Freelancers’ tax status in the Republic of Serbia
Author: Attorney-at-law Pavličić V. Predrag, Law Firm “VUK Tax Attorneys”
Date: 22nd October 2020
As per OLI (Online Labour Index) data, based on analysis conducted within iLabour Project by the University of Oxford, Serbia is at the top of the list by its share in the global freelance market. It means that Serbia has more freelancers than France, Germany or UK per capita. Analysis determined that Serbian freelancers make approximately 1% of the freelance market. If we compare that with the fact that population of Serbia makes approximately 0,001% of the world population, it is evident that online freelancing in Serbia is rather significant activity. People that are into this kind of business conduct, often earn money using freelance digital platforms. For some freelancers, this represents additional income besides employment, while certain number of freelancers are nowhere formally employed, so this kind of work falls in the “grey zone” of business conduct, and represents their sole source of income.
Digital platforms like Upwork, Skrill, Freelancer, Elance, Toptal, etc., are not registered as employers in the Republic of Serbia. Hence, they do not have an obligation to warrant freelancers their employment rights: working hours, social insurance, annual leave etc. On the other hand, the state has serious fiscal losses since this kind of business is conducted in the “grey zone”.
By newest estimates, more than 100,000 persons in Serbia work independently over the Internet. If they work as registered entrepreneurs, freelancers are obligated to pay income tax by principle of “self-taxation”, or as lump-sum taxpayers. However, majority of freelancers conduct their business activities without any registration, and without reporting their income report, which therefore is not subjected to taxation.
We will focus on relevant aspects concerning two ways of revenue collection from digital platforms, transfer of moneys through bank account or by remittances.
1. Transfer of moneys through bank account
By latest amendments of the Law on Tax Proceedings and Tax Administration (the “LTPTA“) from December 2019, business banks are obligated to deliver, upon request of the Tax Administration, information in digital form about balance and total turnover on current accounts and savings deposits of legal entities, entrepreneurs and individuals, deposits of legal entities, as well as numbers of current accounts and savings deposits of individuals as well as business names of banks, which information relates to a period requested by the Tax Administration..
Besides that, additional obligations that were earlier established by the LTPTA for business banks to deliver information to the Tax administration in digital form, are as follows:
- executed payment orders, by payers of income and payment codes, until fifth day of the month for previous month;
- received funds on foreign currency accounts of individuals, within 30 days from the day of each payment;
- payments to the account of the entrepreneurs in a calendar month, within 15 days after the end of calendar month.
Concerning aforementioned, Tax Administration issued announcement on 13th October 2020, claiming that it possesses information on payments executed from abroad to individuals in Serbia and that there is a high rate of violation of tax laws, established by comparing data on tax filings with income earned. The Tax Administration invited all individuals that omitted to file tax declarations, to voluntarily report their income for taxation, to accordingly pay taxes and penalty interest that are due, and thereby to fulfil their legal obligations, in order to avoid statutory responsibility before commencement of proceedings by the Tax Administration.
It does not seem realistic that Tax Administration analyses in detail all data for all individuals – freelancers in Serbia who generated income from abroad in previous years, and then to compare said income with their tax declarations (that most often are not filed at all). Concerned data is actually processed by means of software on the basis of risk analysis’ parameters. Nevertheless, legal obligation of payment of taxes exists for all persons, including freelancers, that are not excluded from that obligation on any basis, while voluntary reporting and payment of taxes and social security contributions before the tax control, eliminates possibility of misdemeanor or criminal prosecution of concerned persons.
Additionally, for freelancers that generate higher income from abroad, surely it is most tax-wise to register themselves in Serbia as entrepreneurs, and depending on the specific business circumstances, to apply measures and take actions for optimizing tax costs, that can be reduced to an rather reasonable level by adequate tax planning.
In accordance with the provisions of the Article 103b of the Law on Prevention of Money Laundering and Financing of Terrorism, the National Bank of Serbia (“NBS“) is defined as institution authorized for maintaining the Unified Registry of Remittance Payment Service Users (the “Registry“). NBS started maintaining the Registry from 1st June 2020. The title of the Registry itself does not point-out relevant fact that data will be evidenced in the Registry in case the user receives cash from abroad (except through bank account), and therefore will be on a radar of state authorities.
Remittances (personal money transfers) are payment services where payment service provider receives moneys from the payer without opening an account for payer or receiver, exclusively for transfer of concerned moneys to the receiver of payment. Personal money transfers encompass remittances of workers, pensions and other social revenues, as well as help and gifts from abroad, transferred to individuals that are Serbian residents. By July 2020, nearly 900,000 citizens are registered in the Registry, of which 136,288 are payers and 754,095 are receivers of payments.
The Registry contains following information of remittances users, payers and receivers:
- first and last name;
- personal ID no./passport no. for foreigners;
- residence address;
- country of transmission/receipt;
- information whether user is payer or receiver;
- date of the payment order/date of making funds available;
- information whether payment service is provided in cooperation with global payment institution and its name;
- if payment service is provided independently, name of service and payer;
- date of providing information to NBS about remittance user from provider of payment service.
Regular submission of data to the Registry is an obligation of all providers of payment services concerning remittances, i.e. banks and payment institutions that provide such services, as well as of Public Enterprise “Pošta Srbije”.
The main goal of maintaining the Registry is improvement of efficiency in anti-money laundering system concerning payment transactions. The Registry is broaden so it can include not only accounts of legal entities and entrepreneurs but as well accounts of all individuals, with special focus on users of remittances, having regard to large spread of global payment institutions networks (Western Union, MoneyGram, Ria Money Transfer etc.), which provide services of money transfer without opening any account.
Forming of the Registry will give no additional rights to state authorities, nor will they have access to significantly different information comparing to existing data relevant for criminal prosecution, but it provides easier and faster access to data about remittance users. Information from the Registry will not be publicly available, since the provisions of the Law on Payment Services that regulate business secrets will be applied.
Although the Registry does not contain data on amounts of transactions nor other details but those prescribed, based on information that financial institutions deliver to the Registry, there is a possibility that competent authorities raise suspicion on legality of such payments, based on certain parameters such as frequency, methods of transfer, information on payers and receivers of moneys etc. Therefore, persons that in our fiscal system did not report legal basis for transferring/receiving remittance, potentially can become subject of control for determining the origin and basis for acquiring such funds. If it is determined that legal conditions are not met, there is a possibility that such funds will be subjected to taxation, or in certain cases confiscated, whereas mere non-reporting of transmission/recept of funds might be penalized.