One common agreement that appears in legal transactions and results in the transfer of ownership rights is the gift agreement.
Due to the same legal effects that, on the one hand, the sales agreement produces and which contains certain benefits, its conclusion is often resorted to as an alternative to the sales agreement.
For example, the contracting parties decide to conclude the gift agreement of a motor vehicle or the gift agreement of real estate, thus concealing that the contract on the sale of a motor vehicle or real estate has essentially occurred.
To avoid such fictitious legal transactions, our law office will explain some of the basic concepts and features of the gift agreement in the following text.
A gift is an integral part of our lives because we often find ourselves both in the role of a gift giver and in the position of a gift recipient, but only in certain cases we conclude a gift agreement, depending on the subject of the gift.
WHAT REGULATION GOVERNS THE GIFT AGREEMENT?
The gift agreement, unlike most other agreements, although it is often represented, is not regulated by the Law on Obligations.
This agreement is governed by the provisions of the Serbian Civil Code from 1844, which defines the gift agreement, the capacity to contract, the subject matter and form of the agreement and the conditions for revoking the gift.
When it comes to the gift agreement made during the marriage, the provisions of the Family Act are also applied, while the Law on Inheritance must be considered when gifts are made to the heir.
FEATURES OF THE GIFT AGREEMENT
A gift agreement is an agreement by which one contractual party – the donor undertakes to give or give a certain thing as property or to transfer a certain right to the other contractual party – the gift recipient.
It is a free legal transaction because the donor cannot claim compensation or performance in his favour by the gift recipient.
As far as the form of the agreement is concerned, a written form is required for the real estate gift, while the gift of movable property may also be done orally. The condition for the validity of such an oral agreement is that the movable property is handed over.
The gift agreement’s subject is exclusively the donor’s property – his thing (movable, immovable, expendable, non-expendable, future things) or his right (transferable property right), which means that the subject of the agreement cannot be someone else’s property or right.
Contractual capacity implies that the donor must be a business-able person (business capacity is acquired from the age of 18), while the gift recipient can also be a business-incompetent person.
Persons over the age of 14 and under the age of 18 may dispose of the property only if the property’s value is of little importance, while a minor over the age of 15 may freely dispose of his property acquired by work.
THE GIFT REVOCATION
The rule is that the donor cannot return the object of the gift afterwards, but there are certain exceptions to this rule, that is possible to revoke the gift in several cases:
- If the material situation of the donor changes in the sense that there are no basic means of subsistence;
- If the gift recipient shows great ingratitude towards the donor;
- In the case of gifts made during the marriage – in the case of divorce or annulment of the marriage, gifts whose value is disproportionately high concerning the value of the joint property are returned. In contrast, the usual gifts made by the spouses to each other are not returned. The spouse who gave the gift is not entitled to a refund if the return of the gift would constitute an apparent injustice to the spouse who received the gift.
THE GIFT TAX
The Property Tax Act regulates the tax treatment of gifts.
Gift tax is payable when the object of the gift is the right of ownership of the real estate, cash, savings deposit, bank deposit, monetary claim, digital property, intellectual property rights, ownership right on a used motor vehicle, used vessel, or used aircraft and other movable items.
WHEN IS THE GIFT TAX NOT PAYABLE?
Under the Property Tax Act, a gift is not considered:
- A transfer without compensation the right to immovable property and movable property (cash, savings deposit, deposit in the bank) on which value-added tax is paid, per the regulations governing value-added tax, regardless of the existence of a gift contract;
- Income of a natural person on the basis that is exempt from income for taxation, i.e., which is the subject of taxation by income tax of citizens, under the law regulating the taxation of citizens’ income;
- Income of a legal entity that is included in the calculation of the basis for taxation by corporate income tax of legal entities under the law governing the taxation of profits of legal entities.
In these cases, no gift tax is paid. The gift tax is not paid even when the subject of the gift is:
- a share in a legal entity, i.e., securities;
- Moped, motor cultivator, tractor, working machinery, non-motor vehicles, i.e., vehicles that are not considered to be used (which have not been registered on the territory of the Republic of Serbia at least once, starting from their production or last importation);
- Vessels that are not considered to be used;
- State aircraft, non-proprietary aircraft, i.e., aircraft that are not considered to be used;
- Human cells, tissues and organs.
The tax is not paid even in a situation when the value of the gift received by the gift recipient as a gift from the same person is less than 100.000,00 RSD in one calendar year.
WHO PAYS TAXES, AND HOW MUCH ARE THE TAX RATES?
A gift taxpayer is a gift receiver. The tax base consists of the market value of the donated property determined by the tax administration.
Regarding tax rates, the taxpayer in the second line of succession in relation to the donor, according to the legal order of inheritance, pays the gift tax at a rate of 1.5%. In contrast, the taxpayer who is in the third and further succession line in relation to the donor, i.e. the taxpayer who is not related to the donor, pays gift tax at the rate of 2.5%.
WHEN IS THERE A GIFT TAX EXEMPTION?
The Property Tax Act prescribes several grounds for exemption from gift tax. The most common cases in practice when the gift tax is not paid are as follows:
- When the gift recipient is the first line of succession and the spouse of the donor;
- When the gift recipient is a farmer of the second line of succession who receives as a gift property that serves him to perform agricultural activities, if he has continuously lived in the household with the donor for at least one year before receiving the gift;
- When the gift recipient is of the second line of succession, and he received the apartment as a gift if he and the donor lived continuously in a joint household for at least one year before receiving the gift;
- The gift recipient – on the property transferred to him in the probate procedure, which he would have inherited if the heir – the donor had renounced the inheritance.
THE REAL ESTATE GIFT AGREEMENT
A common gift agreement in legal transactions is an agreement whose subject is real estate.
As already stated, the written form of the agreement is mandatory, the signatures of the contracting parties are certified by the competent notary public, and the donor acquires the right of ownership on the day of registration in the competent cadastre of real estate.
If the donor is married, the consent to the gift agreement must be given by his spouse unless the real estate that is the subject of the gift contract represents a special property of the donor (i.e., if he acquired it through inheritance or received it as a gift or otherwise).
It is not uncommon for the parties to decide on the conclusion of the gift agreement instead of concluding the sales agreement to obtain the transfer of ownership rights, all because of certain advantages that this contract provides, such as tax costs and lower fees of notaries.
On the other hand, the conclusion of the gift agreement should not be taken lightly, bearing in mind that it can be revoked for various reasons. In this sense, the gift agreement should not be used as a substitute for a sales agreement.
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