If you rent out a company-owned apartment to an embassy employee, a diplomatic representative, or another person with a specific diplomatic status for residential purposes, there are several important points to consider.

Issuing a Fiscal Receipt

In the Republic of Serbia, there is a statutory obligation to issue fiscal receipts for supplies made to individuals. Companies renting apartments for residential purposes to staff of foreign embassies are not exempt from this obligation.

Namely, the supply of rental services to members of diplomatic and consular missions, including members of their families, is treated as a retail supply.

In this situation, a fiscal receipt must be issued for the rental services provided.

The timing of issuing fiscal receipts should follow the payment schedule agreed in the lease agreement. If the lease agreement provides for monthly rent payments, fiscal receipts should be issued on a monthly basis, on the last day of the month.

The Technical Guidelines for the Administrative and Technical Review of ESIR or L-PFR Functionality provide that, when the customer is an individual who is a diplomat, the number of the diplomatic identity card should be entered in the “Customer Identification” field under the code “31:”.

VAT Exemption

The Serbian Law on Value Added Tax provides for two types of exemptions:

1. exemption under Article 24, paragraph 1, item 16), with the right to deduct input VAT;
2. exemption under Article 25, paragraph 2, item 4), without the right to deduct input VAT.

If your company/entrepreneur is not a VAT subject, the following analyse is irelevant.

Exemption under Article 24, Paragraph 1, Item 16)

Article 24, paragraph 1, item 16) of the VAT Law provides that VAT is not payable on goods and services intended for:

1. the official needs of diplomatic and consular missions;
2. the official needs of international organisations, if so provided by an international agreement;
3. the personal needs of foreign staff of diplomatic and consular missions, including members of their families;
4. the personal needs of foreign staff of international organisations, including members of their families, if so provided by an international agreement.

In practical terms, this means that an invoice or fiscal receipt for the lease of an apartment for residential use by embassy staff or a member of their family may be issued without VAT, provided that certain conditions are met and evidenced by the following documents:

• the diplomat’s diplomatic identity card;
• the LNPDV order issued by the embassy;
• the certificate of reciprocity issued by the Ministry of Foreign Affairs, subject to the conditions stated in the certificate itself.

The diplomatic identity card proves that the person is a member of the staff of a diplomatic or consular mission and that the first condition for the exemption is fulfilled.

The LNPDV form is an order for the purchase of goods and services without VAT for personal needs, issued by the embassy. The company must keep the original order.

The certificate of reciprocity proves that the reciprocity condition is met, meaning that the foreign state grants equivalent benefits to the staff of Serbian missions abroad. For the purpose of applying the exemption, a photocopy of the certificate is sufficient.

It is very important to read the accompanying wording on the certificate carefully, as it often contains details regarding the types of purchases covered or limitations in terms of the amount. It is not sufficient merely to possess a certificate of reciprocity; the transaction must also fall within the terms and limitations stated in the certificate.

In practice, an embassy or diplomatic staff member may provide a certificate of reciprocity stating an annual limit for VAT exemption or VAT refund. Such certificates often use wording that is not entirely intuitive, especially when they refer to “refunded VAT”, although the document is used in the exemption procedure.

The key point is that the limit refers to the amount of VAT, not to the taxable base.

For example, if the rent is EUR 3,000 plus VAT, VAT at the rate of 20% would amount to EUR 600 per month. If the certificate provides for an annual VAT limit of EUR 1,200, that limit would be used up within two months.

If the lease you have agreed does not meet the conditions stated in the certificate of reciprocity, you cannot apply the VAT exemption under Article 24, even if you have the diplomat’s identity card, the original LNPDV order and a photocopy of the certificate of reciprocity, also referred to as the basic certificate.

If all conditions are met and the prescribed documentation is obtained, you issue a fiscal receipt for the rental service without charging VAT. The diplomat’s identification should be entered in the customer identification field under the code “31:”, while the additional field should include the note: “VAT exempt under Article 24.1.16 of the VAT Law.”

Certain fiscal cash register models allow text to be entered in a field named “advertising message”, and this field may be used to display the note on the VAT exemption.

This exemption carries the right to deduct input VAT. This means that you may deduct VAT from invoices related to the apartment rented out to the diplomat, such as invoices for the purchase of furniture and decoration.

Finally, we note the provisions of the VAT Rulebook, which specifically list the status or title of the persons for whom the exemption may be applied:

1. diplomatic agents and members of their families living with them in the same household, provided that they are not citizens of the Republic of Serbia and do not have residence in the Republic of Serbia;
2. consular officers and members of their families living with them in the same household, provided that they are not citizens of the Republic of Serbia and do not have residence in the Republic of Serbia, excluding honorary consular officers and members of their families;
3. members of the administrative and technical staff of diplomatic and consular missions, provided that they are not citizens of the Republic of Serbia and do not have residence in the Republic of Serbia, excluding staff members of consulates headed by honorary consular officers;
4. consular employees, provided that they are not citizens of the Republic of Serbia and do not have residence in the Republic of Serbia, excluding consular employees in consulates headed by honorary consular officers.

If the person to whom you are renting the apartment is not included in this list, the exemption cannot be applied.

To summarise, this exemption is demanding in terms of the conditions that must be met and the documentation that must be collected, but it provides a VAT exemption while preserving the right to deduct input VAT from invoices related to the apartment rented out to the diplomat.

Together with the VAT return for the tax period in which the lease begins, the VAT payer, i.e. the company acting as the landlord, submits one copy of the LNPDV order to the Tax Administration.

If the lease is agreed for a period longer than one year, the VAT payer submits a copy of the LNPDV order together with the VAT return for the tax period in which the next year of the lease begins.

Exemption under Article 25, Paragraph 2, Item 4)

This exemption means that VAT is not payable on the rental of apartments for residential purposes, regardless of who the tenant is.

No additional conditions are prescribed for this exemption. It applies simply because the apartment is rented out for residential purposes.

Therefore, this exemption may also be applied when an apartment is rented out for residential use to staff of a diplomatic or consular mission. However, if you do not charge VAT by relying on this article, you do not have the right to deduct input VAT from purchases related to the apartment.

How to Choose the Appropriate Exemption?

If you do not meet the conditions under Article 24.1.16, or if you do not wish to invest resources in collecting the necessary evidence, you will apply Article 25. You will issue a fiscal receipt without VAT. However, in this situation, you will not have the right to deduct input VAT from purchases related to the apartment you are renting out.

If you meet the conditions under Article 24.1.16 and wish to preserve the right to deduct input VAT, you should collect all prescribed evidence and apply the exemption under this article.