At one of the last sessions this year, the Serbian parliament voted to adopt the Digital Assets Act (Zakon o digitalnoj imovini) intended to regulate, but also enhance, the use of cryptocurrencies and similar instruments in Serbia. The new legislation, which will apply from June 2021, was adopted substantially as proposed in the draft which we discussed here. The key changes are described below:
Traditional financial institutions and digital assets
The draft law intended to create a broad barrier between the NBS-licensed financial institutions, such as banks, insurance companies, and financial leasing companies, and digital assets. According to the enacted law, these institutions will still not be allowed to provide digital asset services (with the exception of holding cryptographic keys on behalf of the client and providing related custody services), but they will be able to invest in digital assets subject to the rules which will be prepared by the National Bank of Serbia.
The draft law defined “stable digital assets” i.e. “stablecoins” but did not regulate at all the business of issuing such digital assets. In particular, the draft did not differentiate between e-money and the centrally issued “stablecoins” whose value is backed by legal tender or which have other common features with electronic money. Except for a few immaterial technical edits in the definition, the enacted law did not fill-in the aforesaid gap. It did however note that the Payment Services Act (Zakon o platnim uslugama) will (continue to) apply to e-money and the related payment services, which we interpret to mean that fiat-backed “stablecoin” will not be governed by its own set of rules.
Issuing and advertising digital assets
The enacted law contains a few helpful clarifications as to the requirements for issuing, advertising of initial public offering, and secondary trading in digital assets.
The issuance of digital assets in Serbia is permitted, notwithstanding if the whitepaper was approved or not.
The advertising of initial public offering of digital assets in Serbia is permitted if the whitepaper for such digital asset has been approved by the local competent authority (NBS, if the digital asset is a virtual currency, SEC, if it as a digital token). If the whitepaper has not been approved, the advertising is still permitted “in accordance with the decision of the competent authority” or if:
- the digital assets are offered to fewer than 20 natural or legal persons; or
- the number of tokens issued is not higher than 20; or
- the offer is addressed to the buyers which invest in digital assets at least a Serbian dinar equivalent of EUR 50,000 per investor; or
- over a period of 12 months, the total value of the digital assets issued by a single issuer does not exceed the Serbian dinar equivalent of EUR 100,000.
The secondary trading in digital assets issued in Serbia or abroad is permitted notwithstanding if the whitepaper was approved or not.
The advertising to offer digital assets issued in Serbia or abroad for which the whitepaper has not been approved is permitted only “in accordance with the decision of the competent authority” or if:
- a white paper has been issued and approved after the issuance of such digital asset
- a whitepaper or an equivalent document has been approved in the EU member state for such digital asset; or
- such digital asset is being traded “in significant volumes” on a global exchange through licensed or registered platforms in accordance with the AML rules and procedures.
Digital assets taxation
In parallel with the adoption of the Digital Assets Act, the Serbian Parliament has amended a series of tax laws, specifically the Personal Income Tax Act, Corporate Income Tax Act and the VAT Act.
Corporate Income Tax Act
Capital gains realised by resident companies from the sale or other disposal of digital assets against consideration form part of corporate income tax basis, except where the taxpayer who is a licensed digital asset service provider acquired digital assets solely for the purpose of reselling them in the course of its licensed business.
The acquisition value for the purpose of capital gains calculation is the price paid for the acquisition, or, in case of crypto currency acquired through mining, the value recorded in the taxpayer’s accounting books in accordance with the Serbian GAAP (including IAS/IFRS and IAS/IFRS for SMEs). In case of the fair value adjustment, fair value may be recognised as the acquisition value provided that the adjustment effects were recognised as income in the relevant fiscal year.
Capital gains realised from the sale of digital assets are fully exempt from the corporate income tax basis in case the entire amount of sale proceeds is contributed, in the same fiscal year, to the share capital of a Serbian company or an investment fund having the centre of business or investment interest in Serbia.
Non-resident entities will be subject to a 20% tax on capital gains realised from the sale of digital assets, unless there is an applicable double taxation treaty that exempts such gains from taxation in Serbia.
Personal Income Tax
Capital gains from the sale of digital assets owned by individuals are subject to personal income tax, currently levied at the rate of 15%. The acquisition value for the purpose of capital gain calculation is the price paid for the acquisition. In case of digital assets acquired through mining, the acquisition value is equal to the documented costs incurred in that process. Digital assets acquired by an employee or a former employee through a reward plan free of charge or below the market price are taxed as income at the time of the exercise. When the employee subsequently sells such digital assets, the acquisition value for the purpose of capital gain calculation is the value of the digital asset that served as the basis for the salary tax at the time of the acquisition of the asset, which should correspond to the market value of the digital asset at that time.
50% of capital gains are exempt from taxation if the entire sale proceeds are invested as cash contribution to the share capital of a Serbian company or capital of an investment fund having centre of its business or investment interest in Serbia within 90 days from the sale. Further rules on the exemption are to be enacted by the Minister of Finance within 120 days from the entry into force of the Digital Assets Act, i.e. until 28 April 2021. If the tax payer reinvests the proceeds of the sale of digital assets within 12 months from the sale of digital assets, he/she will be entitled to a refund of 50% of tax paid. If case only a portion of the sale proceeds is reinvested, the exemption/refund is available on a pro-rata basis.
Any share capital reduction performed by the company into which the tax payer invested the sale proceeds in the calendar year in which the investment was made or in the period of two subsequent calendar years cancels out the benefit of the exemption or, as the case may be, refund. The individual who benefited from the exemption/refund will have to file a tax return and retroactively pay personal income tax.
Value Added Tax
The amendments to the VAT Act add transactions with crypto-currencies made in accordance with the Digital Assets Act (transfers of crypto-currencies and converting them into money) to the list of financial transactions exempt from VAT, without the right to reclaim input VAT.