Montenegro. PE is deemed to exist in case of a non-resident having one of the following in Montenegro: place of management, branch office, office, factory, workshop, mine, gas or oil site, stone pit, or any other place of natural resources exploitation in Montenegro. A construction site constitutes a PE only if construction activities last longer than six months.



PE is not deemed to exist in case of a non-resident having storage of inventory in Montenegro only for the purpose of delivery of goods or having operations in Montenegro that are of a preparatory or auxiliary nature.

4.2. PERSONAL INCOME TAX Taxation of individuals’ income is based on their residence status. Residents of Montenegro are subject to personal income tax on their worldwide income. Non-residents are subject to income tax on their income from Montenegrin sources under the same rules as residents.

Taxable income for individuals Employees' gross income includes all cash remuneration and most personal expenses (including PIT and social security contributions) paid by the employer. Employment income includes all receipts paid or provided to an individual based on employment (salaries, pensions, benefits in kind, insurance premiums, benefits, and awards above the non-taxable thresholds). Income generated through other types of personal engagements similar to employment (e.g. temporary jobs) is also considered employment income. The following types of income are considered as employment income:

- Salaries or compensation generated in accordance with regulations governing labor. - Earnings on the basis of fees paid in addition to salary, above the amount set by the PIT

Law. - Reimbursement of costs for business trips and accommodation in connection with these

trips. - Relocation expenses. - Reimbursement for the use of one’s own vehicle for business purposes exceeding the

non-taxable threshold set by the PIT Law. - Earnings of members of representative and executive bodies of the state or local

administration. - Earnings of members of assemblies, managing boards, and supervisory boards. - All other earnings arising from employment and those similar to employment (e.g.

temporary and occasional work). Employees’ gross income also includes bonuses paid and any benefits in kind (subject to minor exceptions) received as a result of employment. Pursuant to the legislation, specific employee remunerations are not taxable up to a specified cap (e.g. certain redundancy payments, solidarity help). Employment income is subject to WHT at a flat rate. The last amendments to the PIT Law stipulate that meal allowance, holiday allowance, and transportation to and from work compensation are taxed in full. Adopted amendments introduced taxation of capital gains realized from the sale of real estate, shares in a legal entity, and securities. Capital gain tax is not levied on transfer of property in the following cases:

- Transfer of a real estate used as a place of taxpayer's residence. - Transfer or property between spouses and parents and children.



Investment income is subject to PIT and includes:

- interest income - shares in profits distributed to employees or board members - use of a company's property and services by the owner of the company, and - acquisition of a company's shares by the employees or board members under beneficial

terms. The property income is subject to PIT:

- Lease income from immovable and movable property. - Income from time limited disposal of intellectual property (IP) and other property rights.

PIT of 9% is levied on:

- salaries, - property-related income, and - investment income (interest income earned by non-residents is subject to a 5% PIT).

Since January 2016, the Government increased the PIT rate from 9% to 11% for gross salaries exceeding average monthly salary, approximately 770 Euro (where the higher rate applies only on part of the salary exceeding the amount of average salary). Although the increase of the tax rate was announced as a temporary measure, it is still applicable. While employees are the taxpayers, the employer is responsible for calculating and withholding PIT on behalf of its employees.

Social and health security contributions Social and health security contributions for pension and disability insurance, health insurance, and unemployment insurance are calculated and withheld by an employer from the salary paid to an employee. The base for mandatory social security contributions is the income generated by the insured individual such as: gross salary, gross income from freelance contracts, etc. Pension and disability insurance contribution is payable up to the yearly maximum base determined by the Ministry of Finance for the previous year. For the overpaid contributions’ employer can submit a refund request in the following year. Unlike the other two types of social security contributions, pension and disability insurance contributions are subject to a specific annual cap. Compulsory social and health security contributions are paid for contributions to pensions and disability at work (20.5%), contribution to health (12.8%) and unemployment benefits (1%), including employer and employee, where the employer pay directly 8.3% and for the employee is withheld 24% of contributions and are paid directly from employer on behalf of employee. The maximum annual contribution rate for contributions is no more than € 53,371. The employer should pay an extra charge for labor fund, chamber and commerce membership and prevention of disability.



Contribution Employees Employer Pension Fund 15.0% 5.5% Health Fund 8.5% 4.3% Unemployment Fund 0.5% 0.5%

Labor Fund 0.3% Chamber of Commerce Membership contribution 0.2%

Prevention of Disability Fund 0.2%

Social security contributions are payable by the employer and employee at different rates. The amount borne by the employer is treated as an operating cost while the portion payable by the employee is taken from the gross salary. The rates paid by the employer are as follows:

- Pension and disability insurance: 5.5% - Health insurance: 2.3% - Unemployment insurance: 0.5%

The rates paid by the employee are as follows:

- Pension and disability insurance: 15% - Health insurance: 8.5% - Unemployment insurance: 0.5%

Local surtax is in force in addition to PIT and is paid to the municipality where the taxpayer is domiciled. Surtax of 13% is applicable in all municipalities with the exception of Podgorica and Cetinje, where the rate is 15%. The surtax base is the amount of PIT assessed.

Tax Deductions A self-employed taxpayer is entitled to lump-sum taxation unless one’s total turnover for the year preceding the year for which the tax is assessed exceeds EUR 18,000. This option is excluded for certain professions (e.g. lawyers, auditors). Standard expenditures are recognized for a taxpayer who generates revenue from other self-employment activities that are not one's primary activity in the amount of 30% of the realized revenue from those other activities. Resident taxpayers are entitled to a tax relief up to the amount of tax paid in another country on income realized in that country. This tax relief is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro. A self-employed individual who starts one’s business in a non-developed region is tax exempted for eight years from establishment. Tax exemption is limited to EUR 200,000 for the eight-year period. Note that this tax incentive is not applicable to taxpayers operating in the sector of primary production of agricultural products, transport, shipbuilding, fishery, and steel production. Newly established legal entities in an underdeveloped municipality are exempted from personal income tax payment for all employees who are employed for indefinite period or period longer than 5 years. This exemption is available for the first 4 years of employment.



Personal Income Tax returns Generally, taxpayers are obligated to submit an annual tax return at the end of April for income generated in the previous calendar year, except taxpayers that have only employment income or have only investment income.

Payment of Personal Income Tax Tax on employment income, income from capital, income from self-employment that is not the primary activity of the self-employer, and property-related income is withheld at source by the payer of income.

4.3. PROFIT TAX/ CORPORATE INCOME TAX CPT Law contains specific rules for assessment and mechanisms for taxation of:

- capital gains of non-residents in transactions with other non-resident entities or resident and non-resident individuals, and

- Montenegrin-sourced income realized by non-residents on the basis of lease of movable and immovable assets from a person who is not obligated to calculate, withhold, and pay WHT (i.e. non-resident entities or resident and non-resident individuals).

The non-resident is obligated to file the tax return, via their Montenegrin tax representative (tax agent), within 30 days from generating income. Tax liability will be determined based on the decision issued by the Montenegrin tax authorities. A branch is considered to be a PE. Non-residents carrying out business in Montenegro through a PE are taxed on their Montenegrin-source income at a rate of 9%. Companies operating in Montenegro are subject to a 9% corporate profit tax (CPT). Corporate Taxable Incomes Incomes derived from the ordinary course of business activity of a company or closely connected to the ordinary course of business activity are the taxable incomes for individuals. Sources of incomes, which are taxable usually, are:

- Incomes from the transfer of immovable properties - Any income arising from immovable property - Incomes from dividends or other types of profit distribution - Interest incomes - Royalties - Other incomes not specifically defined above

Deductible expenditures for profit tax All expenses incurred wholly and exclusively for the generation of income are deductible for tax purposes if supported by relevant documents such as tax invoices, foreign invoices, receipts issued by state entities or other documents compiled and issued according to the Ministry of Finance Directives. Are deductible for tax profit calculation:



Depreciable assets are tangible and intangible assets with a useful life of at least one year and an individual acquisition value of at least EUR 300. Intangible and fixed assets are divided into five depreciation groups, with depreciation rates prescribed for each group (I - 5%, II - 15%, III - 20%, IV - 25%, and V - 30%). A straight-line depreciation method is prescribed for assets classified in the first group (real estate), while a declining-balance method is applicable for assets classified in the other groups. Impairment of assets expenses are deductible in the period in which assets are disposed of or damaged due to force majeure. Goodwill is determined according to IFRS and is subject to impairment. There are no other special provisions on goodwill. There are no special provisions regarding treatment of start-up expenses. Consequently, they will be deductible if they are incurred for business purposes and properly documented under the general expense deductibility rule. Interest expenses are generally deductible if they are business related and properly documented. Also, interest and related cost of loans paid out to a creditor with the status of a related party are recognized as expenses only in the amount that does not exceed market interest rates between unrelated parties. The exceeding amount is not recognized as an expense, but it is included in the taxable profit and subject to 9% CPT. Interest paid out to non-resident legal entities (unless it is revenue of a PE of a non-resident legal entity) is subject to WHT levied at 9%. Write-offs and provisions for doubtful debts are considered deductible, provided that:

- written-off/provided receivables were previously included in the taxpayer’s revenues - doubtful debts were written-off as uncollectible - the taxpayer can provide proof of filing a lawsuit, that enforced proceedings were

instigated, or that receivables were reported in bankruptcy or liquidations proceedings, and

- such receivables are older than 365 days. Expenses incurred for social purposes, reduction of poverty, protecting persons with disabilities, child and youth social care, elderly care, protection and promotion of human and minority rights, the rule of law, civil society and volunteerism, Montenegro’s Euro-Atlantic and European integration, art, technical culture, promotion of agriculture and rural development, sustainable development, consumer protection, gender equality, the fight against corruption and organized crime, and the fight against addictions are recognized for CPT purposes, up to a threshold of 3.5% of total revenue. Expenditures for the above-mentioned purposes are recognized regardless of whether they are made in cash, goods, rights, or services. Expenses incurred in this regard will be deductible for CPT purposes only if they are made to legal entities, which are engaged in provision of the aforementioned services in accordance with specific regulations, and if received funds are used by such entities exclusively for the above-mentioned purposes.



Salary costs, severance payments related to retirement of employees, costs related to technological surplus, and other payments related to termination of employment are recognized as deductible in the tax period in which they are paid (not in the period in which they are accrued). The following expenditures are also recognized for CPT purposes, up to the prescribed threshold:

- Entertaining expenses, up to 1% of total revenue. - Membership fees paid to chambers of commerce and other associations (except political

parties), up to 0.1% of gross revenue unless the amount of the fees has been determined by law.

- Provisions for redundancy payments and jubilee awards recognized as expenditures, up to the amount prescribed by the labor legislation.

- Increase of provisions of balance sheet receivables and the provisions for off-balance sheet losses are recognized as expenses in the bank’s tax assessment form, in the amounts calculated at the level of the bank, which were, in accordance with the bank’s internal acts, reported in the bank’s profit and loss statement as an expense in the tax period, in accordance with the regulations of the Central Bank of Montenegro.

- Increase of indirect write-off made according to the receivables collectability and technical provisions are recognized as expense in the insurance company’s tax assessment form in the amount prescribed by the insurance legislation.

- Provisions for special risks of brokers and dealers, up to the amounts prescribed by the securities law.

- Provisions for renewable natural resources, warranties for the sale of goods and services (guarantee period), and the expected loss from court process (delicate agreements) if accounted for in accordance with the accounting legislation.

CPT Law provides for full deductibility of taxes.

The following are exempt from payment of corporate income tax:

- Local and central government bodies - Public enterprises, tourism organizations, sport clubs, sport associations, art associations,

political parties - Non-governmental organizations - Entities which conduct only religious, humanitarian, charitable, scientific or educational

activities - Labor organizations and commercial chambers; and - Dividends and other profit distribution arising from holding shares in resident legal

entities are tax-exempt. - Deductible expenses for profit tax

Non-deductible expenditures for profit tax

Non-deductible expenses include:

- Expenses that are not wholly and exclusively incurred for the generation of income, or expenses that have not been documented properly are not deductible for tax purposes.

- Expenses not related to business activity - Expenses that cannot be documented - Penalties, fines and interest for late payment of taxes - Interests paid to non-residents in amount above market rate



- Expenses made for business entertainment, accommodation, hospitality of any kind when the overall amount exceeds 3% of the total revenue

- Business trip allowances that exceed the limits set by the Ministry of Finance - Donations to political organization - Expenses resulting from the correction of accounting records related to previous periods - Administrative expenses paid to non-resident head Office - Expenses incurred on the basis of impairment of assets are not deductible for CPT

purposes. - Penalty interest for late payment of taxes is not CPT deductible.

Carry forward of tax losses is available for 5 years. Carry back of tax losses is not allowed. Capital losses could be carried forward on the account of future capital gains for 5 years.

Tax credits and incentives The CPT Law provides four tax incentives related to businesses: one for newly established businesses in underdeveloped municipalities, one for non-governmental organizations (NGOs), a discount for settling of CPT liability by the prescribed deadline, and a foreign tax credit. The corporate income tax legislation provides an 8-year tax relief for newly established legal entities performing business in an underdeveloped municipality, except agricultural production, transport, shipbuilding, fishing, steel production and accommodation. Exemption is limited to Euro 200.000. Newly established companies pay monthly advance payments on the basis of profit estimation for the current year. Monthly advance payments are due by the last day of the current month for the then previous month. NGOs registered for business activity are permitted to decrease the corporate tax base by EUR 4,000, with the condition that profit is used for realization of the main goals of an NGO. A discount of 6%, which is applied on the amount of the calculated CPT liability, is available to taxpayers that settle their CPT liability by the prescribed deadline (i.e. by 31 March of the current year for the tax liability of the previous year). A resident receiving foreign income is granted a tax credit in the amount of the tax paid abroad but limited to the amount that would be calculated using Montenegrin rates. Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realized in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro. There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred. Supplies of goods or services from a foreign group entity not established in Montenegro to a Montenegrin entity must be valued at arm's length. Excess expenses recorded over market value are treated as non-deductible expenses. With respect to payment of charges of a PE, CPT Law provides that administrative costs charged by the non-resident head office are non-deductible for CPT at the level of the PE. There are no thin capitalization provisions. There are no Controlled foreign companies’ rules.



Corporate Income Tax return Tax returns and supplementary documents (e.g. tax depreciation form) must be filed with the tax authorities by the end of March of the following year.

Payment of corporate income tax CPT is paid by the end of March of the following year for the previous year. Alternatively, CPT may be

paid in six annual installments at the taxpayer’s request. During the year the taxpayer should pay monthly advance payments that are based on the tax liability assessed for the previous year.

Withholding taxes Withholding tax applies at a flat rate of 9% for bank interest, rent, commercial services, consultancy, and auditing, copyright, patent, technical services. CPT Law imposes WHT on income realized from a Montenegrin source and distributed to a non-resident. The scope of the WHT applies to dividends and profit distribution, capital gains, interest, royalties, intellectual property rights fees, rental income, fees for consulting, market research, and audit services, as well as to income earned on the basis of performing entertainment, artistic, sport, or similar programmes in Montenegro. WHT will also be payable on income earned by non-resident or resident individuals on the basis of repurchase of used products, semi-final products, and agricultural products from a manufacturer registered for VAT purposes. Distributions of dividends and share of profits are also subject to WHT if the recipient is a Montenegrin resident (either an individual or legal entity). The general WHT rate is 9%. Since December 2017, dividend, share in profits payments and payments based on supply of used products, semi-finished products and agricultural products performed not only to nonresident legal entities, but to all persons (legal entities and individuals), irrespective of residence of such persons (i.e. resident and nonresident persons) are subject to 9% WHT. Payment of intercompany dividends and shares in profit between resident companies is subject to 9% withholding tax. Capital gains realized by a non-resident entity on the territory of Montenegro from a non-resident legal entity, a non-resident or resident private individual are subject to capital gains tax at the rate of 9%. Capital gains realized by the sale or transfer of real estate or other property rights, as well as shares and other securities, are subject to the 9% CPT rate. Capital gains may be offset against capital losses occurring in the same period. A capital loss may be carried forward for five years. Dividend income of the recipient is exempt from CPT in Montenegro if the distributor is a Montenegrin corporate taxpayer. Interest income is included in taxable profit and subject to 9% CPT.



Royalty income is included in taxable profit and subject to 9% CPT. Withholding tax may be reduced by double taxation treaties. In addition, withholding tax is payable on income of non-resident legal entities from staging entertainment, artistic, sport or similar programs in Montenegro.

4.4. INDIRECT TAXES VAT is applied at a standard rate of 21%, while the reduced rate is 7 % (e.g. bread, milk, books,

and medicines) and 0% rate (e.g. export of goods, supply of gasoline for vessels in international traffic). The main principles of the Montenegrin VAT are in line with the European Union (EU) Sixth Directive guidelines. In principle, the VAT base is comprised of consideration (in cash, goods, or services) received for supplies, including taxes, except VAT (e.g. customs, excise duty), and direct costs (e.g. commissions, cost of packing, transport). If the consideration is not paid in cash, or if an exchange of goods for services takes place, the tax base will be the market value of the goods or services received at the time of supply. The VAT base cannot be lower than the cost of goods sold. Registration for VAT in Montenegro may be either voluntary or mandatory. Voluntary VAT registration is possible for small taxpayers who have not realized turnover exceeding 18,000 Euros in the last 12-month period. Once registered, a company may not apply for deregistration for at least three years. VAT registration is mandatory for an entity that realizes turnover exceeding the EUR 18,000 threshold in any

12-month period. However, VAT registration can be done voluntarily, even if an annual turnover is not above the threshold set. VAT exemptions include healthcare, financial services, including insurance, education. VAT is calculated and paid on a calendar-month basis (i.e. a VAT return must be submitted and VAT liability must be cleared monthly). VAT calculated on imports is paid along with customs duties. VAT refund General refund period 60 days from the deadline for submitting the tax return Refund period for exporting companies (companies whose income from abroad exceeds 51% of total revenues) and companies whose output VAT exceeds input VAT in three subsequent tax periods - 30 days from the deadline for submitting the tax return Tax exemption without input VAT credit is provided for the following supplies:

- banking - financial - insurance and reinsurance services - services of public interest (health and social security services; sport, culture and religious

services - services of public radio broadcasting service, except for services of commercial character) - supply of immovable property, except the first transfer - services of games of chance etc.



The tax period is the calendar month. VAT returns have to be filed with the Tax Authorities and VAT liability should be paid within 15 days after expiration of the tax period.

Customs duty There are no export duties in Montenegro, nor is it forbidden to export any goods. Exceptionally, the Montenegrin government can impose quantity limitation of exports only in case of critical shortage of certain goods or for the purpose of protection of non-renewable natural resources, under certain conditions. Customs duties are paid on goods imported into the customs territory of Montenegro in accordance with the rates and tariffs set forth in the Customs Tariffs, which is in line with the harmonized system of tariff codes prescribed by the WTO. Customs duties can be levied in two manners, as ad valorem or specific duty per unit of goods. For agricultural and alimentary products, a combined duty has been determined, that is, both ad valorem and specific duty are charged simultaneously. Ad valorem duties are prescribed within the scope from 0% to 30%. Specific duties range from EUR 0.04 per 1kg to EUR 1 per 1kg. Customs rates stipulated by international agreements are only applied to goods of preferential origin from countries covered by such agreements. The most important free trade agreements that Montenegro signed are with the European Union, the EFTA, CEFTA states, Russia, Turkey, and Ukraine.

Excise duty Legal entities that are importers or producers of the following products are subject to excise duty:

- Alcoholic and alcohol beverages. - Tobacco products, including non-combustible tobacco. - Mineral oils, their derivatives and substitutes, and coal. - Mineralized water with sugar or aroma. - Liquid for charging electronic cigarettes.

Excise duty can be prescribed as a fixed amount and/or as a certain percentage (ad valorem). Tax on coffee Tax on coffee is payable on coffee imported and produced in Montenegro. The tax rate varies from EUR 0.80/kg to EUR 1.30/kg, depending on the type of the coffee. Tax on coffee is also payable for products and beverages that contain coffee. The tax rate for these products is EUR 2.50/kg for one kg of net coffee contained in the final product. The excise duty taxpayer is the producer and importer of excisable products. Deferral of excise duty liability is possible by exercising the right to hold an excise warehouse. Excise duties assessment should be filed with the authorities within 15days after the end of month. Excise duties have to be paid within 15 days after the end of the tax period (month). Law on Excise Duties prescribes specific requirements for exemption of excise duties.



4.5. LOCAL TAXES

Property tax is payable by legal entities who own or have user rights over real estate located in Montenegro (ownership, right of use, etc.). The annual tax is levied at proportional rates, ranging from 0.25% to 1% on the market value of assets as of 1 January of the current year. In case of acquisition of new property, the taxpayer is obligated to submit a tax return to the tax authorities within 30 days from the acquisition date (i.e. registration return for property tax) and to declare annual property tax by the submission of annual returns. Additionally, property tax rates vary for unused agricultural land (3%-5%), illegal objects or accommodation objects (2%-5.5%). Tax is determined in the tax assessment, issued by the tax authorities up to 30 April of the current year. For construction companies there are limited exceptions to the payment of this tax. Tax on property it is paid in two installments, first on 30 June and second on 30 October. Transfer tax on the acquisition of ownership rights over immovable property is 3% of transaction, where it is included also first transfer of real-estate property built before 1 April 2003. This tax does not apply if the transfer of property is realized as a gift or inheritance to children, parents or spouses. The taxable base is the market value of the immovable property at the time of the acquisition. A taxpayer (i.e. the acquirer of immovable property) is obligated to self-assess a tax liability, submit a tax return, and settle a tax liability within 15 days from the contract date. No stamp taxes are in place in Montenegro.


Transfer pricing The difference between the transfer price and arm’s-length price is included in the taxable profit and is taxed accordingly. Parties considered to be related are the parties between whom special relations exist, which could directly impact the conditions or economical results of the transaction between them. Methods permitted in determining arm’s-length price are:

- the comparable uncontrolled price (CUP) method (as the primary method), - resale minus method, or - cost plus method.

There are no other rules or guidelines introduced apart from the above rules in respect to transfer pricing. Application of a double tax treaty (DTT) may reduce or eliminate Montenegrin WHT. To qualify for the beneficial rates prescribed by the treaty, a non-resident must prove tax residency of a relevant treaty country and beneficial ownership over the income. In order to qualify for a preferential tax rate according to a DTT, a non-resident will need to provide the tax residency certificate filled out and stamped by the relevant authority of its country of residence.



Although Serbia is regarded as the legal successor of the Serbia and Montenegro State Union that ceased to exist in June 2006, the Republic of Montenegro, upon its Decision on Independence (dated 3 June 2006), continues to honor international treaties that were applicable in the State Union, including those executed by State Union’s legal predecessors (Federal Republic of Yugoslavia and Socialist Federal Republic of Yugoslavia, i.e. former Yugoslavia). However, a quite low statutory WHT rate of 9%, which was enacted after most of the treaties had been introduced, is usually more beneficial than treaty rates.

Tax Treaties The double tax treaties5 in force are as below:

Recipient WHT (%)

Applicable from Dividends (1) Interest Royalties

Non-treaty 9 9 9

Treaty:

Albania 5/15 10 10 2006

Austria 5/10 (8) 10 5/10 (4) 2016

Azerbaijan 10 10 (7) 10 2014

Belgium 10/15 15 10 1982

Belorussia 5/15 8 10 1999

Bosnia and Herzegovina 5/10 10 10 2006

Bulgaria 5/15 10 10 2001

China 5 10 10 1998

Croatia 5/10 10 10 2005

Cyprus 10 10 10 1987

Czech Republic 10 10 5/10 (4) 2006

Denmark 5/15 0 10 1983

Egypt (2) 5/15 15 15 2007

Finland 5/15 0 10 1988

France 5/15 0 0 1976

Germany 15 0 10 1989

Hungary 5/15 10 10 2003

India (3) 5/15 10 10 N/A

Ireland 5/10 10 5/10 (4) 2012

Italy 10 10 10 1986

Korea 10 10 10 2002

Kuwait 5/10 10 10 2004

51. If the recipient company owns/controls at least 25% of the equity of the paying company, the lower of the

two rates applies. 2. A new DTT was signed with Egypt in 2005, but it is not applicable yet. Meanwhile, the old treaty is still

applicable. 3. Instruments of ratification have not been exchanged between the two countries. 4. A tax rate of 5% will be applicable to literary, scientific, and work of art, films and works created like films,

or other sources of reproduction tone or picture. A tax rate of 10% will be applicable to patents, petty patents, brands, models and samples, technical innovations, secret formulas, or technical procedure.

5. Only in cases when dividends are to be paid to Montenegrin residents. If paid to Malaysian residents, they are taxable at 9% in Montenegro.

6. A 5% rate is applicable for intellectual property and 10% rate for industrial property. 7. A 0% rate is applicable in cases when the income recipient is the government or government-owned banks. 8. A 5% rate is applicable in cases when the beneficial owner is a company that holds at least 5% of the

capital of the payer of the income. In all other cases, a 10% rate applies.



Recipient WHT (%)

Applicable from Dividends (1) Interest Royalties

Latvia 5/10 10 5/10 (4) 2007

Macedonia 5/15 10 10 1998

Malaysia 0 (5) 10 10 1991

Malta 5/10 10 5/10 (4) 2010

Moldova 5/15 10 10 2007

Netherlands 5/15 0 10 1983

Norway 15 0 10 1986

Poland 5/15 10 10 1999

Portugal 5/10 10 5/10 2018

Romania 10 10 10 1998

Russia 5/15 10 10 1998

Serbia 10 10 5/10 (4) 2012

Slovak Republic 5/15 10 10 2002

Slovenia 5/10 10 5/10 (6) 2004

Sri Lanka 12.5 10 10 1987

Sweden 5/15 0 0 1982

Switzerland 5/15 10 10 2006

Turkey 5/15 10 10 2008

Ukraine 5/10 0/10 (7) 10 2002

United Arab Emirates 5/10 (8) 10 5/10 (4) 2014

United Kingdom 5/15 10 10 1983

Payments are made at the Euro (EUR), the European Union currency



5. NORTH MACEDONIA

Legal business forms according to Trade Companies Law are:

- General partnerships. - Limited partnerships. - Limited liability companies. - Joint stock companies. - Limited partnerships by shares. - Foreign business entities may register a branch office or a representative office in North

Macedonia. Accounting and financial reporting rules are applicable under IAS and IFRS.

5.1. PERMANENT ESTABLISHMENT/ FISCAL RESIDENCE

The place of the fiscal residence is determined if it is registered under Macedonian law, or if it has a legal headquarters as a legal entity, applying the criteria of permanent residence. Taxation of a fiscal resident is done by taking into consideration incomes generated within and outside the country. Non-resident companies are only taxed for incomes deriving from the activity within the country's jurisdiction. Individuals are considered tax residents, if they have a permanent or temporary residence in the country. The individual is considered to have a temporary residence, if one stays in the country continuously or intermittently for 183 days or more within any 12-month period. If a DTT is in place, the 183-day residency principle is applicable in accordance with the provisions of the treaty. A foreign tax resident is any individual who is not a Macedonian tax resident. A company is resident for tax purposes if it is established or maintains its headquarters in the territory of North Macedonia. Foreign legal entities with headquarters abroad are non-residents for tax purposes. Their Macedonian branches are liable for tax on any profit generated in the territory of North Macedonia if they are considered as a PE for the foreign legal entity in the country. Generally, a PE is a fixed place of business through which the business of an enterprise is wholly or partly carried on, either directly or through a dependent agent. More specifically, the domestic law provides that a PE may include a place of management, a branch office, an office, a factory, a workshop, mining activities, or any other place of extraction of natural resources. A building site or construction or installation project, as well as related supervision activities, may constitute a PE if it lasts longer than six months. Furthermore, the provision of services, including consulting services with regard to one or several related projects, is deemed to give rise to a PE if such activities last longer than 90



continuous days within any 12-month period. If one or several persons establish a PE as per above, any other non-related project on which they are working on becomes part of the PE, irrespective of its duration. The PE should be registered as a corporate taxpayer at the beginning of its activity in the country for the purposes of obtaining a tax number.

5.2. PERSONAL INCOME TAX Taxation of individuals’ income in North Macedonia is based on their residence status. Macedonian tax residents are taxed on their worldwide income. Non-residents are taxed on their income derived in the Macedonian territory. The Government introduced progressive taxation with the adoption of the new Law on Personal Income Tax (December 2018), implemented as of January 2019. This policy and the Law itself were part of a larger social reform package, along with other texts: the New Law on Social Protection, which introduced guaranteed minimum assistance; the new Law on Social Security for Older Persons, which introduced social pensions; and the Amendments to the Law on Child Protection, which introduced educational allowances. According to the Law on Progressive Personal Income Tax, from January 2019, Personal monthly income, up to the amount of € 1,460 is taxed at the rate of 10%. Personal monthly income exceeding € 1,460 is taxed at 18%. This level of taxation affects no more than 1% of taxpayers. Revenues below this monthly threshold are taxed as before at the rate of 10%. According to government estimates, the progressive taxation was to affect 1% of the wealthier citizens, and the expected revenues from this measure were estimated at 1,558 million MKD (€25 million). The policy plan, as publicly announced by the Government (November 2018), aimed to direct the increased revenues towards financing the new social protection rights. According to the recent amendments, as of 1 January 2020 until 31 December 2022, the progressive tax rate on individual income will not apply. Instead, 10% flat tax rate will apply on individual's income from work, self-employment income, income from royalties and industrial property rights, income from sale of own agricultural products, rental income, income from capital, capital gains, insurance income, as well as other taxable income not categorized separately in the legislation. The tax rate on the gains realized from games of chance will be 15%. The taxation of interest on termed deposits and capital gains from sale of securities and shares released from investment funds is postponed until 1 January 2023.

Personal Income for taxation Generally, the following types of income realized in the country and abroad are subject to Macedonian taxation:

- income from work (employment and service agreement-based income); - income from self-employment (business, intellectual, registered agricultural business

activity, and other types of independent activities); - royalties; - income from sale of own agricultural products; - income from IP rights; - income from lease and sub-lease of movables and immovable property; - income from capital; capital gains; gains from games of chance;



- income from insurance; and other income not mentioned above. PIT is payable on income irrespective of whether received in money, securities, in kind, or any other type of compensation. Income from employment (work) is subject to taxation and is comprised of all income realized by the taxpayer based on employment, including income from contractual services. This income includes:

- wages and salaries and other allowances realized based on employment; - pensions; - income of members of management and supervision bodies; - salaries of officials, MPs, and advisors; - salaries of professional athletes; - allowances for jurors, forensic experts, and trustees; - allowances of the members of the Macedonian Academy of Sciences and Arts; - salary earned abroad based on employment in the country; - allowances for interns according to the Internship Law; and - every individual income realized based on temporary service contract with legal entities

and physical persons. Income from self-employment consists of income realized by individuals from business activities, registered agricultural business activity, or from rendering professional and other intellectual services, such as doctors, lawyers, public notaries, tax consultants, engineers, architects, accountants, etc. If several physical persons realize income from joint activity, each shall be subject to PIT on the share of the income attributable to a person in accordance to the agreement for joint activity. Income from copyrights is the compensation realized by the individual from artwork and related rights regulated under the Law on Copyrights and Related rights (e.g. paintings, artistic work in music, film, etc.). The tax base is decreased by the amount of recognized expenses that range between 20% and 50%. Income from sale of one's own agricultural products consists of sale of own agricultural products to payers that keep accounting records and to natural persons if the sale took place outside organized green markets. The tax base is 20% of the gross income realized. The taxpayer whose total income in the year exceeds the amount of MKD 1 million shall be required to register for business activity in accordance with the legislation by 15 January of the following year, at the latest. If the taxpayer during the calendar year generates income from sale of one's own agricultural products not exceeding MKD 1 million, such taxpayer shall have the right to recover the tax paid thereof, provided the taxpayer has not realized any other income that is taxable under the PIT Law. Income from IP rights is the compensation realized by the individual based on rights regulated with the Intellectual Property Rights Law. The tax base is 90% of the gross income.



Income from lease and sub-lease of movables and immovable property is comprised of income earned by physical persons from lease and sub-lease of movables and immovable property, equipment, transportation vehicles, and other property. In case of a non-furnished property lease, the taxpayer is recognized a 10% deduction on the tax base for maintenance and management expenses. As for the lease of equipped residential and business premises, a 15% deduction on the tax base is recognized to the individual. Income from capital refers to those realized from the following:

- Dividends and other income realized through participation in the profit with legal and physical persons.

- Interest on loans given to legal and physical persons. - Interest on time savings and other deposits. - Interest on bonds and other securities. - Other income from securities and financial instruments.

Dividends are subject to a flat 10% tax rate on the gross amount paid. The tax is payable by the payer of the dividend by way of withholding. Interest income is subject to a flat 10% tax rate. The tax base is the amount of the calculated interest. Interest on bonds issued by the state and local government units (LGUs), public loans, and call deposits is not subject to taxation. The taxation of interest on time savings is is postponed until 1 January 2023 Capital gains refer to the income realized by the taxpayer as a positive difference from the sales of real estate, securities, share of capital, shares issued from investment funds and other movables and immovable property. Capital gain is the difference between the sales price and the purchase price. The tax base is 90% of the realized capital gain from sale of securities, share of capital, share of investment funds and immovable property in which the taxpayer has lived at least one year prior to the sale. The taxation of capital gains from sale of securities and shares issued by an investment fund is postponed until 31 December 2022. Tax is not payable on capital gains realized from sale of securities which were issued within initial public offer. Capital gains from the sale of immovable property are exempt in cases where the immovable property:

- is sold following three years as of date of purchase, in case the taxpayer has lived in it for at least a year prior to the sale

- is sold after five years as of date of purchase - is inherited/obtained as gift, if such inheritance/gift is exempt from taxation under the

Property Taxes Law - is acquired within a procedure for denationalizations, or - sold between spouses, or from spouses to third parties, and such sale is in relation to a

divorce procedure.



The tax on gains from games of chance and other prize games is not paid on the realized gain if it does not exceed MKD 5,000; otherwise, tax is paid on the total amount of the gains, at a flat 15% rate. On the other hand, any gain realized in betting houses is taxable at a flat 15% rate, where the tax base is the difference between the betting deposit and the paid-out gain. Insurance income includes:

- the life insurance premium paid out by a legal entity or a self-employed individual - the premium for non-life insurance paid out by a legal entity or a self-

employed individual, excluding the premiums paid out for collective insurance of employees for work-related injuries, and

- the paid out insured amount, except for the compensation for damages. Insurance income is subject to a flat 10% rate until the end of 2022. Other income under the PIT Law is deemed to include all other taxable income realized by physical persons that are not mentioned above. This category especially includes:

- the income generated by e-commerce through specialized Internet pages, - Internet marketing services, - amount of unused financial aid, - amount of unused donations, - trade shortages not caused by extraordinary events (theft, fire, or other natural disasters),

which are not at the expense of the responsible person's salary, - income generated from the sale of usable solid waste.

The tax base for the income generated from sale of usable solid waste is the gross income realized decreased by 50%. Until the end of 2020, other incomes are taxable at the 10% flat tax rate, applied on the gross income received.

Social and health security contributions Social and health security contributions are paid by the employer on behalf of the employer for a total amount of 27%. This obligation includes 7.3% pay for health insurance, 0.5% for additional health insurance, 18% for retirement and disability, and 1.2% for unemployment. The basis for the mandatory social security contributions calculation is the salary and the additional remuneration from employment (including bonuses) as determined in the labor legislation. Calculation and payment of all the employees’ social contributions is regulated under the Law on Mandatory Social Insurance Contributions. Employers are obligated to calculate and withhold from employees’ gross salary and pay into the accounts of respective funds the compulsory social security contributions and personal income tax (PIT). The current level of the compulsory social security contributions is as follows:

- Pension and disability insurance: 18.8%. - Health insurance: 7.5%. - Employment insurance: 1.2%. - Additional health insurance: 0.5%.



The law also sets the minimal base for payment of social security contributions on salary and bonuses, which on a monthly basis are 50% of the average salary paid in North Macedonia. The highest base for payment of mandatory social security contributions on a monthly basis is 16 average salaries paid in North Macedonia. No social contributions are due on the difference above this threshold. The Public Revenue Office (PRO) is the authorized body to control the calculation and the payment of the compulsory social security contributions and PIT on salaries. All employers send their calculations to the PRO that controls them and, if correct, issues a declaration of acceptance that is used by the banks to perform the payment of the social security contribution, PIT, and net salaries. Tax exempt individual income, such as:

- certain employment related expenses - certain types of interest - awards - scholarships - damages - alimony, etc.,

is exhaustively listed in the PIT Law.

Personal income tax deductions Compulsory health, pension, unemployment, and other related contributions borne by individuals are tax deductible in full. Employees' salaries are allowed to be deducted as deductible expenses for tax purposes 1,555 Euros per year, or 129 Euro / month.

Personal Income Tax relief and tax incentives The resident taxpayer is granted a credit for the tax paid abroad up to the Macedonian tax payable on the same income. Bilateral tax relief is granted in accordance with the provisions of the DTTs in force. The salary of employees at employers that are users of Technological Industrial Development Zones are exempt from tax for a period of ten years as of the first month in which the employer starts paying out salaries.

Personal Income Tax returns As per the new PIT Law, taxpayers are no longer required to prepare and file the annual tax return. Instead, the PRO undertook the obligation to prepare the annual tax return based on the electronic fillings made during the year by the companies and the taxpayers elaborated in description of Payment of tax below. The PRO would deliver to each taxpayer the draft annual tax return for the calendar year by 30 April of the following year. Within the next month (until 31 May), the taxpayer should confirm the correctness of the data included in the draft return or make appropriate corrections. If the taxpayer neither confirms nor corrects the prepared return by the PRO, the draft tax return would be deemed as final. In case



the PRO cannot confirm the corrected annual tax return by the taxpayer, the tax would be determined by way of a Tax Assessment Form issued by the tax authorities. Individuals who realize business income and keep accounting records submit annual accounts and annual tax return by 15 March of the following year for the previous calendar year.

Payment of personal income tax Under the new PIT Law, all taxable income should be reported and PIT paid in advance. Before payment of any taxable income to individuals, taxpayers that are domestic companies and domestic taxpayers that keep accounting records are obligated to calculate, withhold, and pay PIT on behalf of the individuals. These taxpayers should electronically file a calculation for the income payable to the individual and the PIT due to the PRO for approval. The PRO confirms the calculation, following which the payment of income and PIT could be made at the banks. In all other cases, the taxpayer is obligated to report taxable income and pay PIT in advance on a monthly basis. This obligation would apply for the taxable income realized abroad as well, except for salaries. Namely, by the 10th day of the following month for the income realized in the previous month, each taxpayer should electronically file a calculation for the income and the PIT due to the PRO for approval. Following the approval by the PRO, the PIT should be paid by the 15th day of the following month for the income realized in the previous month. Evidence related to the realized income should be filed to the PRO simultaneously. The electronic reporting of the salary received from abroad should be filed by 31 March of the following year. In case the calculation filed electronically by the taxpayer is not approved, or the corrected tax return is not accepted, the tax authorities would issue a Tax Assessment Form. In this case, the tax should be paid within 15 days as of the delivery of the Tax Assessment Form to the taxpayer. Individuals who realize business income and keep accounting records make monthly advance payment of tax in the amount of one twelfth of the calculated tax in the annual tax return for the previous year. The difference between the final tax liability based on the annual tax return and the tax paid in advance for the calendar year is settled by 30 June.

5.3. PROFIT TAX / CORPORATE INCOME TAX Generally, all resident and non-resident legal entities operating through a permanent establishment (PE) are liable to pay corporate income tax (CIT) in North Macedonia. Macedonian resident entities are taxed on their worldwide income. Non-resident entities are taxed on the profit realized through their PE in North Macedonia. Non-profit organizations (including non-governmental organizations, religious and humanitarian organizations, trade unions, political parties etc.) are taxed on income from their business activities (if any) if their total annual revenues are higher than MKD 1 million. The CIT would be calculated as 1% of the total annual revenues from business activities, decreased by the prescribed tax exemption of MKD 1 million.

Simplified tax regime for companies Companies (except companies that provide banking, financial, and insurance services, as well as services in the field of games of chance and entertainment games) can choose to benefit from the simplified tax regime based on their overall annual income. Provided other criteria prescribed in the CIT Law are met, companies will qualify for the simplified tax regime if their overall



annual income from all sources is between 3 million MKD and 6 million MKD. These companies will pay 1% CIT on their overall income from all sources as stated in their income statement and financial statements for the respective calendar year. Provided their overall annual income in the following three years is within the above range, companies under the simplified tax regime cannot request to be excluded from the simplified tax regime. Under the simplified tax regime, exemption from CIT is available for companies with an overall annual income from all sources of up to MKD 3 million. The CIT rate is 10%. The tax base for CIT is the profit realized for the current year, as determined according to the applicable accounting standards, adjusted for the amount of non-deductible expenses incurred during the fiscal year (FY). According the previous CIT legislation, there were two separate tax bases for CIT, which were subject to filing of two separate tax returns. In the period between FY 2009 and FY 2013, CIT was payable separately on non-deductible expenses (on an annual basis) and on financial profit (only if distributed). By means of the applicable CIT Law, the accumulated profit realized for the period FY 2009 to FY 2013 is subject to taxation at the moment of distribution or at the moment it is used to off-set accumulated losses. Taxpayers are obligated to cover the losses from previous years prior profit distribution. CIT is not payable on received dividend income from domestic taxpayers, under condition that such income was taxed at the level of the payer. Also, according to the new amendments in the CIT Law, 10% CIT is payable in case revaluation reserves of tangible and intangible assets are transferred into accumulated profit. The tax base is the transferred amount into accumulated profit, less the amount of depreciation of the revaluated value of assets from 1 January 2019 until the date of write-off or disposal of the assets. CIT is payable by way of submitting a specific CIT return by the taxpayer. Branch offices are registered in the Trade Registry. Branches are subject to CIT in accordance with the general statutory provisions. The foreign parent company is fully liable for the obligations of its established branch office in North Macedonia. A foreign company that is entitled to carry out commercial activities pursuant to its national legislation may establish a commercial representative office in North Macedonia. Representative offices are not legal entities and may not carry out any commercial activities. Representative offices are not subject to CIT.

Taxable income Capital gains, as well as income from dividends, interest, rent, and royalties are treated as ordinary income of the taxpayer and are included in its general taxable base in accordance with accounting rules and standards. Dividend income received from domestic taxpayers is excluded from the tax base under condition that such income was taxed at the level of the payer.

Deductible expenditures for profit tax According to CIT Law, all the expenditures, which are based in an invoice as described by law are known expenses with the conditions that they have to been carried out for purpose of the activity of business.



Expenses that are not related to the business activity of the taxpayer are taxable and can’t be deductible for profit tax. The depreciation expenses of assets are tax deductible if calculated within the statutory-prescribed depreciation rates and rules. Taxpayers should include in the tax base the portion of depreciation that exceeds the amount calculated based on the prescribed tax rates. At the end of December 2019, the Government has published the Guidelines for depreciation rates and the methodology for calculating the depreciation for tax purposes. On the other hand, based on the recent amendments, the taxation of depreciation became a temporary difference. Taxpayers are allowed to decrease the tax base in the following year for the amount of taxed depreciation in the previous tax period. Furthermore, the write-off of the residual value of assets that can no longer be used is tax deductible, following an approval issued by the Macedonian tax authorities. Such approval is subject to submitting a request by the taxpayer by 31 January of the following year. Interest paid on non-business-related credits of the taxpayer, as well as interest on credits for purchase of passenger vehicles, furniture, carpets, works of art, and decorative objects, is a taxable expense. Interest on business-related credit is also taxable, provided it falls under the thin capitalization or transfer pricing rules. Uncollected receivables arising from loans (or transactions that are considered loans in their economic substance) that are not repaid in the year of granting are considered as taxable expenses. On the other hand, taxpayers are allowed to reduce their tax base in the tax period when such receivable is partially or fully collected. According to the recent amendments, the uncollected loan receivables from resident legal entities are not taxable. Impairment of receivables is not taxable for banks, saving institutions and insurance companies, if impaired in accordance with the methods prescribed by law. As to other corporate taxpayers, impairment of receivables is a taxable expense, excluding the receivables from entities under bankruptcy or liquidation procedure (if confirmed within these procedures). Write-off of receivables is a taxable expense for all corporate taxpayers. On the other hand, taxpayers are entitled to decrease the tax base for the amount of collected receivables (taxed in previous years) in the year of collection. Donations and sponsorships expenses are taxable if not pursuant to the manner, the conditions, and the procedure set forth in the Law on Donations and Sponsorships in Public Activities and Sports Law. If compliant with the law requirements as per above, donations in public activities are taxable if the annual amount borne by the taxpayer exceeds 5% of its overall revenue, whereas sponsorship expenses are taxable if above 3% of the overall revenue of the taxpayer. Subject to fulfillment of certain conditions, donations to the national sport federations, sport clubs, and active athletes, that have gained such status in accordance with statutory prescribed conditions in the Sports Law, could decrease the CIT liability for the year, up to 50% of assessed CIT. The above incentives could be utilized by meeting certain statutory-prescribed criteria. Employees’ related expenditures (e.g. organized transportation to/from work, canteen, business trip allowance, field allowance, family separation allowance, one-off severance payment, retirement allowance, annual holiday allowance, anniversary awards) are taxable on the part exceeding the amount prescribed by law and collective agreement. According to the latest amendments, the



taxation of these expenditures is not linked to their payment. However, taxpayers are allowed to decrease the tax base if the provisions for these expenses are cancelled in future tax periods, for the amount of recognized revenue due to such cancellation. Voluntary pension insurance contributions are taxable if their annual amount per employee exceeds two average monthly gross salaries paid out in the country for the previous calendar year. The monthly allowances and expenses for the managing board members are tax-deductible, up to 50% of the average gross monthly salary paid out in the country for the previous year. Expenses made for accommodation (up to 4-star hotels and in daily amount of up to 6.000 MKD per person) and transport of non-payroll employees engaged at the taxpayer for the purposes of its business activities are tax deductible, provided they are properly documented. Depending on the period of the internship contract, the tax-deductible internship allowance could be in the range between 42% to 100% of the minimum net monthly salary paid out in the country. The monthly allowance for practical trainings of students is tax deductible up to MKD 8,000 per person.

There are no specific provisions in the tax legislation with regard to goodwill. There are no specific provisions in the tax legislation with regard to start-up expenses.

Unjustified shortages are taxable if not reimbursed from the salary of the responsible person. Life insurance premiums are taxable if their annual amount per employee exceeds two average monthly gross salaries paid out in the previous calendar year. Other insurance premiums paid for members of the management board and the employees (if not paid out from their salary) are taxable expenses. Only the collective insurance of the employees for work-related injuries is a non-taxable expense for corporate taxpayers. Expenses for gifts, business dinners, recreation, and entertainment are taxable, up to 90% of the annual amount borne by the taxpayer.

Non-deductible expenditures for profit tax Under the CIT Law amendments applicable as of 1 January 2019, the expenses for depreciation of the re valuated amount of tangible and intangible assets are deemed as tax non-deductible expenses. CIT is payable in case revaluation reserves of tangible and intangible assets are transferred into accumulated profit. The tax base is the transferred amount into accumulated profit, less the amount of depreciation of the revaluated value of assets from 1 January 2019 until the date of write-off or disposal of the assets. Expenses for scrapping exceeding the standards for the particular industry set forth in the rulebook on the standardized amounts of debris, scrap, waste, wreckage, and scattering of goods and specific products are taxable. Scrapping expenses caused by vis major or an uncontrollable event are not taxable. Fines and tax penalties, penalty interest on unpaid public duties, and expenses for enforced payments, as well as WHT borne by the taxpayer on behalf of third parties, are taxable.



The CIT Law stipulates that the loss realized in the income statement for the year, adjusted for the amount of non-deductible expenses, can be carried forward against future profits for a maximum period of three years as of the year when the profit has been realized. The financial loss can be carried forward for tax purposes only in cases where the accumulated losses have been offset by the taxpayer according to the provisions from the Macedonian Companies Law and if approval by the tax authorities has been obtained. Loss carry backs are not allowed under the Macedonian tax legislation. There are no specific provisions in the tax legislation with regard to payments towards foreign affiliates. A proportional part of the interest related to a loan received from a non-resident shareholder, who directly holds at least 20% of the capital in the company, that exceeds three times its share in the equity in the company will be taxable during a tax period. Thin capitalization rules also apply to loans from banks if they are granted in relation to a deposit of the shareholder in that particular bank. Note that thin capitalization rules do not apply for newly established companies within the first three years of operation.

Tax credits and incentives The taxpayer is allowed a tax credit for the tax paid on foreign income abroad, up to the amount of tax payable for that income in North Macedonia. However, a tax credit for the WHT paid abroad is allowed only if a double tax treaty (DTT) is in place and in case the Macedonian company obtains proof for the amount of tax paid in the foreign country. The CIT Law introduces a possibility for decreasing the tax base for the year for the amount of profit reinvested for development purposes of the local taxpayer. The amounts from the reinvested profit that would be recognized for the purposes of the above tax relief cover investments both in tangible and intangible assets, except for some explicitly listed types of assets intended for administrative purposes. In order to be able to utilize the above tax relief, the taxpayers must maintain ownership over the assets purchased with the reinvested profit for a period of five years as of the day of their purchase. If the taxpayer sells the assets before the expiration of the five-year period, the taxpayer owes the respective CIT.

Technological industrial development zones A taxpayer that is a registered user within a technological industrial development zone is exempt from CIT payment for a period of ten years from the commencement of the performance of the activity in the zone or until the state aid amount is fully exhausted under terms and conditions and according to a procedure determined with the Law on Technological Industrial Development Zones.

Corporate Income Tax returns Taxpayers are obligated to calculate and pay CIT on the basis of a CIT return, which must be submitted to the Public Revenue Office by the end of February of the following year or, if filed electronically, by 15 March of the following year. Taxpayers who distribute profit arising from FY 2009 to FY 2013 are obligated to calculate and pay CIT on the basis of a tax return on profit distribution, which should be submitted to the tax authorities up to the date of profit distribution.



Taxpayers that have used the incentive for reinvested profit in previous years, should submit a specific tax return to the tax authorities and pay the due CIT within 30 days as of the date taxpayers no longer satisfied the conditions for using such incentive. Taxpayers should submit specific tax return and pay the CIT due at the moment of transfer of revaluation reserves of tangible and intangible assets into accumulated profit. Only the transfer of revaluation reserves recognized prior to 2019 is taxable. Small taxpayers who fall under the simplified tax regime are obligated to calculate and pay the tax due on the basis of a tax return on overall income, which should be submitted to the tax authorities by the end of February of the following year or, if filed electronically, by 15 March of the following year.

Payment of corporate income tax Corporate taxpayers are obligated to pay monthly CIT advance payments during the year within 15 days of the end of each month. Monthly CIT advance payments are calculated as one-twelfth of the CIT obligation for the previous calendar year, increased by the index of cumulative retail price growth as determined by the State Statistical Bureau. The difference between the advance payments and the final CIT liability as determined in the CIT return should be paid within 30 days as of the deadline for submission of the CIT return. Daily penalty interest of 0.03% is due on late tax payments. In case the sum of monthly advance payments exceeds the final tax liability in the CIT return, the taxpayer may request for a refund of overpaid tax. The tax should be refunded within 60 days as of the date of submitting the request via the CIT return. If the taxpayer does not ask for a tax refund, the overpaid amounts will be considered as advance payment for the following period.

Withholding taxes All domestic legal entities and domestic physical persons that are registered for carrying out an activity, as well as foreign legal entities or physical persons that are non-residents but have a PE in North Macedonia, are obligated to withhold tax when paying certain types of income towards a foreign legal person and to pay the tax withheld to a respective suspense account simultaneously with the payment of the income. The WHT rate is 10% and is applied on the following forms of incomes payable abroad:

- Dividends. - Interest. - Royalties. - Income from entertainment or sporting activities in North Macedonia. - Income from management, consulting, financial services, or services related to research

and development. - Income from insurance or reinsurance premiums. - Income from telecommunications services between North Macedonia and a foreign

country. - Income from the lease of immovable property in North Macedonia.



As an exception, WHT is not applicable to the following forms of income:

- The after-tax profit of a PE transferred to its foreign headquarters. - Interest from bonds issued or guaranteed by the government. - Interest on deposits in banks located in North Macedonia. - Income from transactions in state securities on the international financial markets.

If a DTT is in place, WHT shall be payable in accordance with the provisions from the DTT. Taxpayers are obligated to obtain approval from the Macedonian tax authorities prior to applying the tax rates from the DTT.

5.4. INDIRECT TAXES In general, the VAT regulations are in line with the provisions of the sixth European Union (EU) VAT directive. VAT is applied at a standard rate of 18%, while the reduced rate is 5% for pharmaceutical products, food, information technology and public transport. The VAT registration threshold is € 16,200. However, VAT registration can be done voluntarily, even if an annual turnover is not above the threshold set. VAT exemptions include:

- healthcare - financial services, including insurance - education.

Exports are taxed at a rate of 0%. The standard VAT rate is 18%. This rate applies to overall turnover and imports of goods and services. A lower rate of 5% applies to supplies of certain goods and services, such as:

- supply of food for human consumption; - food for livestock; - drinking water from public supply systems; - computers and software; - agricultural material and equipment; - wood pellets, pellet stoves, and pellet boilers; - baby products; - school supplies (e.g. school backpacks, notebooks, pencils); - pharmaceutics and medical equipment; - publications, such as books, pamphlets, newspapers, and other printed material, except

for publications mainly used for advertising purposes; - transport of passengers; and - accommodation services, bed and breakfast services, as well as half-board and full-board

services provided by hotel keepers in the country.



All taxpayers whose total annual turnover exceeds MKD 2 million or whose total supplies, as projected at the beginning of the business activity, will exceed this amount are liable to register for VAT purposes. Residents that do not meet the criteria above may voluntarily register for VAT purposes at the beginning of each calendar year. The standard VAT period is one calendar month. However, if the total turnover in the previous calendar year did not exceed MKD 25 million, the tax period is the calendar quarter. The VAT period for voluntary VAT registered taxpayers is the calendar quarter. The taxpayer is obligated to submit a VAT return for each tax period within 25 days following the end of the relevant tax period.

Customs duties Customs duties generally apply to most products imported into North Macedonia. The customs rates under the most favored nation treatment for agricultural products are up to 31%, whereas the customs rates for industrial products are below 23%. North Macedonia has signed trade agreements with Turkey, Ukraine, and EFTA member states. The country is a member state to CEFTA and has signed a Stabilization and Association Agreement with the European Community. The import of industrial products with preferential origin and certain raw precious metals is exempt from customs duties. According to the Stabilization and Association Agreement 2001 signed between Macedonia and the European Union, products with Macedonian origin can generally be exported into EU countries free of customs duties.

Excise duties Excise duties are levied with respect to a limited number of goods produced or imported in North Macedonia. Alcohol and alcoholic beverages, tobacco products, and fuels and electricity are subject to an excise duty at a flat or percentage rate. The excise period is one calendar month, and excise duty is payable within 15 days as of the end of the calendar month. The excise duty for alcohol beverages and tobacco goods is levied by way of purchasing excise stamps. Alcohol and alcoholic beverages are taxable per litre/percentage of alcohol. Some categories of alcoholic beverages (e.g. wine) are not subject to excise duty. Maximum excise duty payable is up to MKD 340 per litre on pure alcohol. The excise duty for tobacco products is combined and is calculated both per unit/kilo and as a percentage from the retail price. As of July 2020, up to July 2023, the rate of the specific and minimum excise duty on cigars/smoking tobacco will increase by MKD 0.20 per peace every year. The excise duty for fuels and electricity is paid in cases where those are used as a fuel or heating fuel. The excise base for fuels is the amount of fuels expressed in kilo net mass, normal cubic meters, litre, or giga joules gross calorific value, except for electricity where the excise base is the amount expressed in megawatt hours.



5.5. LOCAL TAXES Property tax is paid annually on the ownership of real estate, including land (agricultural, construction, forest, and pastures) and buildings (residential buildings or flats, business buildings and business premises, administrative buildings and administrative premises, buildings and flats for rest and recreation, and other construction facilities, as well as installations constructed on the buildings or below and permanently attached to the buildings). The person liable for property tax is the legal entity or the individual owner of the property. If the owner is not known or cannot be reached, the person liable for property tax is the user of the property. A property taxpayer may also be the taxpayer who usufructs the property; and, if the property is owned by several persons, each of them is a property taxpayer proportionately for the portion owned. A property taxpayer is also the person who uses real estate owned by the state and the municipality. The property tax base is the market value of the real estate. The market value of the real estate is determined in accordance with the methodology prescribed by the government. Property tax rates are proportional and range from 0.10% to 0.20%. The rates may be determined on the basis of the type of the property. As an exception, property tax rates on agricultural land not used for agricultural production may be increased outside the above range (i.e. from three to five times in relation to the basic rates). The amount of the rates is decided by the Municipal Councils. The transfer of the right to ownership of real estate for or without compensation, as well as other means of acquiring real estate for or without compensation, between legal entities or natural persons is subject to transfer tax. The person liable for transfer tax is the seller of the real estate. As an exception, a taxpayer may also be the buyer of the real estate if agreed in the sale and purchase agreement. When replacing real estate, the taxpayer is the party that replaces the real estate of greater value. When selling real estate in bankruptcy and law-enforcement procedure, as well as when realizing agreements on mortgage, the taxpayer may be the buyer of the real estate. In the case of transfer of ownership of an ideal share in real estate, taxpayers are each of the owners separately. The tax base is the market value of the real estate at the moment the tax liability arises. When replacing real estate, the tax base is the difference between the market values of the real estate being replaced. When selling real estate in bankruptcy and law-enforcement procedure, the tax base is the attained selling price. The market value is determined by a special municipal commission in accordance with the methodology prescribed by the government. Tax rates are proportional and range from 2% to 4%. The tax rates are determined by the municipal councils by way of decision.



There are certain exemptions from transfer taxes available for specifically determined cases (i.e. transfer of shares, sale of securities, the first sale of residential premises for the first five years from the end of their construction, etc.). Inheritance and gift tax are paid on real estate and entitlements to usage of real estate, which the heirs or the receivers of gifts, respectively, inherit/receive on the basis of an inheritance/gift agreement. Tax is also paid for cash, money claims, securities, and other movable property, provided the value of the inheritance/gift is higher than the average annual salary in North Macedonia as determined by the State Statistical Bureau for the previous year. The values of all gifts of the same type, received in the course of one calendar year, are included in one tax base. The municipal administration keeps records on the value of the gifts, on the basis of which, at the end of the year, the tax can be determined for the person receiving the gift, should one receive more gifts of the same type that cumulatively surpass the non-taxable amount in the course of the year. An inheritance taxpayer is an individual or a legal entity, resident of North Macedonia, who inherits taxable property. A gift taxpayer is also an individual or a legal entity that receives property as a gift in the country or abroad. Additionally, an inheritance and gift taxpayer is a foreign individual and a non-resident legal entity for the real estate and movable property inherited or received as a gift on the territory of North Macedonia. The inheritance and gift tax base is the market value of the property inherited or received as a gift as at the moment the tax liability arises, decreased by the debts and expenses burdening such property. Property tax rates are proportional and differ on the basis of the order of succession. They are prescribed within a certain range and depend on the decision of the relevant municipality. The heir or receiver of the gift in first order of succession is exempt from paying inheritance and gift tax. The taxpayer in the second order of succession is subject to a tax rate between 2% and 3%. As for the taxpayer in third order of succession or a taxpayer who is not related to the testator, 4% to 5% tax rate is levied. Stamp taxes are not payable in North Macedonia. A garbage collection fee is payable for immovable property, depending on the type of property and on the surface area used. It is calculated on the basis of a tariff and is collected together with the bills for water usage. Companies and individuals are liable for paying communal taxes for usage of certain rights and services (mainly for usage of the urban space in the municipalities, posting commercials, etc.). From 1 January 2020 a new tax on motor vehicles is introduced, which basically taxes passenger cars and other motor vehicles designed primarily for transport of persons, including motorcycles, pickup vehicles, as well as vans for combined transport of persons and goods. The subject of taxation is new and used motor vehicles that are imported and / or put into free circulation in the country for the first time. This law does not cover freight motor vehicles and exclusively electrically driven vehicles. Tax base for motor vehicle tax calculation is the amount of average carbon dioxide - CO2 expressed in grams per kilometre, depending on the type of propulsion fuel and the sales value of the vehicle or import value of the vehicle, if the vehicle is imported.



Motor Vehicle Tax = Value + Specific Component Where: Value = the value of the motor vehicle multiplied by the percentage of the value of the vehicle for the appropriate value category. Specific component = the amount of average CO2 emissions multiplied by the value of 1 gram of carbon dioxide - CO2 for a given category, depending on the fuel type of the vehicle. There are specific rules for:

- hybrid vehicles, in which case the amount of tax on motor vehicles is reduced by 50%. - pickup vehicles, in which case the tax is calculated on the basis of the amount of engine

power expressed in kW and the value of one kW, depending on the level of exhaust emissions.

- motorcycles, tricycles and quadricycles, in which case the tax is calculated on the basis of engine volume data expressed in cm3, motor vehicle tax amount per cm3 expressed in MKD for the relevant category and emission level.

- old-timers (vehicles older than 35 years), in which case the tax is calculated and paid in lump sum of MKD 5.000.

The competent authority for determining, collecting and controlling the implementation of the Law on Motor Vehicles is the Customs Administration of the Republic of North Macedonia.


Transfer pricing The CIT Law and the TP Rulebook have introduced new provisions in respect of transfer prices applied between related parties from 1 January 2019 onwards. The above legislation prescribed detailed rules on TP, both in terms of substantial and TP reporting aspects. TP reporting requirements The amended tax legislation outlines new TP reporting requirements for taxpayers, as follows:

- TP report requirement does not apply to: (i) taxpayers that have realized total annual revenue of up to MKD 300 million and (ii) transactions between related parties that are Macedonian residents.

- Short TP Report requirement: Taxpayers that have total annual revenue above MKD 300 million and have transactions with non-resident related parties in annual amount up to MKD 10 million.

- Full TP Report requirement: All other taxpayers that do not fall under the two categories above.

The above-mentioned TP reports should be prepared in Macedonian language and should be submitted to the tax authorities by 30 September of the following year. According to the new TP legislation, two persons would be considered as related in the following situations:

- One of them has acquired, directly or through another entity, at least 20% of the shares in the share capital of the other person or when it holds at least 20% of all voting rights in its assembly.



- Any third party, directly or through another entity, has acquired at least 20% of the shares in the share capital in each of the related parties, or when it holds at least 20% of all voting rights in its assembly or in any of related parties’ assembly.

- One or more executive or non-executive directors or members of the Management or Supervisory Board of one person are executive or non-executive directors or members of the Management or Supervisory Board in the other person.

- A loan granted or guaranteed by one person constitutes more than 20% of the book value of the total assets of the other person.

- One person, directly or through another entity, receives at least 20% of the profits of the other person, based on an agreement for business cooperation between the two persons.

- One person is a PE of another person. - One person performs business and financial transactions with another person who is

resident of a country in which the CIT rate is 25% lower than the CIT rate applicable. The shares or voting rights of a natural person shall be considered together with those of the spouse, the relatives in a vertical line, the siblings, the guardians, and the adoptive parents. The following transactions with shareholders or their related parties are considered as hidden profit distribution subject to CIT:

- Sales of goods/services on terms below the market price. - Purchase of goods/services on terms above the market price. - Providing loans with an interest lower than the market one. - Arrangements under which gains are realized by the shareholders or their related parties.

Some of the transactions above may be regulated under the transfer pricing provisions in the CIT Law as well. It seems that the purpose of these provisions is to tax the non-fair transactions with shareholders and their related parties that based on their value or related party definition, fall out of scope of the specific transfer pricing rules of the CIT Law Full TP Report In general, the Full TP Report should include a:

- Master File - Local File, and - Statutory-prescribed attachments (e.g. consolidated financial statements of the group,

financial statements of the local taxpayer, copy of inter-company agreements, copy of any Advance Pricing Agreements [APAs], etc.).

The elements of the Master File and the Local File are generally aligned with the elements prescribed in the OECD TP Guidelines. Short TP Report The Short TP Report should contain data for each category of transactions (i.e. a group of transactions of the same type) as follows:

- Description of the transactions. - Value of the transactions. - A related entity with which the transactions have been performed.



TP methods, comparables, and market range of comparables’ data The new legislation prescribes five TP methods (instead of the previous two) that can be used for determination of the transfer price upon transactions with related parties. The prescribed methods are:

- Comparable Uncontrolled Price Method. - Resale Price Method. - Cost Plus Method. - Transactional Net Margin Method. - Profit Split Method.

The taxpayer should choose the most appropriate method in accordance with the arm’s-length principle and should choose a method for each type or category of transactions. If necessary, in specific cases, a combination of several methods may be used. There are no Controlled foreign companies’ rules in North Macedonia.

Tax Treaties North Macedonia has signed DTTs6 with the 49 countries listed in the chart below:

6 1. The lower rate applies to dividends paid out to a foreign company that controls at least 10% of the share capital

of the payer of the dividends. 2. The lower rate applies to dividends paid out to a foreign company that controls at least 25% of the share capital

of the payer of the dividends. 3. The zero rate applies to dividends paid out to pension funds. 4. These DTTs are still not in force. 5. The DTT with Federal Republic of Yugoslavia now applies both to Serbia and Montenegro. 6. The zero rate applies to dividends paid out to recognized pension funds and to foreign companies that

continuously control at least 25% of the share capital of the payer of the dividends for 12 months before the dividends payment. The 5% rate applies to dividends paid out to foreign company that controls at least 10% of the share capital of the payer of the dividends. The 10% rate applies to dividends paid out in all other cases.

7. The tax rate of 10% for royalty’s payments applies only for utilization or right to utilize cinematographic films and films or tapes for radio and television transmission. The 5% rate applies on all other cases.

8. The DTT concluded by the Socialist Federal Republic of Yugoslavia (SFRY) is still applicable for North Macedonia.

9. The zero rate applies to dividends paid out to pension schemes and to foreign companies that continuously control at least 25% of the share capital of the payer of the dividends for 12 months before the dividends payment. The 5% rate applies to dividends paid out to foreign company that controls at least 10% of the share capital of the payer of the dividends. The 15% rate applies to dividends paid out in all other cases.

10. The zero rate applies on interest paid on loans or prolonged credit paid from one enterprise to another enterprise and, on interest paid to the other contracting state, to one of its political divisions or municipalities or public entities of that state.

11. The zero rate applies in case the beneficial owner of the interest is the government, political or municipality subdivision; the Indian Reserve Bank, the Indian Export-Import Bank, and National Housing Bank; or any other institution based on additional agreement via exchange of letters by the authorized institutions.

12. The 10% rate applies on gross income from royalty or income from technical services (compensation for managerial, technical, and consulting services, income from services of technical and consulting personnel that is different from the income derived under article 14 and article 15 of the DTT).

13. The zero rate does not apply to income from lottery, races and horse races, card games, and other games of chance.

14. The 5% of the gross amount of dividends applies if the beneficial owner directly holds at least 70% of the share capital of the company paying the dividend. 10% applies if the beneficial owner directly holds at least 25% but less than 70% of the share capital of the company paying the dividend. 15% applies in all other cases.



Recipient WHT (%)

Dividend Interest Royalties Other income

Non-treaty 10 10 10 10

Treaty:

Albania (1) 10 10 10 0

Austria (1) 0/15 0 0 0

Azerbaijan 8 8 8 0

Belarus (2) 5/15 10 10 0

Belgium (1) 5/15 10 10 0

Bosnia and Herzegovina (2) 5/15 10 10 0

Bulgaria (2) 5/15 10 10 0

China 5 10 10 0

Croatia (2) 5/15 10 10 0

Czech Republic (2) 5/15 0 10 0

Denmark (2, 3) 0/5/15 0 10 0

Egypt (4) 10 10 10 0

Estonia (2) 0/5 5 5 0

Federal Republic of Yugoslavia (2, 5) 5/15 10 10 0

Finland (1) 0/15 10 0 0

France (1) 0/15 0 0 0

Germany (1) 5/15 5 5 0

Hungary (2) 5/15 0 0 0

India (11, 12, 13) 10 0/10 10 0

Iran 10 10 10 0

Ireland (6) 0/5/10 0 0 0

Israel (4, 14) 5/15 10 5 0

Italy (2) 5/15 10 0 0

Kazakhstan (2) 5/15 10 10 0

Kosovo (2) 0/5 10 10 0

Kuwait 0 0 15 0

Latvia (1, 7) 5/10 5 5/10 0

Lithuania (1) 0/10 10 10 0

Luxembourg (2) 5/15 0 5 0

Moldova (2) 5/10 5 10 0

Morocco 10 10 10 0

Netherlands (1) 0/15 0 0 0

Norway (2) 10/15 5 5 0

Poland (2) 5/15 10 10 0

Qatar 0 0 5 0

Romania 5 10 10 0

Russia 10 10 10 0

Saudi Arabia (16) 5 0/5 10 0

Slovakia 5 10 10 0

Slovenia (2) 5/15 10 10 0

Spain (1) 5/15 5 5 0

15. Interest, royalties, and dividends paid to a resident of the other contracting state shall be taxable only in the other

contracting state if the beneficial owner of the income is that other state itself, local government, local authority or the Central Bank thereof, Abu Dhabi Investment Authority, Abu Dhabi Office, International Petroleum Investment Company, Abu Dhabi Investment Council, Dubai Investment Company, Mubadala Development Company, United Arab Emirates (UAE) Investment Authority, Al Dafra Holding Company, or any other institution created by the government, a local authority, or a local government of that other state.

16. The interest tax rate under the DTT would be 0% in case the payer or the beneficial owner of the income is the

government, an administrative subdivision, a local authority, the Central Bank, or any other financial institution

wholly owned by the government.



Recipient WHT (%)

Dividend Interest Royalties Other income

Sweden (2) 0/15 10 0 0

Switzerland (2) 5/15 10 0 0

Taiwan 10 10 10 0

Turkey (2) 5/10 10 10 0

Ukraine (2) 5/15 10 10 0

United Arab Emirates (15) 0/5 0/5 0/5 0

United Kingdom (9, 10) 0/5/15 0/10 0 0

Vietnam (4, 14) 5/10/15 10 10 0

Payments are made at the Macedonian Denar (DEN), the local currency.



6. SERBIA The legal forms of businesses are (a) public companies, (b) joint-stock companies, (c) limited liability companies, (d) partnerships, (e) public companies, (f) branches and representative offices. Accounting and financial reporting rules are applicable under IAS and IFRS. Consolidation of the financial statements is functional for Serbia, where the company seeking to report in consolidated form can choose one of the group companies. The group is considered as such when at least one company owns at least 75% of the shares of the other. Tax grouping/consolidation is allowed to a group of companies where all members are Serbian residents and one company directly or indirectly controls at least 75% of the shares in another company. Each company files its own tax balance sheet, and the parent company files a consolidated tax balance sheet for the whole group. In the consolidated tax balance sheet, losses of one or more companies are offset by the profits of other related companies. Each company is liable for the portion of tax attributable to its share of the group's taxable profit. Once approved by the Ministry of Finance, tax grouping/consolidation applies for at least five years.

6.1. PERMANENT ESTABLISHMENT /FISCAL RESIDENCE

The place of fiscal residence is determined based on registration as a legal entity in Serbia, or if controlled and managed in Serbia. Residence is also determined if the criteria for permanent residence are met. For the purposes of the Law, a resident shall be understood to mean any individual:

- whose residence or center of business and vital interests is in the territory of the Republic - who resides in the territory of the Republic for 183 or more days, continuously or with

breaks, over a period of 12 months beginning or ending in the respective taxation year, or

- who is sent abroad for the purpose of working for the diplomatic or consular representative office of the Serbia (i.e. working for Serbia in an international organization for the period of performing the work).

Tax residency is established when a company has a registered business or permanent establishment or the management and control is exercised in Serbia. Resident companies are subject to profit tax on their worldwide income, while non-resident companies are taxed only on their incomes derived from sources in Serbia. Capital gains, dividends, interests, royalties are included in the income of companies and are taxed as part of corporate income tax. Income tax is assessed in the year, in which the income is earned on a current year basis.



6.2. PERSONAL INCOME TAX Residents are taxable on their worldwide income, whereas non-residents are taxable on their Serbian-sourced income and worldwide income related to their work in/for the Serbia. Tax rates are flat, range from 10% to 20%, and the definition of the taxable base depends on the type of income.

Personal income for taxation Employment income remains subject to withholding tax at a 10% flat rate after deducting the RSD 16,300 non-taxable salary cap. The taxable base is gross salary, including fringe benefits. Other types of income (e.g. royalties, business income, income from agriculture and forestry, investment income, income from immovable property, capital gains, and miscellaneous income) are subject to a flat rate tax that ranges from 10% to 20%, depending on the type of income concerned. Any taxpayer who earns a salary and other revenues in or from another state, a diplomatic or consular mission of a foreign state, or an international organization, or representatives of such a mission or organization, shall calculate and pay WHT in accordance with the Law, provide tax has not already been charged and paid by the payer of the revenue. The taxable base is gross salary reduced for the non-taxable salary cap of RSD 16,300 and includes fringe benefits such as company-provided housing and use of a company’s car. Use of a company’s car for both private and business purposes by an employee is taxed as salary, at a tax base equal to 1% of the car’s market value on 31 December of the previous year for each month of use. The taxable base for company-provided housing is the relevant rent fee available on the market in the location where the apartment in question is situated. The taxable person is the employee, but the employer is responsible for calculating and withholding PIT on behalf of its employees at the moment of salary payment. The taxable base also includes social security contributions on behalf of the employee. Personal income tax is levied on a progressive scale starting at 10% for income from salary, with 15% for income from capital and 20% from rental income, wealth (royalty) and other income.

Social security contributions Social security contributions are calculated and withheld by the employer from the salary paid to an employee, up to a specified cap. These contributions are also payable by the employer on top of the employee’s gross salary. The amount borne by the employer is treated as an operating cost, while the portion payable by the employee is taken from gross salary. The tax and contributions base are gross salary. The social security contributions base is limited to five average monthly salaries in Serbia. The rates are as follows. For the employee:

- Pension and disability insurance: 14%.



- Health insurance: 5.15%. - Unemployment insurance: 0.75%.

For the employer:

- Pension and disability insurance: 11.5%. - Health insurance: 5.15%.

The minimum tax base for social security contributions defined by the Law on Mandatory Social Insurance Contributions is fixed at 35% of the average monthly salary published in Serbia, while the maximum tax base for social security contributions is capped at five times the average monthly salary published by official statistics in Serbia at the moment of salary payment. The compulsory social and health security contributions are in total 37.05%. The employer pays directly from his account the salary that gives the employee contributions for pensions and inability to work (12%), contribution to health (5.15%). The employer retains the gross salary and pays on behalf of the employee the contributions for pensions and disability at work (14%), the health contribution (5.15%) and the unemployment allowance (0%).

Contribution Employer Employees Pension and Disability Insurance 12.0% 14% Health Insurance 5.15% 5.15% Total 17.9% 19.9%

Personal deductions and allowances Taxable annual income may be reduced by personal deductions and allowances for supporting dependent family members. The same personal deductions and allowances apply to both Serbian and foreign nationals:

- In case of a taxpayer: 40% of the average annual salary. - In case of a dependent family member: 15% of the average annual salary per dependent.

Total deductions cannot exceed 50% of the taxable income.

Exempted income from taxes Special types of income, up to prescribed amounts, are tax exempt. Such income includes public transportation costs incurred by an employee for home-to-office travel and daily allowances for business trips. The following employee benefits are also tax exempt:

- Recreation of employees at the workplace and recreation programmes for employees, such as sports events and other employee activities, organized with a view to enhancing employee health and/or building positive workplace relationships and cooperation among employees.

- Organized sporting events and other activities for employees. - Write-off of a portion of the bank’s receivables from a natural person where out of court

settlement may be reached with a view to reducing the number of non-performing loans. - Solidarity allowance awarded for giving birth to a child.



Employees are exempt from paying PIT where they have acquired shares in the company, they work for either free of charge or at a discounted price, except where securities are considered to be taxable income due to:

- The timing of the disposal of shares: When the employee disposes of shares before the end of the two-year period that marks the date when the employee acquires the right to dispose of shares.

- The timing of the buyback of shares: When the company or its related party buys back its shares from the employee.

- The date on which the employee’s employment has been terminated: Where termination of employment occurs before the end of the two-year period that marks the date when the employee acquires the right to dispose of shares, except where termination occurs irrespective of the will of either the employee or the employer.

In certain cases, non-residents working for diplomatic and consular missions or international organizations in Serbia are not taxed on their remuneration.

Other individual taxes Annual tax is the additional tax in Serbia. If the individual is a Serbian tax resident, one is subject to Serbian annual tax on one's net worldwide income exceeding a prescribed threshold, whereas Serbian tax non-residents are liable to report their Serbian-sourced annual net income. The progressive rates apply depending on the income level. For the taxable income exceeding prescribed thresholds, between three and six times the average annual salary, the tax rate is 10%. For net income exceeding six times the average annual salary, the tax rate is 15%.

Tax credits and incentives Starting from January 2010 new tax incentives for hiring new employees who fulfil certain conditions: − For salaries paid to newly settled experts hired for an indefinite period, who have specific expertise not available on the domestic labor market, employers can benefit from a 70% reduction in personal income tax and contribution base reduction in the period of five years (under certain conditions); − Founders of a newly established company performing an innovative activity, who are also employed with the company, can benefit from an exemption from personal income tax and social security contributions applicable on their salaries (up to the prescribed thresholds) during a 36-month period from the establishment of the company; − An employer who employs a newly qualified employee is entitled to a partial exemption from personal income tax and contributions for mandatory pension and disability insurance, for salaries paid up to 31 December 2022.

Foreign tax relief Serbian residents are taxed on their worldwide income. When income generated in another country is taxed there, the taxpayer has the right to decrease the tax liability by claiming a tax credit to the tax authorities in Serbia. This tax credit is equal to the tax paid in another country, but it cannot exceed the amount of the tax that would have been paid in Serbia.

Non-residents carrying on business in Serbia through a branch are taxed on their Serbian-

sourced income at the CIT rate of 15%. A branch is considered to be a PE.



Personal Income Tax returns An individual shall pay annual PIT if one’s income in a calendar year was higher than three times the average annual wage/salary per employee paid out in the Republic of Serbia in the year for which the tax is being charged, as published by the republic agency in charge of statistics. The deadline for submission of the annual tax return is 15 May of the current year, for the previous year. Social security contributions and salary tax returns are to be submitted by fifth day of the calendar month for payment made during the previous month. Exceptionally, entities classified as large taxpayers are required to submit the return within two days from when the payment was made. The deadline for submission of tax returns for offshore income is 30 days following the receipt of the income.

6.3. PROFIT TAX / CORPORATE INCOME TAX

Taxable profit is determined by adjusting the accounting profit as stated in the profit and loss statement (determined in accordance with IFRS and local accounting and audit legislation) and in accordance with the provisions of the CIT Law. For taxpayers who, according to local legislation, are not obligated to apply IFRS, taxable profit is determined according to the special guidelines prescribed by the Ministry of Finance. Agricultural and forestry income As of 31 May 2013, income from agriculture and forestry is categorized as income from entrepreneurial work (i.e. self-employment income). Income from self-employment includes income generated from business activity and provision of professional and/or intellectual services, as well as revenue from other activities, unless such income was taxed on some other grounds under the present Law. In addition, any individual who is a registered VAT payer is considered to be a taxpayer on income realized from self-employment. If a sole-proprietor is unable to keep books, or in the case of certain other difficulties, the so called ‘lump-sum’ tax will be applicable. Cost of materials and the purchase value of merchandise are tax deductible up to an amount calculated by applying the average weighted cost method or FIFO method. If another method is used, an adjustment for tax purposes should be made. Profit tax is applied at the standard rate of 15%.

Deductible expenditures for profit tax According to the CIT Law, assets qualifying for tax depreciation are tangible assets with useful life over one year, which are recognized as non-current assets under IFRS, excluding renewable natural resources, and intangibles. Goodwill cannot be depreciated for tax purposes. Tax depreciable assets, except intangible assets, are divided into five groups, with the tax depreciation rates ranging from 2.5% to 30%. Tax depreciation of fixed assets classified in tax depreciation groups II through V is calculated by using the straight-line depreciation method. In case amortization costs calculated in accordance with the accounting rules are determined in the lower amount comparing to the amount of



depreciation costs assessed by using tax depreciation rates, accounting depreciation is recognized as tax deductible cost. Tax depreciation of intangible assets and lease recognized as asset is equal to their accounting depreciation. Goodwill is not subject to tax amortization. Generally, start-up expenses are tax deductible for CIT purposes. Interest on related-party loans exceeding thin capitalization and transfer pricing thresholds are not deductible. Bad debt provisions are generally tax deductible if they are at least 60 days overdue. Provisions have to be made individually for each receivable. Write-off of individual debts, except for those from debtors who are at the same time creditors, is recognized as an expense under the following conditions:

- They were written off as uncollectable. - The taxpayer has initiated a court procedure to collect debt or duly reported the

receivables in case of liquidation or bankruptcy procedure over the debtor. Taxable income should be increased for receivables that are written-off and do not meet the above requirements and for which tax-deductible provisions were previously made. Expenses for health care, scientific, educational, humanitarian, religious, ecological, cultural, and sport related purposes, as well as humanitarian aid given to the Republic of Serbia, its autonomous provinces, and the local government for sanitation of consequences that emerged during emergency situations, are deductible, at up to 5% of total revenues.

Non-Deductible expenditures for profit tax Fines and penalties (both commercial and those charged by the authorities) are not deductible. All taxes, duties, and contributions that do not depend on the profitability of the company are deductible in the tax period that the liability in this respect was settled. The following other expenses are not recognized for CIT purposes:

- Non-documented expenses. - Provisions for receivables from entities that are creditors at the same time, up to the

amount of the liability due to that entity. - Presents provided to political organizations. - Presents provided to related parties. - Penalty interest for late payment of taxes, contributions, and other charges. - Expenses related to forced collection of taxes and other liabilities. - Non-business-related expense. - Share in the profit paid to employees or other individuals. - Calculated but unpaid redundancy payments (deductible when paid). - Expenses related to employment costs, apart from salaries (deductible when paid). - Impairment of assets (deductible in tax period in which asset is disposed of or used). - Direct write-off of receivables (under certain conditions).

- Long-term provisions (deductible when paid). The following other expenses are recognized for CIT purposes only up to a certain limit:



- Business entertainment expenses, up to 0.5% of total revenues. - Membership fees paid to chambers of commerce and other associations (except political

parties), up to 0.1% of gross revenue.

The taxpayer has the right to carry forward and utilize tax losses incurred over the following five years. Carryback rules do not exist in Serbia.

Payments to foreign affiliates Generally, there are no restrictions on the deductibility of royalties and service fees paid to foreign affiliates, provided they are at arm's length, appropriately documented (by agreements, contracts, calculation sheets, etc.), and incurred for business purposes only. Payment of interest to foreign affiliates is restricted and regulated by thin capitalization rules and transfer pricing rules.

Tax credits and incentives A Serbian entity is entitled to a tax credit for the WHT paid on foreign-sourced dividends and underlying CIT paid abroad (by its non-resident subsidiary), provided that the taxpayer holds at least 10% of the shares in the subsidiary for at least one year before filing a return. If the taxpayer holds less than 10% of the shares in the subsidiary, the tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Non-utilized tax credit can be carried forward by the parent company for five years. A resident taxpayer also has the right to decrease its tax liability for WHT paid abroad on interest and authorship fees. The tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Carryforward of unused tax credits is not allowed.

A ten-year tax holiday is available for companies with a minimum investment in property, plant, and equipment of RSD 1 billion. To qualify for the credit, a taxpayer must employ at least 100 new workers for an indefinite period. The tax holiday is available for the ten-year period in proportion to the investment made. The number of employees employed in the tax period in which the taxpayer qualified for the tax holiday must be retained throughout the whole tax holiday period.

R&D costs related to R&D performed in the Republic may be double deducted for CIT purposes. The incentive does not apply on research costs incurred in extractive industries (finding of oil, gas, or mineral resources).

80% of qualified royalty income generated by the copyright or similar rights holders (inscribed in relevant register in Serbia) can be excluded from the tax base. Qualifying income should be excluded upon decreasing this income for the amount of tax-deductible R&D costs incurred in relation to development of such copyright/similar right. Investments into startup companies, performing innovative activities, entitles a taxpayer to a tax credit in the amount of 30% of the investments made. The maximum amount of tax credit cannot exceed RSD 100 million.

All non-taxable amounts are adjusted once a year during January, and are valid for the next 12 months.



The tax loss can be carried forward up to 5 consecutive tax years and is available as a deduction for any income for those years. Foreign tax credit is limited to the amount of taxation in Serbia for the income earned. Thin capitalization applies to the level of recognition of deductible interest on loans that do not exceed 4 times the capital of the company and 10 times for the banks and leasing companies.

Taxable period The tax period in Serbia is the calendar year. However, entities have a possibility to opt for a different tax period other than the calendar year (subject to the approval of the Ministry of Finance), but still 12-months long. Once approved, such tax period must be applied for at least five years.

Corporate Income Tax returns CIT returns, together with all supporting documents (e.g. tax depreciation and tax credit forms), must be filed with the tax authorities not later than 180 days after expiration of the tax year (e.g. 30 June). A newly established company needs to register with the tax authorities within 15 days of registration with the Serbian Business Registry.

Payment of corporate income tax CIT is payable monthly in advance installments by the 15th day of the following month for the prior calendar month. The number of payable advances is determined on the basis of a company's CIT calculation for the previous year. The due date for final settlement of CIT liability is the date of filing the annual tax return.

Withholding taxes WHT is calculated and paid at the rate of 20% on payments such as dividends/share in profit, royalties (including neighboring authorship rights, intellectual property rights, and related rights), interest income, income from market research services, accounting and audit services, and other legal and business consulting services, income from distributed surplus of a company in bankruptcy, revenues derived from the liquidation surplus of a company in liquidation, and lease payments for real estate and other assets made to a non-resident, unless a DTT applies to provide a reduced rate or exemption. WHT is also payable on a non-resident’s income realized on the basis of performing entertaining, artistic, sports, and similar programs in Serbia, which is not taxed as income of an individual (performer, musician, sportsman, etc.). In order to benefit from application of a relevant DTT, non-residents (i.e. the income recipient) must provide a tax residency certificate on the form prescribed by the Serbian Ministry of Finance stamped by the relevant body from the non-resident's country of residence. Special WHT rules apply in case of non-resident entities from tax havens. WHT is payable at the rate of 25% on royalties, interest, income from lease of immovable property and other assets, and service fees paid to non-resident entities from tax havens. Dividend payments to non-residents from tax havens are subject to WHT at 20%.



As of 1 April 2018, solely remunerations payable to non- resident legal entities, for market research services, accounting and auditing services, as well as other services in the field of legal and business consulting (regardless of the place where the service is provided or used) are subject to 20% WHT. Income subject to tax as capital gains includes income generated by the sale or other transfer with consideration of the right of ownership to real estate, permanent right of use of an urban land building, intellectual property rights and share in the assets of legal entities, and shares and other securities, other than bonds. Capital gains are generated by the sale or other transfer of real estate, rights related to intellectual property, as well as shares, stocks, securities, certain bonds, and investment units. A capital gain is determined as the difference between the sale and purchase price of the asset concerned, determined in accordance with the provisions of the Law. If the amount is negative, a capital loss is realized. Capital gains and operational profit are disclosed in the same tax return, but they are taxed separately. Consequently, capital gains/losses cannot be used to offset business losses/gains. However, capital gains can be offset with capital losses occurring in the same period. A capital loss can be carried forward for five years. The capital gains tax rate is 15%. However, the rate applicable for capital gains incurred by non-residents is 20%, unless envisaged otherwise by a relevant DTT. Capital gains realized by non-residents from both residents or other non-residents are subject to 20% capital gain tax. Non-residents should appoint a fiscal representative in Serbia who should submit a tax return within 30 days from the realization of capital gain. Based on the tax return, tax authorities will issue a decision assessing tax liability (if any). In order to benefit from application of a relevant DTT, the same rules are applicable as for WHT. Non-residents (i.e. the income recipient) must provide a tax residency certificate (on the form prescribed by the Serbian Ministry of Finance stamped by the relevant body from the non-resident's country of residence or official translation of certificate issued by foreign tax authorities), and the income recipient must be the beneficial owner of the income. The taxable base is the difference between the sale price of rights, securities, shares, and their purchase price adjusted in accordance with the provisions of the PIT Law. The tax rate applicable to capital gains is 15%. Income subject to tax as investment income includes interest on loans, savings, and other deposits, dividends/shares in profits, receipts on a profit sharing basis, and taking from the assets and using the services of the company by the company’s owner for one’s personal needs, as well as the revenues from real estate (immovable property). Tax is not payable on the interest accrued from savings in Serbian dinars and on government bonds. The tax base for all types of investment income is considered to be the total gross amount of such income. The tax rate applicable to investment income is 15%. The tax rate applicable to real estate income is 20%.



Interest income will be included in accounting profit determined in accordance with IFRS and will be taxable at the CIT rate of 15%. A Serbian resident has the right to decrease its CIT liability for WHT on interest paid abroad. The amount of the tax credit should not exceed the amount of CIT that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income.

Income subject to tax as royalty income includes revenue from copyrights, rights related to copyright, and industrial property rights. The taxpayer is an individual who acts as a copyrighter, holder of rights related to copyright, or owner of industrial property rights and receives remuneration for any of these rights. Royalty income will be treated as business income and subject to the general CIT rate. A resident taxpayer also has the right to decrease its CIT liability for WHT on royalties paid abroad. The amount of the tax credit should not exceed the amount of CIT that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. The tax base is the difference between gross revenue and cost incurred by the taxpayer in generating and preserving the income. Standard costs are used to reduce taxable base, and are equal to 50%, 43%, and 34% of the gross income, depending of the type of royalty. The tax rate applicable to royalty income is 20% after deduction of standard cost. Dividends received by Serbian resident companies are taxed at source at the rate of 0% and resident individuals at 15%. Dividends paid to a non-resident individual are taxed at source at the rate of 15%. Dividends received by non-resident companies are taxed at the rate of 20%. Dividends received by a Serbian company from another Serbian company are not subject to CIT. Dividends received from a non-resident will be treated as taxable income of a Serbian company and subject to 15% CIT. However, a Serbian entity will have the right to decrease its tax liability by taking a tax credit for the WHT and underlying CIT paid in a subsidiary's country, provided that the taxpayer holds at least 10% of the shares in the subsidiary. If the taxpayer holds less than 10% of the shares in the subsidiary, the tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Unrealized currency exchange gains will be included in accounting profits under IFRS rules. Serbian legislation does not provide any exception of taxation of this income.

Foreign income Companies resident in Serbia are taxed on their worldwide income. When profit generated in another country is taxed in the foreign country, a company has the right to decrease its tax liability by claiming a tax credit from the tax authorities in Serbia. There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred. The interest and related costs (thin capitalization) will be fully deductible if the loans from related parties do not exceed four times the taxpayer's net equity (ten times for banks and leasing companies). The amount of a taxpayer's net equity for this purpose is calculated as the average of the total assets minus total liabilities at the beginning and the end of the year, while the amount of loans from related parties is calculated as a daily average for the year.



In cases where the loans from related parties exceed the prescribed threshold, the amount of non-deductible interest will be calculated as proportional to the amount of loans exceeding the 4:1 (10:1) threshold. There are no Controlled foreign companies’ rules in Serbia.

6.4. INDIRECT TAXES

The VAT generally follows the EU’s Sixth Directive. The VAT registration threshold is € 67,700. Taxpayers with taxable value under € 453,450 declare each month, while those who exceed this taxable annual value declare once in 3 months. Every physical person or legal entity that is not obliged to be registered for VAT but offers taxable supplies of goods or services in Serbia, has the right of voluntary VAT registration at the respective Tax Office. The standard VAT rate is 20% for most taxable supplies. A reduced VAT rate of 10% applies for basic food stuffs, daily newspapers, medicines, publications, public transportation services, utilities, etc. In addition to these tax rates, there is a 0% tax rate with the right of deduction of the input VAT that applies to the export of goods, transport and other services directly related to exports, international air transport, etc. A 0% tax rate without the right of deduction of the input VAT applies to trading in shares and other securities, insurance and reinsurance, and the lease of apartments, business premises, etc. VAT exemptions include some goods and services, which are:

- Financial services and banks - Postage stamps supply - Supply provided by a non-profit organization - Educational services - Private insurance - International air and sea transport - Supply of services performed outside the territory of Serbia by a taxpayer whose - place of business is in Serbia

A taxpayer for VAT purposes is a person who independently, and in the course of its business activities, undertakes the supply of goods and services or import of goods. Business activity is defined as the permanent activity of a manufacturer, salesperson, or service provider for the purpose of gaining income. A branch or other operating unit can be a taxpayer. A non-resident that carries out taxable supply of goods and services in Serbia is obligated to appoint a fiscal representative and to register for VAT in Serbia, irrespective of the amount of the turnover realized in the previous 12 months. A foreign entity that performs a taxable supply of goods and services exclusively to VAT payers or entities referred to as governmental institutions7, or performs passengers transportation service by buses (in special case envisaged by

7which includes the Serbia and its authorities, the territorial autonomy and local self-government authorities, as well

as legal entities established under law or other act of the Republic, territorial autonomy, or local government

authority for the purpose of execution of activities of the state administration or local government)



the Law) has no obligation to appoint a fiscal representative in Serbia and to register for VAT. A foreign taxpayer that fails to register for VAT in Serbia may be subject to penalties for non-compliance. The usual taxable period is a calendar month; however, if a taxpayer’s total annual turnover is less than 50 million Serbian dinars (RSD), the taxable period is a calendar quarter. F or newly established businesses, the VAT period is the calendar month for the current and next calendar year. Taxpayers are required to submit returns within 15 days of the end of each taxable period. Tax debtors who are not taxpayers are required to submit returns within ten days of the end of the taxable period. Supply of goods and services between the grantor of concession and concessionaire is not subject to VAT as of 1 January 2018, provided that the following conditions are cumulatively met:

- Supply is performed based on the public private partnership contract with elements of concession.

- The grantor of the concession and concessionaire are VAT payers.

If such supply would be subject to VAT, the customer would be entitled to input VAT recovery. As of 1 July 2018, VAT payers will be obligated to submit a VAT assessment overview to the tax authorities, along with the VAT return. As of 1 January 2019, foreign taxpayers will have the right to a VAT refund if one performs taxable supply of goods and services in Serbia to a Serbian VAT payer.

Customs duties Goods imported into Serbia are subject to customs duty rates provided in the Law on Customs Tariff. These rates are ad valorem (the only exception is related to the importation of other cigarettes containing tobacco, where a combined ad valorem and specific customs duty rate is prescribed) and apply to goods originating in countries that have a most favored nation (MFN) status in trading with Serbia. Goods originating in other countries are subject to MFN duty rates increased by 70%. At the moment, the only trading partner with Serbia that does not have MFN status is Taiwan. Customs duty rates in Serbia range from 0% to 57.6%, with most being under 30%. At the moment, the 57.6% rate only applies to cigarettes containing tobacco.

Excise duties Excise duty in the Republic of Serbia is an indirect tax applied on certain goods, such as tobacco products, alcoholic drinks, coffee, petroleum (and petroleum by-products) etc. The liability to pay excise duty is always on the manufacturer or importer of goods. Nevertheless, it is normally added to the cost of goods and is collected by the manufacturer from the buyer of goods.



For the excise duty there are no standard rates as the level for every product that is subject of such tax is different and it is normally calculated on kg, liter or pieces basis. Excise duty in Serbia is specific (for oil derivatives, alcoholic beverages, cigars, cigarillos, and coffee), ad valorem (for pipe tobacco), and combined (specific + ad valorem on retail price for cigarettes). Excise duties are levied on producers and importers of the following goods:

- Oil derivatives. - Tobacco products. - Alcoholic beverages. - Coffee (green, roasted, ground, and coffee extracts). - Bio liquids and biofuels. - Fuels for filling electronic cigarettes. - Electricity for final consumption.

Excise duties stated in Serbian currency are adjusted on a half-year basis according to variations of the consumer price index (CPI) declared by relevant government bodies in charge of statistics. For oil derivatives, the government can modify the specific excise duty amounts during the year according to changes in prices of crude oil on the market.

6.5. LOCAL TAXES Property tax is payable annually in Serbia by all legal entities and individuals who own or have rights over real estate located in Serbia, such as:

- Ownership rights. - Right of occupancy. - Tenancy rights over an apartment or a building for a period longer than one year or for

an indefinite period. - Urban land usage right (municipal, public, and other state-owned land) larger than ten

acres in area. Where the taxpayer keeps books, the property tax on real estate is levied at a flat rate that cannot exceed 0.40%. Transfer tax is levied on the transfer for a consideration of rights over real estate when VAT is not payable on such a transfer; intellectual property rights; ownership over used vehicles, vessels, and aircraft (unless owned by the state); right to use urban and/or public building land; as well as rights relating to expropriated real estate. The contract price is used as a tax base; however, the tax authorities have the right to adjust the tax base in case they estimate that the price agreed to in the contract is lower than under market conditions. The tax is payable at a 2.5% rate. There are no stamp taxes in Serbia.




Transfer pricing A transfer price is the price of transactions between related parties. Related parties exist if there is a possibility of control or influence over business decisions between them. Ownership of 25% or more, or a majority of shares, is considered as potential control. Influence over business decisions exists when an associated party holds 25% or more, or individually holds the greatest portion, of votes in the taxpayer's management bodies. If the same persons participate in management or control of both companies, a connection between them will be deemed to exist. Close family members are also regarded as related parties. Non-resident entities from tax havens are considered as related parties of resident entities. The Serbian Ministry of Finance prescribed the list of countries that are to be considered as tax havens for the application of relevant CIT Law provisions. A company should disclose transactions with related parties separately at transfer prices and at arm's-length prices in its CIT calculation. Positive difference between these prices (adjustments of expenses) and negative difference (adjustments of revenues) is included in taxable profit. Serbian CIT Law recognizes the following methods for determining arm’s-length prices:

- Comparable uncontrolled price (CUP). - Cost plus. - Resale minus. - Transactional net margin (TNMM). - Profit split. - Any other method that allows determination of arm’s-length prices if none of the above

methods can be applied. It is mandatory to prepare and submit transfer pricing documentation together with the CIT return. Transfer pricing rules for intra-group loans Any interest incurred on related-party loans exceeding the arm's-length interest rate is not tax deductible. Arm's-length interest is deemed to be the:

- weighted average key policy rate for the tax period for loans denominated in dinars, and - weighted average interest rate at which domestic banks borrowed from foreign lenders in

the related tax period for foreign currency loans. These indicators are determined by the National Bank of Serbia and published by the Ministry of Finance. However, taxpayers are entitled to determine market interest rates by using all general methods for determining arm’s-length interest rates. In case the taxpayer decides to determine interest rates by applying general methods, it will be obligated to apply such interest rates for assessment of all related-party loans. Transfer pricing rules in this respect are applied up to the amount of tax-deductible interest determined in accordance with the thin capitalization threshold (see below).



Tax treaties Serbia has double tax treaties (DTTs) with 65 countries. WHT rates envisaged by applicable DTTs8 are provided in the following table.

Recipient WHT (%)

Applicable from Dividends (1) Interest Royalties (3)

Non-treaty 20 20 20

Tax haven 20 25 25

Treaty:

Albania 5/15 10 10 2006

Armenia 8 8 8 2017

Austria 5/15 0/10 (5) 5/10 2011

Azerbaijan 10 0/10 (5) 10 2011

Belgium 10/15 15 10 1982

Belorussia 5/15 8 10 1999

Bosnia and Herzegovina 5/10 0/10 (5) 10 2006

Bulgaria 5/15 10 10 2001

Canada 5/15 0/10 (5) 10 2014

China 5 0/10 (5) 10 1998

Croatia 5/10 10 10 2005

Cyprus 10 10 10 1987

Czech Republic 10 0/10 (5) 5/10 2006

Denmark 5/15 0/10 (5) 10 2010

Egypt 5/15 15 15 2007

Estonia 5/10 0/10 (5) 5/10 2011

Finland 5/15 0 10 1988

France (8) 5/15 0 0 1976

Georgia 5/10 0/10 (5) 10 2014

Germany 15 0 10 1989

Ghana (2) 5/15 10 10 N/A

Greece 5/15 10 10 2011

Hungary 5/15 10 10 2003

India 5/15 0/10 (5) 10 2009

Indonesia (2) 15 0/10 (5) 15 2019

Iran (2) 10 0/10 (5) 10 2012

Ireland 5/10 0/10 (5) 5/10 2011

Israel 5/15 (8) 10 (5) 5/10 2019

Italy 10 10 10 1986

8 1. If the recipient company owns/controls at least 25% (5% depending on the relevant DTT) of the equity of the

paying company, the lower of the two rates applies. 2. The treaty has not been ratified by one of the parties. 3. A tax rate of 5% will be applicable to literary, scientific, and work of art; films and works created like films; or

other source of reproduction tone or picture. A tax rate of 10% will be applicable to patents, petty patents, brands, models and samples, technical innovations, secret formulas, or technical procedures.

4. Only in cases when dividends are to be paid to Serbian residents. If paid to Malaysian residents, they are taxable at 20% in Serbia.

5. A 0% rate is applicable in cases when the income recipient is the government or government owned banks. In all other cases, a higher rate envisaged by the DTT should apply.

6. WHT rate refers solely to dividends distributed from Serbia. In Malta, WHT cannot be higher than CIT on profit before dividend distribution.

7. A 0% rate is applicable in cases when the dividend income recipient is the government of the contracting state. 8. Besides ownership requirement (see Note 1), 365 holding period criterion needs to be met in order to apply

lower of the two DTT rates on dividend payments.



Recipient WHT (%)

Applicable from Dividends (1) Interest Royalties (3)

Kazakhstan 10/15 0/10 (5) 10 2017

Kuwait 5/10 0/10 (5) 10 2004

Latvia 5/10 0/10 (5) 5/10 2007

Libya 5/10 0/10 (5) 10 2011

Lithuania 5/10 0/10 (5) 10 2010

Luxembourg 5/10 0/10 (5) 5/10 2017

Macedonia 5/15 10 10 1998

Malaysia 0 (4) 10 10 1991

Malta 5/10 (6) 10 5/10 2011

Moldova 5/15 10 10 2007

Montenegro 10 0/10 (5) 5/10 2012

Morocco (2) 10 0/10 (5) 10 N/A

Netherlands 5/15 0 10 1983

North Korea 10 0/10 (5) 10 2002

Norway 0 (7)/5/15 0/10 (5) 5/10 2016

Pakistan 10 0/10 (5) 10 2011

Palestine (2) 10 0/10 (5) 10 N/A

Poland (8) 5/15 10 10 1999

Qatar 5/10 0/10 (5) 10 2011

Romania 10 0/10 (5) 10 1998

Russia 5/15 10 10 1998

San Marino (8) 5/10 10 10 2019

Slovak Republic (8) 5/15 10 10 2002

Slovenia (8) 5/10 0/10 (5) 5/10 2004

South Korea 5/10 0/10 (5) 5/10 2017

Spain 5/10 0/10 (5) 5/10 2011

Sri Lanka 12.5 10 10 1987

Sweden 5/15 0 0 1982

Switzerland 5/15 10 10 2007

Tunisia 10 10 10 2014

Turkey 5/15 0/10 (5) 10 2008

Ukraine 5/10 0/10 (5) 10 2002

United Arab Emirates 0 (7)/5/10 0/10 (5) 10 2014

United Kingdom 5/15 10 10 1983

Vietnam 10/15 10 10 2014

Zimbabwe (2) 5/15 10 10 N/A

Payments are made at the Serbian Dinar (DIN), the local currency.

TAXATION TRENDS IN 117 TENDENCA E TATIMEVENË


SUMMARY In this paper, where are collected together the characteristics of tax systems of six countries of Western Balkans we have provided an overview of the current tax system. It shows how deviations from the principles of tax neutrality and uniformity create a number of tax distortions, and it provides the most important elements of taxation. Against this background, the report offers a number of tax reforms and tax policy challenges that could eliminate or at least reduce the various discrepancies between tax systems of every country. The determination of a PE, where applicable, is based on the provisions of the double tax treaties of every country and has entered into with a number of countries. When dealing with DTT provisions, the tax authorities refer to the Organization for Economic Co-operation and Development (OECD) commentaries. In every country of WB, tax residency for companies is established when a company has a registered business or permanent establishment or the management and control is exercised in country of residence. Resident companies are subject to profit tax on their worldwide income, while non-resident companies are taxed only on their incomes derived from sources in country of residence. Income tax is assessed in the year, in which the income is earned on a current year basis. Usually is the common definition and understanding about the fiscal residence of individuals. According to the legislation in every country, an individual is considered to be a fiscal resident if he/she(a) has a permanent home or stays in resident country, either consecutively or intermittently, for more than 183 days in a calendar year irrespective of one’s citizenship or center of interests. The legal forms of businesses are the common structures and usually are (a) public companies, (b) joint-stock companies, (c) limited liability companies, (d) partnerships, (e) public companies, (f) branches and representative offices. Every country applies the International Accounting Standards and the International Financial Reporting Standards. Consolidation of the financial statements is functional for Serbia and Bosnia and Herzegovina, where the companies seeking to report in consolidated form can choose one of the group companies. The other countries do not have the legislation adapted for this kind of financial statement report. About the foreign income, the tax policy one more time is the same. The companies, that are resident, for every country of WB are taxed on their worldwide income. When profit generated in another country is taxed in the foreign country, a company has the right to decrease its tax liability by claiming a tax credit from the tax authorities in Serbia. There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred.



If we can check in the table below, the main interesting element of tax is the direct taxes. In last years, no country in Western Balkans applies the flat tax rate for income taxes. Even Bosnia and Herzegovina, actually has adopted the low rate from standard rate of 10% for taxation of dividends. And also, no country applies anymore the only standard VAT rate, except the Bosnia and Herzegovina, where the tax policy has not changed so much in the last five years. If we can compare and make an analysis about the tax rate, in the table below are presented all the tax rates for every specific tax.

If we can check about the tax credit, the situation is presented specifically below. In Montenegro, a resident receiving foreign income is granted a tax credit in the amount of the tax paid abroad but limited to the amount that would be calculated using Montenegrin rates. Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realized in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro. There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred. Albanian legislation does not contain any provisions under which income earned abroad may be tax deferred.

TAX RATES IN BALKANS IN 2020 in %

DIVIDEND INTERESTCAPITAL,

SERVICESTOTAL EMPLOYER EMPLOYEE

NORTH MACEDONIA 5; 18 10 10; 18 0; 10 0; 10 0; 10; 15 27 27 0 2 - 5 0.1 - 0.2

KOSOVO¹ 8; 18 3; 9; 10 0; 4; 8; 10 0 10 5; 10 10 5 5 0 0.05 - 1

MONTENEGRO² 7; 21 9 9 - 11 -15 9 0; 9 0; 9 32.3 8.3 24 3 0.25 - 1

ALBANIA³ 6; 20 0; 5; 15 0 - 13 - 23 8 15 15 27.9 16.7 11.2 15 1 - 8

BOSNIA-HERZEGOVINA* 0; 5 0; 10 0; 10 41.5 10.5 31

REPUBLIKA SRPSKA 0; 10 0; 10 0; 10 33 0 33

SERBIA 10; 20 15 10 - 25 15; 20 15; 20; 25 15; 20; 25 37.05 17.15 19.9 1.5 - 2.5 0.3 - 2

BULGARIA 9; 20 10 10 0; 5 8; 10 10 32.7 - 33.4 18.92 - 19.62 13.78 0.4 - 6.6 0.01 - 0.45

GREECE⁴ 6; 13; 24 28 22 - 45 10 15 15; 20 41.06 25.06 16 1 - 10 0.1 - 0.55

CROATIA 5; 13; 25 12; 18 24; 36 12; 20 12; 15; 20 12 - 36; 15 37.2 17.2 20 3 - 4 3

ROMANIA 5; 9; 19 16 16 5 16 16 37.25 2.25 35 1 0.08 - 1.3Source: Deloitte, MOF

Notices and Changes of tax rates in 2019-2020

Incomes over Euro 50.000 in commerce, transport, agriculture could choose to pay 3% on gross income, meantime for services, entertainment, proffessions with 9%

² Local authorities apply a overtax of 15% on employee salary. It is decreased with 2% social contribution of employer

³ From 1 January 2019 the dividend tax is 8% (it was 15%)

⁴ From 1 January 2019 profit tax rate is decreased with 1% (it was 29%); dividend tax is decreased to 5% (it was 15%)

* Federation of Bosnia and Herzegovina

OTHER BALKAN COUNTRIES (MEMBERS OF EU)

SOCIAL AND HEALTH

CONTRIBUTIONS INHERITANCE

TAX

PROPERTY

TAX

17 10 10 2; 10 0.05 - 0.5

COUNTRIES VATPROFIT

TAX

PERSONAL

INCOME

TAX

WITHHOLDING TAX ON:



The taxpayer is allowed a tax credit for the tax paid on foreign income abroad, up to the amount of tax payable for that income in North Macedonia. However, a tax credit for the WHT paid abroad is allowed only if a double tax treaty (DTT) is in place and in case the Macedonian company obtains proof for the amount of tax paid in the foreign country. In the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, tax credit is granted for tax paid outside of the territory of the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, respectively. The amount of tax credit cannot exceed the amount of tax that would be calculated in the event when the same income would be earned in the Federation of Bosnia and Herzegovina, Republika Srpska, and Brčko District, respectively. In Kosovo, is allowed foreign tax credit and there’s no condition about the sum. Taxable profit is determined by adjusting the accounting profit as stated in the profit and loss statement9 and in accordance with the provisions of the CIT Law. According to CIT Law of every country in WB, all the expenditures, which are based in an invoice as described by law are known expenses with the conditions that they have to been carried out for purpose of the activity of business. Expenses that are not related to the business activity of the taxpayer are taxable and can’t be deductible for profit tax. Every country applies tax and employment incentives. In Albania and North Macedonia there’s more structured approach by founding the economic and technical areas to develop the economy and to implement the tax holidays rules. Further incentives are provided supporting the businesses that invest in TEDA with fiscal incentives, which are outlined below:

- The entry and exit of goods to / from the area, the formalities and procedures conducted under the provisions of the Code.

- Developers and users are exempt from paying 50% of the normal profit tax amount due for the first 5 years from the start of their activity in the area.

- Developers to invest in the area, within 3 years from the date of commencement of work, or users who invests in the area, within 3 years from the beginning of the economic activity of the area, is recognized as deductible expenses of tax period,20% of annual capital expenditure, regardless of the amount of depreciation, under the law on income tax for a period of 2 years.

- Supply of Albanian goods, intended to be placed in area, regarded as a supply for export with zero rate tax, in accordance with the provisions of the law on value added tax and customs legislation.

- Project developers exempt from local tax of impact in infrastructure. - Construction made in this area, according to project of developers are exempt from real

estate tax for a period of five years.

9 determined in accordance with IFRS and local accounting and audit legislation



- Developers or users of the area are exempt from taxes on transferring the right of ownership of immovable property.

- Costs of wages and social and health contributions, which the employer pays for the employee, are recognized 150% of value during the first fiscal year of activity. In years following, additional costs for wages, compared to the previous year, for the purposes of calculating taxable profit, recognized as known expenses with 150% of their value.

- Costs of employee training in areas of technology and economic development, for the purposes of calculating taxable profit are recognized as a deductible expense for the tax period with their double value, for a period of 10 years from the beginning of activity economic.

- Expenses for research and development are recognized as known costs at twice the value, for a period 10 years from the start of economic activity.

In Albania there’s the following rules about the entities which invest in domestic economy. The companies are exempt from CIT:

- Legal entities that conduct religious, humanitarian, charitable, scientific, or educational activities.

- Trade unions or chambers of commerce, industry, or agriculture. - International organizations, agencies for technical cooperation, and their representatives, the

tax exemptions of which are established by specific agreements. - Foundations or non-banking financial institutions established to support development

policies of the government through credit activities. - Film studios and cinematographic productions (among other types of entity/activity) that are

licensed and funded by the National Cinematographic Centre. - Voluntary pension funds administrated from the competent companies. - Accommodation structures "four- and five-star hotel and resort with special status", are

exempt from income tax for a 10-year period, provided they receive special status until December 2024. The effects of the exemption commence at the moment of commencement of the economic activity of the accommodation structure, but not later than 3 years after the receipt of the special status.

Investment incentives are provided in various forms implemented under the laws that define them, such as: (i) low tax rates (5%) without prerequisites; (ii) a special scheme for farmers; (iii) reduced VAT rates for tourist and information services; (iv) the economic sector excluded from VAT (hydrocarbon search); (v) tax exemption for 10 years for 4-5-star tourist hotels; (vi) tax-benefit relief based on investment projects on a case-by-case basis such as infrastructure construction, tourism, clothing industry, oil production and new ventures; (vii) duplication of spending on research and development investments in the free economic zones. The salary of employees at employers that are users of Technological Industrial Development Zones in North Macedonia are exempt from tax for a period of ten years as of the first month in which the employer starts paying out salaries. The resident taxpayer is granted a credit for the tax paid abroad up to the Macedonian tax payable on the same income. Bilateral tax relief is granted in accordance with the provisions of the DTTs in force.



When a taxpayer generates income or profit through business activities outside of the Federation of Bosnia and Herzegovina (directly or through a business unit) and pays the profit tax on such activities, the tax paid abroad shall be credited, up to the amount of the profit tax that would have been paid for the income or profit generated by the same activities in the Federation of Bosnia and Herzegovina. CIT incentives are as below:

- 30 percent CPT incentive in the year of investment is available when the taxpayer invests in production equipment (excluding passenger vehicles) amounting to 50 percent of the current year’s profit and the investment is made by using the taxpayer’s own resources (funds).

- 50 percent CPT incentive is available for a five-year period when the taxpayer invests BAM 20 million (approximately EUR 10 million) from its own funds in fixed assets used for production activities. BAM 4 million (approximately EUR 2 million) must be invested in the first year.

A taxpayer who employed new employees is entitled to a tax-deductible expense in the double amount of gross salary paid to newly employed employees if the following conditions are met:

- Employment contract has to be concluded on a full-time basis for period of minimum 12 months.

- Newly employed employee has not been employed by the taxpayer or by a related legal entity in the past five years.

If a legal entity resident of Republika Srpska generates revenue in a foreign state and that revenue is taxable both in Republika Srpska and in the foreign state, then the tax paid in the foreign state will be deducted from the tax liability of the resident in Republika Srpska. Incentive for investment in production For a taxpayer who in the territory of Republika Srpska invests in plant and equipment for performing registered production activity, the tax base will be decreased for the amount of performed investment. Tax base can be decreased in the tax period in which the plant and equipment were put in use. If the taxpayer disposes the property and equipment before expiry of three years from the date when they were put in use, the taxpayer losses right to incentive and will have to pay the additional tax as if they never used the incentive, as well as penalty interest for late payments. For a taxpayer who invests in machines and equipment for performing its own registered business activity on the territory of Brčko District, a deduction is allowed for the amount of the investment. For a taxpayer who employs new employees for an indefinite period of time during the tax period, a second deduction is allowed for the total amount of paid gross salaries for the new employees.



Any legal or physical person from Brčko District, as well as any non-resident legal or physical person with PE in Brčko District, who pays revenue to a non-resident legal person is to withhold tax from the total payment of revenue and is to remit the withheld tax to the Public Revenues Account of Brčko District. The Montenegrin CPT Law provides four tax incentives related to businesses: one for newly established businesses in underdeveloped municipalities, one for non-governmental organizations (NGOs), a discount for settling of CPT liability by the prescribed deadline, and a foreign tax credit. The corporate income tax legislation provides an 8-year tax relief for newly established legal entities performing business in an underdeveloped municipality, except agricultural production, transport, shipbuilding, fishing, steel production and accommodation. Exemption is limited to Euro 200.000. Newly established companies pay monthly advance payments on the basis of profit estimation for the current year. Monthly advance payments are due by the last day of the current month for the then previous month. NGOs registered for business activity are permitted to decrease the corporate tax base by EUR 4,000, with the condition that profit is used for realization of the main goals of an NGO. A discount of 6%, which is applied on the amount of the calculated CPT liability, is available to taxpayers that settle their CPT liability by the prescribed deadline (i.e. by 31 March of the current year for the tax liability of the previous year). A resident receiving foreign income is granted a tax credit in the amount of the tax paid abroad but limited to the amount that would be calculated using Montenegrin rates. Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realized in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro. There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred. Supplies of goods or services from a foreign group entity not established in Montenegro to a Montenegrin entity must be valued at arm's length. Excess expenses recorded over market value are treated as non-deductible expenses. With respect to payment of charges of a PE, CPT Law provides that administrative costs charged by the non-resident head office are non-deductible for CPT at the level of the PE. A Serbian entity is entitled to a tax credit for the WHT paid on foreign-sourced dividends and underlying CIT paid abroad (by its non-resident subsidiary), provided that the taxpayer holds at least 10% of the shares in the subsidiary for at least one year before filing a return. If the taxpayer holds less than 10% of the shares in the subsidiary, the tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Non-utilized tax credit can be carried forward by the parent company for five years. A resident taxpayer also has the right to decrease its tax liability for WHT paid abroad on interest and authorship fees. The tax credit should not exceed the amount of tax that would be paid in



Serbia on that income, where the tax basis represents 40% of the received gross income. Carryforward of unused tax credits is not allowed. A ten-year tax holiday is available for companies with a minimum investment in property, plant, and equipment of RSD 1 billion. To qualify for the credit, a taxpayer must employ at least 100 new workers for an indefinite period. The tax holiday is available for the ten-year period in proportion to the investment made. The number of employees employed in the tax period in which the taxpayer qualified for the tax holiday must be retained throughout the whole tax holiday period. R&D costs related to R&D performed in the Republic may be double deducted for CIT purposes. The incentive does not apply on research costs incurred in extractive industries (finding of oil, gas, or mineral resources). 80% of qualified royalty income generated by the copyright or similar rights holders (inscribed in relevant register in Serbia) can be excluded from the tax base. Qualifying income should be excluded upon decreasing this income for the amount of tax-deductible R&D costs incurred in relation to development of such copyright/similar right. Investments into startup companies, performing innovative activities, entitles a taxpayer to a tax credit in the amount of 30% of the investments made. The maximum amount of tax credit cannot exceed RSD 100 million. Another special interest is about the treatment of fiscal losses, because they are the important consequence of the first years of investment. In Albania, Fiscal losses may be carried forward up to three consecutive years. However, losses may not be carried forward if more than 50% of direct or indirect ownership of the share capital or voting rights of the company is transferred during the tax year. In Federation Of Bosnia and Herzegovina, Losses may be carried forward and offset against income in the following five years. Tax losses are utilized on a FIFO basis. In Kosovo, Tax losses can be carried forward for up to four consecutive tax years. However, restrictions may apply in cases of change of business or change of ownership; if the business changes its type of business organization or has an ownership change of more than 50%, the tax loss is not allowed to be carried forward. In Montenegro, Carry forward of tax losses is available for 5 years. Carry back of tax losses is not allowed. Capital losses could be carried forward on the account of future capital gains for 5 years. In North Macedonia, the financial loss can be carried forward for tax purposes only in cases where the accumulated losses have been offset by the taxpayer according to the provisions from the Macedonian Companies Law and if approval by the tax authorities has been obtained. Loss carry backs are not allowed under the Macedonian tax legislation.



In Serbia, the taxpayer has the right to carry forward and utilize tax losses incurred over the following five years. Carryback rules do not exist in Serbia. Another interesting tax treatment is about the transfer pricing policies and tax treaties which are in force and assist and help bilateral countries and investors and their staff. The consistency of a controlled transaction(s) with the arm’s-length principle usually is determined by applying the most appropriate transfer pricing method from the methods provided below, which are applied in every country of WB in the same way. So the methods are:

o Comparable uncontrolled price method. o Resale price method. o Cost plus method. o Transactional net margin method. o Transactional profit split method. o Other methods.

Based on these technics and tax policy, every country has oriented his own policy in order to make more feasible for investors and capitals to move freely and to have not legal obstacles. Withholding tax applies usually in WB countries for bank interest, rent, commercial services, consultancy, and auditing, copyright, patent, technical services. Employment income is subject to WHT. Payments to foreign affiliates are subject to WHT unless tax relief is requested in accordance with the local legislation or any DTT in place. These payments are tax deductible if they are properly documented and incurred for business purposes only. Payments to foreign affiliates made for the purpose of profit transfer might be subject to price revaluation by the tax authorities. Any transactions/payments made to foreign affiliates shall be performed on an arm’s-length basis. If a non-resident company does not create a PE in country, and a DTT exists between a country and the home country of the non-resident company, no WHT payment may arise.



ANNEX Tax measures and reliefs from COVID-19

ALBANIA Income taxes

- Legal entities and other taxpayers registered for CIT purposes would be entitled to submit the Annual Financial Statements of 2019 by 31 July 2020.

- Taxpayers having realized an annual turnover less than ALL 14 million will be able to pay the CIT liabilities due for 2019 within the second half of 2020.

- The CIT advance payments for 2020 for taxpayers having realized an annual turnover less than ALL 14 million would be payable by 31 December 2020.

In 10.04.2020, Ministry of Finance and Economy issued the Instruction no. 15, dated 03.04.2020 “On some additions and amendments to the instruction no. 5, dated 30.01.2006, ‘On income tax’, as amended. This instruction has reflected and broadened the amendments brought by the Fiscal Package 2020, as well as by the acts related to the state of natural disaster and pandemic disease to the Law “On income tax” (summarized in our continuous series of publications in December 2019 and January 2020) by also presenting illustrative examples. Tax incentives and reliefs The amending instruction reflects the incentives and tax reliefs presented through the Fiscal Package 2020, and determines, as appropriate, the procedures for their implementation: a) Representation expenses for exporters For exporting taxpayers (excluding manufacturers working under inward processing models), who in the last 3 years have realized 70% of their income from exports, the representation costs abroad (participation costs, presentation at fairs and exhibitions) are considered as deductible expenses up to 3% of the annual turnover previously the rate was 0.3%). b) Sportive sponsorships Companies that realize annual taxable profit greater than ALL 100 million, for amounts that sponsor towards activities of sports teams, part of sports federations recognized by the legislation in force on the field, which are within the limit of 5% of profit before tax, will be recognized as deductible expenses at the extent of three times the value of the sponsored amount. In the amending instruction are determined the documentation, procedure and deadline to be followed by sponsoring and sponsored taxpayers in order to benefit the above incentive. c) Donation expenses Expenses incurred on donations in cases of natural disasters and made within the specified period, given in cash transferred to treasury accounts, or given in the form of immovable property, will be considered as deductible expenses up to the level 5% of profit before tax. d) Carry forward of fiscal losses Following the amendments presented by the Fiscal Package 2020 for the carry forward of fiscal losses up to the next 5 tax periods, the instruction sets out the criteria and procedures to be followed for the implementation of this legal provision. According to the amending instruction, along with



the financial statements of each exercise year (until the required investment value is met), the taxpayer must submit to the Regional Tax Directorate the relevant documentation attesting that the investment value is over ALL 1 billion and the loss has been carried forward in accordance with this provision. Modalities for exemption from personal income tax for property donation/division within the family. Among other things, the amending instruction stipulates that the exemption from personal income tax applies when the transfer of ownership occurs: (i) between family members (thus, between the spouses and children); and, (ii) only once towards a beneficiary. Regarding the above, at the moment of donation, the deed of donation /waiver on the property along with the document certifying the family connection must be deposited with the notary. The value of the donated /waived property will be determined as the highest between the minimum fiscal price and the price in the cadastral register according to the notarial deed from which this property was obtained (if applicable). Personal Annually Tax Declaration Part of the changes of the Fiscal Package 2020 was also determining the obligation of resident and non-resident individuals employed by more than one employer to submit the Annual Personal Income Tax declaration, regardless of whether the gross annual income is less than ALL 2 million. In the amending instruction is determined that such provision shall be applicable for all individuals that have obtained employment income from more than one employer starting from 1 January 2020. Change of ownership The amending instruction reflects the exemption brought by the Fiscal Package 2020 by stipulating that the provisions of article 27/1 “Change of ownership” of the Law on Income Tax will not apply when the change of ownership (shares, quotas or voting rights) is subject to the provisions of ratified agreements in force for the avoidance of double taxation.

Filing of inventory The amending Instruction stipulates that taxpayers, in addition to submitting to the tax authorities the annual corporate income tax return and annual financial statements, must submit the analytical inventory of the goods by 31 March of the following year. Also, within the 31 December of each year, taxpayers must submit the non-current assets inventory, based on the form “Non-current Assets Form” approved in the amending instruction. Correction of the deadline for payment of withholding tax for technical, consulting and management services It is reflected the correction of the error regarding the deadline of declaration and payment of the withholding tax for non-settled invoices for technical, consulting and management services, so that these expenses are considered as deductible expenses for corporate income purposes. Now, the instruction reflects that the deadline for declaring and paying the withholding tax is 20 January of the following year, regardless of the time when the invoice is settled (previously erroneously expressed as 20 December of the current tax period). Indirect taxes

- The deadlines for declaration and payment of value added tax, withholding tax, payroll taxes and contributions and local taxes remain unchanged.

Simplified tax for small businesses:

- The 2020 installments of the simplified income tax due by taxpayers registered under the category of small tax business will be postponed for 20 October (for the 1st and 2nd quarters) and 20 December 2020 (for the 3rd and 4th quarter).



Measures taken for certain category of employees - Employees working for legal entities or sole entrepreneurs registered for CIT or as small

businesses and having realized an annual turnover not exceeding ALL 14 million during 2019. Employees included under this category would be supported by payment of the minimum salary of ALL 26,000 per month.

- Double employed individuals shall benefit only one payment regardless of being simultaneously in two payroll lists.

- The salary subsidy will be payable upon successfully meeting the conditions set out in the Decision of the Albanian Government. The Albanian tax authorities should verify within the first 10 days of the following month after application and may perform on-site visit investigations to confirm whether the applicants have suspended the business activity in accordance with the governmental guides.

Measures for the self-employed

- Self-employed individuals realizing an annual turnover not exceeding ALL 14 million and their family members working against no payment in the same business would be entitled to benefit the minimum salary of ALL 26,000 per each person.

- The financial subsidy will be awarded upon application and confirmation of the tax authorities that the criteria set out in the decision of the Albanian Government for this purpose are met.

Tax Measures The Council of Ministers on 25 March 2020 approved measures that provide special rules for judicial proceedings during the pandemic. Under these measures, hearings in administrative and civil proceedings are generally suspended, and the statute of limitations for filing claims, lawsuits, and appeals are similarly suspended. The deadlines for the submission of financial statements has been extended. For all taxpayers, the balance sheet and its annexes, can be submitted by 31 July 2020. For taxpayers with a turnover of up to ALL 14 million, the tax calculated on the basis of the 2019 annual taxable income statement, as well as the prepayments due for the 2019 tax period, shall be paid by the taxpayer within the second half of 2020. For taxpayers with a turnover of up to ALL 14 million, the quarterly profit tax instalments for 2020 can be paid by 31 December 2020. Payment instalments for taxpayers with annual turnover from ALL 5 to 8 million can be made for the first and second quarters of 2020 by 20 October 2020, and for the third and fourth quarters of 2020 within 20 December 2020. Debt recovery has been suspended or postponed in relation to the garnishing of wages and bank accounts as well as asset seizures and sales. There are no changes or suspensions planned for other debt recovery procedures or instalment agreements. All applications are being prioritized for approval under the legal obligations and deadlines. There is coordination with the Ministry of Finance and Economy to prioritize through the Treasury, the value for reimbursement for all the approved applications under the FIFO method. For the approved refund applications, which are handled in instalments due to their high value, payments from the Treasury will be based on the budget's financial situation.



BOSNIA AND HERZEGOVINA Republika Srpska - Corporate income tax liabilities in The Decision on temporary deferral of payment of tax liabilities has been enacted published in the Official gazette of Republika Srpska (“RS”), no. 28/20 from 27 March 2020. The temporary deferral of payment of tax liabilities is a measure to lessen the consequences and difficulties that businesses are experiencing. Taxpayers that are impacted by the measures and which are facing difficulties in settling their due tax liabilities, were given the possibility to submit a written Statement for the temporary deferral of payment of tax liabilities in relation to:

Corporate income tax.

Fee for improvement of useful functions of forests.

Fee for prevention of fires.

Personal income tax, as per the annual tax return for 2019.

In accordance with the decision, the above-mentioned liabilities are temporarily postponed until 30 June 2020. The above-mentioned liabilities shall be payable after 30 June 2020 in installments until the end of the year.

Correction of advance CIT payments The Corporate Income Tax Law of the Federation of Bosnia and Herzegovina provides for the correction of CIT advance payments assessed based on the prior year’s taxable profit and tax liability in circumstances of natural and other disasters. The Government of the Federation of Bosnia and Herzegovina pronounced the state of disaster caused by COVID-19 on 16 March 2020. The request to reduce CIT advance payments for 2020 must be filed with the Tax Administration of Federation of Bosnia and Herzegovina and the Tax Administration should issue its Decision.

Financial aid Republika Srpska has so far adopted a modest package of financial aid. Its Solidarity Fund will finance social contributions for March salaries to the businesses which were closed by order of the Government of Republika Srpska in March due to COVID-19 epidemics. Those are the businesses from the sectors such as hospitality, retail, hairdressers, beauty shops, wellness and spa centers, etc. The list of the businesses qualifying for this aid is available at the web page of the Ministry for Economic and Entrepreneurship. Those businesses which are eligible for the aid but are not included on the list are invited to contact the Ministry. Requests for this aid must be submitted until 11 May.

Furthermore, the businesses entitled to the foregoing limited March aid, as well as those which temporarily ceased or reduced their operations because of economic consequences of the pandemic (loss of markets, disruption to supply chain and similar), are entitled to the amount corresponding to the statutory minimum salary of their employees (BAM 520, i.e. approximately EUR 265) who were on the payroll in for April 2020, with accompanied tax and social contributions.

Qualifying businesses must submit applications for the April aid until 15 May 2020 online via the web page of the Government. Based on the applications, the competent ministries will prepare the list of those approved for the aid. Thereafter, the approved businesses will have to submit to the Tax



Administration until 10 June 2020 a request for the aid with an affidavit attesting that they were temporarily closed and a payroll list. The form is available on the website of the Tax Administration.

Gaming operators which were closed due to COVID-19 related orders of the competent authorities are released from fees on electronic games via terminals, betting games, games at slot machines, proportionally to the period of time they were closed.

Tax relief Minimum annual income tax for 2020 applicable to small entrepreneurs is reduced from BAM 600 (approx. EUR 306) to BAM 240 (approx. EUR 122).

Federation of Bosnia and Herzegovina - Filing deadline extended The Tax Administration of FBiH announced the extension to, inter alia, the individual income tax return filing deadline and the corporate income tax return filing deadline from the end of March to 30 April 2020. The Tax Administration provided the detailed instructions on the filing mechanism by email and appealed to taxpayers not to visit the Tax Administration unless specifically invited by the Tax Administration.

Financial aid All registered businesses, except for state-owned companies, financial institutions and entrepreneurs who are not taxed based on income but under lump-sum taxation regime will receive a subsidy for statutory social contributions of employees (pension, health, and unemployment insurance) in the amount of BAM 244, 85 per employee for the entire period of emergency situation starting with the month of April and ending in the month that follows the declaration of the end of emergency situation. The subsidy amounts will be paid directly to the relevant compulsory insurance funds.

Eligible businesses have to satisfy the following cumulative conditions in order to receive the foregoing financial aid:

1. their turnover must have decreased for 20 % or more in the month for which they claim the aid, compared to the same month in 2019; and

2. they must not have any outstanding liability for social contributions and payroll tax for the period ending in February 2020.

Guidance on the procedure and required documents is prescribed by the Tax Administration and published on their website. The guidance supplements the legislation by specifying that businesses registered after 1 March 2020 are not entitled to the subsidy and also that the subsidy does not apply to employees of businesses registered in the Federation B&H but working in the branches located in Republika Srpska and Brčko District.

Tax relief Businesses that qualify for fiscal aid above are also relived from the obligation to pay advances on 2020 income tax. However, they are not released from payment of final income tax obligation for 2020. Lump-sum tax obligation applicable to private entrepreneurs under lump-sum taxation regime is reduced for 50% for the period starting on 21 March 2020 and ending on 31 December 2020.

Suspension of default interest calculation and forced collection



Default interest does not run on any debt for the period from 1 March 2020 until the expiration of 30 days following the emergency situation termination. This also applies to private creditor-debtor relationships. With respect to public revenues claims, default interest does not run during the emergency situation and for a period of 60 days thereafter.

Value Added Tax - Council of Ministers have adopted a Decision on indirect tax exemptions and tax refund of

already paid indirect taxes on equipment and resources donated by domestic and international entities for prevention and suppression of COVID-19. This is related to masks, gloves, disinfectants, medical protection suits, ventilators and similar.

Corporate Income Tax

- Both FBiH and RS tax authorities have extended deadlines for submission of annual tax returns. In FBiH, a new deadline is set to April 30, 2020, while RS has extended its deadline to June 30, 2020. In RS all payments can be made in installments.

Social Security Contributions or Payroll Tax

- In FBiH – annual tax returns submission deadline is extended to April 30, 2020. Deadline for monthly payroll and social contributions returns for March are extended to April 30, 2020, while a new deadline for April, 2020 returns is May 31, 2020.

- In RS – submission of annual PIT returns deadline is prolonged to June 30, 2020. Same is applicable to other taxes that will be due for payment on March 31, 2020. All payments can be made in installments.

Other relief tax measures

- In both FBiH and RS Deadlines for submission of other direct taxes returns are extended mostly for one month.

- In FBiH, all tax returns and other registration data forms are to be sent by post, e-mail or fax.

- Per decisions of the banking agencies moratoriums and/or grace periods for loans is possible.



KOSOVO The tax authorities in Kosovo have introduced measures to mitigate the impact of the COVID-19 pandemic. These measures include:

- An extension of the deadline for the submission of corporate and individual income tax returns and payment of tax liabilities until 30 April 2020.

- A suspension of the requirement to submit consolidated financial statements, management reports, consolidated management reports, audit reports on the financial statements of legal entities until 30 June 2020.

In addition, any tax refund review and approval procedure is suspended until 30 April 2020. The deadline for the submission of corporate and individual income tax returns and payment of tax liabilities is extended until 30 April 2020. In addition, any tax refund review and approval procedure are suspended until 30 April 2020. Submission of consolidated financial statements, management reports, consolidated management reports, audit reports on the financial statements of legal entities has also been suspended to 30 June 2020. Based on Decision of Ministry of Finance and Transfers on 19 March 2020, the deadline for submission of the tax returns, reports and payment of tax liabilities is extended until 30 April 2020. In addition, any tax refund review and approval procedure will be suspended until 30 April 2020. The extension of the period is applied for all tax returns due by taxpayers registered as private physical and juridical persons (i.e. legal entities, corporations, employers, non-for-profit organizations or similar). The extension of the reporting deadlines is not applicable for public sector. The extension applies to all tax returns and taxes regulated by the Law on Tax Procedures, Law on Corporate Income Tax, Law on Personal Income Tax and Law on Value Added Tax. Nevertheless, the Ministry of Finance and Transfers encourages the taxpayers not being affected by the COVID-19 situation to comply by submitting the tax declarations and make tax payments as per the original deadlines if possible. The Decision dated 18 March 2020, the Ministry of Finance and Transfers approved also the postponement of submission of the consolidated financial statements, management report, consolidated management report, audit report on the financial statements of legal entities with Kosovo Council for Financial Reporting as required by the Law on accounting, financial reporting and audit in Kosovo. This deadline is extended until 30 June 2020.



MONTENEGRO Tax relief provided in Montenegro in response to the coronavirus (COVID-19) pandemic include measures for (a) the deferral of payments of individual (personal) income tax and (b) social security contributions. Tax authorities published on March 17, 2020, issued the decision to extend the deadline for filling of statutory financial statements and corporate income tax returns from 31 March 2020 to April 15, 2020. The decision to extend the statutory deadline relates solely to the filing of financial statements and corporate tax returns, but not to the payment of corporate income tax liability. A decree is effective 31 March 2020, and includes a 90-day postponement for businesses economically affected by the COVID-19 pandemic to pay their tax liabilities—that is, taxes that otherwise would need to be paid during March, April, and May 2020

- The decree does not apply with regard to governmental entities or municipalities. - The tax liabilities for which relief is provided include: (1) individual income tax; (2) social

security contributions; and (3) amounts owed under a payment plan for taxes due for prior tax periods.

- Taxpayers seeking to take advantage of the relief must file a request with the tax authority. Separately, the tax authorities announced an extension of the deadline for filing of the annual individual income tax return (GPPFL Form) for 2019. The deadline (originally 30 April 2020) has been extended by 15 days, and the new filing deadline is 15 May 2020.



NORTH MACEDONIA Employees support

- A wage subsidy equal to the minimum wage is planned to affected companies to help them maintain jobs (about 1 percent of GDP). Also, vulnerable households who were part of the informal economy and lost their income will receive financial support.

- a subsidy on social security contributions for firms that maintain employment, Other financial support

- Support for sports workers employed in sports associations and freelance artists in amount of MKD 14,500 for April and May.

- Cash compensation for individuals who lost their jobs as a result of the COVID-19 crisis in amount of 50% of the average salary of the employee.

Financial support for micro, small and medium enterprises

- A total of EUR 5.5 million will be granted as interest-free loans to companies conducting business activates in the sectors most affected by COVID-19.

- The individual loans ranging from EUR 3,000 to EUR 30,000 depend on headcount: o enterprises with up to 10 employees shall be entitled to receive a loan up to EUR

5,000, o enterprises with 10 to 50 employees shall be entitled to receive a loan up to EUR

15,000, o enterprises with 51 to 250 employees shall be entitled to receive a loan up to EUR

30,000. - Additional EUR 8 million will be granted as interest-free loans as a second set of financial

support. - The individual loans ranging from EUR 3,000 to EUR 90,000 depend on the headcount.

Financial support and subsiding for social security contributions

- Financial support for the payment of salaries of up to MKD 14,500 per employee, to employers in the private sector affected by the COVID-19 crisis, for the months of April and May 2020 as well as to individuals conducting independent business activities.

- An alternative measure is available for subsiding employers affected by the COVID-19 crisis, for payment of the mandatory social security contributions for April, May and June up to 50% of the contributions calculated on the average gross salary for January 2020. The two measures can be mutually excluding.

- The measures generally apply to employers who realized reduced revenues due to the crisis, and are subject to several conditions, such as limitations in respect to paying dividends to shareholders and any type of awards for business success to employees and members of management, as well as a requirement for preserving a certain number of employees (except in cases of death, retirement or in the case of termination of the employment by the employee) for certain period of time.

- After year-end, depending on the results, there might be an obligation for reimbursement of the funds received under the respective measures.



Decreased rate of the penalty interest - The penalty interest for public liabilities is reduced by 50%, i.e. from 0,03% to 0,015%. - The statutory penalty interest between legal entities is decreased from 10 to 5 %, while the

statutory penalty interest where at least one party is a legal entity is decreased to 4 %. Enforced collection measures

- The tax authorities announced that they will not conduct any enforced collection in respect of all taxes and other public charges (fines, court fees) against those taxpayers who have not paid their obligations.

- The Law on Enforcement is suspended until the end of June., and the enforcement agents are obliged to stop taking any enforcement action.

Tax measures

- postponement of corporate income tax payments by suspending obligations to prepay based on past year’s income.

Exemption from payment of advance instalments for corporate income tax and personal income tax purposes for March, April and May 2020

- The measure applies to taxpayers conducting business activities in sectors that are most affected by the COVID-19 crisis such as catering, tourism (tourist agencies, tour operators, accommodation facilities), transport (land, water and air transport).

- The measure may also apply to taxpayers from other sectors who have suffered reduced business activities due to the COVID-19 crisis, and is subject to certain conditions such as limitations in respect to paying dividends to shareholders and any type of awards for business success to employees and members of management and supervisory bodies, as well as a requirement for preserving the number of employees (except in cases of death, retirement or in the case of termination of the employment by the employee) for certain period of time.

Exemption from VAT on the donations given to a state budget user aimed for dealing with COVID-19 The measure applies for VAT exemption on:

- the supply of goods and services provided as a donation to a state budget user, aimed for dealing with COVID-19, as well as

- the supply of goods and services financed by funds donated to a state budget user, aimed for dealing with COVID-19.

Extension of the deadline for filing the VAT returns and for paying the VAT due

- The deadline for filing VAT returns for February, March / Q12020 as well as for paying the VAT due is extended to 30 April 2020.

- The deadline for filing VAT return for April 2020 as well as for paying the VAT due is extended to 31 May 2020

Decrees have been adopted giving the right to exemption from paying the advance payments of personal income tax, i.e. the profit tax for the months of March, April and May 2020, to taxpayers from certain activities and other taxpayers who have suffered damage in their operations due to the implementation of measures to prevent the spread and spread of COVID-19.



SERBIA The Government has adopted a Decree on postponing the deadline for obtaining the status of a qualified new employee prescribed by the Personal Income Tax Law, during its session held on 24 April 2020. Decree is into force from 24 April 2020 the day of publishing it in the Official Gazette of RS. On April 24 2020, it was adopted a Decree amending the Decree on fiscal incentives and direct grants to privately owned companies and on grants to citizens aimed at reducing the economic effects caused by the COVID-19 illness. On April 16 2020, a Decree was issued on the extension of deadlines for holding regular company general assemblies and submitting yearly and consolidated financial reports for companies, associations, other legal entities and entrepreneurs, as well deadlines for the submission of corporate income tax returns and for self-employment tax returns and on the extension of licenses for certified auditors and licenses for real estate evaluation, that are expiring during the state of emergency caused due to the COVID-19 sickness resulting from the SARS-COV-2 virus. Decree on fiscal incentives and direct grants to private companies and citizens Decree foresees fiscal incentives for legal entities, including branches and representative office (hereinafter: legal entities) from personal income tax and social security perspective as well as non-refundable cash grants for the employees. Income Tax Advances According to the Decree on fiscal incentives and direct grants to private companies and citizens aimed at reducing the economic effects caused by the COVID-19 illness (hereinafter “Decree”) one of the foreseen fiscal incentive is to provide legal entities, including branches and representative offices of foreign entities (hereinafter: legal entities) possibility to postpone payment of income tax advances that are due on April 15, May 15 and June 15, 2020, until the submission of the final income tax return for 2020. This practically means paying these three advances is postponed until the end of June 2021 (for taxpayers whose fiscal year equals a calendar year). The payment of these three advances, will be made in a maximum of 24 equal monthly instalments without interest. Please note that, if the final income tax liability for 2020 is lower than the sum of only these three advances, the difference between the sum of these three advances and the final CIT liability will be due on the date of filing of the 2020 income tax return (June 2021). The above-mentioned rules shall accordingly apply to taxpayers who file their tax returns for a period other than the calendar year beginning or ending in 2020. As the Decree does not cover the remaining monthly tax advances for 2020, where advances for the first half of 2020 are assessed and paid based on the result generated in 2018, while for the second half of 2020 until mid-2021, the monthly advances are paid based on the 2019 result, in case the results from 2018 and 2019 are significantly higher than the result to be expected for 2020, it is our understanding that only after filing of the final 2019 tax return (by June 29th), tax payers can apply for changing/reducing future advance payments, following the regular procedure prescribed by Article 68 of the Serbian CIT Law. Amended advance payments shall be payable from the next



month in which the request for change is filed, i.e. tax payer will also be required to pay the full June advance payment based on the 2019 result in case 2019 tax return is filed at the end of June 2020. Delaying the payment of the income tax advances for March, April and May, due in April, May and June, assumes no dividend payments until end of 2020 and not reducing the number of employees by more than 10% in the period mid-March end of October. It is expected that applying of this incentive in practice shall be automatized through TA information system in a way that due dates for these three advance payments shall be deleted from the tax calendar. The Ministry of Finance has issued the Manual for the Implementation of Fiscal Incentives and Direct Grants to Privately Owned Companies. The Decree details the following:

- Fiscal incentives for companies – legal entities in the form of delayed payment deadlines for salary taxes and social security obligations and corporate income tax installments;

- Fiscal incentives for entrepreneurs in the form of delayed payment deadlines and the delay in the payment itself for installments for taxes and contributions on self-employment income;

- Direct grants to privately owned companies in the form of non-refundable cash grants; - The application of a 0% rate of VAT for free of charge supplies of goods and services

performed by VAT payers to the Ministry of health, the National Health Insurance Fund or any publicly owned medical institution, with the accompanying right to deduct input VAT, as of the day the state of emergency was implemented; and

- A one-off cash grant for all citizens of the Republic of Serbia of legal age. On March 20, 2020 it was adopted a Regulation on Tax Measures for Mitigation of Economic Consequences Caused by the Disease COVID-19 Induced by the SARS-CoV-2 Virus. During the state of emergency, the Regulation envisages the following:

- For the amount of more or less paid taxes and incidental charges, besides interest, interest shall be calculated and paid at a rate equal to the annual reference rate of the National Bank of Serbia.

- Taxpayers participating in deferred tax payment schemes and who do not adhere to agreed repayment plan measures will not be a subject to enforced collection procedures, starting from the installment due in March 2020, the tax authorities will not annul or terminate compulsory collection agreements and decisions and interest shall not be calculated at all on the tax debts that has been deferred, either by delaying the execution of the final tax act or by delaying payment of the tax due.

Deferral of payments of tax on wages and social contributions for the private sector is available until 2021. Further, taxpayers can defer paying corporate profit tax in the second quarter of this year. Taxpayers are obliged to submit their tax returns within the legal deadlines. Serbia During the state of emergency, an interest rate is calculated and charged, but it is decreased by 10% and is equal to the annual reference rate of the National Bank of Serbia, which currently



amounts to 1,75%. When it comes to paying tax on wages, social contributions and corporate profit tax, there will not be any interest calculated since all such payments are deferred. For taxpayers who reached an agreement with the tax administration to pay taxes in instalments, during the state of emergency, the tax administration will not suspend the agreement, nor calculate the interest rate for instalments not paid on time. On 6 May 2020 the Serbian Parliament adopted the Decision on Termination of the State of Emergency introduced on 15 March 2020. The Decision was published in the Official Gazette of the Republic of Serbia no. 65/2020 on 6 May 2020. The Decision is effective as of 6 May 2020. On the date of termination of the state of emergency, special tax measures introduced during the duration of the state of emergency are no longer effective. As a result, deadlines for meeting specific statutory requirements are reinstated which had been deferred due to the state of emergency, including deadlines within which taxpayers can exercise their right to protection of their legal interests by invoking particular legal means.



WESTERN BALKANS NEW DEVELOPMENTS OF TAX POLICY FOR 2020

ALBANIA – NEW DEVELOPMENTS OF TAX POLICY FOR 2020 New developments

The Fiscal Package 2020 envisages some changes in the fiscal legislation. Among the main changes are: Income taxes - Incentivization of the vehicle industry sector by reducing the profit tax rate to 5%, for legal entities that exercise economic activity in this industry. - Promoting sports, by presenting its positive impact on society. For this project, fiscal incentives are proposed for the possibility of taxation on the personal service of bonuses given to athletes, or sports teams’ part of sports federations recognized by the relevant legislation. Also, for legal entities, for the realization of the gain of experience older than 100 million ALL, the amount sponsored in the work of sports, of recognition as a discount purchase, for easy effect of calculating the profit tax, you can find more three times the amount sponsored. - Carrying losses for a 5-year day for taxpayers, who invest in business projects with Changes over 1 billion ALL. - Harmonization of Law no. 8438 no. 8438, dated 28.12.1998, "On the direct tax", amended by the law of "On the invoice and operation of traffic monitoring" National taxes - specifying the value of the vehicle for the effect of the criteria that a vehicle must meet to be considered a luxury vehicle, amortizing the value of the vehicle with 10% of the remaining value; - changes in the penalty in order to unify the penalty for late payment for the annual tax on used vehicles; - increase of the commission that benefits DPSHTRR, by 5 (five) percent for the initial registration tax and the annual tax for luxury vehicles” - increasing the category of persons with disabilities to be exempt from the annual tax on used vehicles. - exemption from paying the annual tax on used vehicles, “Early vehicles of historical interest and collection according to the legal and sub-legal acts in force”. Tax Procedures, Value Added Tax The changes in the Laws: "On Tax Income" and "On Value Added Tax" are mainly related with the drafting and approval of the law "On fiscalization". So, there are procedural changes related to it. At the same time, some administrative violations and levels of penalties have been reviewed in order to facilitate of their practical application.



KOSOVO - NEW DEVELOPMENTS OF TAX POLICY FOR 2020 New developments In July 2019, Kosovo introduced a new law on corporate income tax, which has entered into force in August 2019. The key changes resulting from the new law are summarized below: - Change of taxation method for insurance and reinsurance activities The previous taxation method of 5% of gross premiums collected during a tax period for insurance and re-insurance activities has been amended to the conventional taxation method of CIT being levied on taxable profits at the rate of 10%. - Recognition of loan loss, technical and mathematical provisions The new law foresees the recognition of provision expenses for banks, micro-finance institutions and non-bank financial institutions as below: Banks, micro-finance institutions and non-bank financial institutions licensed by the Central Bank of Kosovo (CBK) are entitled to recognize deductible expenses the provision for expected losses from loans up to eighty percent (80%) of the amount determined by a sub-legal act issued by the CBK; Insurance and re-insurance financial institutions licensed by CBK are entitled to recognize the deductible expenses for technical and mathematical reserves up to eighty percent (80%) of the amount determined by the Law on Insurances and sub-legal acts issued by the CBK. - Allowable deductions for sponsorships in sports, youth and culture Taxpayers making contributions to sports have the right to get a tax credit up to 30% of corporate income tax, and those contributing to youth and culture will be granted a deduction of up to 20% of corporate income tax. - Shorter tax loss carry forward period Tax losses can be carried forward up to four consecutive tax periods, as opposed to the previous law which allowed for a carry forward period of up to six consecutive tax periods. - Lowered threshold to register for corporate income taxation



NORTH MACEDONIA - NEW DEVELOPMENTS OF TAX POLICY

FOR 2020 New developments According to the recent amendments to the CIT Law, the threshold for submitting mandatory transfer pricing documentation for 2019 was increased from MKD 60 million to MKD 300 million. Taxpayers that have overall annual revenue of up to EUR 300 million, do not have the obligation to file transfer pricing documentation. Also, there is no longer an obligation for taxpayers to file transfer pricing documentation for transactions with residents. The deadline for submitting transfer pricing documentation for the calendar year was postponed to 30 September of the following year. Furthermore, the recent amendments introduced temporary taxation of depreciation calculated at higher rates than the prescribed tax rates. The taxpayer is entitled to a tax credit for the taxed part of depreciation expenses in the tax return for the following year. According to the latest amendments, the taxation of employees' related expenditures (where applicable) is not linked to their payment. Also, according to the new amendments in the CIT Law, 10% CIT is payable in case revaluation reserves of tangible and intangible assets are transferred into accumulated profit. The tax base is the transferred amount into accumulated profit, less the depreciation of the revaluated value of assets from 1 January 2019 until the date of write-off or disposal of the assets. CIT is payable by way of submitting a specific CIT return by the taxpayer. Applicable as of 1 January 2020, new tax on vehicles was introduced. North Macedonia has adjusted the social security contributions rates for 2020. The contribution types and rates are as follows: o Mandatory pension and disability – 18.5% (up from 18.4%) o Mandatory health insurance – 7.5% (up from 7.4%) o Mandatory employment insurance - 1.2% (unchanged) o Additional health insurance for workplace injury and occupational disease - 0.5% (unchanged)

The adjusted contribution rates apply for the payment of salaries from the month of January 2020. In addition to the rate adjustments, the minimum and maximum basis for social security contributions have also been set for 2020, which is based on salary data that includes an average salary of MKD 38,319. Based on the average salary amount: o The minimum basis for calculating contributions for 2020 is MKD 19,160.00 (50% of 38,319); o The maximum basis for calculating contributions for 2020 for income from employment and for the

income of an executive member of a board of directors, a member of a management board, or a manager in a trade company is MKD 613,104.00 (16 x 38,319); and

o The maximum basis for calculating contributions for 2020 for a self-employed person is MKD 459,828.00 (12 x 38,319).

The minimum and maximum basis amounts apply for calculations for the period January to December 2020.



SERBIA - NEW DEVELOPMENTS OF TAX POLICY FOR 2020 New developments

Starting from CIT assessment for 2019, tax depreciation of fixed assets (apart from real estate and fixed assets acquired before 31 December 2018) will be calculated by using the straight-line depreciation method. Resident legal entities that are considered to be ultimate parent of a multinational group are obligated to submit country-by-country-report. In December 2018, three new incentives were introduced:

- Double deduction for R&D costs: R&D costs related to R&D performed in the Republic may be double deducted for CIT purposes (excluding extractive industry).

- Royalty income relief: 80% of qualified royalty income generated by the copyright or similar rights holders (inscribed in relevant register in Serbia) can be excluded from the tax base. Qualifying income should be excluded upon decreasing this income for the amount of tax-deductible R&D

- costs incurred in relation to development of such copyright/similar right.

- Tax credit: 30% tax credit for the investments into newly established companies performing innovative activities (tax credit up to 846,000 euros [EUR]).



REFERENCES KPMG

Deloitte

EY

PWC

IMF

WORLD BANK

EBRD

Ministry of Finance

EuroFast

IOTA

WBIF



TAXATION TRENDS IN WESTERN BALKANS, 2020

A COMPARATIVE VIEW OF TAXATION AND LEGAL FRAMEWORKFOR

BUSINESSES AND INDIVIDUALS IN WESTERN BALKANS

TENDENCA E TATIMEVE NË BALLKANIN PERËNDIMOR, 2020 PAMJE KRAHASUESE E SISTEMIT TATIMOR DHE KUADRIT LIGJOR PËR BIZNESET DHE INDIVIDËT NË BALLKANIN PERËNDIMOR

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TAXATION TRENDS IN WESTERN BALKANS, 2020