Italy’s Revenue Agency has ruled that Serbia’s ten-year corporate income tax exemption for qualifying large investment projects constitutes a privileged tax regime under Italian participation-exemption rules.
The decision could create additional tax liabilities for Italian investors that sell stakes in Serbian companies benefiting from the incentive.
Under Serbia’s current rules, companies investing at least RSD 1 billion—approximately €8.5 million—in fixed assets and creating at least 100 permanent jobs may qualify for a corporate income tax exemption lasting up to ten years. The relief applies in proportion to the qualifying investment, while the required employment level must be maintained throughout the exemption period.
In Ruling No. 135/2026, the Italian tax authorities concluded that this incentive provides qualifying Serbian companies with preferential treatment significant enough to classify the arrangement as a privileged tax regime.
The classification is particularly important when an Italian investor sells shares in a Serbian company using the tax holiday.
Italy’s participation-exemption system, commonly known as PEX, allows qualifying companies to exclude most capital gains generated by the sale of certain shareholdings from their taxable income. One of the conditions, however, is that the company being sold must not be subject to a privileged tax regime.
Consequently, capital gains from the disposal of shares in Serbian companies benefiting from the ten-year exemption will not qualify for the Italian participation exemption. The gains may therefore face ordinary taxation in Italy.
The Revenue Agency also determined that the transitional protections introduced by Italy’s 2018 Budget Law cannot be applied to these transactions. Those provisions, sometimes described as grandfathering rules, would otherwise preserve favourable treatment for certain investments made under earlier legislation.
The ruling does not abolish Serbia’s incentive or prevent companies from using it. Instead, it changes the Italian tax consequences for investors holding shares in Serbian beneficiaries of the scheme.
Italian businesses and investment groups with Serbian subsidiaries will consequently need to consider whether the subsidiary uses the ten-year tax holiday before selling or restructuring their holdings. The decision may affect transaction costs, valuations, and exit strategies for investments in Serbia.
