Research and development activities (R&D) incentives in Serbia
Mar 01, 2023
Mar 01, 2023
Companies aiming to expand the organization and increase the number of employees can now use new incentives. These include tax reliefs for employers who perform research and development activities.
Reliefs for research and development are tax exemptions to which employers can exercise the right and use them based on the salaries of persons who are directly engaged in research and development, in the territory of the Republic of Serbia. So in case when someone plans to set up a company in Serbia that will perform R&D activities, among all the other tax incentives for employment and business in Serbia, this R&D incentive program shall be analyzed as a benefit for a future business and quite important tax optimization.
They apply from March 1, 2022 and have no time limit.
More details on what exactly the tax reliefs for researchers’ salaries in Serbia that companies can use are, for which the right to use can be exercised and other issues are found below.
Employers are entitled to employment benefits in the field of research and development, and they can use them for the salaries of persons who are directly engaged in research or development activities. Legal entities that perform research and development activities as part of their regular activities are entitled to such benefits.
Legal entities can use these reliefs for research and development projects, which are carried out on the territory of the Republic of Serbia after the process of company formation is finalized. Research projects for which employers exercise the right to relief refer to research projects where at least 90% of all research and development employees perform their project implementation activities on the territory of the Republic of Serbia.
Savings that companies generate with reliefs are related to tax on salaries and part of the contributions. They relate to exemption from liability to pay portion of taxes and contributions for researchers’ salaries. These include:
The aforementioned reliefs can be used by companies that conduct research and development activities for their own account and that become owners or retain ownership of intangible assets that may arise during the implementation of research and development activities.
Companies that are entitled to use the tax exemption for research and development employees are only legal entities, which perform their activities on the territory of the Republic of Serbia. Companies with other legal forms cannot exercise the right to this relief.
Therefore, only legal entities can use reliefs for researchers’ salaries in Serbia, and the following entities are not entitled to them:
Tax relief cannot be used by a legal entity that conducts research and development for the account of other persons, and that does not become the owner of intangible property, which was created by those research and development activities, through the successful implementation of these activities.
Additionally, tax reliefs for research and development cannot be used by employers for the salaries of employees who are engaged in research activities, with the aim of exploring and developing oil, gas or mineral resources in the extractive industry.
In accordance with the Rulebook on the conditions and manner of exercising the right to tax exemption based on the salaries of employees engaged in research and development activities, the definition of a person directly engaged in research and development is as follows:
“A research and development employee is a person who works on project implementation in such a way that he/she is directly involved in identifying and solving appropriate scientific, process or technical issues, problems or tasks related to a specific project.”
Employees for whom the employer can exercise the right to use the relief can include all persons directly engaged in research and development work:
Then, a research and development employee can be:
The amount of reliefs received is determined depending on the time employees spend on these jobs, compared to full-time work:
The salary of an employee engaged in research and development is proportional to the time that the engaged persons spend on research or development activities, and in relation to the full pool of working hours during the month. The general deed of the employer determines the working hours of the employee.
Research is considered original and planned research, which was carried out with the aim of gaining full scientific or technical knowledge and understanding. In order for it to be research for which the right to reliefs can be exercised, it is important that the research activities be undertaken with the aim of acquiring completely new scientific or technical knowledge and understanding (aspiration towards innovation).
Development is considered the application of research results or the application of other scientific achievements or designs, which can be applied in order to produce new or significantly improved materials, devices, products, processes, systems or services, before starting commercial production or use.
In order to be a development, the employer, based on the consequences of research, the results of the application of scientific achievements or design, should carry out activities with the aim of producing a new or significantly improved material, device, product, process, system or service, only before starting their commercial production or use.
The following are not considered to be the activities and direct engagement of employees in research and development:
The right to use tax reliefs for research and development is not exercised on the salaries of persons who perform these activities.
When it comes to the time that research and development employees spend on vacation and absences, the relief does not apply:
Employers are obliged to keep appropriate records of the working hours of research and development employees. A record is kept for each employee, which contains data that facilitates the monitoring of the fulfilment of the conditions for exercising the employee’s right to tax exemption.
The record makes it easier to determine the time when employees were directly engaged in research and development activities, as well as the time when they were engaged in the activities that are not considered direct engagement in research and development (for which the employer does not exercise the right to relief).
An employer who uses tax relief for research and development is obliged to have specific documentation for each individual project:
Salary reliefs for persons performing research and development activities entered into force on March 1, 2022.
There is no time limit (limitation) until when employers can exercise the right of new reliefs for the salaries of research and development employees, because they are not time-limited. That is, there is no duration and date until which companies can exercise them to engage persons for conducting a research project.
The restriction exists for the duration of the project in which the engaged persons perform research and development work. Therefore, the duration of tax reliefs for researchers’ salaries depends on the duration of the research and development project.
Contributions for pension and disability insurance for employees directly engaged in research and development work have been paid. They are paid from the budget of the Republic of Serbia
They are considered paid at the time of maturity (at the time of payment of the net salary, which must be paid in the prescribed period – until the end of the current month for the previous month), on the basis of which employees exercise their rights.
A company is not entitled to exercise the right to use the tax exemption if it already uses any type of incentive for a certain person for whom it wants to exercise the relief, and on that basis it has an employment relationship with that employee. Therefore, there is no possibility of simultaneous exercise of incentives and relief on several grounds for a person engaged in a research and development project.
The employer can exercise the right only when he uses the exemption that refers to the same type of relief.
The restriction on the use of reliefs does not apply to employers who use the right to double recognition of expenses, which are directly related to research and development activities. Therefore, employers who use the incentive and the right to double recognition of research and development costs can simultaneously use reliefs based on the salaries of employees for researchers.
When it comes to the number of employees on the research and development project, there are no specially prescribed conditions for the total number of employees per project. No other conditions have been prescribed for the employer, on the basis of which the right to tax exemption would be lost.
Also, there are no conditions regarding establishing an employment relationship. A legal entity can engage existing employees, as well as new people in research and development, without the obligation to establish an employment relationship with such persons at the end of the project. If it engages a new person, after the end of the research project, the employer can exercise the right to reliefs for newly employed persons.
There are no legal restrictions for engaging employees for whom reliefs were used on other grounds in the previous period. If relief was previously used for the employee on another basis, the employer exercises the right to tax exemption on the basis of the salary of the research and development employees.
If you need additional help, advice on the fulfilment of requirements or professional service for the application of research and development relief, the team of experienced accountants and tax advisors of the accounting firm HLB T&M Consulting is at your disposal.