New legal and tax framework for digital assets
Serbia’s Law on Digital Assets, which provides a legal framework for digital assets and digital business operations in the country, came into force on 29 December 2020 and became effective on 29 June 2021. The law regulates the issuance and secondary trading of digital assets in Serbia, the provision of services relating to digital assets, pledges and fiduciary rights relating to digital assets, the competencies of the Securities Commission and the National Bank of Serbia, and administration of the new law.
Shortly after the Law on Digital Assets was passed, further changes were made to clarify some areas and to regulate the tax treatment of digital assets transactions. Additionally, corresponding amendments were made to the corporate and personal income tax laws, the property tax law and the VAT law. This article focuses on the amendments to the corporate income tax and VAT laws.
Types of digital assets
The Law on Digital Assets recognizes two types of digital assets:
- Virtual currency - a digital asset that is not issued or guaranteed by a central bank or public authority, is not necessarily attached to a legal tender and does not have the legal status of money or currency, but is accepted by individuals or legal persons as a means of exchange and can be bought, sold, exchanged, transferred and stored electronically;
- Digital token - a digital asset that means any intangible property right that in digital form represents one or more other property rights and that may include a user’s right to be provided with certain services, a right to claim fixed amount from the issuer or the right to a share in the profits.
Corporate income tax law amendments
As noted above, Serbia’s corporate income tax law has been amended to set out the tax treatment of digital assets, specifically whether gains from the disposal of such assets are subject to capital gains tax and how the “purchase price” of digital assets is determined; in addition, a tax incentive is introduced.
The new rules, which apply as from 29 December 2020, the date the Law on Digital Assets came into force, are as follows:
- Capital gains: Gains derived by a legal entity from the sale or other transfer for consideration of digital assets is subject to a 15% capital gains tax. However, the tax is not imposed if the taxpayer is licensed to provide services related to digital assets and it acquired the digital assets solely for the purpose of resale in the course of providing relevant services, in line with the Law on Digital Assets.
- Definition of digital assets: The purchase price of digital assets generally is the actual price paid that can be documented by the taxpayer. Where digital assets were acquired through “mining,” the purchase price is the value of the assets stated in the taxpayer’s financial records in accordance with IAS/IFRS/IFRS for small and medium-sized enterprises (SMEs), and adopted accounting policies. If the change in the fair value of digital assets acquired through mining is stated in full as income in the period in which the fair valuation was made, the purchase price should be adjusted to the estimated value (i.e., to fair value) in accordance with IAS/IFRS/IFRS for SMEs and adopted accounting policies.
- Tax incentive: A new tax incentive is available where a legal entity invests funds from the sale/transfer of digital assets in the same tax period in the share capital of another resident company or an investment fund whose centre of business or investment activities is in Serbia. In such cases, capital gains realized from the sale/transfer for consideration of digital assets are not included in the tax base. Capital losses incurred on the sale of digital assets may not be offset against capital gains if the incentive is used.
VAT law amendments
The VAT law has been amended to provide that, effective 29 June 2021, the transfer or conversion of digital assets for cash will be exempt from VAT exemption without the right to deduct input VAT.