
Strategically positioned, Serbia has become a magnet for global technology investments. With a highly skilled workforce, competitive operational costs, and an advancing economy, the country has attracted major IT giants from all over the world, such as Microsoft, SAP, and Huawei. This growing presence of industry leaders highlights Serbia’s rising prominence as a regional hub for innovation and technological advancement.
In addition, Serbia has also fostered a thriving startup ecosystem that draws significant attention from investors looking to back businesses leveraging cutting-edge technologies such as AI, blockchain, and cloud computing. To sustain and amplify this growth, Serbia’s tax framework provides a targeted incentive for companies investing in startup capital, presenting an attractive opportunity for investors.
Tax Incentive Features
At its core, the incentive allows companies to claim a tax credit of 30% of the total amount invested in qualifying startups. By reducing taxable profits, this mechanism directly encourages businesses to channel capital into startups during their most critical growth phases, further strengthening Serbia’s reputation as a hub for innovation and technology-driven business growth.
Startup Criteria
The tax incentive is designed exclusively for investing in early-stage, innovative startups with significant growth potential. To qualify, a target startup must be less than three years old and demonstrate a strong focus on innovation, either by developing new products, technologies, or services, or by making substantial improvements to existing ones to address market demands effectively.
To remain focused on smaller, high-potential companies, eligible startups must have an annual revenue of no more than 500 million dinars (approximately 4.3 million euros) as per their most recent financial reports. Additionally, to emphasize reinvestment in growth, startups are prohibited from distributing dividends or profit shares, either from their inception or for at least three years following the investment.
The tax incentive also prioritizes local economic development, requiring that the startup’s main operations be located within the country. To safeguard the program’s integrity, startups formed through mergers, splits, or other status changes do not qualify. Finally, from their second year onward, these startups must prove their innovative focus by meeting one of three operational requirements: dedicating a significant portion of expenses to R&D, employing a predominantly highly qualified workforce, or directly owning or using intellectual property, such as copyrights or patents, tied to their innovation.
Investor Eligibility
Investor companies must satisfy specific conditions to be eligible for the 30% tax credit. To start with, investors cannot be innovative startups themselves and must have been operational for at least three years. This requirement ensures the tax incentive is directed toward venture capital funds, well-established tech firms, or similar organizations with the resources and experience to support early-stage startups effectively.
Additionally, before making the investment, the investor (or any affiliated entity) must not have previously owned more than 25% of the startup’s shares or voting rights in total. This guarantees that the tax credit encourages new investments rather than reinforcing pre-existing relationships. To exercise the right to a tax credit, the investor’s monetary contributions that increase the capital of a startup must be fully paid, and the investor is required to maintain the investment’s value without reduction for a minimum of three consecutive years.
Once the three-year holding period is completed, the investor becomes eligible to claim the tax credit. The three-year period is calculated from the last day of the tax period in which the investment was made.
Financial Flexibility and Incentive Limits
While the tax credit is substantial, it does include limits. For any single startup, the maximum tax credit available is 100 million dinars (approximately 850,000 euros), while the annual total across all investments is capped at 50 million dinars (approximately 425,000 euros). If a company cannot fully utilize the credit in one year, the unused portion can be carried forward for up to five years, providing flexibility and long-term value.
Procedure and Compliance
To claim the tax credit, companies must adhere to a structured procedural framework designed to ensure transparency and accountability. Throughout the investment period, companies are required to submit statements that confirm compliance with the eligibility criteria, including details about the investment and the startup’s qualifications. These statements must be filed alongside regular tax returns and balance sheets.
After completing the mandatory three-year holding period, additional documentation must be submitted to verify the startup’s ongoing compliance and to finalize the investor’s entitlement to the tax credit. Even if the tax credit is not utilized immediately, submitting the required statements is essential to maintain eligibility for future tax periods.
Key TakeawaysSerbia’s tax incentive program fosters innovation, attracts investment, and supports a growing startup ecosystem. By enabling startups to scale and reach the late stage in their development, these incentives create opportunities for strategic partnerships and sustained growth, building a strong foundation for future tech M&A activity. As Serbia emerges as a regional player in the tech landscape, it offers investors and businesses a chance to engage with a vibrant market poised for expansion. |
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For additional information, please contact Mr. Matija Markovic, attorney at Doklestic Repic & Gajin.