Legal system in Serbia provides tax free treatment for all grants and donations supporting non-for-profit activity of CSOs which indicates enabling environment. According to the Corporate profit tax law CSO are exempted from taxation on grants, donations, membership fees and non-economic sources of income. Likewise, profit generated by CSO is exempt from income tax under certain conditions. The same law provides tax deductions for expenditures on health care, cultural, educational, scientific, humanitarian, religious, environmental protection and sport-related purposes, providing that payments were made to the persons registered for such purposes in accordance with special regulations. The same applies to humanitarian assistance and the elimination of extraordinary results they have done to the Republic, the Autonomous Province or the Local Government Unit, as well as to cultural issues.
However, the law partially provides tax benefits for economic activities of CSOs. Article 37 of the Law on Associations provides that associations may directly perform both a business activity and another profit-making activity in accordance with the law regulating the classification of activities, under the certain conditions. This activity shall be entered in the Register of Business Entities and shall be carried out in line with the regulations governing the sector where the activities are being performed. The association may only start performing these activities directly upon entry of such an activity in the Register.
Corporate profit tax law CSO provides that income earned by CSO is exempt from profit taxation if the income is up to 3.400 EUR. In the case of taxation, profit tax rate is the same as for other legal entities-15%.
Legislation is fully in line with standards when it comes to tax benefits for passive investments of CSOs. Both article 36 of the Law on Associations and article 44 of the Law on Endowments and Foundations provide that Serbian CSOs among others may acquire assets from interest rates on deposits, rental fees, dividends and in other ways permitted by the law.
Similarly, enabling environment has been identified regarding establishment and providing tax benefits for endowments. The Law on Endowments and Foundation in Article 10 provides that endowments and foundations may be established by one or more domestic or foreign natural or legal persons having business capacity. Article 44 provides that endowment and foundation shall acquire assets through donations, gifts, grants, financial subsidies, wills, investment interests, rents, copyrights, dividends as well as any other legitimate source, but on the other hand Article 47 provides that the capital assets of endowments may not be reduced below the minimum value of capital assets (30 000 EUR).Incentives are regulated by Article 7, which provides that the means (donations, gifts, financial subventions and inheritance and similar) of endowment, which is established with a view to achieve general public interest, and foundation shall be exempt from taxes.
According to study conducted by Trag Foundation 50% of banks in Serbia (as many as 7 of the top 10 banks with the highest balance sheet and success), does not have at all the category of payments for humanitarian purposes listed in its tariff. This means that they treat donations of any type as any other payment to natural or legal persons. Bank fees are determined by the general conditions. The amount depends on the bank, moving an average of 0.6% of amounts paid up to 2% of the amount paid, the minimum amount of commission in dinars is in an average of slightly less than 1 EUR, while the maximum commission is even almost 100 EUR. The study considers these practices as a non-favorable for donations in particularly from the individuals.
Practice partially met standards when it comes to direct or indirect (hidden) tax on grants reported. None of CSOs from MM Survey reported they paid fees for the receipt of grants to the authorities. Only 1 CSO stated it paid bank fees where the grant is received (fees for transfer donated funds from one bank account (temporary, opened by donor) to its account in commercial bank). 1 CSO stated it paid indirect fees for the receipt of grants (payment to authorities to access grants) – tax on certification that CSO isn’t blocked was paid to the National Bank of Serbia before receiving funds based on the Ministry of Culture public call.
Similar findings have been assessed in the area of tax benefits for economic activities of CSOs. According to Serbian Business Registers Agency (SBRA), in 2019 8662 associations (25,8% of the total number of registered associations) and 317 endowments and foundations (34,7% of the total number of registered foundations and endowments) were registered for economic activity.
Only 2 CSOs that participated in MM survey reported they used tax benefits for economic activities (e.g. full exemption of tax or up to a certain amount on income from sales and services), and they assessed administrative requirements for accessing tax benefits for economic activities as very burdensome (scored with 8, as level of burdensomeness). 19 from the total number of CSO stated they had some income from engaging in economic activity – most of them less than 20% of total budget, and only 4 CSOs stated the income from economic activity was higher (from 24% to 65%). Key challenges they faced with were related to extensive administrative requirements to be able to engage in economic activities targeting CSOs only (8 CSOs), 1 CSOs reported complicated accountability rules (e.g. reporting and monitoring) and 2 CSOs experienced other challenges.
When it comes to establishing endowments without major procedural difficulties and freely operations, without administrative burden or high financial cost, practice indicates enabling environment. Total number of registered endowments and foundations is 911; during 2019 70 foundations and 4 endowments were registered at Serbian Business Register. None from CSOs participated in MM Survey has established the endowment, so eventual complicated procedures for establishing endowments weren’t reported.