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How to reduce profit tax based on investment in innovations?

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Taxes are a mandatory category, but there are ways to reduce them through the application of prescribed tax deductions. It can be a significant stimulus to business and investments.

That is why the state, in order to stimulate investment in innovations, has introduced incentives that allow taxpayers to reduce the amount of profit tax based on these investments.

Double recognition of research and development costs in the tax balance

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This tax incentive is defined by Article 22g of the Law on Profit Tax of Legal Entities (ZPDPL).
Taxpayers are given the opportunity to recognize all costs incurred in connection with research and development activities in their tax balance in a double amount, which means that they are recognized twice, namely:

as an expense recognized in the Income Statement in accordance with accounting regulations;

as a tax incentive, which is reported as a separate item in the tax balance, which will have the character of a deductible item from the income tax base.

The condition to be entitled to this tax incentive is that the research and development project is carried out in the Republic of Serbia. This specifically means that at least 90% of all employees working on research and development perform their activities on the territory of the RS.

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Tax relief IP Box

The IP Box regime is a tax relief provided for in Article 25b of the ZPDPL and consists in the right of the taxpayer, i.e. of the startup to exclude “qualified income” from the income tax base (taxable profits) in the amount of 80% of the income thus achieved. Put simply, the profit tax is reduced to 3% instead of 15%.

Investing in a startup

An investor who makes an investment in the capital of a newly established company that performs innovative activities (startup) can reduce his tax liability based on a tax credit in the amount of 30% of the investment made.

The goal of this tax incentive is to stimulate capital owners to invest in startups, given that one of the main characteristics of startups is the lack of capital.

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