Tax Highlights - December 2019
11 December 2019
ADOPTED AMENDMENTS AND SUPPLEMENTS TO THE TAX LAWS SET
The National Assembly of the Republic of Serbia adopted a set of tax laws such as the Tax Procedure and Tax Administration Law, the Personal Income Tax Law, the Corporate Income Tax Law and the Property Taxes Law on 6 December 2019.
The laws enter into force on the eighth day after their publication in the Official Gazette, and most provisions have been delayed until the beginning of 2020.
Below is an overview of the most significant changes.
TAX PROCEDURE AND TAX ADMINISTRATION LAW
- Delivery of the tax document to the taxpayer's e-mail address is envisaged, through the Tax Administration portal, i.e., through unique electronic mailbox, in accordance with the law governing electronic administration;
- The tax act delivered electronically via the Tax Administration portal will be considered to be delivered on the day it is sent to the Tax Administration portal;
- A tax act can only be delivered to natural persons via e-mail, if natural persons agree to this method of delivery.
Parties to the tax proceeding
- The Tax Administration will take over the tasks of maintaining a unified information system of local tax administrations by 1 January 2021 at the latest, which will allow the Tax Administration to have unique insight into the tax and other accounts of the payer.
PERSONAL INCOME TAX LAW
Exemptions from the taxation
- Increase of the non-taxable amount of scholarships and student loans up to RSD 30,000 per month;
- Living expenses of natural persons participating in the programs of the European Union and other international organizations are exempted up to RSD 100,000 per month;
- The income of non-residents who stay in the territory of Serbia up to 90 days in the period of 12 months which begins and ends in the current tax year, when the income is earned from a non-resident employer who does not perform the business activity in the territory of the Republic of Serbia, is excluded. The exemption shall also apply to the income generated by a non-resident principal from a non-resident payer performing a business activity in the territory of the Republic of Serbia, under condition that the service provided to a non-resident principal does not serve his activity, i.e. the activity he performs in the territory of the Republic of Serbia.
Amendment of the tax base for earnings
- The non-taxable amounts were adjusted by the annual Consumer Price Index;
- RSD amounts of monthly earnings represent the amount of average monthly earnings in the Republic of Serbia paid, i.e. earned in the period of the previous 12 months, starting from the month of September in the current year, for which period the data of the republic authority responsible for statistics are published;
- An increase in the non-taxable amount is planned to RSD 16,300;
- The tax base for earnings of the newly domiciled taxpayer may be reduced by 70% at the conclusion of a permanent employment contract with a qualified employer, if prescribed conditions are fulfilled;
- The right to deduction may be exercised for a period of 5 years from the date of conclusion of the employment contract.
Amendments to the tax exemption
- Transportation costs for arrival and departure from work - up to the price of a monthly public transportation ticket, or up to the actual transport costs, and up to the maximum of RSD 3,914 per month must be documented.
Tax reliefs introduced for the employment of new persons
- A newly established company that performs an innovation activity (established by 31 December 2020) may exercise the right to an exemption from payroll tax up to RSD 150,000 for a period of 36 months from the date of incorporation, for the founders employed in that company. It is necessary for the founder to have a contract of employment with the newly incorporated company and to be registered for mandatory social security, as well as to own at least 5% of the stocks or shares of the newly established company;
- An employer who employs a "qualified new employee" by 31 December 2020 may earn tax benefits of 60%, 65% and 70% in 2020, 2021 and 2022, respectively;
- The provisions referring to the exemption from payment of payroll tax by the employer engaged in the innovation activity will apply from 1 March 2020;
- Existing new employment benefits are prolonged up to 31 December 2020.
Income from self-employment
- The income generated by an entrepreneur, which is taxed by the other income tax, is not included in taxable income for self-employment;
- The amendments stipulate that the provision of auditing, accounting and tax advisory services may be flat-rate taxed;
- New criterion for the classification of lump-sum entrepreneurs into groups so that one group consists of lump-sum entrepreneurs performing the same predominant activity registered in the business registry, i.e. the activity from which, in the tax period, the lump-sum entrepreneur achieved a higher amount of income than the activity he registered as a predominant activity;
- Modification of the deadline for applying for a flat-rate taxation of entrepreneurs. A flat-rate taxation request may be submitted to the competent tax authority by 31 October of the current year for the following year;
- Person who starts performing a business activity and registers in the SBRA may submit the flat-rate taxation request only at the moment of registration.
„Test of independence“ for entrepreneurs and lump-sum entrepreneurs (“Entrepreneur”)
- The gross income of an entrepreneur who performs an activity for the same principal and/or his related party (the "principal") and who fulfils 5 of the 9 criteria of the "test of independence" is taxed as other income at the rate of 20%, without reducing standard costs.
- The test of independence criteria:
- employer determines the working hours to the entrepreneur, or the vacations and absences of the entrepreneur are dependent on the decision of the employer and compensation to the entrepreneur is not reduced in the proportion to the time spent on vacation;
- entrepreneur commonly uses premises provided by the employer or in place determined by the employer;
- employer performs or organizes professional trainings and development for the entrepreneur;
- employer hired an entrepreneur, after advertising for the need of engaging the individuals or engaging a third party that is commonly engaged in finding an individual eligible for work engagement, whose services have resulted in engaging that entrepreneur;
- the principal provides his own basic tools, equipment or other basic material or intangible assets needed for the regular work of the entrepreneur or finances their procurement, except for specialized tools, equipment or other specialized tangible or intangible assets that may be necessary for the performance of a specific job or order, or normally directs the work process of the entrepreneur, except for the management which entails giving a basic order in connection with the job ordered and reasonable control of the results of work or supervision of the client, as a good businessman, over the performance of the work he has commissioned;
- at least 70% of entrepreneur’s income within 12 months starting or finishing in the current tax period, the entrepreneur acquires from one employer;
- the entrepreneur performs activities from the activity of the client, and for the performed jobs, his contract of engagement does not contain a clause under which the entrepreneur bears the usual business risk for the job delivered to the client of the client, if such client exists;
- cooperation agreement for engagement of the entrepreneur contains partial or full competition clause for the entrepreneur to provide services to other employers, except partial prohibition for providing services to direct competitors of the employer;
- the entrepreneur performs business activity with compensation for the same employer constantly or with breaks for 130 or more working days within 12 months starting or finishing in the same tax year.
- The principal is considered to be a domestic or foreign legal person, entrepreneur or lump-sum entrepreneur who directly or indirectly hired an entrepreneur;
- Amendments to the flat-rate taxation of entrepreneurs will apply to the determination of tax on flat-rate established income starting in 2020;
- The income paid to the entrepreneur or lump-sum entrepreneur will be considered as an income from self-employment, regardless of the nature of his relationship with the principal, as of 1 March 2020.
THE COMPULSORY SOCIAL SECURITY CONTRIBUTION LAW
- It is stipulated that the base of the contribution on salaries for employees and employers is reduced by 70% for the newly established taxpayer when the prescribed conditions are met.
- The contribution rates for PDI have been changed to 25.5% and 11.5%, when contributions are paid simultaneously from base and on the base respectively;
- Extension of the validity of old benefits until 31 December 2020 for Employers that hire new persons;
- The extension of the old benefits until 31 December 2020 is prescribed for an employer who has an employment relationship with at least two persons;
- Benefits are prescribed for a newly established company which performs innovative activity, where a newly established company can exercise the right to exemption from payment of contributions at the expense of the employee and at the expense of the employer from the earnings of the founders who are employed in that newly established company;
- It is stipulated that the employer can exercise the right to exemption for the founder's salaries paid in the period of 36 months from the day when the company was founded, as well as for each founder on the basis of his monthly salary, if that salary does not exceed RSD 150,000 per month, and if it is higher, then on the basis of a part of earnings in the amount of no more than RSD 150,000;
- The exemption from the obligation to pay the PDI contribution at the expense of the employee and the employer is prescribed for the employer who makes the payment of salaries to qualified new employees as of 31 December 2022.
THE PENSION AND DISABILITY INSURANCE LAW
- The amendments introduced that for the purposes of domestic regulations, residents employed abroad are not considered to be insurees, if during that time they are not compulsorily insured with a foreign insurance company, or if pension and disability insurance rights, according to the regulations of that country, cannot be exercised or used outside its territory;
- The following shall be added as self-insured persons:
- persons who work in the territory of the Republic of Serbia for a foreign employer, who does not have a registered office in the Republic of Serbia, for whom they are compensated for their work and are not insured on another basis;
- persons who, in accordance with the law, perform agricultural activity as entrepreneurs, if they are not compulsorily insured on the basis of employment.
CORPORATE INCOME TAX LAW
- Expenses related to the reduction of debt borne by the bank, determined in accordance with the Conversion of Housing Loans indexed in Swiss francs Law, are recognized as expenses of the bank.
- The above mentioned provision applies to the determination, calculation and payment of tax liability starting in 2019.
- The income that the resident taxpayer – investment fund derives from the alienation of property is not included in the tax base.
Capital gains and losses
- Capital gains and losses are not determined by taxpayers established in accordance with the regulations governing investment funds.
- It is prescribed that banks should be recognized the right to a tax credit of 2% of the remaining debt determined in accordance with the Conversion of Housing Loans indexed in Swiss francs Law;
- The tax credit can be used by the bank for two consecutive tax periods, in the amount of 50% of the tax credit thus calculated;
- The unused tax credit amount can be transferred to the income tax account from future accounting periods, but not longer than ten years;
- It is envisaged that a resident taxpayer who is considered to be the ultimate parent legal entity of an international group of related legal entities is obliged to submit to the competent tax authority an annual report on the controlled transactions of an international group of related legal entities (Country by Country report);
- The resident taxpayer, the ultimate parent legal entity, is required to submit a Country by Country report to the competent tax authority no later than 12 months after the end of the business year for which this report is submitted.
The above mentioned amendments apply to the determination, calculation and payment of a tax liability starting in 2020.
PROPERTY TAX LAW
- It is specified what is considered to facilities intended for primary agricultural production.
- The obligation to file tax returns through public notaries is introduced.
- Persons who do not keep books of account file a tax return for property taxes through a public notary when the tax liability arises or expires on the date of certification or confirmation of the document drawn up by the public notary, i.e. the legally binding decision made by the notary public.
- Taxpayers of inheritance and gift tax and the transfer of absolute rights tax shall be exempted from filing their tax return when the inheritance, gift and transfer of absolute rights are exercised on the basis of a document made, certified or verified by a public notary, or on the basis of a legally binding decision of the public notary.
- The public notary is obliged to submit the tax return that he has prepared within 24 hours to the competent authorities.