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At the end of last year, the Government of the Republic of Serbia and the Ministry of Finance introduced new amendments to the Personal Income Tax Law and the Law on Compulsory Social Security Contributions for entrepreneurs. These regulations will question the existing entrepreneurs' independence and their right to lump-sum taxation.
In Serbia, many people who work for foreign companies or freelance register entrepreneur agencies and pay lump-sum taxes and social contributions. So far, this has been the most viable solution since there is no specific status that aims to regulate this type of professional engagement.
As said by the government officials, the aim of these regulatory changes should stimulate employment in companies that are increasing the number of their employees as well as to more precisely regulate the engagement of the lump-sum taxed entrepreneurs.
What to do if you are a (lump-sum) entrepreneur in Serbia
To assess your situation, you can use the so-called Independent Contractor test, effective January 1st, 2020. The test helps you determine whether you, as an entrepreneur, fulfil the conditions for the lump-sum taxation, or, in fact, you are considered an employee of another company. The test consists of nine points, and if you comply with five or more points, your entrepreneur status will be in question.
Independent Contractor Test Criteria
You are considered a true (lump-sum) entrepreneur if you DO NOT meet five or more conditions:
Please note that "Client" refers to the client and any other client-related parties, and "Entrepreneur" refers both lump-sum and regular entrepreneur.
- The client determines the entrepreneur's working hours and leaves (such as holidays, sick days, etc.), and doesn't proportionally reduce the compensation for the time spent not working
- The entrepreneur uses client's office space, or the client covers costs of entrepreneur's office space, tools, equipment or other assets needed to perform work
- The client conducts or pays for professional or development training, or generally manages the entrepreneur's work process (how and when the work is performed)
- The client hired the entrepreneur after putting out a public advertisement, or by using a recruitment agency
- The entrepreneur frequently works in a team with other entrepreneurs who are employed by the same client or their employees
- At least 70% of the entrepreneur's total income over the past 12 months comes from a single client
- The entrepreneur carries out core activities which are part of the client's business, and the contract between the two parties does not include a clause under which entrepreneur bears the usual business risk for the job delivered to the client
- The agreement between two parties contains a clause that partially or fully prohibits entrepreneur from providing services to other clients (also known as a non-compete clause)
- The entrepreneur performs paid business activities for the same client continuously or intermittently for 130 or more business days over a 12-month period
The Serbian government officials announced that the independence test will take full effect starting March 1st, 2020. However, there is not that much information about how the process and timeline will work. We will update this article as we learn more about it.