CONFIDA Serbia – Implementation of “IP BOX” Incentive

The “IP BOX” incentive is based on the possibility of deducting the revenues realized based on the fee for the use of a depositing of copyright works and subject matter of related rights (hereinafter: “copyright work”), that is, the fee for assigning the right regarding the invention (hereinafter: “patent”) from the tax base for the calculation of the corporate income tax.

Rulebook on Conditions and Manner of Deducting Revenues

The Rulebook on Conditions and Manner of Deducting Qualified Revenues from the Corporate Income Tax Base (hereinafter: “Rulebook on Qualified Revenues”) defines in more detail the used concepts and determines the conditions and the documentation that the taxpayer needs to own and submit to the Tax Administration in the implementation of the “IP Box” incentive.

Qualified Revenues Concept

Qualified revenues are the difference between the total amount of the revenues realized based on the fee for the use of a copyright work or the assignment of the patent during the taxation period and the amount of qualified expenditures multiplied by the percentage which expresses the share of the total qualified expenditures in the total costs arising in relation with that copyright work. The total amount of the revenues is in fact the income realized based on assigning the right-of use of the taxpayer’s copyright work to a third party, by signing the License Agreement.

Percentage of Deduction of Qualified Revenues from Tax Base

If the proscribed conditions for the use of the “IP Box” incentive are met, the taxpayer may deduct the qualified revenues thus defined from the tax base in the amount of 80%. A tax rate of 15% is applied to the tax base formed that way. By implementing this tax incentive, the tax rate can be reduced from 15% to 3%. In case the taxpayer also uses the “R&D deduction” incentive, the tax rate of the income tax can even be reduced to 0%.

Qualified Expenditure Concept

The concept of qualified expenditures pertains to the total historical or current tax-recognized expenditures related to research and development activities which have resulted in the creation of a deposited copyright work or patent. The concept of the expenditures related to research and development activities was defined earlier within our previous article about the “R&D deduction” incentive. Therefore, “The Rulebook on Conditions and Manner of Realizing the Right to the Recognition of Costs Directly Related to Research and Development in the Tax Balance Sheet Recognized in a Doubled Amount” is the basis for the qualification of the costs and the implementation of the “IP Box” incentive, regardless of whether the taxpayer also uses the “R&D deduction” incentive.

Normed Historical Qualified Expenditures

The taxpayer that deposited the copyright work or submitted a patent application after January 1, 2019, and on the day of December 31, 2018, based on the copyright work, kept the records on the fixed assets/assets in use/non-material property in its books, or in the previous taxation periods realized revenues from the copyright work (regardless of whether it had kept records of them), determines its historically tax-recognized expenditures incurred until January 1, 2019, based of the specially proscribed normed historically tax-recognized expenditures:

• in the first taxation period, 60% of the total revenues realized in that taxation period,
• in the second taxation period, 40% of the total revenues realized in that taxation period,
• in the third taxation period, 20% of the total revenues realized in that taxation period.

In this situation, the qualified revenues of the taxpayer can also be determined by reducing the total revenues realized based on the fee for the use of the copyright work after January 1, 2019, by the amount of qualified expenditures determined based on the abovementioned normed percentages and multiplying it by the percentage which expresses the share of thus determined qualified costs incurred after January 1, 2019, related to that copyright work.

Deduction by Qualified Expenditures to Value 0

If in the first taxation period in which the “IP Box” incentive is implemented the amount of the total qualified expenditures is higher than the total revenues realized in that taxation period based on the fee for the use of the copyright work, the total revenues will be reduced by the amount of qualified expenditures down the value of 0.

In the second and every subsequent taxation period in which the “IP Box” incentive is implemented, the value of the total revenues realized based on the fee for the use of the copyright work can also be reduced to the value of 0, but only in the remaining amount which didn’t reduce such revenues in the previous period/periods.

Conditions for Realizing the Right to Deducing Qualified Revenues from Income Tax Base

The conditions that need to be met in line with the Rulebook on Qualified Revenues in order to realize the right to the deduction of qualified revenues are:

• the taxpayer needs to be the carrier of the deposited copyright or related right, that is, the carrier of the right or the submitter of the patent application,
• the carrier of the deposited copyright or related right, the carrier of the patent right, must deposit said copyright, that is, submit the patent application to the competent organ before the expiration of the taxation period in which the “IP Box” incentive is first implemented.

Documentation on Research and Development Costs

The taxpayer that uses the right to the deduction of qualified revenues from the tax base must own the documentation on the research and development costs, which it submits at the request of the tax organ, and which is proscribed by the Rulebook.

The documentation proscribed by the Rulebook needs to be prepared for each copyright work and each taxation period for which the “IP Box” incentive is used, separately.

Detailed Instructions About “IP Box” Incentive

Detailed instructions about the implementation of the “IP Box” incentives was prepared by CONFIDA Serbia – an advisory, consulting and auditing company. They are experts for tax-legal, auditing and accountancy regulations.

They emphasize that the use of tax incentives can be of remarkable importance as a way of tax-optimization of the business operations of companies which carry out research and development activities, and they encourage their use. The high service quality, the remarkable technical skills and knowledge of the CONFIDA team, are crucial to their success.

If You need additional information regarding the implementation of the “IP Box” incentive or if You have any other tax-legal, auditing or accountancy questions, You can address them.

(Author: Sladjana Vucicevic, Tax Manager at Confida Serbia, [email protected])

Confida Consulting d.o.o. Beograd

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