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In Serbia, Corporate Income Tax (“CIT”) starts from your accounting profit prepared under IFRS/IAS (or IFRS for SMEs) and Serbian accounting rules, and then moves to taxable profit through tax adjustments in the CIT computation. One of the most common and most “expensive” adjustments in practice relates to expenses that are non-deductible in full, primarily those listed in Article 7a of the Serbian Corporate Income Tax Law (the “CIT Law”).

This article explains what is fully non-deductible in CIT 2025, where taxpayers most often fail in audits, and what to put in place now to keep 2025 filings defensible.

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1) The Rule: Accounting Expenses Are Deductible—Unless the CIT Law Says Otherwise

As a general principle, expenses recognized in the income statement are deductible for CIT purposes, except where the CIT Law prescribes:

• full non-deductibility,
• limited deductibility subject to caps/conditions,
• special recognition rules (e.g., depreciation, impairment/write-offs, provisions),
• specific regimes (e.g., capital gains/losses, related-party transactions and arm’s-length rules).

This article focuses on full non-deductibility under Article 7a.

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2) Article 7a: Expenses That Are Fully Non-Deductible (CIT 2025)

Under Article 7a, the following are not deductible in the CIT computation:

1. Undocumented costs
2. Impairment of individual receivables from a counterparty to whom you simultaneously owe liabilities, up to the amount of that liability
3. Gifts and contributions to political organizations
4. Gifts where the recipient is a related party (as defined by the CIT Law)
5. Interest due to late payment of taxes, social security contributions, and other public charges
6. Costs of enforced collection of taxes and other debts, and costs of tax misdemeanor and other misdemeanor proceedings
7. Fines imposed by authorities, contractual penalties, and court penalties
8. Default interest between related parties
9. Costs not incurred for business purposes, unless the CIT Law provides otherwise

Below is practical guidance for each category—focused on audit reality, not theory.

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3) Undocumented Costs: The #1 Audit Adjustment

“Documented” is both form and substance

To treat a cost as documented, you need a reliable accounting document that shows the basis, type, and content of the transaction. An invoice alone is often insufficient—depending on the nature of the expense.

Typical supporting documentation includes:

• contracts and annexes,
• delivery notes / acceptance certificates,
• service reports, timesheets, work orders,
• correspondence evidencing deliverables,
• internal approvals and cost allocation methodology (where relevant),
• inventory count minutes, incident reports (theft/spoilage), insurance evidence.

The real failure point: services (especially intragroup)

Tax inspectors are typically most skeptical around services, particularly:

• foreign parent billing “management fees,”
• vague “consulting/support,”
• recurring invoices with identical descriptions and no tangible output.

Practical standard: Your file should prove, clearly and consistently:

1. what was provided,
2. when,
3. by whom,
4. which Serbian functions benefited, and
5. why the service was needed for the business.

If you cannot demonstrate this, the expense can be treated as undocumented and therefore fully non-deductible.

Entrepreneurs and small contractors

Deductibility does not depend on the supplier’s tax regime. However, costs paid to entrepreneurs/contractors are often challenged on substance (proof of performance). Keep deliverables, evidence of work, and acceptance confirmations.

Inventory shortages

Shortages can be deductible only if the shortage is properly evidenced and business-connected (e.g., technological loss, force majeure, theft documented by police, etc.). If the shortage cannot be substantiated, it may be treated as undocumented.

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4) Impairment / Write-Offs Where You Also Owe the Same Party

Article 7a disallows deductibility of impairment of an individual receivable up to the amount you owe the same counterparty.

Why it exists: To prevent taxpayers from creating expenses instead of netting/offsetting mutual balances.

Example: Receivable: 100,000 RSD, Payable: 70,000 RSD. If you impair 100,000 RSD, only 30,000 RSD can be deductible (subject to meeting other conditions under the CIT Law). 70,000 RSD is non-deductible due to Article 7a.

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5) Political Gifts/Contributions: Fully Non-Deductible

These are straightforward: fully non-deductible. The risk is misclassification (e.g., “marketing,” “sponsorship,” “events”).

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6) Gifts to Related Parties: Always Non-Deductible

Any gift to a related party (as defined by the CIT Law) is fully non-deductible. From a controls standpoint: code these properly and separate them from other donations/sponsorships.

High-risk area: Donations that would otherwise qualify for limited deductibility (e.g., humanitarian/education). If the recipient is related, tax practice and MoF positions tend to treat Article 7a as prevailing—resulting in full non-deductibility.

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7) Late Payment Interest on Public Charges: Non-Deductible

Taxes and similar public charges (when meeting conditions) are generally deductible in the period they are paid, but interest for late payment is not deductible—regardless of payment.

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8) Enforcement and Misdemeanor Costs: Non-Deductible

Non-deductible include:

• enforced tax collection costs,
• enforced collection costs where the taxpayer is the enforcement debtor,
• tax misdemeanor proceedings,
• other misdemeanor proceedings.

Key distinction: Enforcement costs incurred as a creditor collecting your receivable may be treated differently than costs incurred as a debtor.

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9) Fines, Contractual Penalties, Court Penalties: Non-Deductible

Fines and penalties are fully non-deductible. A crucial nuance is damages vs penalties: compensation for damages may be deductible if business-connected and documented, while punitive penalties remain non-deductible.

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10) Default Interest Between Related Parties: Non-Deductible

Default interest is generally deductible in ordinary commercial relations, but not when owed to a related party.

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11) Non-Business Purpose Costs: Non-Deductible

Costs not incurred for business purposes are non-deductible, but the law does not define “non-business.” In practice, the burden is on the taxpayer to show the business rationale.

Audit hot spots: mixed-use expenses (travel, vehicles, representation), owner-related expenses booked through the company, costs without decision trails.

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12) How Tax Advisor Serbia Helps

At Tax Advisor Serbia, I help foreign companies:

• Review expense policies for CIT compliance
• Set up internal approval rules to block risky expenses
• Analyze related party expenses under transfer pricing rules
• Support during audits or tax reviews
• Build year-end reconciliation packs that stand up to inspection

The goal: No surprises at tax time.

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Want to make sure your expenses are safe — and fully deductible?

Book a free consultation or contact me through the website. I’ll review your expense categories, flag risks, and help set up controls that protect your bottom line.

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You may also want to read Transfer Pricing in Serbia: 2026 Compliance Guide and Corporate Income Tax 2026: Deadlines & Deductibility Rules.