Investing in renewable energy projects such as wind farms, solar power plants or hydropower plants in Serbia can be done through several models, each with its own legal and tax implications.
According to experts, more and more foreign investors are turning to Serbia as an attractive destination for green energy investments, particularly in wind, solar, and hydropower sectors. Among these foreign investors, companies from the United Arab Emirates (UAE) are increasingly showing interest. One example, discussed by lawyers from the Stojković law office, illustrates the tax treatment of such investments. In this case, a UAE company, backed by a Serbian resident, plans to acquire a 50% stake in a Serbian company focused on renewable energy production.
This company develops wind farms, solar power plants, and hydropower plants, areas that are increasingly central to Serbia’s domestic energy policy. However, the interesting aspect of this case lies in the involvement of a natural person who is a Serbian resident. This is where the legal and tax details become significant.
When asked whether taxes are applicable upon acquiring shares, the lawyers clarify that there is good news for investors: no taxes are due on share acquisition. Whether the share is acquired for a fee or without compensation, Serbia does not impose tax on the transfer of ownership rights. Therefore, investments, even involving the purchase of a 50% ownership share, are not subject to taxation. This makes Serbia an attractive investment destination since similar transactions in many other countries would entail additional tax burdens. This tax neutrality can be a decisive factor for investors when choosing between different markets.
However, the tax exemption on entry does not mean that taxes won’t apply in the future. The key tax point arises when the investor decides to sell their share to a third party. At that time, the method of acquisition becomes crucial—whether the shares were purchased or gifted.
If the share was acquired as a gift, the purchase price is considered zero dinars, meaning that the entire income from the sale is treated as capital gain, which is taxable. If the shares were bought, the tax base is determined by the documented purchase price, and transparency in documentation becomes essential.
If a company from the European Union sells its shares, the situation becomes more complex. If the EU company transfers the shares without compensation, there is no income or capital gain and therefore no tax. However, the Serbian Tax Administration may scrutinize such transactions, treating them as hidden legal transactions, potentially determining the market value of the share. If the determined value differs from the purchase price, a tax liability may arise.
In the case of a compensated transfer, even if no gain is realized, the seller is obligated to file a tax return. Additionally, the seller must open a non-resident account, obtain a tax identification number (PIB), and await confirmation that the tax obligations have been settled. This process can take up to a month.
A notable benefit is the agreement between Serbia and the UAE to avoid double taxation, which allows the application of a preferential tax rate of only 5%, provided the Arab company owns at least 5% of the Serbian company’s capital and submits the necessary documentation. In this example, with a 50% share, the conditions for the reduced rate are clearly met.
However, if these conditions are not satisfied, the tax rate increases to 20%. Therefore, it is crucial for the Serbian company to receive a certified certificate of residency from the UAE and proof of beneficial ownership of income, especially when dividends are paid.
When it comes to the sale of shares, the tax implications depend on the structure of the Serbian company’s assets. If more than 50% of the assets are real estate (land, buildings, equipment), the “Land Rich” clause applies, which means Serbia retains the right to tax any capital gains. If less than 50% of the assets are real estate-related, the UAE has the right to tax the capital gains. Regardless of the tax jurisdiction, certain procedures must be followed in Serbia, including opening an account, filing tax returns, and obtaining tax clearance certificates.
Transfer pricing and related party regulations also apply. With a 50% ownership stake, the investor and the Serbian company are considered “related persons.” This creates an obligation to prepare a Transfer Pricing Report, which ensures that transactions between related parties are conducted at market conditions.
If the companies are not related, this requirement does not apply. However, in this case, with a 50% stake, the companies are indeed considered related, and the Transfer Pricing Report becomes mandatory.
In conclusion, while investing in Serbia’s renewable energy sector can be tax-efficient initially, foreign investors must be aware of the complexities involved when selling shares, particularly regarding capital gains tax, transfer pricing regulations, and documentation requirements.
