Propositions of the Serbian Government on Regulating Income Tax and Social Security Contributions for Foreign Income of the Workers on the Internet

Author: Attorney-at-law Pantović R. Đorđe, Law Firm “VUK Tax Attorneys”

Date: 2nd April 2021

Initially, Serbian Government announced on 5th February 2021, after negotiations with representatives of workers on the internet (the “Freelancers”), the Preposition aiming to find a compromise solution of the problem that occurred regarding non-reported and non-paid income taxes and social security contributions by the Freelancers for income received from abroad in the previous period. The Government, by issuing this Proposition, announced, amongst other, that all proceedings of control and assessment of taxes for Freelancers will be suspended until adoption of amendments to the Law on Personal Income Tax (“LPIT”), which should regulate method of determination and payment of their tax obligations, where adoption of said amendments was announced to occur until 1st May 2021. Afterwards, on 2nd April 2021, the Government filed to the Serbian National Assembly proposed Amendments to LPIT, as well as proposed Amendments to the Law on Mandatory Social Security Contributions, all with the view of implementation of said Proposition dated 5th February 2021.

Proposed Amendments to LPIT define that for persons who in the period 1st January 2015 – 30th September 2021 received income from copyright and related rights and income from service contract, that is taxed by self-assessment, the Tax Administration will determine tax liability by issuing the Resolution. Also, it is proposed that stated method of taxation of such income will be applied, unless:

  • statute of limitation for tax assessment occurred according to regulations that were in force at the time of receiving income, or
  • proceeding for determination of tax liability is legally final, or
  • before entry into force of these Amendments, the tax has been paid on the basis of regulations that were applicable at the time when tax liability has arisen.

Further, according to the proposed Amendments to LPIT, the Freelancers would be released from payment of income tax for the said period, for income received within the calendar year up to the annual amount of 384.000 RSD, and recognized expenses would be 43% of received income. Also, the Freelancers would be entitled to pay tax, determined by the tax Resolution, in 120 monthly installments, i.e. within the period of 10 years, where first installment will be due for payment upon enacting the tax Resolution, without charging the late payment interest.

Having in mind all afore said, we believe that such Preposition of Amendments to LPIT is unfair and discriminatory, because the Freelancers for whom tax proceedings are legally finalized, or who paid their taxes earlier, are unable to regulate their tax obligations in accordance with new, more beneficial regulatory solution. Therefore, persons who diligently participated in tax controls and filed tax returns, submitted required documentation and accepted tax calculation of the Tax Administration, and cooperated with the aim to duly fulfill their tax obligations, are now essentially punished. The Government, as the highest state body of executive power in the Republic of Serbia, falls into trap again, by making honesty and diligence of tax payers who orderly settled their tax obligations, effectively meaningless, and such approach of the Government in conducting public income policy, is impermissible.

Additionally, with the filed Proposition of the Amendments to the Law on Mandatory Social Security Contributions, the Government did not provide to the Freelancers pension and disability insurance rights (“PDI”), which Freelancers would have to acquire by paying PDI contributions for past period, predominantly by omitting to recognize this period as their pension insurance period, which is relevant for fulfilling conditions for retirement. Namely, it is indisputable that payment of PDI contributions is mandatory, even for the past period, however, it is unacceptable that regardless of subsequent payment of PDI contributions for the past period, that period is not included as the pension insurance period for the Freelancers. The reasons of fairness unequivocally dictate that the Freelancers, who during certain period were performing activities for which they earned income, and who settled PDI contribution for that income, are entitled to inclusion of said period in their pension insurance record, since only in this way they are enabled to exercise social security rights which undoubtedly belong to them by paying contributions for PDI.

Bearing in mind that all previous announcements and proposals of the Government have resulted in numerous issues for which adequate solutions have not yet been provided, it is clear that this topic will be relevant in the forthcoming period, and we will therefore monitor upcoming activities to help in removing ambiguities by our legal analysis.