How to Set Up as an Independent Contractor In Serbia
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Working as an independent contractor for foreign clients is quite popular in Serbia. If you are thinking of working as one, you need to follow a few steps and register as an entrepreneur. This setup will allow you to offer your services to both local and international clients. This guide will take you through the registration process.
Disclaimer: This article is not a substitute for legal advice. Please always check official websites or seek legal advice before you take action.
Business registration in Serbia
An entrepreneur (Serbian: preduzetnik) is an individual doing business to achieve profit, and they are registered in accordance with the law. An entrepreneur is a registered individual offering their services to local and international clients for a limited or unlimited time.
This setup is the best option for individuals, as only one person can register as an entrepreneur. It's been a popular way to do business in Serbia for a while, but it's important to understand the difference between the two types of entrepreneurs you can set up as.
1. Lump-sum entrepreneurs choose not to do bookkeeping but pay the same amount of money for tax and contributions purposes each month. This sum depends on various factors:
- The entrepreneur's business location
- Their age
- Field of work
In Serbia, there were around 110.000 registered lump-sum entrepreneurs in 2018, but this number has increased to this day, especially with the law regarding freelance work being less favorable in terms of tax rates. Many freelancers have decided to register as business owners to keep their net income as high as possible, but it's expected that the government will soon create an agreement that will benefit both sides and keep nurturing freelance work in Serbia.
Lump-sum entrepreneurs can't be in the VAT system and have an annual limit of 6 million RSD. Another limit lump-sum entrepreneurs face is the field of work they can choose for their business - it can't be trade, real estate, hospitality, etc.
2. Entrepreneurs who keep books according to the double-bookkeeping system don't pay flat-rate taxes but calculate the amount they have to pay at the end of the fiscal year. Bookkeeping entrepreneurs pay taxes at a rate of 10% on total profit and have to enter the VAT system after they go over the limit of 8 million RSD in 12 months.
Unlike lump-sum entrepreneurs, this type has to hire a bookkeeper to calculate exactly how much money they have to pay to the government at the end of the year. They also have to justify all their expenses and money withdrawals. All financial reports must be public and submitted to the SBRA.
You can choose between these two forms of entrepreneurship based on your expected monthly or annual income. Note that you can move from being an entrepreneur to having an LLC (called D.O.O. in Serbian), which stands for Limited Liability Company. However, note that in case of infringement, the penalties are even double for LLCs in some cases.
Benefits of registering as a lump-sum entrepreneur
One of the most significant benefits of this setup is that the entrepreneur can manage their assets (money) freely without additional accounting. It gives you the flexibility to work with as many clients as you want as long as you are registered, pay your taxes and benefits regularly, and keep a record of all the documentation.
Taxes and benefits for entrepreneurs in Serbia
Taxes, health insurance, and pension fund and all mandatory and must be paid by an entrepreneur on a monthly basis. According to Serbian law, each entrepreneur is liable for paying their taxes and benefits timely.
Lumpsum tax for entrepreneurs in Serbia
If you are an entrepreneur, you qualify for lump-sum taxes as long as your earnings don't exceed 6,000,000 RSD (around 57,700 USD) within 365 days. Keep in mind that this calculation is not annual (January-December). If you, at any point, within 365 days earn more than 6,000,000 RSD, you can't be registered as a lump-sum entrepreneur.
Lump-sum taxation means that regardless of the income, taxes and benefits are fixed each month. As mentioned, many factors determine the amount due, but the biggest one is the average income in the municipality where the entrepreneur's type of business is registered for the core activities they perform. The amount you have to pay will be defined once you get the determination from the Tax Administration office.
Serbia recently introduced an independence test for entrepreneurs to ensure there is no employee misclassification. We already talked about it in our recent article.
Until you get the determination, you have two options:
1. Wait for the determination and pay the taxes and benefits retroactively with no additional costs or interest. Keep in mind that this can take up to several months, so make sure you leave money on the side.
2. Pay the taxes and benefits monthly according to the suggested rates by the tax administration office. You will need to pay the difference if the amount is different from your tax determination. If you paid more than the determined amount, you would pay less in the coming month.
However, once you submit the documentation to the SBRA, it usually takes a few days to receive the determination.
Registering a company in Serbia
Don't be confused - every entrepreneur needs to register their company to perform their services. You will find several terms (entrepreneur, company, entrepreneurial agency) that all fall under the same category. There is no option to register as an entrepreneur without opening a company.
Registering as a company is relatively easy and takes a few steps.
First of all, you need to register at the Serbian Business Registry Agency. You can choose a name for your company (you can opt for a name in a foreign language, too). You can check if your desired name is available on this link. Every company has its core activity (Serbian: šifra delatnosti), which it's registered for, but it can also perform any other activities that are not prohibited by law and are connected to the core activity.
Popular core activities and their codes:
- 6201- IT, software development, web development, and other IT services
- 7022 - consulting
- 7021- communications and public relations
- 7401- design services
- 8299- other business consulting services
For a full list of all core activities and their codes, refer to this page (in Serbian). note that you can change the code later on if the core activities of your business change and become more similar to another code.
You can calculate your monthly tax obligations on this link, but note that it's written in Cyrillic so you may need help from a native speaker.
There are two ways to file for registration of your company: filling in person and electronically.
Documents you need to register if filing in person:
- Registration form
- Copy of ID
- Proof of payment of registration fees
- Registration fee : 1,500 RSD (~14 USD)
Registration process if filing electronically:
- Create an account at the Business Registry Agency portal. When creating an account, you will need to fill in information such as name, last name, email address, citizenship, and complete the verification process. You will then receive an email with the next steps. You can watch a video tutorial to help you set up.
- Install the appropriate software and connect your smart card reader so you can verify your ID with a qualified electronic certificate.
- Go to the application page, log in, and choose to file for registration. Fill in the necessary information about yourself and the company you are registering. Keep in mind that the email and address must be valid as they will be used to get all the documents. You can watch a video tutorial to help you fill in the registration form.
- You can pay for all registration fees with a credit or debit card.
- You will finish the registration process with an electronic certificate (signature).
If you do not have a qualified electronic certificate, there are a few ways to obtain one:
- Request online via Serbian Chamber of Commerce
- Go to a local police office (MUP)
Alternatively, you can go to an accountant who has an electronic certificate who can help you register.
It will take you up to 5 business days to get a registration confirmation at the Serbian Business Registry Agency. You will receive it either via mail or by picking it up from the Registry.
Once registered, you will need to:
- Make a company stamp, if you decide to have one - it's no longer required by the law.
- File OP form for registration of business signatures (Serbian: OP obrazac) to keep on file the people who have the signing right for an entity
- Open a designated company bank account
- File for tax registration within 15 days after registering your company
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Filing for tax registration
It's critical to file for tax registration timely. If you don't do it within the 15 designated days, the SBRA may decline your registration. However, as soon as you download the app designed for business owners to handle their documentation online (called ePorezi), you can file for tax registration electronically.
While you are filing for tax registration, you can also register for the use of electronic services, so you or your accountant can access your files online. The form used for this is called PEP (Serbian: PEP obrazac). Then you can access all your documents by using your ID and a smart card reader anywhere you are.
Note: You don't need to be physically present at the moment of registering at the SBRA. Also, if you decide to open a company in Serbia, you can also apply for a temporary stay in this country. The documentation you need to submit depends on your role in the company.
Documents you need to file for tax registration:
- A copy of the registration confirmation for the Serbian Business Registration Agency
- A copy of PIB (tax identification number) provided by the agency
- Tax registration form PPDG-1 (2 copies of the original document)
- OP form (for registered signatures)
- A copy of the proof of ownership or signed approval from the estate owner of company office space
- A copy of the bank account contract
- If applicable, information from the accountant and the contract
- M-1 form for mandatory social contributions
- A lumpsum taxation application form