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New Taxation Rules for Freelancers in Serbia

Aug 28, 2023

HBL > Tax > New Taxation Rules for Freelancers in Serbia

The new rules for taxing freelancers took effect on January 1, 2023. They pertain to changes and amendments to how income earned by individuals acting as citizens (freelancers) is taxed.

The amended rules for the new way of taxing freelancers include the obligation to self-assess, file a tax return, and pay tax.

Changes include:

  • Determining the responsibility for self-assessment,
  • Freelancers are required to calculate, file a tax return, and pay taxes themselves,
  • Tax returns must be submitted within 30 days from the end of the quarter in which the income was earned,
  • Freelancers can choose between two tax options (two different methods of taxing their earnings).

The amended rules for self-assessment of freelancers and determining tax obligations apply exclusively to income taxation by individuals acting as citizens.

In this regard, on July 1, 2023, the official portal for freelancers was formally launched, through which they can file tax returns and report their income.

These rules do not apply to registered entrepreneurs, regardless of whether they are lump-sum entrepreneurs or entrepreneurs who keep business records.

The Term Freelancer

Freelancers are not registered to conduct business activities but earn income based on their services or other work.

It should be noted that the term “freelancer” is not legally defined and cannot be found in legal or other regulations.

However, in practice, it is most often used for the following categories of individuals:

  • Domestic individuals – residents of the Republic of Serbia who earn income by working in the country, where the income payer is a foreign legal entity, foreign or domestic individual, or another entity that does not withhold tax at source.
  • Domestic individuals – residents of the Republic of Serbia who earn income by working abroad, where the income payer is a foreign legal entity, foreign individual, or another entity that does not withhold tax at source.
  • Foreign individuals – non-residents of Serbia who earn part of their income by working in the Republic of Serbia.

In Serbia, freelancers are most commonly YouTubers, influencers, IT engineers, web designers, other internet workers, virtual assistants, online teachers, consultants, translators, foreign language instructors, and many others.

Freelancers must pay taxes on their earnings as individuals, distinct from business owners with a company structure. Both income earned within the country and revenue generated abroad by individuals are liable for taxation.

The taxation approach for freelancers encompasses earnings derived from copyright and associated rights, along with income accrued from services rendered.

Such payments, originating from domestic and international sources, are not subject to mandatory tax withholding at the time of disbursement. Further elaboration on this subject follows in the next paragraphs.

Tax Treatment for Freelancers – Taxable Incomes

Freelancers are considered taxpayers as their earnings are subject to some form of taxation.

The tax applies to:

  • Incomes derived from contracted remuneration for copyright and related rights,
  • Revenues are derived from contracted payment for work performed.

Other types of income, such as earnings from foreign dividends, income from renting personal properties, and the wages of foreign individuals on temporary assignments in Serbia, are subject to tax when paid by entities not required to withhold tax.

Tax obligations are determined through self-assessment following existing, unchanged regulations.

Incomes Exempt from New Rules

The amended tax regulations for freelancers do not apply to individuals registered for business activities. They are also not applicable to income earners from industrial property rights, as they continue to be taxed under the previous, unchanged regulations.

Furthermore, the new tax rules do not encompass freelancers with the status of independent artists. By definition, an independent artist is an individual who autonomously engages in artistic activities and holds the status of an independent artist in the field of culture, as determined by a representative cultural association.

While they fall under the category of tax-paying individuals, their taxation follows the existing, unaltered regulations.

Taxable Incomes for Freelancers Through Self-Assessment

The Law on Personal Income Tax stipulates that self-assessment is used to determine and pay taxes on the incomes of individuals paid by a payer who is not a legal entity, entrepreneur, or lump-sum entrepreneur.

We’ve previously mentioned the types of income in question:

  • Income from contracted compensation for copyright and related rights,
  • Income from contracted salary for work performed.

On the other hand, when a freelancer receives income from a company as the payer (i.e., from resident legal entities), the obligation for tax and contribution calculation and payment at the source lies with the income payer.

In such cases, legal entities often opt to collaborate with registered firms. Freelancers wishing to continue providing services to such clients may establish their own company.

Who Can Be the Income Payer to a Freelancer

The entity commissioning or paying income to a freelancer can be:

  • A foreign legal entity,
  • Foreign entrepreneur,
  • Foreign individual,
  • Domestic individual,
  • Another domestic entity that, during the income payout, is not required to calculate or remit withholding tax in the Republic of Serbia.

Taxation Procedures for Freelancers in Serbia – Self-Assessment Methods

In Serbia, income subject to taxation requires the submission of a tax return, specifically for each quarter of the year. The taxpayer, i.e., the freelancer, who has earned income, submits this tax return.

The taxpayer may file the tax return independently or seek assistance from a qualified professional.

A quarter refers to a calendar-based three-month period within the year:

  • January – March constitutes the first quarter,
  • April – June is the second quarter,
  • July – September marks the third quarter,
  • October – December completes the fourth quarter.

The total obtained during this period is the gross income earned in the quarter. During this process, freelancers choose one of two offered tax bases, determined based on the amount of normative expenses recognized (i.e., the amount deducted from the gross income).

Taxable income, subject to self-assessment, is determined as follows:

  • Normative expenses reduce the gross income earned in the quarter in dinars.

Thus, the income of freelancers, which includes earnings from copyright and related rights and income from remuneration for work performed, on which tax is self-assessed, is reduced by the amount of normative expenses.

Normative expenses are recognized (deducted) as follows:

  1. A fixed amount of 96,000 dinars per quarter (independent of the total income amount).
  2. An amount of 57,900 dinars, followed by an additional 34% of the total income earned in the quarter.

Determining the Tax Base

The method for establishing the tax base depends on the chosen self-assessment model that the freelancer opts for.

There are two models:

  • The quarterly gross income is reduced by a fixed amount of normative expenses of 96,000 dinars.
  • The quarterly gross income is reduced by absolute normative expenses of 57,900 dinars and a relative amount equal to 34% of the quarterly gross income.

The First Taxation Method for Freelancer Incomes

In the case of the first method of taxing freelancers in Serbia, the taxable base is determined as the difference between the quarterly gross income and normative expenses amounting to 96,000 Serbian dinars.

The taxable base comprises the total income freelancers earn in a quarter, reduced by normative expenses of 96,000 Serbian dinars. Tax at a rate of 20% is then calculated and paid on this resulting taxable base.

If a freelancer earns up to 96,000 Serbian dinars in a quarter, they are not obligated to pay personal income tax. The first taxation option is more favorable for freelancers with lower incomes.

Second Taxation Approach for Freelancer Incomes

In contrast to the previous taxation method, the second approach distinguishes itself regarding normative expenses. Similar to the first scenario, the total income earned in a quarter is reduced by the amount of normative costs.

Normative expenses encompass a fixed amount of 57,900 Serbian dinars per quarter and a variable component. The variable, or relative, amount depends on the total quarterly income and constitutes 34% of the earnings achieved in that quarter.

The tax base is determined when the gross quarterly income is reduced by the sum of the absolute and relative amounts of normative expenses (the sum of 57,900 dinars and the variable amount). Income tax for citizens is then levied at 10% on this calculated tax base.

Under the second model, freelancers with less than 87,727.27 Serbian dinars per quarter are not obligated to ascertain taxable income. Therefore, they are not required to pay income tax. The second model is more favorable for freelancers with higher payments.

Taxation of Freelancers – Can the Taxation Model be Changed?

Freelancers have the freedom to choose their taxation model. In practice, this choice is often made based on the level of earnings for the observed quarter, thus opting for a more favorable tax liability for that specific tax period.

There is no obligation to apply the selected self-assessment taxation model for freelancers continuously. Instead, they can opt for a different taxation method for the upcoming tax period.

Normative Costs When a Freelancer Earns Both Types of Income in the Same Quarter

In case both types of income are generated within the same tax period – both from copyright and related rights and for work performed – normative expenses are recognized at the prescribed rate, depending on the chosen taxation model.

In simpler terms, normative expenses remain unchanged, and their calculation is based on the chosen taxation approach. This is irrespective of whether the freelancer has generated both types of income or only one during the observed quarter.

Social Security Contributions – Freelancers’ Pension and Health Insurance

Freelancers must calculate and pay contributions for social security. A separate tax return is filed for these contributions, independent of the registration on the freelancers’ portal.

It’s important to note that the rules for determining these contributions vary depending on the taxation options chosen by freelancers.

Health insurance also depends on whether the freelancer is insured through another avenue.

If a freelancer does not have an electronic certificate or cannot calculate and submit the tax return electronically, they can enlist the services of an accounting agency.

Rules for Determining Social Security Contributions for Freelancers

The calculation of the social security contribution base for freelancers depends on the chosen self-assessment model:

  1. First Model: For freelancers who opt for the first model (the taxable base is the difference between quarterly gross income and fixed normative expenses), the social security contribution base for the quarter is derived from the taxable income earned by the freelancer in that specific quarter. In this case, when income falls below 96,000 dinars, there is no obligation to pay social security contributions.
  1. Second Model: For freelancers who choose the second method (the taxable base is determined as the difference between quarterly gross income and the sum of fixed and variable normative expenses), the calculation of the social security contribution base for the quarter is similar to the first option, based on the taxable income earned in the observed quarter. However, there is a limitation in this case, where a minimum social security contribution base can be at least three times the lowest monthly contribution base.

In the second scenario, social security contributions are always paid:

  • When the taxable income exceeds the determined contribution base, the base for social security contributions is the taxable income.
  • When the taxable income is lower than the determined contribution base, the base for social security contributions is at least three times the lowest monthly contribution base, which stands at 35,025 dinars from January 1 to December 31, 2023.

The tripled amount of the lowest monthly contribution base in 2023 is 105,075 dinars. This amount is subject to annual adjustments and alignments. The social security contribution rate for social security stands at 24%.

Health Insurance Contributions for Freelancers

For freelancers who already have health insurance through various means (such as being entrepreneurs, founders of LLCs, employed individuals, retirees, etc.), there is no obligation to pay health insurance contributions.

However, a contribution rate of 10.3% applies to freelancers without existing health insurance coverage.

The base for calculating these contributions is determined through either of the following methods:

  • Based on taxable income, contingent upon the chosen taxation option for the observed quarter.
  • On the minimum threefold base amount, which equals 15% of the average monthly salary in Serbia from the previous year. The contribution base for mandatory health insurance in 2022 was 13,618 dinars, and the threefold base was 40,854 dinars.

Freelancers who are not insured through another means are always obligated to pay health insurance contributions:

  • When taxable income surpasses the established contribution base, the contribution base for health insurance is the taxable income itself.
  • When taxable income falls below the established contribution base, the contribution base is at least the minimum threefold base amount.

In either case, freelancers can independently calculate and submit their tax returns or opt to engage an accounting agency to provide calculation services.

Deadline for Tax Filing and Tax Payment for Freelancers

Tax obligations are assessed every quarter. Essentially, tax is calculated on a freelancer’s income within the quarter.

The deadline for filing a tax return is 30 days after the end of the period in which the revenues were generated:

  • For the first quarter – April 30th,
  • For the second quarter – July 30th,
  • For the third quarter – October 30th,
  • For the fourth quarter – January 30th.

The tax payment deadline is no later than the expiration date of the tax return filing deadline for the respective quarter.

If you require assistance with calculations, reporting, and tax payments for freelancers, HLB T&M Consulting, a bookkeeping services agency, provides tax and income calculation services. Feel free to get in touch with us.