Italy criticizes Serbian tax incentive: it's a privileged regime

The Italian Tax Administration has assessed that the ten-year corporate tax exemption granted by Serbia for certain large investment projects constitutes a privileged tax regime under Italian rules on the exemption of capital gains from the sale of shares. This treatment could have consequences for Italian investors in Serbia when they decide to sell their participation in a domestic company.

The Italian Agenzia delle Entrate issued Ruling No. 135/2026, and KPMG, one of the world’s largest audit and consulting firms, published an analysis of that decision. According to the analysis, the Serbian ten-year exemption for qualified investment projects falls under Italian rules on privileged tax regimes, relevant to the application of the participation exemption, or the PEX regime.

How the Serbian tax incentive works

Serbia has enabled large investors to be exempt from corporate tax for up to ten years, under prescribed conditions. The incentive under Article 50a of the Corporate Income Tax Act is related to investments exceeding one billion dinars in fixed assets and the employment of at least 100 new employees for an indefinite period.

This is one of the most famous tax incentives that Serbia has used to attract large investment projects.

What does Italy’s decision mean?

The Italian participation exemption system, or PEX, allows, under certain conditions, 95 percent of capital gains realized from the sale of a qualifying participation to be exempted from taxation.

However, one of the conditions for the application of this regime relates to the tax status of the company in which the share is held.

Agenzia delle Entrate has concluded that the Serbian ten-year exemption represents a privileged tax regime due to which the PEX exemption cannot be applied to capital gains realized from the sale of shares. KPMG also states that certain transitional provisions introduced by the Italian budget law of 2018 do not apply to such capital gains.

Serbia already preparing to abolish ten-year exemption

This case comes at a time when Serbia is already preparing changes to the tax incentive system.

The proposed amendments to the Law on Corporate Income Tax envisage the deletion of Article 50a, i.e. the abolition of the possibility of using this ten-year tax exemption for new investments, with the proposed implementation of the amendments from January 1, 2027.

At the same time, the proposal contains transitional rules for taxpayers who acquire the right to the incentive under the conditions stipulated by the law, which allows the continuation of the use of already acquired rights in accordance with those rules.

These changes come in the broader context of harmonizing the Serbian system with international rules on minimum taxation and the treatment of tax incentives.

Branislava Petrovic

Agenzia delle Entrate

Italian Tax Administration

Serbian tax incentives

privileged tax regime

ten year income tax exemption for qualified investment projects

Italian rules on participation exemption

PEX regime

Law on Corporate Income Tax

Draft Amendments to the Law on Corporate Income Tax

abolition of Article 50a