Tax exemptions, capital losses, treaty relief, and penalties explained

Many taxpayers assume that a tax return is only required when tax is actually payable. Under Serbian tax law, that assumption is often incorrect.

In Serbia, a tax return is not only a mechanism for paying tax — it is also the formal procedure through which the Tax Administration becomes aware of a transaction and determines whether tax applies, whether an exemption is valid, or whether no tax is due at all.

As a result, there are many situations where a tax return must be filed even when the final outcome is zero tax.

Quick answer

Yes. In Serbia, a tax return may be required even when no tax is payable.

This most commonly applies when:

• the transaction is within the scope of taxation but qualifies for a tax exemption,
• a capital loss is realized,
• Serbia does not have taxing rights under a double tax treaty, but the treaty position must be formally confirmed, or
• the tax must be assessed by decision of the Tax Administration.

Failure to file in such cases may result in penalties, even if no tax was payable.

Why tax returns exist even when tax is zero

Under the Serbian Law on Tax Procedure and Tax Administration, a tax return is a formal report submitted to the Tax Administration containing information relevant for determining tax obligations.

This includes information about:

• income,
• capital gains or losses,
• asset transfers,
• ownership of property,
• and other transactions relevant for tax assessment.

The key point is that the tax authority must first determine whether tax applies. Even if the conclusion is that no tax is due, the authority often needs the return to formally establish that outcome.

Important distinction: exemption vs. outside the scope of taxation

This is one of the most important compliance concepts.

If a transaction is exempt, it means that it is within the scope of taxation, but the law allows exemption if specific conditions are met.

If a transaction is outside the scope of taxation, it means it is not subject to tax at all.

This distinction directly affects filing obligations.

Exempt transactions

If a transaction is exempt, the Tax Administration may still need to verify that exemption conditions are satisfied. This is why filing is often required even when no tax is payable.

Examples include:

• transfer of real estate contributed as capital to a Serbian company,
• gifts between close family members,
• property qualifying for specific property tax exemptions.

Transactions outside the scope of taxation

If a transaction is not subject to tax under Serbian law, filing is generally not required.

Examples may include:

• transfers of assets that do not qualify as taxable capital assets,
• certain payments to foreign entities that do not fall within Serbian withholding tax rules,
• transactions where Serbia clearly has no taxing rights and filing is not required under procedural rules.

Capital losses: filing is required even when there is no tax

A common example is capital loss reporting.

If an individual sells shares, real estate, or other capital assets and realizes a capital loss, no tax is payable. However, the tax return must still be filed.

This is because:

• the Tax Administration must record the capital loss,
• capital losses may be used to offset future capital gains,
• the loss must be formally recognized through the tax procedure.

In Serbia, capital gains and losses of individuals are reported using Form PPDG-3R.

Even when the result is a loss, filing is required if the transaction falls within the capital gains tax regime.

Double tax treaties: filing may still be required even when Serbia cannot tax the income

Serbia has an extensive network of double tax treaties.

Under many treaties, capital gains or certain types of income earned by non-residents are taxable only in the country of residence of the taxpayer.

This means Serbia does not have taxing rights.

However, in certain cases, a tax return must still be filed so that the Serbian Tax Administration can formally confirm that:

• the taxpayer qualifies for treaty protection, and
• Serbia does not have the right to tax the income.

This is particularly relevant for non-resident legal entities disposing of shares in Serbian companies, where filing Form PP KDZN may be required, together with a valid certificate of tax residence.

Without filing and supporting documentation, the Tax Administration may apply domestic tax rules and assess tax.

Property tax exemptions: filing is still required

Property tax exemptions do not eliminate filing obligations.

If a taxpayer owns property that qualifies for exemption, the property must still be reported so the Tax Administration can verify eligibility.

For example:

• individuals must report relevant property so the authority can assess whether exemption applies,
• companies must disclose exempt property in their property tax filings, typically through annex reporting.

The burden of proof for exemption eligibility lies with the taxpayer.

Situations where filing is generally not required

There are specific situations where filing is not required, even when a transaction occurs.

This typically applies when:

• the transaction is clearly outside the scope of taxation, or
• the law provides that the tax authority receives information through alternative channels, such as notaries or official registries.

For example, certain real estate transfers processed through public notaries may not require separate tax return filing because the notary submits relevant information electronically.

Compliance warning

Failure to file a required tax return in Serbia is a tax offence, even if no tax was payable.

Penalties include:

• for legal entities: fines ranging from 30% to 100% of the unpaid tax, but not less than RSD 500,000,
• for responsible persons in legal entities: RSD 10,000 to RSD 100,000,
• for entrepreneurs: minimum fine of RSD 100,000,
• for individuals: fines ranging from RSD 5,000 to RSD 150,000.

These penalties apply independently of whether tax was actually due.

Practical conclusion

The obligation to file a tax return in Serbia depends not only on whether tax is payable, but also on the legal classification of the transaction and the procedural framework under which the tax is assessed.

In general, filing is often required when:

• the transaction qualifies for tax exemption,
• a capital loss is realized,
• treaty relief applies,
• or the tax must be formally assessed by the Tax Administration.

Filing ensures compliance, protects treaty positions, and prevents penalties.

Need assistance with Serbian tax return filing?

If you are unsure whether a Serbian tax return must be filed in your specific situation — including capital gains, treaty relief, or exempt transactions — professional review is strongly recommended.

Incorrect assumptions about filing obligations are one of the most common causes of tax penalties in Serbia.

You can contact me for a compliance assessment and filing support tailored to your situation.

You may also find useful:

• Dividend Tax Treatment in Serbia: What Shareholders Need to Know
• Related Party Rules in Serbia: When Do Transfer Pricing Obligations Apply?

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