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.
1. Tax reliefs for employers who perform research and development activities
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:
- 70% of calculated and withheld income tax,
- 100% contributions to pension and disability insurance – both at the expense of the employee and at the expense of the employer.
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.
2. Employers who exercise the right to reliefs for research and development
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:
- entrepreneurs,
- subsidiaries,
- representative offices of foreign legal entities in Serbia,
- legal entities established abroad.
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.
3. Conditions for research and development employees
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:
- and persons with whom the employer establishes an employment relationship (newly employed persons),
- and persons who are already employed by that employer (existing employees), and who meet the prescribed conditions.
Then, a research and development employee can be:
- a newly employed person, who has an employment agreement with the employer for a fixed or indefinite period of time;
- an existing employee, who already has a full-time or part-time employment agreement with the employer.
The amount of reliefs received is determined depending on the time employees spend on these jobs, compared to full-time work:
- if it is a full-time job, it amounts to 40 hours a week;
- if it is part-time job, then it is shorter than 40 hours a week.
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.
4. What is considered to be research and development?
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.
5. Activities that are not considered direct engagement
The following are not considered to be the activities and direct engagement of employees in research and development:
- activities related to direct or indirect supervision of project implementation (attending meetings on technical aspects of the project, concepts, alternatives, possible solutions, results; meeting with employees, project planning, evaluation of proposed solutions, etc.);
- support activities related to the implementation of the project (setting up and using equipment used for research purposes; providing feedback on the technical characteristics of the product; making reports by officials; maintaining hygiene related to testing and other activities).
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:
- during the annual leaves,
- during a holiday that is a non-working day,
- during paid leave,
- during military exercises and responding to the summons of a state body,
- due to temporary inability to work, interruption of work,
- due to a reduction in the scope of work through no fault of the employee or interruption of work due to the order issued by a state body or employer.
6. Records on working hours of persons
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.
It contains:
- information about the working hours of the research and development employee;
- information regarding the salary, compensation and other income of the research and development employee.
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).
7. Documentation for individual research and development projects
An employer who uses tax relief for research and development is obliged to have specific documentation for each individual project:
- description (specification) of the project with particularly highlighted project goals, planned phases, planned activities, with experts’ opinions;
- annual budget and total budget of the project;
- annual report on deviations from the budget;
- the report of the research and development employee, with a specification of the total working time and the working time spent on the direct performance of research and development work in a certain month;
- report on the status and results of the project;
- a signed statement by the employer’s legal representative that the data from the records are complete and true, as well as that at least 90% of all employees engaged in research and development activities perform their activities on the territory of the Republic of Serbia,
- a signed statement by the research and development employee that the data from the working time sheet is complete and true.
8. Reliefs for research and development. Application and duration
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.
9. Exercising rights from pension and disability insurance
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.
10. When are legal entities not entitled to exercise relief?
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.
11. Termination of the right to tax relief for research and development
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.
