Tax status of freelancers under new legal solutions and future expectations

Author: Attorney-at-law Đurđa N. Bošković, Law Firm “VUK Tax Attorneys”

Date: 10th February 2022

By taking an effort to regulate the status of workers on the internet who earn income from abroad, through work on internet („Freelancers“), the Serbian National Assembly adopted on 28 th April 2021 Amendments to the Law on Personal Income Tax („LPIT“), as well as Amendments to the Law on Mandatory Social Security Contributions, which entered into force on 7 th May 2021.

The Amendments to LPIT define that the tax authority will assess the tax to individuals who earned income within the period from 1 st January 2015 until 31 st December 2021, generated from copyright or as agreed compensation for work performed, and for which income the tax is otherwise payable by way of self-assessment. Also, it is defined that the said method of taxation will be implemented, 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, the respective Amendments to LPIT define that Freelancers are 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, whereas income is automatically reduced for the purposes of taxation for anticipated expenses in the amount of 50% of received income, in the same period. In addition, the Amendments to LPIT allow Freelancers to pay tax, determined by the tax Resolution, in 120 monthly installments, i.e. within the period of 10 years, whereas the first installment will be due for payment upon passing the tax resolution, without charging late payment interest.

The Amendments to the Law on Mandatory Social Security Contributions define that the amount of contributions for Freelancer's income earned in the said period is also determined by the tax resolution, and that they are paid in accordance with the Amendments to LPIT. Therefore, Freelancers are enabled to pay mandatory social security contributions, previously assessed by the tax resolution, also in installments, in the same way as the personal income tax for subject income.

However, the question remains whether and how Freelancers will be entitled to fully exercise all rights in the field of pension and disability insurance („PDI“), which they undoubtedly acquire by paying contributions for PDI for the previous period, i.e. whether the period for which they will pay contributions for PDI will be included in their insurance period, so the answers to these questions should be expected in the coming period.

The National Assembly of the Republic of Serbia adopted on 26 th November 2021 new Amendments to LPIT and to Law on Mandatory Social Security Contributions which are implemented as of 1 st January 2022, defining that the tax regime described above also applies on all revenues that Freelancers would earn by the end of 2022, and therefore initially defined period is extended for one (1) more year. Hence, these new amendments to the said laws define that Freelancers will be obliged to pay personal income tax and mandatory social security contributions in the manner described above, for income earned by working on the internet, in the period from 1 st January 2015 until 31 st December 2022. All other provisions concerning Freelancer's tax status remained unchanged.

Considering, first of all, the fact that the afore stated provisions of the LPIT and the Law on Mandatory Social Security Contributions have not yet been implemented in practice, and that the Government of the Republic of Serbia has not yet adopted appropriate bylaws necessary to implement new legal solutions, as well as the announcements that new law – the Law on Flexible Forms of Work would be passed soon, which will specifically regulate tax status of Freelancers, it is clear that this topic will be fairly relevant in the future, and we will continue to monitor further developments in order to clarify all potential ambiguities through expert analysis.