New Changes to the Independent Contractor Test and Two More Months of Grace Period

The long-awaited and announced Draft Law on Amendments to the Personal Income Tax Law, which has significantly stirred up the IT industry in Serbia has finally entered as a motion into parliamentary procedure.

Specifically, the original text of the Draft Law underwent several changes after the broader members of the IT community expressed their objections in public hearings, which required it to be included in public discussion. According to the statement of the Government of the Republic of Serbia, all objections and suggestions to the Draft contributed to the amendments of the legal solution to cater to market needs.

As expected, the adopted Draft will delay the implementation of the Independent Contractor Test until March 1, 2020, therefore, allowing the IT sector two months “grace period” to adapt to these major changes. On the other hand, this does not apply to incentive measures that shall be applied from the beginning of next year.

Also, worthwhile changes have been introduced to the criteria under the Independent Contractor Test. A short reminder – the so-called Independent Contractor Test, which aims to determine whether an individual is an entrepreneur earning income from an independent business activity or is actually an employee, consists of 9 criteria. We wrote about the first version of the criteria in our news New Lump-Sum Taxation of Entrepreneurs and Impact on the IT Sector.

If the proposed criteria determine that the individual is actually an employee, the company will be able to enter into a working relationship with that individual by concluding an employment contract and thus take advantage of the announced tax incentives.

The Ministry of Finance has adjusted five of the nine criteria in line with the given remarks to eliminate the possibility of extensive interpretation that could lead to bypassing the legal provisions.

We provided a summary of the new criteria below:

Therefore, the above-mentioned changes relate to the second, third, fifth, eighth and ninth criteria.

The motion introduced by the Government that is to enter the parliamentary procedure is an attempt to reconcile the contesting stances of the wider IT community and address the problem of unfair competition and the informal economy within the IT sector.

In that sense, the Government of Serbia took a stance that these changes should enforce legal certainty, both for companies that contract entrepreneurs and entrepreneurs who work directly for clients abroad. It is also emphasized that improving the tax and legal environment is one of the Government’s long-term goals that, with particular emphasis on supporting the further development of a know-how-based IT economy.

While the authorities involved in the Draft Law argue that the introduction of a new system will allow an easier phase for a business startup phase and the development of innovative ideas, the IT community shares a concern whether the proposed measures will have a counter-effect on the growth of the Serbian IT industry. It remains to be seen what the effect of the announced changes will be, as well as how will it affect the IT sector in Serbia in the long run after the final version of the Law and its implementation.

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