On 21 April 2021, the Serbian Government announced that it has reached a final deal with a group representing interests of freelance internet workers on the partial amnesty for the unpaid past income tax and social security contributions and on the new rules of taxation of their income. The final agreement was a result of months’ long negotiations between the Government and freelance workers’ associations, which started when the last year’s public warning to freelancers by the Serbian tax authority caused an outcry in the freelancers’ community. “Internet workers” took to the streets to protest, prompting the Government to negotiate. The final deal reached on 21 April 2021 was quickly built into the Government’s bill proposing amendments to the Personal Income Tax Act and the Social Security Contributions Act and rushed through the legislative process, with the National Assembly adopting the amendments on 28 April 2021. The amendments came into force on 7 May 2021 but the new rules for taxation of freelancers will only take effect on 1 January 2022.
New rules for taxation of freelancers effective as of 1 January 2022
The amendments affect:
- individuals generating cross-border income from various works or services; and
- individuals generating cross-border income through economic exploitation of their creative work protected by copyright and/or industrial property rights (writers, scientists, journalists, editors, various kinds of visual and performing artists, fashion, interior architecture or industrial designers, translators, database creators, software developers etc.).
The individuals concerned are subject to self-assessment of income tax and the mandatory social security contributions. The amendments do not apply to individuals registered as private entrepreneurs.
Under the new rules, freelancers will be entitled to a standard deduction from their quarterly income of approx. EUR 470 per quarter. Quarterly income after the deduction will be taxed. Tax reports are due on the quarterly basis (so far, income earner was obliged to report each ad hoc income within 30 days from the receipt thereof). The personal income tax rate of 20% and the applicable rates for the mandatory social contributions (35.8% in aggregate) remain unchanged.
Treatment of tax liability accrued until the end of 2021
With respect to unpaid back taxes that are not caught by the 5-year statute of limitations, and taxes on cross-border income earned before the end of 2021, the tax authorities will issue assessments, unless a final assessment has already been made or the tax obligation has been paid prior to the amendments coming into force. When assessing those liabilities, the tax authorities will exempt from the annual tax base income of up to RSD 384,000 (approx. EUR 3,270) and apply a standard cost deduction of 50% of the total annual income. The assessed back tax and social security contributions will be payable in 120 equal monthly instalments, each becoming due on the 15th day of a calendar month (the first instalment becoming due two months from the assessment). The Minister of Finance should issue until September 2021 a regulation detailing how the individuals are to report their past income as well as income earned until the end of 2021 for the purpose of the assessment.