Exemption from Tax on Capital Gains Realized from the Transfer of Copyright, Related Rights, and Industrial Property Rights

This Rulebook more closely prescribes the conditions for exercising the right to tax exemption on capital gains realized from the transfer of copyright, related rights, as well as industrial property rights, which rights the taxpayer fully contributes as a non-monetary investment into the capital of a business entity that is a resident of the Republic of Serbia, as well as the loss of the right to tax exemption.

1. Law on Personal Income Tax

Capital gain

Law on Personal Income Tax (“Law”) defines capital gain, in terms of the transfer of copyrights and related rights and industrial property rights, as the difference between the selling price and the purchase price realized through the transfer of these rights.

The taxpayer of this tax is any natural person, including entrepreneurs, who has transferred the rights.

According that, if an natural person contributes intellectual property as a non-monetary investment into the capital of a legal entity, they acquire shares in that legal entity and, at the same time, realize a capital gain (or loss), which in fact represents the difference between the appraised value of the asset at the time of its contribution to the capital of the legal entity and the purchase value of the asset.

Tax exemption

The Law provides for a tax exemption on capital gains in the case of the full contribution of non-monetary investment, i.e., copyrights and related rights and industrial property rights, into the capital of a business entity resident in the Republic of Serbia.

The market value of these rights, for the purpose of contribution to the company’s capital, is determined by an appraisal conducted by a certified appraiser.

Also, the Law stipulates that the taxpayer is exempt from the determination of capital gains and losses if they have held the aforementioned rights in their assets continuously for at least 10 years. 

Loss of the right to tax exemption

In addition to the conditions for tax exemption, the Law stipulates that the transferor, the person who has obtained the right to tax exemption, loses that right if:

• The acquirer of copyrights and related rights and industrial property rights transfers such rights in its entirety within 2 years from the date of acquisition, or
• Within the same period (2 years), the right is transferred for use in whole or in part at a price lower than the price in accordance with the ‘Arm’s length’ principle, provided that the transfer is made to a related party or to a party whose owner is its related party.

In such case, the legislator requires the transferor, as the person who has obtained the right to tax exemption, to notify the competent tax authority of the loss of the right within 30 days.

2. Novelty of the Rulebook

• The Rulebook stipulates what constitutes copyright and related rights, as well as industrial property rights, in terms of exemption from capital gains tax.
• The Rulebook specifies what is considered an entry into the capital of a resident business entity, emphasizing that it concerns the contribution of non-monetary investment based on which the capital of the domestic company is increased.
• It also stipulates that the capital increase is expressed in terms of the monetary value of the contributed property rights, as assessed by an authorized appraiser, and not older than 12 months from the day before the non-monetary investment. The authorized appraiser can be a court expert in the economic-financial field or an auditor/audit firm.
• Regarding the procedure with the Tax Administration, in order to be exempted from tax, the taxpayer must submit a tax return and evidence for exemption from tax. If all prescribed conditions are met, the Tax Administration will issue a decision on tax exemption, or otherwise, a decision on the established capital gains tax.
• If the conditions for losing the right to tax exemption are met, the Rulebook prescribes the obligation of the domestic legal entity (asset acquirer) to notify the transferor about the asset transactions that lead to the loss of the right to tax exemption, within 8 days from the date of disposal. The taxpayer who has obtained the right to tax exemption has a legal obligation to notify the Tax Administration of the loss of this right, either upon receipt of the notification or no later than 30 days from the date of the right’s disposal.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Minja Mucic, Junior Associate, PR Legal