Last updated on 7 de April de 2023
Serbia is one of the most interesting European countries outside of the European Union. We analyze the most important Taxes in Serbia: income taxes for employees, social security, capital income taxes, corporate tax, VAT, and real estate taxes.
Content
- Introduction
- Taxes on Earned Income
- Capital Income Taxes
- Corporate Tax
- VAT
- Real Estate Taxes
- Inheritance and Gift Tax
- Public Finances in Serbia
- Conclusion
Introduction
With fewer than 7 million people, Serbia is a small European country. In terms of its size, it is comparable to countries such as Austria, Switzerland, Hungary and the Czech Republic.
Located in the Balkans, outside of the European Union, with its own currency and very close ties to Russia, it is relatively isolated from many of its neighbors from a political perspective. Though that can have some advantages.
As we will see, Serbia enjoys a much more attractive tax regime than almost all other European countries. Both individuals and businesses are able to keep a larger percentage of what they produce. As a result, the Serbian economy has made a lot of progress of the last two decades.
Serbia’s currency is the Serbian Dinar (RSD). Throughout this analysis of taxes in Serbia, we will see the original amounts in RSD as well as their equivalents in Euros and US Dollars. For this we will use approximate exchange rates of $1 = 110 RSD / €1 = 120 RSD.
Taxes on Earned Income
Earned income is subject to both social security payments as well as personal income tax.
Social Security
Serbian workers must make social security contributions for three different concepts: retirement pension and disability insurance (14%), health insurance (5.15%) and unemployment insurance (0.75%). In aggregate, Serbian employees must pay 19.90% of their gross salary to the country’s social security.
The base on which these contributions are calculated is not always the entire gross salary, as there is a cap. The base for social security contributions is capped at 5 times the average salary in Serbia.
At the beginning of 2023, the average monthly salary was around 115,000 RSD ($1,045/€958). This corresponds to 1,380,000 RSD ($12,540/€11,500) annually. As a result, the maximum contribution that a worker will make to the social security in Serbia is 275,000 RSD ($2,500/€2,292) per year.
Employers must also make social security contributions. There are two concepts covered by those: retirement pension and disability insurance (10.5%) as well as health insurance (5.15%). This makes employer’s burden equivalent to 15.65% of the employee’s gross salary.
The contributions made by employers are also capped since the maximum base will be the equivalent to 5 times the average Serbian salary. Therefore, the highest annual contribution an employer will have to make will be 215,970 RSD ($1,963/€1,800).
The total social security burden is equivalent to 35.55% of the employee’s gross salary, a similar percentage to that in most Western countries. However, due to the lower salary level in Serbia, the effective and maximum amounts to be paid will be much lower, incentivizing companies to set up shop in the country.
Income Taxes
Workers in Serbia must also pay income tax, the calculation of which is extremely simple.
The taxable base is the gross salary minus the universal deduction of 18,300 RSD ($166/€153) per month or 219,600 RSD ($1,996/€1,830) per year. Social security contributions are not deducted from the taxable base.
Two income tax rates apply in Serbia depending on how high the taxable base is:
- Up to 6 times the country’s average salary (approximately 8.28 million dinars, equivalent to $75,273/€69,000): 10%
- Above 6 times the average salary: 15%
As you can see, income tax rates in Serbia are much more attractive than those of Western European countries. While the tax structure is progressive in nature, it effectively resembles a flat income tax system.
Capital Income Taxes
For investors, businesspeople, retirees, and individuals with assets, let analyzes which taxes apply to capital income in Serbia.
Interest Income
The interest we receive in Serbian Dinars (RSD) from bank accounts or Serbian government bonds is fully tax-exempt.
Other forms of interest income, including that from foreign currency investments, will be taxed at 15%.
Dividends
The dividends we receive will be taxed at a rate of 15%, regardless of their amount.
Real Estate Income
Rental income will be subject to a higher tax rate of 20%. It is, therefore, the most onerous form of income we can have. However, the tax authorities allow us to reduce our taxable base by deducting all costs associated with the ownership of the property, including any mortgage interest.
Capital Gains
Realized capital gains, regardless of whether they come from financial assets, real estate, precious metals or cryptocurrencies, will be taxed at 15%.
This makes Serbia one of the most attractive jurisdictions in Europe for those with income from capital and savings.
Additionally, Serbia does not have a wealth tax.
Corporate Tax
Corporations in Serbia must pay taxes on the profits they make. The nominal corporate tax rate is 15%, and therefore significantly lower than most other European jurisdictions.
Only Hungary and Ireland have a lower corporate tax rate.
VAT
VAT is levied on the consumption of goods and services. There is a standard and a reduce rate.
The standard VAT rate in Serbia is 20% and applies to all products and services that are not specifically subject to the reduced rate.
The reduced rate of 8% is used for essential products, such as food, computers, newspapers, books, and medicines.
Real Estate Taxes
Individuals who wish to acquire property in Serbia, whether it is a house or an apartment, will have to pay a real estate transfer tax.
Thus, a real estate transfer tax equivalent to 2.5% of the purchase price apply to all transactions.
As owners, we will have to pay annual real estate taxes. This will vary depending on the location of the property but will be around 0.4% of its value.
Inheritance and Gift Tax
When it comes to transferring assets from one person to another, whether it is through inheritance or a gift, the tax treatment is very favorable.
If the relationship between the donor and the recipient is of first degree, no tax will have to be paid. In those situations where the relationship is of second degree, the effective rate increases to 1.5% of the total value of the assets.
Finally, the applicable tax rate increases to only 2.5% in all other circumstances. This rate is equivalent to the real estate transfer tax.
Public Finances in Serbia
Let us now take a look at the state of Serbia’s public finances. This will tell us how sustainable the existing tax rates are.
The graph below indicates the level of public debt in Serbia since the beginning of the 21st century:
As we can see, public debt was relatively high two decades ago as a result of the many negative occurrences in the Balkans in the 1990s.
However, the situation has greatly improved since then. While it is true that the low debt levels of the pre-2008 crisis are no longer a reality, the situation looks very stable.
As a consequence of that, the Serbian Dinar, the country’s currency, has enjoyed much stability in the foreign exchange markets. This is quite remarkable after the tumultuous period after the fall of communism in 1991 and the subsequent breakup of Yugoslavia.
Conclusion
As we have learned, taxes in Serbia are extremely attractive. This makes the country a very interesting destination for digital nomads, global investors, and nomad capitalists.
The low tax regime is also an incentive for workers, investors and businesspeople to grow the economy. Not surprisingly, Serbia has been enjoying strong growth rates for many years.
Additionally, the cost of living is much lower than that of most European countries, making it a very affordable destination.
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