Within the Serbian tax system, tax liabilities are created when you generate revenue. For this reason, most business owners are surprised when we mention tax obligations that may arise when paying for services provided by a foreign company or an individual.

If you hired a foreign consultant, engineer, lawyer, auditor, or translator and paid for their services, you need to check in more detail if there is any tax obligation on your part related to this transaction.

There may be different tax obligations depending on whether a service is provided by a legal business entity or a natural person.

Tax treatment will depend on the following factors:

• country of residence of your business partner – the service provider
• type of service (whether it can be deemed that the service is provided or used in the territory of the Republic of Serbia)
• whether you’re dealing with a legal business entity or a natural person

If the foreign service provider is registered as a legal business entity, you may be liable for a 20% withholding tax. If there is an international double taxation prevention agreement between the Republic of Serbia and the country in which the service provider is registered, you can be released from this tax burden, provided that you have the proper documentation ⁠— proof of your partner’s fiscal residence.

If the service provider is self-employed or a natural person, the transaction is not subject to the withholding taxdiscussed. Nevertheless, it can be subject to the individual income tax, as well as contributions for social security. It’s best to check on a case-by-case basis whether the recipient of services is obligated to calculate and pay taxes and contributions to the foreign individual or entity.

According to the Law on Value-Added Tax, the place where services are rendered by a foreign individual or a business entity to a domestic entity, including services provided by advisors, engineers, lawyers, auditors, and translators, including written translation, is always the Republic of Serbia.

When we speak of transactions where a foreign entity is providing services, and a domestic entity is receiving services, the domestic entity carries the tax burden. The domestic entity then needs to perform internal VAT calculations, and in some instances, it also has the right to deduct the same amount of tax. Companies not subjected to VAT are obligated to do the same.

The topic discussed in this article is quite complex. Since this area is regulated by both the domestic laws and the provisions of international treaties, we advise all business entities who plan to use the services provided by foreign companies or individuals to pay more attention when gathering related information and determining their tax obligation.