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Are consulting services of foreigners taxed in Serbia?

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Domestic companies often hire consultants from abroad for their needs, which means paying a certain fee for the services rendered. A problem can arise when a tax liability is not paid.

Tax adviser Marija Đorđić from the Experta agency says that in our tax system it is common for tax liability to arise when generating income. For this reason, most businessmen are surprised at the mention of paying taxes when paying for services provided to them by a foreign person or company.

“If you have hired a foreign person to provide the services of a consultant, engineer, lawyer, auditor, translator, you must take care of the tax treatment of this business. Depending on whether the service is provided by a legal entity or individual, different tax obligations may arise”, explains Đorđić.

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If the foreign partner is registered as a legal entity, it is possible that when paying for the service, the obligation to calculate and pay withholding tax at the rate of 20 percent appears.

“If the Republic of Serbia has signed an international agreement on the avoidance of double taxation with the country where your partner is registered, with proper documentation (certificate of residency), you can be released from the obligation to pay this tax,” says our interlocutor.

In the event that your partner is an entrepreneur, the transaction between you is not subject to withholding tax, but may be subject to personal income tax, as well as contributions for mandatory social insurance. In each specific case, it should be checked whether the company that pays for the foreign service is obliged to calculate and pay taxes and contributions to the foreigner or not.

Following the recent amendments to the Law on Value Added Tax, the place of transaction of services provided by a foreign person to a domestic person, which by their nature are the services of advisers, engineers, lawyers, auditors and similar services, as well as translators for translation services, including translation into written form, is the Republic of Serbia.

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This means that for transactions between a foreign person who provides a service and a domestic person who pays for this service, the VAT payer is a domestic person. It is obliged to perform an internal calculation of VAT, and in certain cases, it has the right to deduct the same amount.

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