SERBIA: Tax aspects of the Company Status Change
Newsletter 147
Status changes (acquisition, merger, division and spin-off) represent a complex and time-consuming legal procedure. However, despite the stated the existence of numerous tax advantages that the tax regulations prescribe in this regard have been determined. Bearing in mind beforementioned, please note the most important tax regulations on the basis of which the positive aspects of status changes can be determined and which very often in practice have the most significant influence in making relevant business decisions.
The Law on value added tax stipulates that the sale of goods and services in the sense of this law is not carried out in the case of the transfer of all or part of the assets, with or without compensation, or as a deposit, if the acquirer is a taxpayer or becomes a taxpayer through such transfer and continues to perform the same activity. The aforementioned provision of the law is extremely important for the implementation of status changes, considering that during the implementation of the same, i.e. the transfer of all or part of the assets the acquirer of the assets has no obligation to calculate VAT for the goods acquired through that transfer, provided that the acquiring Company is registered for VAT.
The Law on corporate income tax of legal entities also specifies a provision which is important when the general assembly is making a decision on implementing the status change procedure. Namely, the said regulation defines that the tax period for which the income tax is calculated is the business year, i.e. calendar year, except in the case of cessation or resumption of activities during the year, including status changes. Based on the provision in question and the implementation of the status change, the period for which the income tax is calculated for the business year is shortened.
The Law on corporate income tax stipulates that the status change of resident taxpayers made in accordance with the law governing companies postpones the occurrence of tax liability on the basis of capital gains. In this way, the obligation to pay capital gains is postponed until the moment when the acquiring Company sells the property it acquired during the implementation of the status change.
In order to clarify why Company Status Changes are very common way of restructuring we have analysed tax aspects of the status changes. Having in mind aforementioned positive tax aspects and neutrality of the status change regarding the transfer of the company’s assets we can come to the conclusion that tax regulations and tax consequences are an important aspect when deciding will the company embark on this complexed procedure.
In this regard, we remind of the importance of considering both legal and tax aspects at the same time so that the company, when forming business decisions, could have a clear overview of all potential obligations as well as advantages and disadvantages which refer to individual status changes.
If you have any questions or concern, please feel free to contact us by email at stefan.maljkovic@tsg.rs.
