Rulebook on the Manner of Exercising the Right to a Salary Tax Base Reduction for Newly Settled Taxpayers

employer taxes on wages, tax deductions for salaried employees, expenses and benefits for employers

Do you remember our recent blog on tax benefits for employment of returnees and foreigners? In said blog, we have pointed out the discrepancies in the existing legislature. However, the biggest problem was the fact that the rules for the implementation of the tax benefits for employing young foreigners and returnees were missing.

Prescribed rules for implementing these benefits did not exist, giving hard time to both the legal profession, and bookkeepers. Although, it is clear that the employer was put at a disadvantage the most.

On November 13, 2020, the Rulebook on the manner of exercising the right to a salary tax base reduction for newly settled taxpayers has entered into force (hereinafter: “the Rulebook”).

This Rulebook prescribes the manner of exercising the right to a salary tax base reduction for the newly settled taxpayer, for the salary they make at the qualified employer.

You can find out in our blog who is the qualified employer, what type of employment relationship is the basis for this tax benefit and who are the newly settled taxpayers, whereas the overview of all tax benefits that were introduced with the purpose of developing an innovative economy can be found in our blog: checklist of tax incentives for companies in Serbia – don’t give away your money just yet!

What does this Rulebook Bring to the Table?

The Rulebook has provided instructions on how one can prove:

  • prior residence abroad, and
  • absence of any prior connection of the newly settled taxpayer and the employer from the Republic of Serbia.

By analyzing this Rulebook, we can deduce that the required proof related to these facts, and with the purpose of exercising the right to these benefits are realistic, i.e. that the confirmations and statements which have to be obtained, in regular circumstances, will not pose a challenge to our clients.

Moreover, in our blog on this topic, we have also mentioned that the provision stating that the newly settled taxpayer, a foreigner, entity which has not predominantly resided in Serbia for 24 months prior to the conclusion of the employment agreement is a disputable and undefined provision. It was uncertain what predominant residence actually means, and how long does it last specifically. Now, the Rulebook precisely states that the predominant residence in the period of 24 months is actually residence in Serbia which lasted longer than 366 days.

On the other hand, the newly settled taxpayers – returnees, from Article 15v, paragraph 4, item 2, who are under 40 years old and have resided abroad in the past 12 months for training or education purposes shall have to prove that during those 12 months, they have not resided in Serbia for more than 183 days in total.

Are There Certain Obligations after Proving that All the Conditions for The Tax Reduction Are Met?

After the employee and employer, based on the documentation listed, prove that the condition was met, that the employee is considered to be a newly settled taxpayer, in the time of exercising the rights to the tax reduction, it will be necessary to prove that the entity, after concluding the employment agreement, fulfills the prescribed condition, i.e. that they are considered a taxpayer of the Republic of Serbia.

That is, in accordance with Article 7, paragraph 2 of the Law on Personal Income Tax:

  • Has a residence on the territory of the Republic of Serbia, or has resided in the Republic of Serbia for business or living purposes, or
  • has resided on the territory of the Republic of Serbia continuously or discontinuously for 183 or more days in 12 months which starts and ends in the current tax year.

The rulebook prescribes that this can be proved by registering one’s address or residence, and for foreign citizens, by obtaining a temporary or permanent residence for the foreign employee and members of their family.

Namely, the definition of a taxpayer in accordance with the quoted item 1, from Article 7, paragraph 2 of the Law, was always undefined and disputable – what is considered a business and living purpose, and moreover, how can one prove it?

Having in mind the regulation introduced by this rulebook, it could be said that it is firstly an act where one could find a basis to comprehend this fundamental provision of the Law.

The Situation after the Rulebook Got Enforced

In order to be able to evaluate the usefulness and implementation of the enforced Rulebook, we had to test whether it provides answers to the questions posed in our blog tax benefits for employment of returnees and foreigners.

So, has this rulebook provided answers to all of our questions?

We can say with certainty that the rulebook has answered almost every question, and at first glance, it seems that the tax administration, as well as the employers, will have the chance to start implementing this rulebook.

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