Serbia’s R&D tax relief program is part of its broader efforts to foster innovation, technological advancement, and economic development. The legal framework supporting R&D in Serbia includes tax credits, grants, and other financial incentives. The most significant of these is the tax deduction for R&D expenses outlined in the country’s Corporate Income Tax Law.
The Serbian government provides these incentives to encourage businesses to invest in R&D and to strengthen the country’s position in international innovation and technological competitiveness.
News
Ayvens Croatia Ltd., Croatia
June 19, 2024
Background
Ayvens Croatia Ltd. (former ALD Automotive), a subsidiary of the Société Générale Group in Croatia, specializes in full-service-operating car leasing services. Operating in a complex multinational environment, the company faces stringent compliance requirements with transfer pricing regulations, particularly for financial transactions such as inter-company loans.
Challenge
The main challenge was to prepare comprehensive transfer pricing documentation for Ayvens financial transactions with related entities. These transactions required detailed benchmarking to ensure compliance with local and international tax laws, which vary significantly across jurisdictions. The company needed to manage and execute this task efficiently within a framework of regional and international cooperation.
Solution
To address this challenge, Ayvens enlisted Kreston Serbia’s and Kreston Croatia’s expertise. Kreston Serbia took charge of the technical aspects, including benchmarking the financial transactions to ensure they met arm’s length standards. This involved a detailed analysis of the terms and rates of loans between Ayvens and its related parties compared to market conditions and the use of appropriate benchmarking tools provided by Moody’s Analytics.
Simultaneously, Kreston Croatia managed the organisation, client management, and preparation of the final local transfer pricing documentation. Their role was crucial in coordinating efforts between the different branches and ensuring that all documentation met the specific requirements of Croatian tax authorities.
Results
The collaborative efforts of Kreston Serbia and Kreston Croatia resulted in robust transfer pricing documentation that fully complied with both local and international tax regulations. The project was not only a testament to effective regional cooperation, but also showcased the ability to serve international clients through a well-coordinated network.
Client Testimonial
Marela Barac, Finance Director at Ayvens Croatia Ltd., expressed her satisfaction with the services provided: “I am grateful for the assistance and dedication provided. It has been a pleasure working with you.
Conclusion
The successful preparation of transfer pricing documentation for Ayvens Croatia Ltd. demonstrates the effectiveness of Kreston’s network in leveraging regional expertise to meet the needs of international clients. This project not only ensured compliance with complex regulatory requirements but also set a precedent for future collaborations within the Kreston network.
Experienced Managing Director with a strong background in business development, strategy, and leadership. A licensed Certified Auditor and Accountant and Registered Court Expert with expertise in economics and finance. Extensive board and committee membership, including the Supervisory Board of Unicredit bank Serbia and AmCham Tax and Finance Board. Published author in reputable business publications. Holds a Master’s degree in Quantitative Finance and a Bachelor’s degree in Economics. Fluent in Serbian and English with limited working proficiency in Spanish. Committed to driving growth, delivering results, and fostering strategic alliances. Jelena holds qualifications from the East China University of Science and Technology and the University of Belgrade, Faculty of Economics and Business.
Serbia and China: The Free Trade Agreement (FTA)
June 4, 2024
The Serbia-China Free Trade Agreement (FTA) signed on October 17, 2023, represents a significant milestone for the two nations and in the broader context of international politics, particularly the dynamics between Europe and China. This agreement is noteworthy for several reasons:
1. The Serbia-China Free Trade Agreement (FTA) is the first FTA in Central and Eastern Europe
This FTA is the first of its kind between China and a Central Eastern European country, positioning Serbia as a pioneer in this new phase of economic relations with China. It marks a departure from China’s previous European FTAs with nations like Switzerland, Iceland, and Georgia, extending its reach into a region where such agreements have been absent.
2. Economic and trade impacts
The agreement promises to enhance trade and cooperation across automotive, technology, agriculture, and commodities sectors. In 2022, bilateral trade between China and Serbia was valued at approximately $3.55 billion, with Serbia exporting mainly ores, slag and ash, copper, and electrical equipment to China. Conversely, China’s exports to Serbia included machinery, electronic equipment, and vehicles. This FTA aims to further increase this trade volume by eliminating tariffs on a significant portion of goods, creating opportunities for both countries.
3. Strategic implications and the Belt and Road Initiative
Serbia’s active participation in China’s Belt and Road Initiative (BRI) signifies a deepening of strategic ties. China has been heavily involved in infrastructure projects in Serbia, including the construction of highways and power plants, reflecting a growing economic partnership under the BRI framework.
4. Divergence from the EU Path
The FTA represents a notable divergence from the path Serbia has been expected to follow in its pursuit of EU membership. The European Union, which has been cautious in its trade dealings with China and does not have an FTA with Beijing, may view this agreement as a significant deviation from Serbia’s expected alignment with EU policies and standards.
5. Response to EU accession delays
The slow pace of Serbia’s EU accession negotiations has created a void, which China appears eager to fill. This FTA can be seen as Serbia seeking to diversify its economic alliances and reduce its dependence on European markets, in response to the protracted EU integration process.
6. Implications for the European Union
This development poses a challenge for the EU, highlighting the need for a nuanced approach towards aspirant countries and their international agreements. The EU may need to address the implications of China’s increasing economic presence in regions traditionally under EU influence, especially among countries awaiting EU membership.
In summary, the Serbia-China FTA is a landmark development, highlighting shifts in global trade dynamics and the evolving relationship between Europe and China. It reflects Serbia’s strategic navigation of international relations amidst delayed EU accession and China’s expanding influence in regions critical to European interests.
If you would like to speak to one of our specialists in Serbia, please get in touch.
Biljana Sparavolo is the Head of Transfer Pricing at Kreston MDM in Serbia. With a robust career spanning over a decade, Biljana has developed extensive expertise in transfer pricing, financial audit, financial controlling, and corporate reporting. Before her current position, she worked as Financial Controller at both Adria Media and Nexe Group.
The impact of outsourcing on transfer pricing in Eastern Europe
January 12, 2024
Businesses should be aware of the impact outsourcing can have on transfer pricing in Eastern Europe. In a post-COVID world, a remarkable shift is underway as 77% of European countries opt to outsource within the continent. This move aims to fortify the global value chain (GVC) and reduce over-reliance on traditional outsourcing partners like China and Russia.
The spotlight is now on Eastern Europe, prompting questions about its potential to capitalise on this emerging trend and the intricate transfer pricing challenges that lie on the horizon. We spoke to Biljana Sparavalo, head of transfer pricing at Kreston MDM in Serbia, to unravel the nuances of this evolving landscape.
Benefits of European outsourcing: A win-win for accountants and clients
From an accountant’s perspective, outsourcing to Eastern Europe presents an array of advantages. Primarily, it offers cost-effectiveness and enhanced profitability, as labour costs in these regions are notably lower than in Western countries. This enables accountants to access and onboard new team members with specialised skills and knowledge that might be scarce in-house. Flexibility and scalability also contribute to the allure of outsourcing, empowering accountants to navigate varying workloads and adapt to changing demands more efficiently.
For clients of accountants, the benefits are equally compelling. Outsourcing translates into potential cost savings, which can lead to reduced accountancy fees. Clients can still expect high service quality due to the access to skills and modern technologies offered by the outsourcing team. The direct infusion of expertise and diverse perspectives brought by outsourced teams can significantly enhance the client experience. Furthermore, outsourcing can usher in innovative practices and technologies, contributing to improved service delivery.
However, while the advantages are significant, the actual benefits of hiring a European outsourcing partner may vary based on factors such as compliance, data protection, quality control, and cultural and language diversities.
Signs of the shift: Businesses moving towards Eastern Europe
“Before businesses embark on outsourcing in Eastern Europe, they typically explore opportunities in the region”, notes Sparavalo. A noticeable increase in collaborations and partnerships between businesses and European outsourcing companies serves as a tangible sign of this shift. This can be observed through official announcements, press releases, and discussions at industry events.
An additional indicator is the active participation of business representatives in conferences, forums, and industry events hosted in Eastern Europe. This demonstrates a palpable interest in leveraging the local outsourcing options available. Expansion strategies, including the opening of offices or expanding existing ones in Eastern European countries, further underline a commitment to establishing a physical presence that facilitates outsourcing activities.
Strategically, businesses align their service offerings with the strengths and specialisations of outsourcing entities in Eastern Europe. This includes areas such as IT services, software development and customer support. Investment patterns may also shift as businesses allocate funds towards infrastructures that support remote collaboration, showcasing their readiness to work seamlessly with teams spread across regions.
Companies engaged in outsourcing exploration often conduct consultations and market research specifically focused on Eastern Europe. Proactive measures such as adapting business operations to incorporate languages commonly used in the region and an increased emphasis on social responsibility initiatives illustrate a commitment to understanding and navigating the local outsourcing landscape effectively.
Opportunities for Eastern European businesses
For businesses in Eastern Europe, this paradigm shift represents a golden opportunity to actively participate in the global outsourcing market. The region’s strengths lie in its multilingual workforce, shared time zone, cost-effectiveness, and highly educated talent pool. Eastern Europe has become renowned for its expertise in the IT and technology sectors, making it a hotspot for outsourcing contracts in software and web development, as well as IT support.
The potential for European businesses to excel in outsourcing is not just limited to cost-effectiveness but extends to their commitment to delivering high-quality services. To fully capitalise on this opportunity, businesses should strategically develop their expertise to align with changing client needs. A strong focus on marketing and branding to showcase achievements and unique selling points becomes paramount.
Continuous learning and improvement, coupled with staying abreast of industry practices and trends, can make businesses more competitive. Establishing an industry presence through networking is also crucial. Active participation in conferences and engagement with clients and partners contribute significantly to achieving this goal.
Infrastructure also requires attention as businesses must ensure they have the technological and physical resources to deliver high-quality services. Implementing processes that demonstrate a commitment to providing services, flexibility and customisation can further enhance the appeal of the business. Building trust is of utmost importance when handling outsourcing projects involving confidential information. Developing a culture centred around client satisfaction and long-term relationships becomes a strategic approach in this context.
Key transfer pricing regulations in Eastern Europe
“While the rules for transfer pricing in Eastern Europe generally follow the standards set by the OECD, it’s crucial to recognise that specific laws can vary from country to country within the region”, says Sparavalo. A comprehensive understanding of the common aspects and essential regulations is pivotal for businesses navigating the complexities of transfer pricing laws in European countries, she notes.
Documentation requirements: ● Country-by-Country Reporting (CbCR): Multinational enterprises (MNEs) might be required to submit CbCR based on OECD guidelines. ● Local file and Master file: Companies may need to prepare documentation, including a detailed record of transaction-level transfer pricing (local file) and an overview of global business operations (master file). Arm’s length principle Transactions between related entities should be analysed at ‘arm’s length,’ meaning that the prices should be consistent with what would be agreed upon between unrelated companies.
Pricing methods
Regulations typically allow for various methods to define the arm’s length price, such as Comparable Uncontrolled Price (CUP), Resale Price Method (RPM), Cost Plus Method, and Transactional Net Margin Method (TNMM).
Advance Pricing Agreements (APAs)
In some countries, businesses may have the opportunity to make Advanced Pricing Agreements (APAs) with tax authorities. APAs enable taxpayers and tax authorities to agree on the methodology for determining transfer pricing, avoiding disputes in the future.
Resolving disputes
Various countries have established mechanisms for resolving transfer pricing disputes, including agreement procedures (MAP) with other nations.
Consequences of non-compliance
Not adhering to transfer pricing regulations can lead to penalties. The severity of consequences depends on the nature of non-compliance.
Documentation thresholds
Certain criteria may exist to determine which entities are obligated to adhere to documentation requirements.
It’s important to note that the development stages of transfer pricing regulations still vary in Eastern European countries, and practices differ. Therefore, conducting individual assessments in each country is advisable.
Common transfer pricing challenges faced by companies in Eastern Europe
Companies operating in Eastern Europe encounter a range of transfer pricing challenges that mirror the intricacies of the business landscape and regulatory characteristics of the region. One major hurdle is the complexity and variability of regulations. Each European country having its own tax laws means that businesses must carefully align their operations with numerous jurisdictional requirements.
In terms of documentation and compliance, companies bear the responsibility of maintaining accurate records to support their transfer pricing strategies. They must navigate through reporting requirements imposed by countries, presenting an added layer of complexity. Accessing comparable data is another significant obstacle, as relevant financial information or transactions for validation purposes can be challenging to find.
Regional economic climates introduce an additional layer of complexity, as market conditions and currency fluctuations impact border transactions and the determination of transfer prices.
To successfully manage these challenges, companies should consider leveraging the expertise of transfer pricing consultants.
Investing in solutions, continuous learning, and proactive risk management tailored to their industry and the unique transfer pricing landscapes in the Eastern European jurisdictions they operate in can also be instrumental.
Adaptation and awareness: Navigating the changing landscape
In conclusion, when dealing with transfer pricing in Eastern Europe, companies need to adopt a flexible mindset and thoroughly understand how local regulations and economic conditions can affect their finances. Keeping up with updates in transfer pricing rules and engaging with tax authorities are imperative steps.
The outsourcing landscape in Eastern Europe presents not just challenges, but substantial opportunities for businesses and accountants alike. Successfully taking part in this evolving trend requires strategic planning, a commitment to learning, and a proactive approach to region-specific transfer pricing challenges.
By embracing these principles, companies can navigate the changing landscape and leverage outsourcing to their advantage.
If you are researching setting up a business in Serbia, then the latest guide written by Kreston MDM in Serbia is an authoritative resource. The guide offers insights into Serbia’s business environment, brought to you by Kreston Global experts from the region.
Serbia presents a dynamic market ripe for business opportunities. Whether you’re an ambitious entrepreneur, a seasoned foreign investor, or an expanding business, understanding the nuances of the Serbian market is crucial. “Doing Business in Serbia: A Comprehensive Guide to Tax and Accounting” aims to be your invaluable resource in navigating these complexities.
Legal and regulatory framework: Establishing a legal foothold is paramount. Learn about the laws governing businesses and the regulatory framework to ensure compliance.
Taxation in Serbia: Acquaint yourself with tax structures, rates, and essential regulations to optimize your operations.
Employment and labour regulations: Hiring practices, employment rights, and labour laws.
Cultural and business etiquette: Understand the cultural nuances and business etiquette to build lasting local partnerships.
Navigating international trade: Equip yourself with knowledge on import-export regulations, duties, and best practices.
Future outlook and opportunities: Get insights on emerging sectors, economic trends, and potential growth areas.
Conclusion
Setting up a business in Serbia, while promising, can be intricate. But with the guidance of Kreston MDM’s comprehensive guide, the path becomes clearer and the journey, more manageable. Take advantage of this resource to ensure your success in Serbia’s evolving business landscape.
If you would like to get in contact with Kreston MDM directly, please go to their contact page.
Global vacancies
Dragana Galić
Serbia VAT specialist
This guide is an overview of Serbia’s Value Added Tax (“VAT”) system, focussed on how it affects foreign businesses trading with Serbia. It is general in nature and unlikely to cover the specifics of your scenario. It should be read as such and not be construed as advice. For advice as to how your business is affected by Serbia VAT please contact a Kreston Global Serbia VAT specialist.
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