Tax relief “IP Box”

The IP Box regime is a tax relief that applies to the corporate income tax and consists of the right of the taxpayer, i.e. startup, to exclude the “qualified income” from the tax base (taxable income) in the amount of 80% of the income generated in this way. Simply put, this reduces the corporate income tax from 15% to 3%.

Who is eligible for IP Box?

The right to this tax relief is granted to startups that hold copyright or related rights and that generate revenue based on the use of copyright or related works. As copyright works are the result of research and development (R&D), the startup must have conducted R&D in Serbia and created copyrighted works that are further licensed to other parties, in exchange for compensation. Additionally, startups that have patented their works also have the right to the relief, as do those who have filed an application related to their invention and generate revenue based on licensing agreements.

Is it necessary for a startup to deposit a copyright, or file an application related to an invention?

In order for a startup to be able to use this tax relief, it must deposit a copyright or file an application related to the invention with the Intellectual Property Office no later than the expiration of the tax period in which it first applied this tax relief. Since deposited copyrights, especially software, are subject to constant modifications, it is not necessary to register its modified version every time, which is very important when it comes to startups. When a startup deposits a copyright, it receives a confirmation from the Intellectual Property Office that the work has been deposited.

How does the IP Box work?

“Qualified income” is exempt from the tax base of the corporate income tax (taxable profit) in the  amount to 80% of total income so realized. In order to calculate the qualified income, first, it  is necessary to deduct qualified expenses from the total income realized on the basis of remuneration for the use of deposited copyrights and then to multiply that number by the percentage of participation of qualified expenses in total costs incurred in connection with that copyright. Qualified expenses refer to expenses related to research and development (R&D) activities that led to the creation of that deposited copyright.

Who and where should conduct R&D?

It is important that the startup which wants to use this tax relief has conducted R&D activities in Serbia and that, as a result of such an R&D, the deposited copyrighted works have emerged.

What documentation does a startup need to fill out and submit?

The startup must complete the OKP form, the form for calculating qualified income which the taxpayer must submit along with the tax balance sheet for each deposited copyrighted work separately if they want to apply for the relief. The OKP form is submitted exclusively electronically with the tax balance sheet for each tax period in which the tax relief – IP Box is applied.

What documentation does a startup need to have?

In order to use this tax relief, a startup must have the following documentation:

• confirmation that the copyright has been deposited with the Intellectual Property Office;
• documentation submitted to the competent authority regarding the deposited copyright;
• records of revenue earned on the basis of granting rights to use the copyright;
• documentation regarding the legal basis for granting rights to use the copyright;
• a description of the R&D activities that resulted in the creation of the deposited copyright.

What if the startup creates multiple copyright works?

The startup must prepare documentation separately for each copyrighted work and for each tax period separately. The startup must have documentation at the time of submitting the tax return and tax balance sheet for the tax period in which it uses the IP Box relief, and it is provided upon request by the competent tax authority.

Which regulations govern the IP Box?

The Law on Corporate Profit Tax, Article 25b
Rulebook on the Manner and Conditions of Excluding Qualified Revenues from the Tax Base of Corporate Profit Tax

Example of using the IP Box relief?

Startup “Aurora” developed software for selling various products, which is the result of previously conducted R&D in Serbia and deposited the copyright with the Intellectual Property Office, therefore obtaining confirmation of the deposit. After that, users subscribed, paid a fee, and started using the software. Since they generated certain revenues, the startup “Aurora” decided to apply the tax relief, IP Box, taking into account all the revenues from the exploitation of the software that occurred during that calendar year for which the taxable profit is determined. At the end of the tax period, i.e., the calendar year, startup “Aurora” collects all the necessary documentation and submits a completed OKP form regarding their software along with the tax balance. As a result, Aurora pays corporate income tax which includes those revenues from the exploitation of their software, but due to the IP Box relief, it effectively pays only 3% tax on those revenues instead of the standard 15%.