In the first months of 2021, the economy was overwhelmed with details of the intense negotiations between the Government of the Republic of Serbia on one side, and representatives of the Association of Freelancers and the Association of Internet Workers on the other. Finally, this dynamic battle got its epilogue at the end of April of that year, with the Government’s announcement which has officially put a “full stop” to this matter. At that point, their differences seemed to have been resolved.
The cause of this lingering battle was the growing dissatisfaction of a number of taxpayers, natural persons who earn income from abroad, and who received unpleasant surprise mid-autumn 2020 when they were warned by the authorities to settle their tax obligations or will otherwise face misdemeanor fines for violation of relevant tax regulations of the Republic of Serbia.
From October 2020, the dissatisfaction of freelancers has grown exponentially manifesting through street protests and official requests to the competent authorities for lawful resolution of the situation. The call by competent authorities to freelancers to retroactively settle their tax obligations in staggeringly high amounts was the trigger that opened up numerous questions that were not asked in time, and the answer to which could not have been delayed any longer.
After exhaustive negotiations, freelancers have (partially) successfully negotiated adequate amendments regarding their status, so this battle seemingly reached a satisfactory end.
Table of contents
What Is the Outcome of the Negotiations with the Government?
TL;DR: Under the agreement with the Government, freelancers’ normative expenses were increased to 50%, and freelancers who retroactively pay contributions are entitled to have pensionable service registered in proportion to the part of the obligations paid. Debts of freelancers with a gross income of up to RSD 64,000 per month were written off for 2015 to 2021, others settle their debt without interest in 120 monthly installments, and freelancer associations were given a seat in the workgroup drafting new regulations.
1. Recognition of Normative Expenses
TL;DR: The Government raised freelancers’ normative expenses to 50%, up from the 43% originally proposed. These expenses did not have to be proven because the law provided for them, so the tax base was automatically cut by half before tax was calculated on income earned by providing services online, which lowered the final tax liability.
At the request of freelancers, the Government adopted the proposal to increase the percentage of normative expenses of freelancers to 50% (from the originally proposed 43%). In practice, this meant that before calculating the tax obligation on basis of each income that was generated by providing services on the internet, a deduction for business expenses was calculated, and those expenses were not taxed.
The existence of these expenses since they are foreseen as a legal category, do not have to be proven, which meant that freelancers automatically had a tax base deduction for one half, so the final amount of the tax obligation of freelancers was a lot lower than it was foreseen before the negotiations.
2. Recognized Work Experience
TL;DR: Freelancers whose gross monthly income exceeded RSD 64,000 over the previous six years pay taxes and contributions for that period and earn the right to have pensionable service registered for it, in proportion to the part of the obligations paid. This finally gave freelancers the status of insured persons, so paying contributions gained a practical purpose.
Huge news for all independent internet workers was the Government’s decision to adopt a proposal for proportionate recognition of freelancer’s pensionable service. This possibility is related to individuals whose income from the past years does not fulfill the condition for the debt to be written off on basis of taxes, and which shall retroactively pay the contributions for that period.
So, a freelancer whose monthly gross income was greater than RSD 64,000 in the past 6 years is obliged to pay due taxes and contributions for the period when they were earning that income, and shall earn the right to have pensionable service registered for the same period, in proportion to the part of the obligations paid.
Registering pensionable service for freelancers was a novelty that was of great significance, having in mind that freelancers were finally allowed to acquire the official status of insured persons, so paying contributions to the state gained its practical purpose and justification.
3. Freelance Taxation in Serbia - Legal Status
TL;DR: Until permanent rules were adopted, the Law on Amendments to the Personal Income Tax Law (Official Gazette of the RS, No. 44/2021) applied: Tax Administration claims from 2015 to the end of 2021 were written off for freelancers earning up to RSD 64,000 gross per month, while others pay without interest until the decision, in 120 monthly installments.
The conditions which were agreed upon as a result of negotiations were supposed to apply until the end of 2021, which was the deadline for adopting regulations that would officially regulate the status of freelancers in the future.
Namely, from January 1, 2022, the following had been announced:
- amendments to the Personal Income Tax Law
- amendments to the Law on Compulsory Social Security Contributions,
- adoption of a completely new law that would regulate flexible types of work.
Until the announced amendment of all regulations, the conditions which were agreed upon and defined by the Law on Amendments and Modifications of the Law on Personal Income Tax from April 28, 2021 (Official Gazette of the RS, No. 44/2021), were applied.
Namely, by the new amendments and modifications of legal decisions, freelancers who earned a gross monthly income up to RSD 64,000, i.e., RSD 768,000 yearly, were exempted from paying taxes and contributions which they have not settled from the previous period.
In other words, in this way, all claims of the Tax Administration were written off from January 1, 2015, until the end of 2021 for all freelancers who earned a gross income of up to RSD 64,000 or around EUR 540 monthly.
For those freelancers whose income surpassed the aforesaid amounts, there was still an obligation to settle their tax debts from before, however, without calculating interests until the day of adopting a Decision of the Tax Administration which determines the exact amount of tax obligation. Another relief for the second category listed was the possibility of paying in installments. Those whose arrears were not written off in full pay them over 10 years in 120 equal monthly installments.
At the time of adoption, it was expected that, if truly implemented, the announced novelties in the legislation would contribute to resolving all related matters that have arisen in practice up to that point. Besides, it was justified to expect that by filling existing legal gaps, a clear and transparent system would be implemented, which would remove legal uncertainties from the then existing order.
4. Participation in the Drafting of New Legal Decisions
TL;DR: The Association of Freelancers and the Association of Internet Workers were allowed to choose representatives in the workgroup drafting the new legal decisions. The Government rejected the main demand, however: writing off all debts from January 2015 to October 2020 regardless of income. For many freelancers the agreement remained unsatisfactory, and the Internet Workers Association called it only a first step.
Not only was their status due to soon get a legal framework, but the agreement with the Government allowed freelancers to actively take part in its creation. Besides the previously listed novelties, at the meeting of the Government and the freelancers, an agreement was reached that the Association of Freelancers and the Association of Internet Workers will get the chance to choose their representatives who will be an integral part of the workgroup for drafting new legal decisions.
By that, both associations had the chance to directly present their attitudes and requests regarding the formal status of freelancers, meaning that their voices could be heard.
Despite the positive unfolding (at least based on the first impression) it seemed that the final results had not yet been achieved.
Namely, one of the main requests which were highlighted during the protests was met with the Government’s disapproval, in particular, the writing off of all previous debts (regardless of the amount of generated income) from January 2015, until October 2020, to which the initial tax decisions were related, which was the main reason for freelancers to protest on the streets.
Although to a certain part, the increase of approved normative expenses decreased the taxpayers’ strain, there was still a number of freelancers who considered that this kind of solution was not satisfactory and that it was an unjustifiably accepted agreement which did not lead to the desired outcome.
Not only that, but the Internet Workers Association has publicly shown their attitude that, even if by the adoption of this Decision there was relief to a number of freelancers, the situation at that time was still far from ideal, and this battle represented only the first step towards an exhausting battle which awaited freelancers. Whether this step would be a stepping stone, and how it would be implemented in practice, became clear in the following years, as described below.
5. How Is Freelance Taxation Regulated Today?
TL;DR: The temporary rules from 2021 were replaced by a permanent system: since January 1, 2023, freelancers calculate and pay tax and contributions themselves on a quarterly basis, choosing one of two models. The 2021 agreement still applies to income earned from 2015 to 2021, for which the Tax Administration determines the obligation by decision, payable in 120 monthly installments.
No separate law on flexible forms of work has been adopted. The status of freelancers was instead regulated through amendments to the Personal Income Tax Law and the Law on Compulsory Social Security Contributions (Official Gazette of the RS, No. 138/2022), which have applied since January 1, 2023. Since then, freelancers calculate and report tax and contributions quarterly, choosing one of two models: the first recognizes a fixed amount of normative expenses, while the second recognizes a lower fixed amount increased by 34% of gross income.
Obligations for income earned from 2015 to 2021 are resolved under the agreement described in this article: the Tax Administration determines them by decision, without interest until the decision is issued, and freelancers pay them in 120 monthly installments. We explain the current amounts and conditions of both models in our blog taxes for freelancers in Serbia. If you need help with a Tax Administration decision or with choosing a model, please contact our tax law team.
Frequently Asked Questions
What percentage of normative expenses was recognized for freelancers under the 2021 agreement?
At the request of freelancers, the Government adopted the proposal to increase normative expenses to 50% (from the originally proposed 43%). Since these expenses were foreseen as a legal category, they did not have to be proven, so freelancers automatically had their tax base reduced by one half. This regime was transitional and no longer applies: since January 1, 2023, freelancers choose between two taxation models.
Can freelancers register work experience?
Yes. This possibility applies to freelancers whose income from past years does not meet the condition for the debt to be written off and who retroactively pay the contributions. A freelancer whose monthly gross income was greater than RSD 64,000 in the past 6 years must pay the due taxes and contributions for that period and earns the right to have pensionable service registered for the same period, in proportion to the part of the obligations paid. This is pensionable service, not employment-based work experience. Freelancers who pay pension insurance contributions today earn pensionable service; under the first model the payment is mandatory only once quarterly income exceeds the recognized normative expenses, and under the second model it is always mandatory.
Which freelancers had their tax debts written off?
Freelancers who earned a gross income of up to RSD 64,000 per month, i.e., RSD 768,000 per year, were exempted from paying unsettled taxes and contributions from the previous period. In this way, all claims of the Tax Administration from January 1, 2015, until the end of 2021 were written off for these freelancers.
Is interest charged on freelancers’ outstanding tax debts?
No, but only until the day the Tax Administration adopts a Decision determining the exact amount of the tax obligation. Freelancers whose income surpassed these amounts must still settle their earlier tax debts.
Can freelancers pay their tax debt in installments?
Yes. For freelancers whose debts were not written off, the possibility of paying in installments was an additional relief: the debt is paid in 120 equal monthly installments over 10 years. The obligation is determined by a decision of the Tax Administration, which issues decisions by year of income.
Did freelancer associations take part in drafting new regulations?
Yes. At the meeting of the Government and the freelancers, it was agreed that the Association of Freelancers and the Association of Internet Workers would choose representatives who would be an integral part of the workgroup for drafting new legal decisions. The work of that group led to the amendments to the tax laws of December 2022, not to a separate law on flexible forms of work.
How are freelancers taxed today?
Freelancers calculate, report and pay tax and contributions themselves every quarter, choosing one of two taxation models. The return is filed on form PP OPO-K within 30 days of the end of the quarter, electronically through the ePorezi portal or the Freelancers portal. Normative expense amounts are adjusted every year, so they should be checked on the Tax Administration freelancers portal.
Reviewed by: Nemanja Žunić, Partner · View profile
Updated by: Kristina Jevtić, Of Counsel · View profile
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