In accordance with Article 21i of the Individual income tax law, employer which as part of its activity on the territory of the Republic, carries out research and development, is released from the obligation to pay 70% of the calculated and withheld tax from the wages of employees who are directly engaged in research and development activities, in proportion to the time that such employees spend on research activities and development in relation to full-time work.

Article 45z of the Law on Compulsory Social Insurance Contributions prescribes that the employer  which, as part of its activity in the territory of the Republic, carries out research and development, is released from the obligation to pay 100% of the contribution for mandatory pension and disability insurance, for the earnings of persons directly engaged in research and development, in proportion to the time that such persons spend on research and development tasks in relation to full-time work.

R&D project must be original and planned research undertaken with the goal of acquiring new scientific or technical knowledge and understanding, and developing the application of research results or the application of other scientific achievements or designs with the aim of producing new or significantly improved materials, devices, products, processes, systems or services before entering commercial production or use.

Also, it is required for  minimum 90% of employees working on the project to conduct work on territory of Republic of Serbia. Another condition regarding the project itself is that research and development is carried out by the company  for its own account and that it retains ownership of assets that may arise from research and development. Company that conducts research and development on behalf of other entities  and does not become the owner of the assets created is not eligible for this exemption.

The employer exercising the right to tax exemption is obliged to have the following documentation for each individual project:

• specification of the project with  highlighted project goals, planned phases of the project, as well as planned activities within each phase of the project, with the opinions of experts who are in charge of project implementation (including the opinions of experts – employees who will work on the project);
• the annual budget of the project and the total budget of the project approved by the management body of the employer, along with projections of results expected from the project;
• the report of the research and development employee, which contains a specification of the total working time and the working time spent on the direct performance of research and development work in a given month;
• report on the status of the project according to the highlighted project goals signed by the legal representative of the employer;
• a signed statement of the legal representative of the employer, given under criminal and material responsibility, that the data from the records are complete and true, as well as that at least 90% of all employees who are engaged in research and development activities perform their activities on the territory of the Republic of Serbia;

This documentation is submitted by the employer at the request of the competent tax authority.

A research and development employee is a person who works on the implementation of a project in such a way that he is directly involved in identifying and solving appropriate scientific, process or technical issues, problems or tasks related to a specific project, which may include employees who are engaged in the development of new or improvement of existing production system and/or products, development of new or improvement of existing computer circuits, formulation of new chemical compounds, development of new or improvement of existing systems for solving soil and environmental pollution problems,  development of software solutions, development waste water management systems, development of new or improvement of existing materials and the like. Employees may be employed by definite or indefinite period with full-time or part-time work hours. To apply this tax relief, the employees must be directly engaged in the implementation of the project, that is, they must be directly involved in identifying and solving scientific, process or technical issues related to the specific project. It is important to notice that any activities related to: the direct or indirect supervision of the project (such as attending meetings where technical aspects of the project are discussed etc.), support in connection with project implementation (such as market research) are not considered work on the project itself. Also,  the time that the employee spends  on vacation and leaves used in accordance with the Labor law direct is not considered to be engagement in research and development activities .

The employer is obliged to keep special records for each individual research and development employee, on the basis of whose earnings he obtains a tax exemption, in which he will show data that is important for monitoring the fulfillment of the conditions for exercising the right to tax exemption in relation to that employee. These records contain information about the working time of the employee on research and development and information regarding the salary, compensation and other income of the research and development employee.

These records are submitted by the employer at the request of the competent tax authority.

We believe that this tax incentive is invaluable to companies oriented towards research and development, as it can lower the operation cost significantly.