Why It Is Important to Understand Capital Gains Tax
Capital gains tax is an obligation that often comes as an unpleasant surprise to individuals and entrepreneurs after the sale of real estate, shares, or other assets. Although it may seem complex at first, a proper understanding of the rules on capital gains tax can make the difference between lawful tax savings and costly penalties.
This guide explains when capital gains tax is payable, how it is calculated, in which situations exemptions apply, and why seeking timely advice from a lawyer is often the best decision.
What Is a Capital Gain?
A capital gain is the difference between the sale price and the purchase price of a particular asset-most commonly real estate, securities, or intellectual property rights.
When an asset is sold at a higher price than it was acquired for, a capital gain arises, and with it the obligation to pay capital gains tax.
Legal Framework
The main rules on capital gains are set out in the Personal Income Tax Act. Capital gains are treated as a specific category of income and are therefore subject to special tax rules.
The current tax rate is 15%, but in some cases the tax base may be reduced.
When Is Capital Gains Tax Payable?
Capital gains tax is payable when an individual earns income by selling assets, including in particular:
sale of an apartment, house, or commercial premises at a price higher than the acquisition price,
sale of land or usage rights,
sale of shares, equity interests, or other financial instruments.
In all of these cases, the difference between the sale value and the purchase value forms the basis for taxation.
When Capital Gains Tax Is Not Payable (Exemptions)
There are several situations in which capital gains tax is not payable, i.e. where the law provides for an exemption:
if the real estate has been owned for more than 10 years,
when real estate is sold and the proceeds are invested in the purchase of a new residential property within 90 days,
if the real estate was inherited from a close family member (spouse, child, parent),
in the case of a gift between close family members,
in the case of the sale of property acquired before 2004, when the owner was a natural person and the property was not used for business purposes.
Capital Gains on the Sale of Real Estate
Capital gains most commonly arise on the sale of an apartment, house, or business premises.
Example:
If an apartment was purchased for EUR 80,000 and later sold for EUR 100,000, the capital gain amounts to EUR 20,000.
The 15% tax rate is applied to that amount, which results in a tax liability of EUR 3,000, unless there is a legal basis for exemption.
Capital Gains in Cases of Inheritance and Gifts
In the case of inheritance, capital gains tax is not payable at the moment of acquisition, but a tax liability may arise upon subsequent sale of the inherited property.
The tax base is then calculated using the market value at the time of inheritance.
For example, if you inherit a house worth EUR 50,000 and later sell it for EUR 70,000, the tax base for capital gains is EUR 20,000.
In the case of gifts, if the gift comes from a person who is not a close family member, capital gains tax is calculated as if the property were purchased.
How to Calculate Capital Gains Tax
The basic formula is:
Capital gain = sale price – purchase price – selling costs (e.g. fees, commissions, investments)
The 15% tax rate is then applied to the difference.
The retail price index (inflation index) may also be taken into account, which increases the purchase price and thus reduces the tax base.
Example:
Purchase price of the apartment: EUR 60,000
Sale price: EUR 90,000
Investment in renovation: EUR 5,000
Retail price index growth: 10%
Adjusted purchase price:
60,000 × 1.10 = EUR 66,000
Capital gain:
90,000 – 66,000 – 5,000 = EUR 19,000
Tax:
15% of 19,000 = EUR 2,850
How to Avoid Capital Gains Tax – Lawful Options Only
The question “how to avoid capital gains tax” is one of the most frequently asked; however, it is crucial to stress that any reduction or avoidance of tax must be based exclusively on lawful grounds.
Lawful ways of reducing or eliminating the tax include:
selling property after 10 years of ownership,
reinvesting the proceeds in a new property within 90 days of the sale,
gifting or transferring property within the close family,
demonstrating that there was no actual gain (e.g. when the sale price is equal to or lower than the purchase price).
Deadlines and Procedure for Filing Capital Gains Tax
Capital gains tax must be reported within 30 days from the date of sale.
The taxpayer submits a tax return on form PPDG-3R to the competent local office of the Tax Administration, according to their place of residence.
The Tax Administration then issues a tax assessment decision, and the deadline for payment is 15 days from receipt of that decision.
Legal Consequences of Failing to Report Capital Gains
Failure to report capital gains within the prescribed deadline may result in:
monetary fines (from RSD 5,000 to 150,000 for individuals),
calculation of default interest,
misdemeanour proceedings in cases involving larger amounts and deliberate tax evasion.
Why Engage a Lawyer?
The rules governing capital gains tax contain numerous exceptions, deadlines, and technical details that can be difficult to interpret correctly without professional assistance.
A lawyer experienced in tax law can help you:
correctly calculate the tax base and identify potential exemptions,
prepare the necessary documentation and file the tax return,
represent you before the Tax Administration in the event of a dispute.
By working with a law firm, you can be confident that your transaction will be both legally and fiscally sound.
Conclusion
Understanding how capital gains tax is calculated and when exemptions apply is essential for every individual or entrepreneur who plans to sell property or other assets.
The law allows several ways to reduce or avoid the tax burden-but only if you act in full compliance with the regulations.
If you are planning to sell real estate, shares, or carry out another transaction that may trigger capital gains tax, contact our team. Law Office Radoičić & Partners provides professional advice and legal support at every stage-from calculating the gain, to filing the tax return, to exercising your right to an exemption.