Serbia capital gains tax raises a fundamental question in milestone-based M&A transactions involving the acquisition and sale of companies, particularly in the energy and infrastructure sectors: does it arise at the moment of share transfer, or only when income is actually realized? In these deals, it has become increasingly common for the purchase price not to be fixed at signing, but instead to depend on future regulatory, technical, or commercial developments.
Such transactions are typically structured as milestone-based share purchase agreements (SPAs), under which entitlement to payment arises progressively as the project advances.
Formal Share Transfer ≠ Realized Income
Although the transfer of shares is formally registered upon execution of the agreement and entry in the relevant register, this fact alone does not mean that income has been realized. Where the purchase price is contingent on future events, uncertain in amount, and may never become payable, there is at the time of the share transfer, no obligation on the buyer to pay and no corresponding right of the seller to claim payment. In other words, no receivable exists and, consequently, no income has been realized.
Contractual Structure Is Decisive
In modern SPA arrangements, particularly in project-driven industries, the agreement deliberately separates the formal transfer of shares from the moment when the obligation to pay the purchase price arises. Provisions governing the purchase price and conditions precedent (milestones) typically stipulate that the seller’s entitlement to payment arises only upon the fulfilment of clearly defined regulatory, technical, or commercial conditions. Until those conditions are satisfied, the buyer has no debt and the seller has no receivable. This structure is not exceptional; it reflects established market practice in M&A and project finance transactions.
Why Upfront Taxation Creates Economic Harm
If tax liability were linked solely to the formal transfer of shares—while disregarding the contingent nature of the purchase price—the seller could be required to pay tax on income that has not been realized and may never be received. This would expose the seller to permanent economic harm, without any assurance that the agreed consideration will ultimately become payable. In transactions where part of the consideration may never materialize, such an approach would amount to taxing hypothetical rather than actual income, contrary to fundamental principles of tax law.
Tax Liability Arises When Income Is Realized
By its nature and under the applicable statutory framework, capital gains tax is triggered by realized income, not by a potential or speculative future gain. Accordingly, tax liability can arise only when, pursuant to the SPA, the buyer’s obligation to pay becomes due and the seller acquires an enforceable right to payment. In milestone-based SPA structures, this occurs upon the fulfilment of the relevant condition—not on the date of the formal share transfer.
Conclusion: Protect Your Interests Through Proper Structuring
In share sales involving deferred and contingent consideration, the decisive tax moment is not the formal transfer of shares, but the point at which income is legally and economically realized. Any other interpretation results in the taxation of unrealized income and distorts the legal and economic balance of the transaction. Proper SPA structuring, combined with a clear understanding of the interaction between contractual mechanisms and tax rules, is therefore essential to protecting the seller’s interests.
How IVVK Lawyers Can Help
We advise sellers and investors on structuring SPAs involving deferred and contingent consideration, with a strong focus on tax certainty, risk allocation, and the protection of our clients’ economic interests. If you are considering a project-driven share sale, early tax structuring can be critical. Contact IVVK Lawyers for expert guidance tailored to your M&A needs in Serbia and beyond.
About IVVK Lawyers
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