INTERNATIONAL TAX TREATY ON INCOME TAX BETWEEN AUSTRIA AND SERBIA

The double taxation agreement (DTA) between Austria and Serbia has been applicable since 2011. The DTA applies to natural and legal persons who are resident in Austria and/or Serbia. The taxes covered are those imposed on income and capital.

For natural persons, residency is primarily based on the place of permanent home residence, the centre of vital interests and the habitual abode. For a legal person, residence is deemed to be in the state in which the place of management is located.

The distribution of the most important taxation rights is, as follows:

Income from immovable property (including renting and leasing) may be taxed in the state in which this property is located.

Income from commercial and self-employed activities is taxed in the entrepreneur's state of residence, unless the entrepreneur has a permanent establishment in the other state or a self-employed person works in the other state for more than 183 days in a year.

However, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) has changed this DTA provision in the sense that all activities that have not previously led to a permanent establishment (such as distribution places or warehouses), are now only excluded from becoming permanent establishments, if they are merely of a preparatory or auxiliary nature.

Dividends are generally taxed in the country of residence of the dividend recipient. However, the state of residence of the legal entity paying the dividends is entitled to levy a withholding tax of 5% if the recipient is a company (not a partnership and under certain requirements) and 15% in all other cases. 

Interest is taxed in the state of residence of the interest recipient. However, the contracting state from which the interest originates is entitled to levy a withholding tax of 10% of the gross interest. There are certain tax particularities for interested paid to local authorities, central bank, national bank and financial institutions under government control.  The DTA also provides for a most-favoured nation clause in relation to other EU member states. Serbia shall be prepared to enter into new negotiations with Austria if a lower withholding tax rate on interest is agreed with another member state in the future.

Income from non-self-employed work and wages are subject to income or wage tax in the country in which the activity is carried out, with exemptions relating to cross-border temporary employment and permanent establishments.

Finally, to avoid double taxation within the DTA, Serbia applies the credit method meanwhile Austria applies the exemption method in general, and the credit method with limitations to certain income such as dividends, interest or royalties.

(c) Double taxation by Nick Youngson CC BY-SA 3.0 Pix4free