New tax opportunities regarding Google Merchant Account registration

The official Google website recently published the change of the list of countries allowed to register developers and traders at Google Play Store (program named Google Merchant Account). In this way, local developers are allowed to place their applications – IPs (including in app purchases) at the digital market provided by Google Play Store directly from Serbia.

So far, developers had to relocate IPs in one of the foreign countries, ie in foreign legal entity incorporated for the purpose of placement of IP to the Google Play Store and earn income from the users (by licencing of IP and in app purchase), while local company was able to earn income only by promoting IPs. Considering that IP in such business models was not located in Serbia, a local company was not fulfilling the conditions for applying tax opportunities.

Considering that Serbia adopted new tax opportunities at the end of 2018 related to the industry of knowledge, which creates and earns income based on using intellectual property in Serbia, the main benefit of the new business model is the possibility to use the following tax opportunities:

  • IP Box – Local developer earns income by already created IP, which is being placed directly to the market by Google Play Store. In this case, the tax opportunity is related to a local developer who (by fulfilling all prescribed conditions) can apply for tax relief up to 80% of income earned by IP, which results in a decrease of the effective tax rate of corporate income tax up to 3%.
  • R&D Deduction – Local developer works on creating new IP in order to place it directly to the market by Google Play Store. In this case, tax opportunity is related to a local developer who is able to decrease his current or future tax liability by recognizing double costs of developing new IP (regardless of the activities resulted in developing new IP or not).
  • Opportunity for investors – there are investments in the recapitalization of a local start-up in order to develop its IP and place such IP into the market by Google Play Store. In this case, tax opportunity for investing in a start-up can be used by investor who (by fulfilling all prescribed conditions) has direct tax savings for investing in local developer by tax credit in the 30% of the value of cash deposit, while on the other side, local start-up receives funds for further IP development.

In conclusion, including Serbia into supported locations has very positive impacts on applying new tax opportunities, which means that a combination of these two factors can significantly improve the competitiveness of local developers.

Source: SGA

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