Tax Administration vs. Freelancers – Which Side Will Prevail?

personal income tax serbia, taxation in serbia

On October 13, 2020, the Tax Administration issued a warning on their website to all natural persons – taxpayers of the Republic of Serbia who receive a salary or other income from abroad to file their taxes and fulfill the self-assessment tax return obligation for realized income from abroad, in accordance with the Law.

This unexpected “appeal” has caught by surprise those individuals towards whom it was directed, and it was followed by a backlash of the public. Not only did the Tax Administration specifically draw attention to the taxpayer’s obligations, but also indicated that they have already identified certain individuals who do not adhere to these rules.

An outburst had occurred even prior to the Tax Administration’s official announcement – a photograph with an announcement about the obligation to voluntarily report income had appeared on social media. Among other things, the announcement contained examples of the platforms whence the untaxed income that natural persons receive in Serbia stem from (such as Google, Upwork, Bibo Global Opportunity, Airbnb), as well as the announcement that Tax Administration’s inspection had begun. Lastly, the Tax Administration warned the taxpayers to settle their tax obligations until October 31, 2020, in order to “avoid a misdemeanor or criminal offense”.

Still, a few days later, an official announcement was given, with the same content. According to the Tax Administration, they have analyzed the transactions made from abroad to the foreign exchange accounts of natural persons in Serbia and compared them to the submitted tax reports of the calculated and paid self-assessment taxes and contributions on the basis of salary and other income. The analysis has shown that the obligation to file a self-assessment tax return provided by the Law is widely violated by freelancers and other natural persons employed by foreign employers, which was the reason behind the Tax Administration’s intervention.

Who Is Obliged to Pay the Taxes?

Although paying income taxes to earnings from abroad is not a novelty, the impression is made that a great number of taxpayers did not know about this obligation of theirs, and that the ones who did know weren’t sure about the method of calculation, nor about the amount which they are obliged to pay.

Namely, by the Personal Income Tax Law (hereinafter: the Law), natural persons, residents of the Republic of Serbia who receive salary, or other income from abroad are obliged to independently perform self-assessment and file their tax return within 30 days from receiving each payment.

In other words, the obligation to calculate and pay taxes by self-assessment applies to all natural persons who are considered to be residents of the Republic of Serbia by the Law, and these are:

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Thus, it is clear that the tax resident of Serbia can be a foreign citizen if they fulfill the conditions of one of the criteria listed above.

What Type of Income Is Subject to Taxation?

Another condition is that the residents are natural persons who have generated income from abroad which is subject to taxation in accordance with the Law, such as:

  income from another natural person:

  • income from copyright or related rights and industrial property rights;
  • interests;
  • other income from Article 85 of the Law on Personal Income Tax;
  • income from renting immovable property and leasing movable assets;

  salary or another type of generated income:

  • in another country or from another country, from the diplomatic or consular mission of a foreign country, i.e. international organization or representatives or officers of such mission or organizations;
  • from another payer, if the withholding taxes are not calculated or paid by the income payer, i.e. if the income is realized by the party who is not a taxpayer and withholding taxes (from the payer who is not obliged to file a withholding tax – PPP PD form).

So, in case you have rented your apartment on Airbnb or taught English online and received income based on that, then you surely belong to this group of taxpayers.

In other words, the announcement of the Tax Administration is directed towards subjects who perform activities such as:

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Does the Method of Payment Matter?

In the announcement of the Tax Administration, the particular emphasis was put on payments made via credit cards that were opened abroad, such as Skrill, Payoneer, and Neteller.

Payments received via PayPal or your foreign exchange bank account or any other payment methods are also considered.

Thus, from the aspect of taxation, it does not matter how you received the payment.

What Should You Do?

In accordance with the instructions of the Tax Administration, taxpayers who are natural persons are obliged to file tax returns within a period of 30 days from the day of realized income. The taxes should be filed by filling out the Tax return on self-assessed tax and social security contributions from salary and other income paid by an individual as taxpayer (the PP OPO Form) electronically or via regular mail delivery to the Tax Administration’s organizational unit.

Besides the obligation to file for tax within the given deadline, after every single transaction, one must file a separate tax return: i.e. the number of payments shall match the number of tax returns filed.

The amount of the tax obligation depends on whether besides providing freelance services, you have a regular job as well, i.e. whether you are employed or not.

Also, depending on the performed activity, the amount of recognized expenses which can be filed to the taxpayer varies, amounting to 34%, 43%, or 50%. The expenses listed are deducted from the tax base and are not subject to taxation.

Also, depending on whether you are employed or not, the obligation to pay taxes and old age and disability pension, i.e. health insurance and insurance in case of unemployment shall differ. The obligation to pay contributions shall depend on whether you receive gross or net compensation, and whether there is a Double Tax Treaty with the respective country from which the payment was made.

The Statute of Limitations to Determining and Claiming Taxes

The right of the Tax Administration to determine and claim taxes and additional taxes has a statute of limitations of 5 years. Expiration of rights to determine taxes and additional taxes starts from the first day of the following year in which taxes i.e. additional taxes should have been assessed.

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The statute of limitations to the rights to claim taxes and additional taxes starts from the first day of the following year, from the year in which the taxpayer’s obligation started.

What Are the Consequences?

In case you fail to file and calculate taxes, you shall be held responsible for misdemeanor and criminal offense, which in addition bear different consequences.

Namely, a natural person who is an entrepreneur can be fined in the amount of 5,000 dinars to as much as 150,000 dinars for failure to submit a tax return. Besides that, if the amount of the tax evasion exceeds 1,000,000 dinars, you may be held criminally accountable. In that case, besides the fine, you may face a prison sentence in duration of 1 up to 5 years.

Despite the fact that paying taxes is unavoidable for every business subject, from the Serbian IT market’s standpoint, this kind of tax obligation is unjustified and unfair, and it also reduces the competitiveness of the Serbian IT industry on the international market. Thus, this might be the right time for certain improvements to Serbian legislation, towards the establishment of a more just and efficient tax system.

In the meantime, think about whether it pays out to remain a freelancer, or possibly consider registering your business and forming a company.

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