Tax Alert, October 2019
Draft of the Law on changes and amendments to the Law on Personal Income Tax
Serbian Ministry of Finance has published the Draft of the Law on amendments to the Law on Personal Income Tax (hereinafter: PIT Law) on 8 October 2019 which contains changes with respect to certain legal provisions.
It is expected that the draft will be adopted soon, and key proposals refer to:
· Tax exemption for personal income;
· Tax base for repatriates and new immigrants;
· Tax relief for newly founded companies which perform innovation activities and their founders;
· Tax relief for the qualified new employees;
· Subject to other income taxation;
· Defining acquisition price for the purpose of determining the capital gains;
· Taxation of entrepreneurs income.
Amendments to the Law on Personal Income Tax
1. Tax exemption for personal income
The new Article 9b specifies an exemption from taxation of the income of a non-resident taxpayer who spends less than 90 days in Serbia in 12 months beginning or ending in the respective tax year if that income is derived from a non-resident principal who does not perform the business activity or other activity in the territory of Serbia.
The exemption shall also apply to income derived from a non-resident principal who performs an activity in the territory of Serbia, provided that the service provided to a non-resident legal entity does not serve its business activity.
2. Tax relief for repatriates and new immigrants
The new Article 15v is added to define the salary tax base for the repatriates and new immigrant taxpayer (hereinafter taxpayer).
The taxpayer is entitled to a 70% salary tax base deduction if s/he meets certain conditions.
Article 15v further defines:
· who is considered to be a repatriated and new immigrant,
· the amount of deduction that can be used,
· what conditions s/he has to meet to apply the deduction and for which period.
3. Tax relief for newly-established companies
The new Article 21e stipulates that a company, a newly established legal entity carrying out an innovative business activity in the sense of the Law on Corporate Income Tax, registered with the business register, is entitled to exemption from paying calculated and withheld salary tax on the founders salary.
The tax exemption is foreseen up to the amount of 150,000 RSD for the employee-founder, for a period of 36 months from the day the company was founded. Article 21e also further specifies the additional conditions that must be fulfilled for this tax exemption to be applicable.
4. Tax relief for the qualified new employees
The new Article 21z stipulates that an employer who establishes an employment relationship with a qualified new employee is entitled to exemption from paying calculated and withheld salary tax for the salary paid as until December 31, 2022.
Qualified new employee is considered to be a person who was not insured as an insured employee in 2019 and who acquires the status of an insured employee in the period from 1 January to 30 April 2020.
It is envisaged that the tax deduction will be applied as follows:
• 70% of payroll taxes paid between January 1 and December 31, 2020;
• 65% of payroll taxes paid between January 1 and December 31, 2021;
• 60% of payroll taxes paid between January 1 and December 31, 2022;
5. Acquisition price for capital gain purposes
Amendments to Article 74, paragraph 8, more precisely define the acquisition price of shares, acquired from the employer or the employer’s related entity, free of charge or at a preferential price. In particular, if these shares are subject to salary tax, the acquisition price will be the sum of the documented preferential price and the basis on which the salary tax has been paid.
The acquisition price of shares or stocks in non-resident companies, in the case of remunerated transfers, will be the market value on the day when the person making the transfer became a tax resident of Serbia.
6. Taxation of entrepreneurs income
Amendments to Article 85, in particular the newly added item 17, prescribe that income of the entrepreneur or lump-sum entrepreneur realized on the basis of performing activities for a fee from the same principal, or a related person with the principal, and if s/he fulfills 5 out of the 9 criteria prescribed by this Article is considered to be other income.
Such fee would be taxed in full, without the possibility of deducting standardized costs, and with the tax rate of 20%.
The criteria applies on determining:
• Who decides on working hours, vacations, absence of entrepreneurs and whether or not compensation for absence or vacations is reduced from the total fee;
• Does the entrepreneur normally use the principal's premises, material, tools, equipment or other tangible or intangible assets;
• Whether the principal organizes professional training and development or manages the work process;
• Whether the principal has hired an entrepreneur after advertising the position publicly;
• Whether the entrepreneur cooperates with other entrepreneurs hired by the same client;
• At least 70% of the total revenue generated over a 12-month period is from one principal;
• The entrepreneur performs activities which are part of principal’s business activity and the contract does not contain a clause defining that the entrepreneur bears the usual business risk;
• The contract contains a partial or complete ban for the entrepreneur to perform services under the contract with other clients;
• The entrepreneur carries out activities for which s/he receives a fee for the same principal continuously or intermittently for 130 or more working days for a period of 12 months beginning and ending in the respective tax year.
The income defined in this Article shall not be included in the income from self-employment, which is generated by the taxpayer on the actual income from self-employment.