15 December 2021
Serbian Parliament recently adopted amendments to the Law on Personal Income Tax and the Law on Contributions for Mandatory Social Insurance, basically in the same text as the proposal of the amendments which was previously adopted by the Government. Amendments provide new benefits for companies, especially for employment of new employees, while extending the application of some previously adopted measures which are already in effect. Amendments will come into force on 1 January 2022, except for a few specific provisions which come in effect on 1 March 2022.
In addition to increasing the non-taxable part of the salary from 18,300 dinars to 19,300 dinars and reducing the contribution rate for mandatory pension and disability insurance from 25.5% to 25% of the salary’s base (which will bring about a decrease of the tax burden on salaries, albeit a quite modest one), an important change is extending the benefits in form of refund of paid taxes and contributions for new employees (persons who were not employed nor had the status of entrepreneur six months before employment) for an additional year, i.e. until 31 December 2022.
However, perhaps the most significant changes that are being introduced relate to companies from the IT sector and companies that are using employment benefits for persons who were previously engaged on contractual basis as entrepreneurs (i.e. ‘’qualified new employees’’).
In this regard, exemption from tax and social contributions for founders of companies engaged in innovation activities who establish employment in such companies (for the salaries up to 150,000 dinars) is envisaged to become a permanent measure (pursuant to the previous text these measures were available for companies established until the end of 2021).
Moreover, tax reliefs for employment of “qualified new employees” introduced by the tax legislation which came into force in January 2020 (with the purpose of incentivizing companies to formally employ persons previously engaged as entrepreneurs), are also extended until the end of 2025 (previously the measure was limited until 31 December 2022), for employers with 30 employees or less. Also, the same tax relief (reduction of taxes and contributions until the end of 2025) is envisaged for the employment of qualified newly-employed persons (who had the status of entrepreneurs in the previous period) in the period from 1 January until 30 April 2022. This measure is also applicable to companies with no more than 30 employees. This practically means that companies which had more than 30 employees on 31 December 2020 will not be eligible for the extension of the tax benefits, neither for their existing qualified employees nor for the new hires.
Exceptionally, companies with more than 30 employees are eligible for a new form of tax and social contributions relief, envisaged for employment of persons who were not employed in the previous two years, nor had the status of entrepreneurs. Tax relief (the entire amount of social contributions and 70% of the salary tax is subsidized by the state) is applicable to salaries paid until 2024 and under the additional condition that they exceed 76,500 dinars.
A special relief measure is provided for companies engaged in research and development (acquisition of new scientific or technical expertise and application of research or scientific achievements or design in order to develop new products or processes). Such companies can take advantage of reduction of taxes and social contributions for employees directly engaged in R&D projects (engagement for the purpose of oversight or support is not sufficient) for an unlimited period of time and regardless of whether these employees were previously employed or not. Notably, this measure is applicable to companies which retain rights over the intellectual property created by research and development, which excludes companies which only provide assistance or outsourcing services in R&D projects. Obviously, the aim is to incentivize primarily local initiatives and projects, whereby benefits and commercial effects are realized in Serbia. This measure can be especially interesting for IT companies and startups that are developing new software solutions, design, new service or production processes in Serbia.
One of the new measures introduced by the amendments will benefit persons up to the age of 40, as it refers to reduction of the base for calculation of the annual income tax. More specifically, persons who earn more than three average annual salaries in Serbia per year (around EUR 20,000) and who are therefore obliged to file a tax return on the annual income tax, are entitled to reduction of their tax base for the amount equal to three average annual salaries in Serbia, which effectively means that their annual income needs to be in excess of EUR 40,000 in order to trigger this tax obligation.
Amendments to the tax laws envisage other changes pertaining to taxes and contributions, and in this text an overview is given of the most important ones. We believe that a significant number of companies will be interested in using some of them and thus reducing their obligations to pay taxes and contributions. However, eligibility for these measures depends on a number of circumstances that apply to both the company itself and the employees for whom the benefits are used.
This text is for informational purposes only and is not legal advice. Feel free to contact us if you need additional information.
Damjan Despotović, partner
Milorad Glavan, partner
Srećko Vujaković, partner