Serbia is moving toward a major restructuring of its corporate tax framework, with legislation combining tighter rules on multinational tax planning with the scheduled withdrawal of several investment incentives. Amendments to the Corporate Income Tax Law entered parliamentary procedure at the end of July. While some measures are scheduled to apply from 1 January 2027 or 1 January 2028, the principal cross-border provisions would take effect only after Serbia joins the European Union.
The proposed framework is broader than restrictions on transferring profits abroad. It addresses excessive financing costs, controlled foreign companies, corporate reorganisations, dividends, royalties and transactions between related parties. The package is intended to align Serbian rules with the EU Anti-Tax Avoidance Directive, Parent-Subsidiary Directive, Merger Directive and Interest and Royalties Directive. For multinational groups, the changes would make some forms of tax-base erosion more difficult while creating tax-neutral treatment for qualifying intra-EU payments and corporate reorganisations.
New limits on corporate borrowing costs
One of the central measures would introduce an EBITDA-based limitation on the deductibility of financing expenses. Companies would be able to deduct net financing costs up to 30% of EBITDA or €3 million annually, whichever results in the larger deductible amount. Financing expenses above the applicable threshold would increase the taxable base. However, unused amounts could be carried forward for three subsequent tax periods.
The provision would be particularly relevant for Serbian subsidiaries financed through shareholder or group loans. Interest paid to a parent company or affiliated financing entity can reduce taxable profit in Serbia while transferring cash to another jurisdiction. The proposed EBITDA test would limit that tax benefit when financing costs are disproportionate to the operating earnings generated locally.
The measure is expected to have particular relevance for real estate, energy, telecommunications, infrastructure, manufacturing and private-equity-backed acquisitions, where companies or project vehicles can carry substantial debt during construction, expansion or early operating periods.The rule would not prohibit borrowing or make contractual interest payments unlawful. Instead, it would determine how much financing expenditure can immediately reduce taxable income for corporate tax purposes.
Serbia’s corporate income tax rate would remain at 15%. Consequently, every €1 million of financing expenditure that loses deductibility could raise current corporate tax by as much as €150,000, before carry-forward provisions and other adjustments are taken into account.
The eventual impact would depend on each company’s leverage, interest costs, EBITDA generation and shareholder-financing structure. Mature businesses with strong operating earnings could remain below the threshold, while development-stage companies, leveraged acquisitions and projects with extended construction periods could face greater exposure. Serbia already applies transfer-pricing rules, withholding taxes, thin-capitalisation provisions and tax treaties. Existing controls would continue to apply, including the Tax Administration’s ability to challenge non-arm’s-length pricing, artificial service charges and interest arrangements that do not reflect commercial conditions.
Controlled foreign companies and economic substance
The proposed legislation would also introduce controlled foreign company rules requiring a Serbian resident company to include certain undistributed income of a foreign-controlled entity in its Serbian tax base when the foreign entity is subject to substantially lower taxation. The rules would cover passive forms of income including interest, royalties, dividends, financial income and other earnings that can be separated from underlying operating activities.
The objective is to prevent profits from being retained in foreign entities established primarily to obtain a lower effective tax rate. The proposal would nevertheless provide an economic-substance defence. Foreign subsidiaries conducting genuine business activity, supported by employees, assets, premises and commercial decision-making, would not be treated in the same way as entities established principally for tax purposes. That would increase the importance of documentation concerning substance, beneficial ownership and the location of management and value creation.
The EU-accession trigger for the wider cross-border provisions is also significant because some elements depend on reciprocal recognition, administrative cooperation and information exchange among tax authorities within the EU single market. Serbia can enact the legal provisions before membership, but the full institutional framework of the EU directives would not yet apply. Serbia has been an EU candidate since 2012 and opened accession negotiations in 2014, but no fixed membership date has been established. As a result, provisions linked specifically to accession could remain inactive for an extended period.
Ten-year investment tax holiday approaches closure
The more immediate change for investors is the planned withdrawal of several domestic incentives. From 1 January 2027, new investors would no longer be able to enter Serbia’s major ten-year corporate income tax exemption for large investments. Under the current regime, companies can qualify for a proportional corporate tax holiday lasting up to 10 years if they invest more than RSD 1 billion, approximately €8.5 million, in fixed assets and employ at least 100 additional workers on indefinite contracts.
Companies that establish and properly report their entitlement by 31 December 2026 would retain the acquired benefit for the remainder of the statutory period. The legislation would therefore establish a distinction between investors that secure their rights before the deadline and projects entering the Serbian market afterward.
Other incentives scheduled for removal include relief associated with concession arrangements, qualifying employment schemes and investments in innovative companies. Certain changes would take effect from 2028, while the broader EU-dependent corporate provisions would remain tied to accession. For investors, the termination of the large-investment exemption could have a more immediate financial effect than the future anti-avoidance rules. A profitable manufacturing operation generating €10 million in annual taxable earnings would face a standard corporate tax charge of €1.5 million at the current 15% rate. Over a decade, the gross value of a complete exemption could theoretically reach €15 million, although the actual benefit depends on the applicable proportional conditions, investment levels and employment commitments.
Investment policy shifts toward EU state-aid rules
Serbia is consequently changing two elements of its investment framework simultaneously: the country is reducing tax incentives used to attract foreign direct investment while preparing stricter rules governing how multinational groups finance Serbian subsidiaries and distribute earnings. The shift also reflects EU requirements governing state aid. Serbia’s existing investment model has combined tax holidays with employment subsidies, land, infrastructure support and direct budget incentives.
EU accession methodology requires candidate countries to align these schemes with European competition and state-aid rules. That limits selective advantages capable of influencing investment decisions through preferential treatment. Serbia will continue to be able to support investment, but future measures are expected to require more disciplined structures, greater transparency and clearer connections with recognised policy objectives such as regional development, research and decarbonisation. The broader investment environment will therefore place greater weight on productivity, infrastructure, workforce quality, energy availability and access to European supply chains rather than open-ended tax concessions.
EU-linked dividends, royalties and restructurings
The proposed framework would not simply tighten taxation. It would also establish tax-neutral treatment for qualifying cross-border transactions involving Serbian and EU companies. Qualifying dividends and profit distributions between Serbian companies and EU parent or subsidiary companies could receive tax-neutral treatment. Certain interest and royalty payments between associated companies could also qualify for exemption from Serbian withholding tax. The proposed requirements include minimum ownership thresholds and holding periods. Parliamentary documentation sets thresholds of 10% or 25%, depending on the relevant payment and corporate relationship, generally maintained for at least 24 months.
Companies would also need to meet requirements covering tax residence, legal form and documentation. Qualifying mergers, divisions, partial divisions, asset transfers and share exchanges involving Serbian and EU companies could be carried out without immediate taxation of qualifying capital gains. The tax would generally be deferred rather than eliminated, with hidden reserves remaining recorded. Relief could be withdrawn if a transaction is primarily intended for tax avoidance or if the transferred business is disposed of within a specified period, including a proposed five-year safeguard in certain circumstances. The rules would affect future acquisitions and regional corporate consolidation. European industrial groups could reorganise Serbian assets without triggering an immediate tax charge where the transaction has a genuine commercial rationale and the prescribed requirements are satisfied.
Financing structures face new tax planning requirements
The proposed system would make operating substance more important while reducing the attractiveness of structures based primarily on financial extraction. Groups using substantial shareholder loans, royalty-heavy arrangements or passive offshore companies would need stronger supporting documentation. Businesses with genuine production, employees, assets and local decision-making would have a clearer path toward tax-neutral European restructuring after Serbia’s accession.
Banks and investors would also need to incorporate the proposed rules into financing and investment models before formal EU membership.
Financial models would need to test whether projected interest expenses remain deductible under the 30% EBITDA ceiling. Shareholder-loan arrangements would require benchmarking against market conditions, while tax covenants could need provisions addressing CFC exposure, beneficial ownership, permanent-establishment status and potential deferred tax liabilities following disposals or restructurings. The immediate investment timetable is more pressing for projects that could qualify for Serbia’s existing large-investment tax holiday. Investors have until the end of 2026 to establish and report the entitlement necessary to preserve acquired rights, creating a defined deadline for fixed-asset deployment, employment commitments and the legal sequencing of projects already under development.
Serbia’s proposed framework would not introduce capital controls, and foreign companies would remain able to distribute dividends and service legitimate debt. The reform instead moves the corporate tax system away from a relatively straightforward incentive-led model toward rules placing greater emphasis on the relationship between taxable profit and the location of employees, assets, risks and economic activity. The immediate change is the approaching end of established investment incentives, while the deeper restructuring of cross-border corporate taxation is linked to Serbia’s future EU membership and the integration of its 15% corporate tax regime with the bloc’s anti-avoidance and cross-border reorganisation rules.
