Avoiding Double Taxation of Rental Income Between Germany and Serbia

If you rent out an apartment in Belgrade and are taxable in Germany, sooner or later you will ask yourself the same question: do I have to pay tax on the rental income twice, once in Serbia and once in Germany? The short answer: no, provided the rules of the double taxation agreement are applied correctly. The long answer is a little more complicated, and that is exactly what this article walks through.

The legal basis: the Germany–Serbia double taxation agreement

Germany and Serbia are bound by a double taxation agreement (DTA, German: Doppelbesteuerungsabkommen, DBA) that was originally concluded with the former Yugoslavia, according to publicly available information with effect from 25 December 1988, and continues to apply to Serbia as a successor state. Austria also has its own separate DTA with Serbia (in force since 2010). Succession arrangements of this kind are common under international law, but in practice they occasionally cause uncertainty, because advisers search for the agreement under either the old or the new name. What matters for owners: the agreement is valid and covers, among other things, income from immovable property.

This reflects the current assessment. Before applying it to your own case, have it confirmed by a German tax adviser and, for the Serbian side, by a local accountant or lawyer: details of the credit or exemption method and exact deadlines can change and should be checked against the current position before you file your tax return.

The core principle: the situs principle

For income from letting real estate, almost every DTA worldwide follows the same core principle, the situs principle (German: Belegenheitsprinzip, also called the location principle): the country in which the property is located has the primary right to tax. For an apartment in Belgrade, this means Serbia taxes the rental income first.

That does not automatically release German owners from every obligation towards the German tax authorities. Germany generally still includes the foreign rental income in the tax return, usually via Anlage V (the schedule for income from letting and leasing) in combination with Anlage AUS (the schedule for foreign income). Whether the income is then exempt in Germany (subject to progression) or the tax paid in Serbia is credited depends on the specific provision of the agreement and on how the tax authorities currently interpret it.

How taxation works in Serbia in practice

If you let property in Serbia, you need to be registered for tax purposes, usually via a PIB number (Poreski identifikacioni broj, the Serbian equivalent of a tax number), unless you are already registered as an entrepreneur or preduzetnik. For private landlords without a business there is a simplified procedure for reporting rental income to the competent tax authority.

Two points that are often overlooked in practice:

• Reporting obligation regardless of residence: even if you live permanently in Germany and only rent out the apartment in Belgrade, you must declare and pay Serbian tax on the rental income. There is no automatic exemption for non-residents.
• Flat-rate cost deductions possible: Serbian tax on rental income is typically not levied on the full gross amount, but after deducting a flat-rate or actual share of expenses. The exact amount of this deduction and the applicable tax rate change from time to time and should be agreed with a Serbian accountant before your first tax return.

Worked example: an apartment let for 500 euros a month

To make the mechanics tangible, here is a simplified sample calculation (using commonly applied reference values, not a binding tax ruling for any individual case):

In Germany, this 6,000 euros of gross rental income would be declared in Anlage V and Anlage AUS. If the exemption method with progression applies, the 6,000 euros themselves remain tax-free in Germany but increase the tax rate applied to your other German income. If the credit method applies instead, the 6,000 euros are in principle included in the German tax base, but the roughly 900 euros of tax already paid in Serbia are credited against the German tax liability. In both cases the result is meant to be no genuine double burden, but the administrative route to get there differs considerably. Which of the two methods applies in an individual case is a question that only the responsible tax adviser can answer bindingly, based on the current interpretation of the agreement.

The German side: what happens in your tax return

In the German income tax return, the foreign rental income must in principle be reported, even if it has already been taxed in Serbia. The DTA does not remove the obligation to declare; it prevents the actual double burden, via one of two methods:

1. Exemption method with progression (Progressionsvorbehalt): the Serbian rental income remains tax-free in Germany but affects the tax rate applied to your other German income.
2. Credit method (Anrechnungsmethode): the tax paid in Serbia is credited against the German tax liability, but the income is in principle also taxed in Germany.

Which method actually applies follows from the text of the agreement and the current view of the tax administration. This is a point where a short consultation with a tax adviser specialising in cross-border matters pays off in practice, because applying it wrongly leads either to genuine double taxation or to an incorrect return that has to be corrected later.

The certificate of residence as practical proof

To claim the benefits of the DTA with the Serbian and German tax authorities at all, a certificate of residence (Ansässigkeitsbescheinigung) is often required in practice: an official document issued by the German tax office (Finanzamt) confirming that you are tax resident in Germany. Without this proof, a Serbian authority may not grant the treaty benefits automatically, or the German tax office may raise questions about how the Serbian tax is credited. It is advisable to apply for this certificate early rather than having to react only once the tax authorities ask a specific question, as processing at the tax office can take several weeks.

Special case: several owners or joint ownership

For married couples or communities of heirs who jointly own an apartment in Belgrade, there is the additional question of how the rental income is split between the owners, both for the Serbian and for the German tax authorities. In practice it is usually split in proportion to the ownership shares, which should be reflected accordingly in the PIB registration on the Serbian side and declared proportionally in Anlage V on the German side. If this split is not documented cleanly from the outset, a later review, for example on inheritance or separation, often leads to avoidable effort to sort things out.

Common mistakes in practice

• Rental income declared only in Serbia and not disclosed in Germany: if discovered, this leads to back payments, interest and, in the worst case, criminal tax proceedings for incomplete information.
• No proof of the tax paid in Serbia kept: without payment receipts, a credit in Germany is hard to obtain.
• Ancillary and management costs not documented: certain costs can be offset in both Serbia and Germany; without receipts you are leaving real money on the table.
• Payment deadlines in Serbia missed: Serbian tax on rental income is generally due shortly after the income is received, not at the end of the year as German owners are used to.

Practical steps for owners

Frequently asked questions

Do I really have to apply for a certificate of residence, even if my rental income is small? Legally, that depends on the individual case and on what the authority concerned actually requires. In practice, however, the certificate makes processing considerably easier even for smaller amounts and helps prevent follow-up questions. Applying for it at the competent German tax office involves manageable effort, which is why it is advisable in most cases as soon as you receive regular rental income from Serbia.

What if I have not yet reported my Serbian rental income in my German tax return? That calls for a prompt consultation with a tax adviser, ideally before an automated control notification or a query from the tax office arrives. Depending on the circumstances, a voluntary disclosure that exempts you from penalties (strafbefreiende Selbstanzeige) may be an option. However, this route is tied to strict formal requirements and should only be taken with expert advice, never on your own.

Does the DTA also apply if I later sell the apartment at a profit? In principle, yes. Capital gains from immovable property typically also fall under the situs principle and are taxed primarily in the state where the property is located, i.e. Serbia. The specific treatment in Germany (keywords: speculation period, exemption or credit) differs from the taxation of ongoing rental income and should be reviewed separately with a tax adviser in good time before a planned sale.

Conclusion

Genuine double taxation of rental income from an apartment in Belgrade can be avoided under the existing DTA, provided both sides are handled correctly. The most common mistake is not applying the agreement wrongly, but simply failing to disclose the income on one of the two sides. If you document cleanly from the start, report on time in Serbia, keep a certificate of residence on hand and complete Anlage AUS correctly in your German return, you avoid both a double tax burden and unpleasant questions from the tax office.