The Act on Digital Assets (the “Act”) came into force on December 29, 2020, and started to be applied six months later. However, to this day, it remains unclear to many whether digital assets, specifically virtual currencies, can be used as a means of payment and whether they have the same function as fiat currencies (such as dinars, euros, dollars, marks, etc.).
The answer is brief, and at least for now, in Serbia, it is not subject to different interpretations – no, digital assets are not a means of payment, regardless of whether they are virtual currencies (as is the case with popular Bitcoins) or tokens (NFT tokens being the most well-known example)
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Namely, the Act defines digital assets as a digital record of value that can be digitally bought, sold, exchanged, or transferred and can be used as a means of exchange or for investment purposes. Digital assets do not include digital records of currencies that are legal tender and other financial assets regulated by other laws, except in rare and always specified situations.
Furthermore, virtual currencies, commonly known as cryptocurrencies, are defined as a type of digital asset not issued by, and for whose value, a central bank or other public authority does not provide a guarantee. These currencies are not necessarily tied to legal tender and do not have the legal status of money or currency. However, physical, or legal entities can accept them as a means of exchange, and they can be bought, sold, exchanged, transferred, and stored electronically.
Therefore, based on these two definitions alone, we can conclude that:
- Digital assets can be used as a means of exchange.
- Virtual currencies are not issued or guaranteed in value by the central bank or any other public authority (as repeatedly emphasized by the National Bank of Serbia).
- Virtual currencies do not have the legal status of money or currency.
Additionally, the Act on Foreign Exchange Operations clearly states that the means of payment in the Republic of Serbia are only the dinar and foreign means of payment, including foreign exchange and foreign cash, thereby excluding virtual currencies as an authorized means of payment.
Therefore, in Serbia, virtual currencies can only be used as a means of exchange, with the possibility of being converted through authorized service providers related to digital assets and transferred to a bank account as fiat currencies, after which they can be freely disposed of.
Certainly, the tax aspect and the innovations introduced by the Act in Serbia in this regard should not be overlooked, as they necessitate changes to the Corporate Income Tax Act, the Property Tax Act, the Value Added Tax Act, and the Individual Income Tax Act.
- Capital gains
A legal entity that obtains capital gains from the sale of digital assets includes the amount of the capital gains in the tax base of corporate income tax.
However, it will not be obliged to include the amount of the capital gains in the tax base of corporate income tax if it is a legal entity licensed to provide services related to digital assets and has acquired the digital assets exclusively for further sale in the course of providing services related to digital assets.
Additionally, exemption exists if the legal entity, in the same tax period in which it sold digital assets, invests the proceeds from the sale of digital assets in the basic capital of a resident taxpayer or investment fund whose center of business or investment activities is in Serbia.
In the case of individuals, a tax exemption of 50% on capital gains exists if the taxpayer, within 90 days from the date of sale, invests the proceeds from the sale of digital assets in the basic capital of a Serbian resident company, or in the capital of an investment fund whose center of business and investment activities is located within the territory of the Republic.
Individual taxpayers who, within 12 months from the date of sale of digital assets, invest the proceeds from the sale of digital assets for the mentioned purposes, will be granted a refund of 50% of the paid capital gains tax.
However, if the company whose basic capital has been invested with proceeds from the sale of digital assets conducts a reduction of its basic capital in the calendar year in which the investment was registered and in the following two calendar years, upon the decision to reduce the basic capital, it forfeits the right to the previously obtained exemption and is obliged to inform the competent tax authority about the loss of the right within 30 days from the day of losing the right.
- VAT
The transfer and sale of virtual currencies (excluding digital tokens) are exempt from VAT, with no right to deduct input tax.
- Property Taxes
Inheritance and gift tax on digital assets are not paid by the heir of the first line of inheritance, spouse, and parent of the deceased, or the gift recipient within the first line of inheritance and spouse of the donor.
Taxpayers who, in relation to the deceased or donor, are in the second line of inheritance, pay inheritance and gift tax at a rate of 1.5%.
In other cases, taxpayers who are in the third and subsequent line of inheritance, or taxpayers who are not related to the deceased or donor, pay inheritance or gift tax at a rate of 2.5%.
The Global Situation
Cryptocurrencies and the possibility of using them for payment purposes remain topics of debate worldwide. Some believe that there should be consideration for using them as a means of payment – examples being El Salvador and the Central African Republic, which led the way by incorporating them into their official currencies. However, many others consider this to pose a significant risk to the country’s monetary system, especially given their high volatility.
Without taking a stance on this issue, we can conclude that, even though digital assets are not officially recognized as a means of payment in Serbia, they still present interesting business opportunities for crypto enthusiasts.
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