Distributing profits to shareholders seems straightforward — until you consider the tax implications. Depending on who receives the dividend and where they're tax resident, Serbian companies face different withholding obligations, documentation requirements, and potential treaty benefits.

This guide outlines the key considerations for dividend distributions in Serbia. Given the complexity and the significant differences based on recipient type and residence, we recommend consulting with a tax advisor before making distributions.

Legal Framework for Dividend Distribution

Before addressing tax treatment, it's worth noting that Serbian company law imposes specific requirements on profit distribution:

- Losses from prior years must be covered before dividends can be paid.

- Statutory reserves must be funded if required by law.

- Dividend payments must be made within six months of the distribution decision.

Violating these rules can result in penalties for both the company and responsible individuals. Ensure your company is legally permitted to distribute before focusing on tax treatment.

The Four Scenarios

Dividend taxation in Serbia depends on two key factors: whether the recipient is an individual or legal entity, and whether they're a Serbian tax resident or non-resident.

This creates four distinct scenarios:

- Dividends to Serbian resident companies

- Dividends to non-resident companies

- Dividends to Serbian resident individuals

- Dividends to non-resident individuals

Each scenario has different tax rates, filing requirements, and potential treaty benefits. Let's look at the key differences.

Dividends to Serbian Resident Companies

This is the simplest scenario from a tax perspective. When a Serbian company pays dividends to another Serbian company, no withholding tax applies.

The logic is straightforward: the profits being distributed were already subject to corporate income tax. Taxing them again when distributed to a corporate shareholder would create double taxation.

The receiving company records the dividend as financial income, but this income is excluded from its corporate tax base — effectively making it tax-free at the corporate level.

Dividends to Non-Resident Companies

When dividends flow to foreign corporate shareholders, withholding tax enters the picture.

The standard withholding rate is 20% on the gross dividend amount. However, Serbia has signed double tax treaties with over 60 countries, and these treaties typically reduce the withholding rate significantly — often to 5-15% depending on the treaty and ownership percentage.

To apply treaty rates, the Serbian company must obtain a certificate of tax residence from the foreign shareholder before payment. Without this documentation, the full 20% rate applies.

The interaction between Serbian domestic law, specific treaty provisions, and documentation requirements creates complexity that varies case by case.

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Dividends to Serbian Resident Individuals

When Serbian companies distribute dividends to individual shareholders who are Serbian tax residents, the company must withhold tax at source.

The tax rate on dividend income for individuals is 15% of the gross dividend amount. The company calculates, withholds, and remits this tax when making the payment, filing the appropriate return (PPP-PD form).

One important note: dividend income is not subject to the annual personal income tax. It's taxed only through this 15% withholding — there's no additional tax obligation for the individual recipient regardless of their total income level.

Dividends to Non-Resident Individuals

Non-resident individuals receiving dividends from Serbian companies face the same 15% withholding rate under domestic law.

However, if the individual is resident in a country with which Serbia has a double tax treaty, a reduced rate may apply. Treaty rates for individuals typically range from 5% to 15%, depending on the specific agreement.

As with corporate shareholders, applying treaty benefits requires proper documentation — specifically, a certificate of tax residence issued by the tax authority in the shareholder's home country.

Key Complications

Several factors can complicate dividend taxation beyond the basic scenarios:

- Treaty rate variations: Many treaties specify different rates depending on ownership percentage. A 25%+ shareholder might qualify for a 5% rate while smaller shareholders face 10% or 15%.

- Timing considerations: Tax obligations arise when dividends are actually paid, not when declared. The documentation (residence certificates) must be in hand before payment to apply treaty rates.

- Currency considerations: For foreign shareholders, exchange rate movements between declaration and payment dates affect the tax base calculation.

- Interim dividends: Distributions made between annual meetings (interim dividends) follow the same tax rules but have additional corporate law requirements.

- Reinvested dividends: If shareholders agree to reinvest dividends as capital contributions rather than receive cash, different rules may apply.

- Liquidation distributions: When companies liquidate and distribute remaining assets, amounts exceeding original capital contributions are treated as dividends for tax purposes.

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Documentation Requirements

Proper documentation is essential for dividend distributions, particularly when treaty benefits are involved:

- For all distributions: Board or shareholder resolution approving the distribution, financial statements supporting the distribution amount.

- For non-resident recipients claiming treaty rates: Certificate of tax residence from the recipient's home country, proof of beneficial ownership, translation of foreign documents if required.

- For corporate recipients: Evidence of corporate status and ownership percentage.

Missing or incomplete documentation doesn't just create compliance risk — it can result in higher tax costs if treaty rates cannot be applied.

Common Mistakes

We frequently see companies make these errors with dividend distributions:

- Distributing before covering prior losses — this violates company law regardless of tax treatment.

- Missing the six-month payment deadline after declaring dividends.

- Failing to obtain residence certificates before payment, resulting in higher withholding and complex refund procedures.

- Applying incorrect treaty rates — particularly confusing the rates for corporate vs. individual shareholders.

- Not accounting for exchange rate movements when calculating withholding on foreign currency amounts.

- Treating capital contributions returned to shareholders as dividends (they're not — but the distinction requires careful analysis).

Why Professional Guidance Matters

Dividend taxation involves the intersection of:

- Serbian corporate law (distribution requirements and restrictions)

- Serbian tax law (withholding obligations and rates)  

- International tax treaties (reduced rates and procedures)

- Documentation requirements (residence certificates, beneficial ownership)

- Accounting standards (proper recording and disclosure)

Each shareholder's situation is different. The "right" approach depends on the specific treaty in question, the ownership structure, the amounts involved, and timing considerations.

Getting it wrong can mean overpaying tax, facing penalties for incorrect withholding, or creating problems for shareholders in their home jurisdictions.

How Tax Advisor Serbia Can Help

We advise Serbian companies on dividend distributions regularly, helping with:

- Determining the correct withholding rate for each shareholder based on their specific circumstances

- Reviewing applicable tax treaties and their particular requirements

- Ensuring proper documentation is obtained before distributions

- Preparing and filing required tax returns

- Coordinating with shareholders' advisors in other jurisdictions

- Structuring distributions to optimize timing and tax efficiency

If you're planning a dividend distribution and want to ensure correct tax treatment, book a consultation to discuss your specific situation. The details matter, and getting them right from the start is far easier than correcting mistakes afterward.

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