Withholding Tax Rates Under Double Tax Treaties in Serbia

Withholding tax is one of the most important forms of taxation of income earned by foreign legal entities from sources in the Republic of Serbia. Its application is based on the Corporate Income Tax Law as well as on the international treaties Serbia has concluded to avoid double taxation (DTTs).

Since Serbia has signed and ratified DTTs with more than 60 countries, withholding tax rates may differ depending on whether domestic law applies or the relevant treaty provisions apply.

Legal framework

Article 40 of the Corporate Income Tax Law explicitly provides that withholding tax is paid on income earned by non-resident legal entities from Serbian residents on the basis of:

• dividends and profit shares,
• interest,
• royalties,
• lease and sublease fees for immovable and movable property,
• market research, accounting and audit services, and legal and business advisory services, regardless of where such services are performed or used.

Therefore, not every service is subject to withholding tax under Serbian law, but only those expressly listed above.

The general withholding tax rate under the Corporate Income Tax Law is 20%, unless an international treaty provides otherwise. For dividends paid to non-residents from jurisdictions with no DTT and no tax information exchange cooperation, a rate of 25% may apply.

To apply reduced treaty rates, the Serbian payer must obtain proof of the foreign recipient’s tax residence, i.e. a certificate of residence, duly certified by the tax authorities of the treaty country.

The role of DTTs

Double tax treaties take precedence over domestic legislation. This means that if a treaty exists between Serbia and the country of residence of the income recipient, withholding tax rates may be lower than those prescribed by domestic law.

Typical treaty reductions include:

• dividends: 5%, 10% or 15% depending on the shareholding percentage,
• interest: 0% to 10%,
• royalties: usually 5% or 10%.

Proper application of DTTs, together with obtaining a residence certificate and monitoring legal updates, is an essential part of the work of accountants and lawyers dealing with international taxation.