A special kind of tax relief, involving two categories of persons, is prescribed by the Personal Income Tax Law and the Law on Mandatory Social Security Contributions for the so-called, newly settled taxpayers who enter into employment relationships with a domestic employer for an indefinite period – the base for paying taxes and contributions on such persons’ salaries is reduced for 70%.
In addition to the Laws, a separate Rulebook on the manner of exercising the right to decrease the tax base of the tax on salary of the newly settled taxpayer governs the condition for this incentive in detail.
Two types of persons fall under the category of the newly-settled taxpayers:
a) Young repatriate – a person who:
- is less than 40 years old at the moment of concluding the employment agreement,
- has predominantly lived abroad for at least 12 months prior to entering into an employment relationship, in order to complete practical training i.e. further education,
- earns a minimum of 176.456 dinars monthly (note: the amounts are harmonized from time to time, so this amount is changed in comparison to our initial text, in accordance with the current version of the Law).
b) Repatriate/Foreigner – a person who:
- has not been predominantly residing in the Republic of Serbia within 24 months preceding the conclusion of the employment relationship with the domestic employer,
- earns a minimum of 264.684 dinars (harmonized amount).
In the first case, the predominant residing is deemed to be any period longer than 183 days within 12 months preceding the conclusion of the employment agreement, whereas in the second case, the predominant residing is the residence longer than 366 days within 24 months preceding the conclusion of the employment agreement.
To fulfil the conditions for this tax relief, it is necessary that the newly settled taxpayer enters into an employment relationship in a workplace for which there is a need for employees to have special professional education and for which there is a need that cannot be easily met in the Serbian labour market. From the IT industry aspect, and particularly having in mind the enormous number of jobs that keeps growing, this condition is usually easily met in practice.
An additional condition is that the employee resides on the territory of the Republic of Serbia at the same time as establishing employment and can be considered its ‘tax resident’ on the basis of the centre of business and life interests in Serbia.
What is interesting is that, once a newly settled taxpayer exercises this incentive, it continues to be applied within the following 5 years upon the establishment of the employment relationship, regardless of the change of employer. In other words, the employee “carries” this benefit along.