Everything you wanted to know about the gaming industry (TAX RELATED)

Pavle Kutlešić,
Senior Manager, Deloitte Srbija
Gaming industry and tax-related topics with Deloitte Serbia team of experts.

Most professionals who run their gaming companies and studios in Serbia, or are part of the gaming industry as individuals, whether employed or under some other type of contract, face various challenges when it comes to legal, tax, administrative, financial and other aspects of their business. Especially since gaming is a global industry that relies heavily on payments from abroad and high-tech tools to access the market and consumers.

For this reason, SGA organizes informative Ask Me Anything sessions with leading experts in these fields, in order to clarify some of the most common business concerns.

Your questions on tax issues were answered by members of the Deloitte team in Serbia, and in this text, we bring you some of the answers to the questions we have received directly from the community. Check out the full session with more detailed answers on our YouTube channel.

How are online marketing campaigns and influencers paid, and how are these costs justified?

This is part of a broader topic of specific expenditures. The first question is whether we are talking about domestic or international payment. If the contractor is a domestic person, we look at whether the individual is an entrepreneur or a freelancer, and based on that, we determine what the tax treatment is. So, the most important thing is to determine the status of the person, if they are from Serbia. The tax is paid in Serbia only if the person is a natural person in Serbia. If not, it should be proven and defined in the Contract, supported by relevant invoices. How to explain to the tax control what this is about in the case of foreign influencers? There must be a document describing the engagement and exactly how the service is used. There will be more and more of that, but you should keep in mind that documenting services is the most relevant proof. We should avoid a situation where the explanation of the costs is: “It’s someone for something.”

How often do tax controls occur?

If there is no LLC, these are isolated cases. The tax administration has no way to control anything but areas where there is a high degree of risk. With larger legal entities, there are controls, once every couple of years. Sometimes more often, sometimes less. Every part of the business must be clearly justified and explained.

Tax relief in foreign business and double taxation?

The main question is whether there is a Double Taxation Treaty. With almost all European Union countries we have it. We do not have it with the USA and Australia, it will come into force for Japan next year. Most major jurisdictions, with the exception of the USA, are on that list. This means that most payments made to legal entities in the United States are subject to additional taxation in Serbia. Fees for services, royalties, licenses… Apart from this, there are no special incentives for doing business with other countries, because that would be discriminatory.

Why register for VAT?

VAT registration gives us the opportunity to deduct VAT on all purchases related to business. Procurement of telecommunication services, mobile phones, equipment, computers, bookkeeping services, licenses, all purchases related to business, utilities, and professional services. For individuals, VAT is included in the price, always. For legal entities registered for VAT, it is deducted, ie refunded by the state after payment to the supplier. Also, we have to calculate sales tax. But most things in the gaming industry are done abroad, so there is no calculation of output VAT. So – most purchases can be obtained cheaper, and there is no load at the exit. We are ready for registration, as an average gaming studio, when we get a large enough income and increased expenses. A potential drawback is that the taxpayer becomes more visible on the tax spectrum, so the business must be completely transparent. There is a higher risk of tax control.

What exactly are shares?

Essentially, ownership of one part of the company. It is measured in percentages. If I have a 1% stake I have all the rights as a business owner, or they are limited by some rules. I have the right to a dividend, to be paid a part of the profit and I have the right to sell that part of the company. This should be increasingly common in this industry. This can be worth much more than a salary and be a great investment.

Intellectual property, tax relief and deposit.

Serbia has introduced two very significant tax incentives for IP development. One refers to the period of development, the so-called R&D deduction, the other refers to exploitation. In the first case, all costs related to development, which of course includes working on the game – the costs of that development are recognized as double for tax purposes. This is very convenient during the development period, especially while there is no income yet. When we launch a game, we have the right to exempt a large part of the income from the deposited IP, under certain rules, from taxation. This is one of the best facilities globally. We can also use these incentives together.

Tax credit for investing in (gaming) startups.

Any legal entity can invest in a startup that is just starting its business. The investors receive a loan, ie they can reduce their tax liability by a certain amount. The idea is to attract investors from all industries. There is still a lack of incentives for angel investors, ie individuals who invest.

How does the exemption from taxes and contributions on the founders’ salaries work?

There is an exemption for earnings of up to 150,000 dinars for founders, for legal companies engaged in innovation activities. There is no specific definition of innovative activities, but it is very easy to prove it in the case of gaming studios. A natural person must be registered for compulsory social insurance and must own at least 5% of shares or their own shares. This incentive refers to a business entity that operates entirely in Serbia.

For broader answers to all these questions, as well as an interesting discussion on the recent topic of taxing freelancers, watch the full video: