Employers who establish an employment relationship with a new employee until the end of 2024. can use tax reliefs for newly employed persons. These benefits based on salaries of a newly employed person refer to exemptions from the obligation to pay part of the salary tax, as well as contributions for pension and disability insurance.
Benefits based on employees’ salaries that the employer realizes when employing new persons are prescribed in accordance with two laws – Law on Personal Income (Article 21z) and the Law on contributions for mandatory social insurance (Article 45ž). The amendments were published in the “Official Gazette of the Republic of Serbia”, no. 118/21. They are in force from March 1, 2022.
In order for employers – legal entities to be able to exercise benefits for newly employed persons, certain conditions must be met. More details about all available tax reliefs that exists in Serbia related to employment, conditions that must be met, as well as other criteria for employers and new employees are available on our blog section.
1. What benefits are employers entitled to when employing new employees?
Legal entities that enter into an employment contract with new employees (if they establish an employment relationship) can receive certain benefits based on the salaries of those newly employed persons. These benefits can be used from March 1, 2022.
Tax reliefs are related to the exemption from the payment of part of the tax on salary and contributions for pension and disability insurance, and to the salary of the employee that was paid inclusive of December 31, 2024. An employer who exercises the right and engages new employees may be exempted from the obligation to pay for:
- 70% of tax for salaries (70% of calculated and withheld tax from the salary of a newly employed person);
- 100% contributions for pension and disability insurance (both at the expense of the employee and at the expense of the employer).
Therefore, benefits based on salaries of newly employed persons can be used in the period from 01.03.2022 to 31.12.2024 including the salary paid no later than 31.12.2024.
2. Benefits for newly employed persons – conditions for employers
Employers who wish to engage new employees and use tax reliefs based on the salary of the newly employed person can be exempted from the obligation to pay part of the taxes and contributions, if they meet certain conditions:
- the employer must establish the employment relationship with the newly engaged employee;
- the employment contract can be based on a fixed or indefinite period of time (the length of the employment period with a newly employed person does not affect the grant of benefits, nor is there a requirement for a time limit);
- the newly employed person must earn a monthly salary exceeding 76,500 dinars;
The employer is not entitled to use a tax relief if it uses any kind of incentive for a newly engaged employee upon establishing an employment relationship, including compensation financed by the NES (National Employment Service) within the framework of active employment policy programs and measures. However, when a tax exemption related to the same type of relief is used, the employer is entitled to use it.
The right to use the tax relief for newly employed persons can be exercised by the following employers:
- legal entities,
- entrepreneurs,
- lump sum entrepreneurs,
- entrepreneurs-farmers,
- a representative office,
- a subsidiary of a foreign legal entity.
3. Which employees are considered newly employed persons?
In order for the employee, and/or employees to be considered newly employed persons and have the right to use benefits based on the salaries of the newly employed person, three conditions must be met.
These conditions include as follows:
- that in the period from 01.2019 until 28.02.2022 the employee was not employed – that he/she did not have the status of an insured employee, self-employed insured employee as an entrepreneur, and/or, that he/she was not a founder or a shareholder of a company and employed in that company;
- that the newly employed person established the employment relationship with the employer exclusively in the period from 01.03.2022 until 31.12.2022 (at the employer who is entitled to relief);
- that he/she earns a monthly salary exceeding 76,500 dinars, in the gross amount.
When all conditions are met, new employees who can acquire this status of newly employed person are:
- unemployed persons who had the status of unemployed persons in the period from January 2019 to February 28, 2022 (they were not employed anywhere in the prescribed period, regardless of whether they were registered in the NES records as unemployed);
- persons who, in the period from 01.01.2019 until 28.02.2022 were founders/shareholders of a company, but were not employed in their company (i.e. did not have an employment relationship in their company);
- employees who are engaged on the basis of a work agreements outside employment relationship (service contract, contract on the rights and obligations of the director, contract on author’s work, contract on professional training and professional development, contract on temporary and occasional jobs and other contracts).
Employees who acquired the status of a newly employed person in the prescribed period (employment in the period from 01.03.2022 to 31.12.2022) are subject to mandatory condition that the amount of their monthly salary must exceed 76,500 dinars, in the gross amount.
4. Is the benefit for a newly employed person transferable to another employer?
Benefits based on salaries of a newly employed person are transferable to another employer.
We have noted that the employee acquires the status of a newly employed person when he/she establishes an employment relationship with the employer, only during the prescribed period. We have also noted that the employer is entitled to use these benefits. Therefore, the other employer must also fulfil the conditions on the basis of which it will be entitled to use them.
An employer who initiates the use of the relief for a newly engaged employee is not conditioned by the mandatory use of it in the specified period. There is only a limited period for acquiring the status of a newly employed person, which is the prescribed period from March 1, 2022 – 31.12.2022, during which the employment relationship must be established. For employers, there is another period prescribed in which they can exercise the right to use the benefit, which is from March 1, 2022 to December 31, 2024.
A newly employed person retains the status once acquired until the end of the period of use, and/or until the end of 2024. Considering that the benefit is transferable to another employer, an employee with the acquired status of a newly employed person can transfer it, and/or use it during employment in another company.
This practically means that, in case of termination of the employment relationship with the employer who uses the benefit, the employee retains his/her status as a newly employed person, and the benefit can be used by any subsequent employer with whom he/she establishes an employment relationship, until the end of 2024. Other conditions must also be met, both for the lower limit of the monthly salary and regarding the conditions that must be met by the employer.
5. Who is considered to be a newly employed person?
A newly employed person shall not be considered to be:
- an employee who was employed (in the employment relationship) during the period from 01.01.2019 to 28.02.2022,
- founder/shareholder of the company who was employed in his/her own company during the period from 01.01.2019 to 28.02.2022;
- a person who had the status of an entrepreneur during the period from 01.01.2019 to 28.02.2022 (entrepreneur, lump sum entrepreneur, farmer entrepreneur, entrepreneur other person);
- a person who had the status of a beneficiary of an old-age, premature old-age or disability pension on 01.01.2019.
6. Exercise of the right to pension and disability insurance
Although the benefit for newly employed persons is based on tax exemption in the prescribed percentages (salary tax 70% and contributions for pension and disability insurance 100%), contributions for pension and disability insurance for newly employed persons, for which the employer is entitled to exemption from paying contributions, are paid to employees.
The benefits are paid from the budget of the Republic of Serbia, which is why there are no refunds, and/or reimbursement of payables.
In order for the employee to exercise his/her right under pension and disability insurance, contributions for pension and disability insurance are considered paid at the time of maturity (at the time of payment of the net salary for a newly employed person, which must be paid in the prescribed period, and/or by the end of the current month for the previous month).
7. Termination of the right to use the benefit for newly employed persons
There are no specially prescribed conditions for the termination of benefits, or for the loss of the right to them when it comes to the total number of employees of the employer. A company that uses benefits for newly employed persons can use them as long as the employee’s employment lasts, as well as long as it meets the conditions in accordance with the Law on Personal Tax and the Law on Contributions for Mandatory Social Insurance.
There are restrictions on the use of benefits based on salaries for newly employed persons when it comes to the temporary incapacity for work of that newly employed person, and/or for the contributions that are paid. In the case of temporary incapacity for work of a newly employed person, the employer still exercises the right to use the benefit.
However, it cannot exercise the right when an employee with the status of a newly employed person uses sick leave for more than 30 days, maternity leave, leave from work for child care or leave for special child care. These absences are debited to the state budget, which is why the employer cannot exercise the right to use benefits related to the exemption from paying part of the tax on salary and contributions for pension and disability insurance.
At the end of the sick leave that was paid out by the National Health Insurance Fund, the employer can continue using the benefit for newly employed persons that it has used even before the temporary incapacity to work of the employee.
8. Additional conditions and recommendations for benefits for newly employed persons
As for the additional conditions related to exercising the right to use benefits based on the salary of a newly employed person, there are none. But there are some recommendations.
In order to obtain the status of newly employed persons, before establishing an employment relationship and for the purpose of using the benefit, unemployed persons are not obliged to file the application to be registered with the National Employment Service. Further, employers do not have the obligation to provide the tax authority with additional evidence on the status of a newly employed person.
What is recommended is that before establishing an employment relationship and signing an employment contract, employers should check the status of the persons they wish to engage for the period from 01.01.2019 until 28.02.2022. In this way, they will be sure that the employee will definitely acquire the status of a newly employed person.
A Certificate of Insurance Information, issued by the Pension and Disability Insurance Fund can be regarded as the proof of status. The Certificate shows that:
- the unemployed employee did not have the status of an insured employed person,
- the person was not insured based on engagement in independent activities as an entrepreneur,
- the founder/shareholder of the company was not employed in that company of which he/she is the founder, and/or shareholder.
Please contact us for additional help with the employment of newly employed persons and the use of benefits for newly employed persons. An experienced team of accountants, financial and tax experts from the accounting firm HLB T&M Consulting is at your disposal.
