Expenses not recognized in the Tax balance

Expenses that are considered unsustainable or questionable in nature are not recognized as deductible in the tax balance. First, expenses that cannot be adequately documented cannot be included among recognized expenses. This means that taxpayers must have clear and reliable evidence for every expense they wish to claim.

Additionally, adjustments to the value of receivables from entities to whom there is an outstanding debt cannot be recognized as an expense. These rules also apply to donations made to political organizations, as well as donations made to related parties, meaning these expenses cannot be accounted for when calculating expenses.

Furthermore, interest arising from late payments of taxes, contributions, and other public obligations is not recognized, nor are expenses related to tax enforcement procedures or misdemeanor proceedings. Monetary fines, contractual penalties, and late payment interest between related parties cannot be recognized as expenses.

Expenses not directly related to business operations are also not recognized, except in cases explicitly permitted by law. For example, interest and expenses on loans received by a permanent establishment from its non-resident parent company are not recognized as expenses.

In addition, royalties and payments for industrial property rights made to non-resident parent companies are also not recognized in the tax balance. When it comes to the impairment of assets, expenses arising from the difference between the net value of assets and their estimated value are typically not recognized, except in situations where the asset is sold or damaged.

However, there is an exception for expenses arising from the impairment of equity interests during the restructuring of a privatization subject. These expenses are recognized if they result from the conversion of receivables into equity, allowing part of the cost to be recognized in the tax balance. These provisions are important because they ensure that only those expenses truly incurred in the course of business are recognized in the tax system, contributing to a fairer and more transparent taxation system.

Regarding corporate income tax, the Law on Corporate Income Tax in Serbia defines the maximum amount of representation expenses that can be recognized as an expense in the tax balance. These expenses are recognized up to a maximum of 0.5% of business revenue. This means that if a company incurs representation expenses exceeding this percentage, the excess amount will not be recognized as an expense when calculating taxable profit, which directly increases the tax base and the amount of corporate income tax the company needs to pay.

Interest on late payments of public revenues, such as penalty interest for delayed tax payments, is not recognized as a deductible expense in the tax balance. This also includes other similar expenses, such as fines and penalties.

Enforcement costs, i.e., expenses incurred in the process of enforced collection of public revenues, are also not recognized as deductible expenses in the tax balance. This means that costs related to enforcement proceedings, including procedural expenses and similar charges, do not reduce the tax base for corporate income tax.

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