New “arm’s length” interest rates applicable for 2019

Author: Attorney-at-law Pavličić V. Predrag, the Law Firm “VUK Tax Attorneys”

Date: 22th March 2019

In accordance to the Law on Corporate Income Tax of the Republic of Serbia (the “Law”), taxpayers are obliged to disclose in tax balance the value of transactions actualised between related parties based on transfer prices. Besides disclosure based on transfer prices, there is also an obligation of disclosing values of concerned transactions calculated in accordance with “arm’s length” principle, respecting the market conditions and prices. In case that realized revenues and expenses based on transfer prices are different from revenues and expenses based on market prices, taxpayers are obliged to increase taxable base for respective difference. The same principle is in effect on interest rates for loans or credits between related parties. The Law prescribes that in process of determining “arm’s length” interest rates taxpayer can apply either interest rates published by the Ministry of Finance or general methods for determining market prices. When an approach is selected, taxpayer is obliged to apply the same principle for all loans and credits between related parties.

That being said, in the “Official Gazette” of the Republic of Serbia no. 13/2019, dated 28th February 2019, the Rulebook has been published by which the Minister of Finance defined interest rates for loans and credits between related parties, which are considered to be in accordance with the “arm’s length” principle applicable for 2019.

Some of the interest rates from said Rulebook are presented in the following tables (mentioned rates for credits are applied to loans as well):

Banks and Financial Leasing Lenders

Currency “Arm’s length” interest rates applicable for 2019
RSD 2.72% for short-term loans
EUR 3.64% for EUR loans and RSD loans indexed in EUR
USD 5.05% for USD loans and RSD loans indexed in USD
CHF 2.98% for CHF loans and RSD loans indexed in CHF

Other legal entities

Currency “Arm’s length” interest rates applicable for 2019
RSD 4.98% for short-term loans
RSD 5.69% for long-term loans
EUR 2.71% for short-term EUR loans and RSD loans indexed in EUR
EUR 2.90% for long-term EUR loans and RSD loans indexed in EUR
CHF 7.61% for long-term CHF loans and RSD loans indexed in CHF
USD 3.08% for short-term USD loans and RSD loans indexed in USD
USD 4.12% for long-term USD loans and RSD loans indexed in USD