Tax credits and incentives in Western Balkans, 2020

ALBANIA

Tax credits and incentives

The following entities are exempt from CIT:

• Legal entities that conduct religious, humanitarian, charitable, scientific, or educational activities.
• Trade unions or chambers of commerce, industry, or agriculture.
• International organizations, agencies for technical cooperation, and their representatives, the tax exemptions of which are established by specific agreements.
• Foundations or non-banking financial institutions established to support development policies of the government through credit activities.
• Film studios and cinematographic productions (among other types of entity/activity) that are licensed and funded by the National Cinematographic Centre.
• Voluntary pension funds administrated from the competent companies.
• Accommodation structures “four- and five-star hotel and resort with special status”, are exempt from income tax for a 10-year period, provided they receive special status until December 2024. The effects of the exemption commence at the moment of commencement of the economic activity of the accommodation structure, but not later than 3 years after the receipt of the special status.

Investment incentives are provided in various forms implemented under the laws that define them, such as: (i) low tax rates (5%) without prerequisites; (ii) a special scheme for farmers; (iii) reduced VAT rates for tourist and information services; (iv) the economic sector excluded from VAT (hydrocarbon search); (v) tax exemption for 10 years for 4-5-star tourist hotels; (vi) tax-benefit relief based on investment projects on a case-by-case basis such as infrastructure construction, tourism, clothing industry, oil production and new ventures; (vii) duplication of spending on research and development investments in the free economic zones.

Technical and Economic Development Areas

Further incentives are provided supporting the businesses that invest in TEDA with fiscal incentives, which are outlined below:

–     The entry and exit of goods to / from the area, the formalities and procedures conducted under the provisions of the Code.

–     Developers and users are exempt from paying 50% of the normal profit tax amount due for the first 5 years from the start of their activity in the area.

–     Developers to invest in the area, within 3 years from the date of commencement of work, or users who invests in the area, within 3 years from the beginning of the economic activity of the area, is recognized as deductible expenses of tax period,20% of annual capital expenditure, regardless of the amount of depreciation, under the law on income tax for a period of 2 years.

–     Supply of Albanian goods, intended to be placed in area, regarded as a supply for export with zero rate tax, in accordance with the provisions of the law on value added tax and customs legislation.

–     Project developers exempt from local tax of impact in infrastructure.

–     Construction made in this area, according to project of developers are exempt from real estate tax for a period of five years.

–     Developers or users of the area are exempt from taxes on transferring the right of ownership of immovable property.

–     Costs of wages and social and health contributions, which the employer pays for the employee, are recognized 150% of value during the first fiscal year of activity. In years following, additional costs for wages, compared to the previous year, for the purposes of calculating taxable profit, recognized as known expenses with 150% of their value.

–     Costs of employee training in areas of technology and economic development, for the purposes of calculating taxable profit are recognized as a deductible expense for the tax period with their double value, for a period of 10 years from the beginning of activity economic.

–     Expenses for research and development are recognized as known costs at twice the value, for a period 10 years from the start of economic activity.

BOSNIA AND HERZEGOVINA

Tax credits and incentives

When a taxpayer generates income or profit through business activities outside of the Federation of Bosnia and Herzegovina (directly or through a business unit) and pays the profit tax on such activities, the tax paid abroad shall be credited, up to the amount of the profit tax that would have been paid for the income or profit generated by the same activities in the Federation of Bosnia and Herzegovina.

CIT incentives are as below:

• 30 percent CPT incentive in the year of investment is available when the taxpayer invests in production equipment (excluding passenger vehicles) amounting to 50 percent of the current year’s profit and the investment is made by using the taxpayer’s own resources (funds).
• 50 percent CPT incentive is available for a five-year period when the taxpayer invests BAM 20 million (approximately EUR 10 million) from its own funds in fixed assets used for production activities. BAM 4 million (approximately EUR 2 million) must be invested in the first year.

Employment incentive

A taxpayer who employed new employees is entitled to a tax-deductible expense in the double amount of gross salary paid to newly employed employees if the following conditions are met:

• Employment contract has to be concluded on a full-time basis for period of minimum 12 months.
• Newly employed employee has not been employed by the taxpayer or by a related legal entity in the past five years.

Financial expenses for interest per financial agreements and instruments to related parties are generally recognized for tax purposes. Under the thin capitalization rule of the CIT Law of the Federation of Bosnia and Herzegovina, in order to be entitled to deduct interest expenses on loans received from a related party, a company’s ratio between total liabilities from related-party loans and the company’s registered equity should not exceed 4:1. However, if the ratio between these obligations per financial agreements and the registered share capital of a taxpayer exceeds the ratio of 4:1, then the financial expenses exceeding the 4:1 are not recognized for tax purposes and cannot be transferred to another tax period.

The CIT Law prescribes that this rule does not apply to banks and insurance companies.

Tax incentives

If a legal entity resident of Republika Srpska generates revenue in a foreign state and that revenue is taxable both in Republika Srpska and in the foreign state, then the tax paid in the foreign state will be deducted from the tax liability of the resident in Republika Srpska.

Incentive for investment in production

For a taxpayer who in the territory of Republika Srpska invests in plant and equipment for performing registered production activity, the tax base will be decreased for the amount of performed investment.

 Tax base can be decreased in the tax period in which the plant and equipment were put in use.

If the taxpayer disposes the property and equipment before expiry of three years from the date when they were put in use, the taxpayer losses right to incentive and will have to pay the additional tax as if they never used the incentive, as well as penalty interest for late payments.

Tax incentives

Foreign tax credit

If a legal entity from Brčko District obtains revenue from a foreign state and the revenue is taxed both in Brčko District and in the foreign state, then the tax paid to the foreign state, whether paid directly or withheld and remitted by another person, is to be credited from the BD CIT, unless such legal entity from Brčko District elects to treat the foreign tax as a deductible expenditure in determining the fiscal year tax base.

Investment incentive

For a taxpayer who invests in machines and equipment for performing its own registered business activity on the territory of Brčko District, a deduction is allowed for the amount of the investment. 

Employment incentive

For a taxpayer who employs new employees for an indefinite period of time during the tax period, a second deduction is allowed for the total amount of paid gross salaries for the new employees.

Any legal or physical person from Brčko District, as well as any non-resident legal or physical person with PE in Brčko District, who pays revenue to a non-resident legal person is to withhold tax from the total payment of revenue and is to remit the withheld tax to the Public Revenues Account of Brčko District.

KOSOVO

Foreign tax credit

Taxpayers who receive income from sources outside Kosovo and pay tax on such income in other countries are allowed the right to a tax credit for the amount of the tax paid abroad or up to the applicable Kosovo income tax rate, whichever is lower. Foreign tax credits can be claimed even if there is no DTT between Kosovo and the respective country where such income arose, subject to proper documentation.

MONTENEGRO

Tax credits and incentives

The CPT Law provides four tax incentives related to businesses: one for newly established businesses in underdeveloped municipalities, one for non-governmental organizations (NGOs), a discount for settling of CPT liability by the prescribed deadline, and a foreign tax credit.

The corporate income tax legislation provides an 8-year tax relief for newly established legal entities performing business in an underdeveloped municipality, except agricultural production, transport, shipbuilding, fishing, steel production and accommodation. Exemption is limited to Euro 200.000. Newly established companies pay monthly advance payments on the basis of profit estimation for the current year. Monthly advance payments are due by the last day of the current month for the then previous month.

NGOs registered for business activity are permitted to decrease the corporate tax base by EUR 4,000, with the condition that profit is used for realization of the main goals of an NGO.

A discount of 6%, which is applied on the amount of the calculated CPT liability, is available to taxpayers that settle their CPT liability by the prescribed deadline (i.e. by 31 March of the current year for the tax liability of the previous year).

A resident receiving foreign income is granted a tax credit in the amount of the tax paid abroad but limited to the amount that would be calculated using Montenegrin rates.

Resident taxpayers are entitled to a tax credit up to the amount of corporate tax paid in another country on income realized in that country. This tax credit is equal to the tax paid in another country but may not exceed the amount of the tax that would have been paid in Montenegro.

There are no provisions that provide for the possibility that taxation of income earned abroad may be deferred.

Supplies of goods or services from a foreign group entity not established in Montenegro to a Montenegrin entity must be valued at arm’s length. Excess expenses recorded over market value are treated as non-deductible expenses.

With respect to payment of charges of a PE, CPT Law provides that administrative costs charged by the non-resident head office are non-deductible for CPT at the level of the PE.

NORTH MACEDONIA

Tax credits and incentives

The taxpayer is allowed a tax credit for the tax paid on foreign income abroad, up to the amount of tax payable for that income in North Macedonia. However, a tax credit for the WHT paid abroad is allowed only if a double tax treaty (DTT) is in place and in case the Macedonian company obtains proof for the amount of tax paid in the foreign country.

The CIT Law introduces a possibility for decreasing the tax base for the year for the amount of profit reinvested for development purposes of the local taxpayer. The amounts from the reinvested profit that would be recognized for the purposes of the above tax relief cover investments both in tangible and intangible assets, except for some explicitly listed types of assets intended for administrative purposes.

In order to be able to utilize the above tax relief, the taxpayers must maintain ownership over the assets purchased with the reinvested profit for a period of five years as of the day of their purchase. If the taxpayer sells the assets before the expiration of the five-year period, the taxpayer owes the respective CIT.

Technological industrial development zones

A taxpayer that is a registered user within a technological industrial development zone is exempt from CIT payment for a period of ten years from the commencement of the performance of the activity in the zone or until the state aid amount is fully exhausted under terms and conditions and according to a procedure determined with the Law on Technological Industrial Development Zones.

SERBIA

Tax credits and incentives

A Serbian entity is entitled to a tax credit for the WHT paid on foreign-sourced dividends and underlying CIT paid abroad (by its non-resident subsidiary), provided that the taxpayer holds at least 10% of the shares in the subsidiary for at least one year before filing a return. If the taxpayer holds less than 10% of the shares in the subsidiary, the tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Non-utilized tax credit can be carried forward by the parent company for five years.

A resident taxpayer also has the right to decrease its tax liability for WHT paid abroad on interest and authorship fees. The tax credit should not exceed the amount of tax that would be paid in Serbia on that income, where the tax basis represents 40% of the received gross income. Carry forward of unused tax credits is not allowed.

A ten-year tax holiday is available for companies with a minimum investment in property, plant, and equipment of RSD 1 billion. To qualify for the credit, a taxpayer must employ at least 100 new workers for an indefinite period. The tax holiday is available for the ten-year period in proportion to the investment made. The number of employees employed in the tax period in which the taxpayer qualified for the tax holiday must be retained throughout the whole tax holiday period.

R&D costs related to R&D performed in the Republic may be double deducted for CIT purposes. The incentive does not apply on research costs incurred in extractive industries (finding of oil, gas, or mineral resources).

80% of qualified royalty income generated by the copyright or similar rights holders (inscribed in relevant register in Serbia) can be excluded from the tax base. Qualifying income should be excluded upon decreasing this income for the amount of tax-deductible R&D costs incurred in relation to development of such copyright/similar right.

Investments into startup companies, performing innovative activities, entitles a taxpayer to a tax credit in the amount of 30% of the investments made. The maximum amount of tax credit cannot exceed RSD 100 million.

All non-taxable amounts are adjusted once a year during January, and are valid for the next 12 months.

The tax loss can be carried forward up to 5 consecutive tax years and is available as a deduction for any income for those years.

Foreign tax credit is limited to the amount of taxation in Serbia for the income earned.

Tirana, June 2020