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Understanding and utilizing research and development tax incentives in Serbia

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In contrast to a decade-old tax credit that spanned the entire economy but was later discontinued, tax incentives for research and development (R&D) in Serbia remain largely untapped. These incentives are not only accessed by a small number of local entrepreneurs, but also, very few companies are aware of their existence.

Introduced by the state several years ago, tax incentives for R&D have seen limited uptake among domestic businesses. Qualifying for these benefits requires companies to possess both financial resources and expertise, with the application process entailing significant administrative burden. Moreover, some entrepreneurs, apprehensive of potential tax audits, opt out of these incentives, fearing that tax authorities may scrutinize their entire business operations alongside the documentation required for tax relief.

Under the amendments to the Law on Corporate Profit Tax and the Law on Personal Income Tax, companies engaged in R&D activities since 2019 are eligible for various tax benefits. These include a 15% reduction in the profit tax base, the recognition of double expenses for R&D activities in tax balance sheets, and exemptions from 70% of salary taxes for employees working in R&D centers.

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Furthermore, companies can deduct up to 80% of income from product commercialization as intellectual property from their tax base. Despite these incentives, uptake remains low due to challenges such as a shortage of skilled experts and the uncertain outcomes of R&D endeavors.

Inmold Group, a rare example of a company utilizing these benefits, established a dedicated team for R&D activities following advice from a tax advisor. While the tax reductions have significantly impacted employee satisfaction and earnings, the company selectively applies these incentives only to certain projects due to administrative complexities.

Nevertheless, the lack of awareness and the daunting administrative process deter many businesses from exploring these tax incentives. Furthermore, the Serbian economy’s struggle to adapt to modern standards and high operational costs compound the challenges faced by businesses attempting to engage in R&D activities.

Moving forward, increased awareness, simplified administrative procedures, and greater support for the development of skilled expertise are essential to unlock the full potential of research and development in Serbia.”

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