New “arm’s length” interest rates applicable for 2020

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

Date: 18th March 2020

In accordance to the Law on Corporate Income Tax of the Republic of Serbia (the “Law”), taxpayers are obligated to separately disclose transfer prices in their tax balance sheet, i.e. value of transactions realized with related parties. Besides disclosure based on transfer prices, there is also an obligation of disclosing value of concerned transactions calculated in accordance with “arm’s length” principle, i.e. priced under market conditions. If their revenues realized from transfer prices are lower than revenues calculated at market prices, or if their expenses realized from transfer prices are higher than expenses calculated at market prices, taxpayers are obligated to increase taxable base for respective differences. The same principle applies for interest rates on loans 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 on annual basis or general methods for determining market prices. When an approach is selected, taxpayer is obligated 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. 21/2020, dated 6th March 2020, 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 2020.

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 2020
RSD 1.92% for short-term loans
EUR 3.11% for EUR loans and RSD loans indexed in EUR
USD 3.87% for USD loans and RSD loans indexed in USD
CHF 2.54% for CHF loans and RSD loans indexed in CHF

Other legal entities

Currency “Arm’s length” interest rates applicable for 2019
RSD 4.71% for short-term loans
RSD 5.55% for long-term loans
EUR 2.64% for short-term EUR loans and RSD loans indexed in EUR
EUR 2.87% for long-term EUR loans and RSD loans indexed in EUR
CHF 7.84% for long-term CHF loans and RSD loans indexed in CHF
USD 4.83% for short-term USD loans and RSD loans indexed in USD
USD 4.05% for long-term USD loans and RSD loans indexed in USD