Source: AG Nekretnine | Thursday, 01.01.1970.| 11:55
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(AG Real Estate) Investment in real estate and properties equals tax exemption in Serbia

One of the first questions asked by foreign investors before getting involved in a detailed analysis of investment possibilities in our country is the following: “What are the advantages and privileges that Serbia is ready to offer to a foreign investor?”

Besides the well known traditional ones that are reduced to things such as good geography, cheap and relatively qualified working force, the central question, like always, remains the tax.

The crucial question when dealing with so called greenfield investments or new residential and office buildings or industrial facilities, passing through the acquisition of companies that are in the course of privatization proceedings, or in the process of bankruptcy, or quoting on the stock exchange, up to the investment in joint venture companies, concessions and other type of investments, no matter, the pending question remains: “What taxes have to be paid for the above transactions, and if affirmative, what are the tax rates and whether there are some tax exemptions?”

With the tax reform performed by our country's two previous democratic governments, the tax system has been considerably remodeled and adapted to the needs of a modern state and to neighboring EU requirements. With the introduction of the PDV (value added tax), the tax system has been finally shaped to become familiar to all foreign investors, no matter whether they are individuals or companies.

On the other hand the state is naturally always interested to fill-up the budget to the upper limits. Therefore the control of income and expenditures of individuals and companies has been tightened and the tax officials have been given broader authorization.

When talking about real estate – when dealing with transactions of absolute rights in the real estate and properties, a unique 5% tax rate is imposed although this does not apply to farms and forest land where the tax rate is only 2,5 %.

When it comes to big investments, buyouts of capital or properties of state (or any other) companies, particularly of those in transition proceedings, it happens very often that the reason for such buyout is the real estate, land or building. Those properties can have a big value so a 5% tax rate can present an important financial item in the overall value of transaction and in the feasibility study.

The law governing the property tax (Official journal of Serbia No. 26/2001, O. J. of the Federal Republic of Yugoslavia No. 42/2002, the Act of Federal Constitutional Court (SUS) and the O.J. of Serbia No. 80/2002 and 135/2004), in Article 31, s stipulates tax exemption cases, which are to be applied on taxes regarding the transfer of absolute rights. Two significant tax exemptions have been made in items 3 and 9a. The item 3 stipulates that: "the tax on transmission of absolute rights is free of charge when there is an investment of absolute rights into the capital of the stock/share company i.e. into a limited liability company". The item 9 provides that there is a tax exemption "on the transmission of absolute right, as stated in articles 23 and 24 of this property law, or in the part of property of privatized subject in conformity to regulations that are governing the privatization from the subject of privatization to the property buyer".

In such a way the legislator is stimulating real estate investments for legal entities that are bringing as assets real estate properties i.e. natural persons or legal entities that are showing up as property buyers in the privatization proceedings. The tax exemption on the transmission of absolute rights combined with the lowest corporation tax on profits (in the neighboring countries) which in our country is 10%, makes a strong incentive to all potential investors, particularly in the real estate sector.

This measure should affect favorably to the final disappearance of state property and its transformation into a private i.e. corporate ownership.

Vladimir M. Đelić, partner

Advokatska kancelarija Božović, Đelić & Ivković Beograd

vdjelic@bozovic-djelic-ivkovic.co.yu

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