Are digital products taxable in Serbia?

Digital products sold by nonresident businesses to customers in Serbia are subject to Value Added Tax (VAT). The standard VAT rate in Serbia is 20.00%. Both B2C and B2B transactions are generally taxable, with special conditions applying to B2B transactions. The registration threshold is triggered upon the first B2C sale to a Serbian customer. This means that foreign businesses must register for VAT in Serbia as soon as they make their first sale of digital products to individual consumers in the country.

Determining if your digital product is taxable in Serbia

To determine whether VAT applies to the sale of your digital product or service, there are three main factors to consider:

1. Customer's location: You need to identify the location of your customer, as tax regulations vary by country. Common pieces of evidence for customer location determination include billing address, customer account address, IP address, and credit card country.
2. Taxability of your product: Your digital product or service needs to qualify as a digital good or service for VAT purposes. This typically means that it is delivered electronically over the Internet or an electronic network, is automated, relies on technology, and is not a physical good.
3. Customer's tax registration status: If you sell to other businesses located in Serbia, you should collect and validate their tax registration numbers (VAT IDs). In Serbia, special conditions apply for B2B transactions, so it's important to understand the specific requirements for your business.

Getting VAT compliant in Serbia

To ensure compliance with VAT regulations, here are the general steps that a US-based company selling software or other digital products should take:

1. Collect customer addresses and VAT IDs: Even if you are not registered for VAT, collecting customer VAT IDs can save you expenses in the future. This step can be taken right away for customers outside the US.
2. Understand your VAT obligations: Determine where you have VAT obligations by cross-checking customer locations and the product taxability and registration thresholds in each country. Each country has its own registration threshold, which triggers the requirement to register for VAT.
3. Monitor VAT exposure and register in exposed jurisdictions: If your sales reach the registration threshold in Serbia, you are required to register for VAT in that jurisdiction. While each country has its own processes for registration, these procedures are simplified in the European Union through the One-Stop Shop (OSS) process, where you can register with one member state on behalf of the entire EU.
4. Apply VAT where necessary: Identify transactions that require VAT collection and apply the correct rates to those invoices. In Serbia, B2C transactions are subject to VAT, and special conditions apply for B2B transactions, so you should charge VAT according to the specific requirements.
5. File VAT returns, make payments, and keep records: Periodically file VAT returns with the jurisdictions in which you sell, reporting the VAT collected and remitted. Be prepared for foreign exchange conversions and cross-border payments in various currencies. Many countries also have a legal requirement to keep VAT records for a certain period of time.

Risks of delaying compliance

Delaying VAT compliance can expose your business to various risks:

• Audits: As VAT legislation for digital goods is relatively new, audits for international sellers are increasing. Facing an audit for which you are not prepared can result in fees and penalties that can significantly impact your business.
• Paying out of pocket: Regardless of whether your customers pay VAT, you are responsible for the VAT on the sales you make. If you are audited or register late, you may have to pay the VAT out of pocket, along with penalties and fees.
• Reputational risk: When expanding internationally, your compliance with VAT rules may be questioned by potential business partners or customers. Failure to comply with VAT regulations can harm your reputation and even lead to blocked business opportunities.

To learn more about VAT rules and regulations for nonresident businesses around the world, explore Anrok's VAT index for digital products.