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Official Instructions for the “Independent Contractor Test”


If you have not been able to get acquainted with Instruction for applying the Independent Contractor Test from the Tax Administration, we found the following text useful for you, since the Instruction has been (un)expectedly published on as much as 90 pages. Nevertheless, there’s no room for panic, as the Instruction abounds in examples and is written in a plain and legible language, which is what everyone has hoped for. The aim is to provide specific guidelines to tax inspectors while conducting tax audits, as well as to guide entrepreneurs and clients on what kind of behavior could cause failure of the test.

The following is an example from the Instruction that illustrates how the criteria in the Independent Contractor Test is met in practice.


Company A, whose business activity is computer programming and employs 65 people, hires an entrepreneur under a Software Development Service Agreement. The Agreement was concluded for a period of 12 months. Company A has been paying the entrepreneur according to the invoices issued and did not calculate taxes on other income and contributions for pension and disability insurance upon payment.

Based on the tax audit, the tax inspector has concluded the following:

CRITERION 1 – Working Hours, Rest Periods and Leaves

  • The entrepreneur is obliged to attend monthly meetings at the business premises of the Company A, in order to determine the status of the project.
  • The entrepreneur has to deliver a weekly report to Company A via e-mail at the end of every week.
  • The total price of the entrepreneur’s services for 12 months has been agreed based on the total number of hours needed to complete the service.
  • The entrepreneur issues a monthly invoice in accordance with the number of hours spent on provision of the service.
  • It has been established that, by examining the entrepreneur’s invoices issued for the first six months, 4 invoices were for the same amount of money for a total of 60 hours spent, while 2 invoices were for a lower amount.
  • Company A states that the entrepreneur provided services in a shorter period due to its absence, as evidenced by the submitted e-mail correspondence, for 2 months when lower amounts of invoices were invoiced.

Tax Inspector states that CRITERION 1 IS NOT FULFILLED.

CRITERION 2 – The Employer’s Premises

  • Company A only keeps records of the costs of leasing their own premises.
  • Company A states that itdoes not finance the acquisition of the entrepreneur’s business premises or in any way participate in the choice of the business premises or other places of employment of the entrepreneur neither it determines the place where the entrepreneur will perform the work.
  • The entrepreneur spends time at Company A’s premises once a month.
  • The entrepreneur provides services from Company A’s business premises.

Tax Inspector states that CRITERION 2 IS NOT FULFILLED.

CRITERION 3 – Professional Development and Training

  • The analysis of the gross balance showed that Company A kept records of the costs of professional development, but that the whole amount of expenses is related to the professional development of employees of Company A.
  • Company A states that it hired an entrepreneur due to specific knowledge that the entrepreneur possesses, necessary for Company A’s project, which the employees at Company A do not possess. Accordingly, Company A did not finance or organize the professional development or training of entrepreneurs, as the prerequisite for hiring an entrepreneur was to possess specific expertise.
  • The HR department, in charge of organizing and monitoring the professional development of employees, states that it did not organize professional training of entrepreneurs.

Tax Inspector states that CRITERION 3 IS NOT FULFILLED.

CRITERION 4 – Human Resources

  • Company A states that it is a common procedure in procurement procedures for specialized services to publish a request for tenders on its website.
  • Company A has a database of external suppliers to whom such a request is submitted by e-mail (Company A encloses a supplier database and an e-mail correspondence with the entrepreneur in which the procurement department of Company A submits a request to the entrepreneur to an e-mail address).
  • Company A did not receive an invoice from advertisers or third parties providing job-finding services.

Tax Inspector states that CRITERION 4 IS NOT FULFILLED.

CRITERION 5 – Work Equipment and Managing the Work

  • Company A has 70 registered computers. Since Company A has 65 employees, the inspector checks the use of the remaining 5 computers. The remaining 5 computers were found to be used solely to provide services to one specific client due to confidentiality requirements.
  • Computers are in one room within Company A’s business premises, and computers are accessed by specific employees.
  • The only tool that Company A provides to an entrepreneur is a software license that allows the entrepreneur to access Company A’s infrastructure, where the entrepreneur sets up the results of his or her work, which are further integrated into Company A’s final customer service. All other tools are owned by the entrepreneur.
  • Company A provides the entrepreneur only with the specialized tools needed to accomplish the work for which the entrepreneur is hired.
  • The tax inspector determines that Company A does not manage the entrepreneur’s work process but supervises the results of work, which is reflected in the reports the entrepreneur is required to submit weekly and in monthly meetings.

Tax Inspector states that CRITERION 5 IS NOT FULFILLED.

CRITERION 6 – Income

  • Company A states that in accordance with the Service Agreement, the entrepreneur has committed himself to exclusivity in the period of service provision, which is why 100% of the entrepreneur’s income cames from Company A during the term of the Agreement.

Tax Inspector states that CRITERION 6 IS FULFILLED.

CRITERION 7 – Business Risk

  • The entrepreneur is hired to perform services that are within the scope of the business activity of Company A (the entrepreneur is hired to provide computer programming services, which is the main activity of Company A).
  • The Agreement contains provisions according to which the entrepreneur must compensate Company A if the use of the service for Company A or a client of Company A results in damage – the amount of compensation, according to the Agreement, cannot exceed twice the amount of compensation of the entrepreneur.

Tax Inspector states that CRITERION 7 IS NOT FULFILLED.

CRITERION 8 – Non-Compete Clause

  • The Agreement contains provisions prohibiting the entrepreneur completely from providing services to other clients during the term of the Agreement, as confirmed by the statement of the legal representative of Company A.

Tax Inspector states that CRITERION 8 IS FULFILLED.

CRITERION 9 – The Hiring Period

  • The contractor is hired for 12 months so during this period he exclusively provides services to Company A.

Tax Inspector states that CRITERION 9 IS FULFILLED.

Out of 9 criteria, the tax inspector decided that the entrepreneur fulfills 3 criteria with regard to its relationship to Company A, as the client, but doesn’t fulfill 6 remaining criteria. That means that the entrepreneur has not failed the test.

Would you have passed the test following this example?

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Tijana Žunić Marić


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