New tax conditions for entrepreneurs

It is widely known that our country is constantly working on improving business opportunities, attracting investors, and has been developing a system of subsidies for new investments for years. In addition to the already traditional institutions and state bodies dealing with the economy – state agencies, associations and chambers have been opened, with an associated army of newly hired experts who have the know-how, experience or have just returned from school abroad. Business situation and opportunities in Serbia seriously threatened to – flourish. The contribution of the donor community, foreign embassies and foundations were also immense. With years of project support, they also have influenced the modernization and reform of the Serbian economy and market.Changing tax conditions for entrepreneurs

The Serbian government has repeatedly pointed the need to change the tax conditions in which most services-oriented entrepreneurs in Serbia operate. We only remember the past lawyers “episode” and the failure to introduce cash registers into that business. This year, there is an ongoing dialogue between government representatives, (semi) state associations and parts of the IT community regarding the state’s intention to change the flat-rate taxation system, many say to the detriment of much of the IT industry.

Amendments have been proposed which will be contained in the Law on Personal Income Tax and the Law on Contributions for Compulsory Social Security. According to the Prime Minister, “these changes will provide tax incentives for new employment in companies that increase the number of employees, including the employment of young people entering the labor market, as well as legal certainty regarding tax treatment when hiring entrepreneurs.”

Finance Minister Sinisa Mali clarified this statement regarding the legal security of entrepreneurs – according to him, amendments to the Law on Personal Income Tax provide incentives for our people living abroad to be motivated to return to Serbia, as well as the so-called “Entrepreneur Independence Test” from January 1 next year.

Therefore, for those who have not been in Serbia for the past two years and are willing to return and work in Serbia, the state is reducing the base for calculating taxes and contributions by 70 percent over the next five years.

And for those who are already working here as popular “flat-rate” entrepreneurs, he introduced a so-called Entrepreneur’s Independence Test. It is a set of 9 questions that serve to determine who is eligible to be an entrepreneur. Based on the answers to those specific questions, they will supposedly know who is eligible.

Also, according to the Government, it is planned that the Tax Administration will start applying this test early next year. In parallel, as this law comes into effect, the state has promised a new set of measures for all those who fail to “pass” this test. Therefore, they will lose their entrepreneurial status and will have to somehow find employment or otherwise regulate their status.

From the reactions seen in the public, we noticed that some of them will not continue to regulate their status, but quit their business. In the meantime, the Government is offering a solution to exempt part of the payroll and contribution tax in the next 3 years by up to 70 percent, for all newcomers from January 1. 2019 to April 30, 2020. This rule will apply to young people, the unemployed and entrepreneurs who decide to try with classic employment.

Entrepreneur Independence Test

One of the organizations that participated in the creation of incentive measures for employment in the transition to the new taxation system, the Digital Serbia Initiative, received upon request, the Draft defining the basic principles of the proposed changes.

In the Independence Test, there are nine criteria affecting the definition of the entrepreneurs’ status. It defines the relationship between entrepreneurs and the client.

• Who determines working hours, holiday and leave
• Does it use client workrooms and supplies
• Does the client determine the terms and provide training
• Whether the entrepreneur was hired after a public call or through a third party
• Whether the entrepreneur works alone or engages a team of people
• Does 70 percent of the revenue comes from one client
• Who assumes the business risk for the assigned job
• Does the client seek exclusivity, ie. prohibits working with others
• An entrepreneur is working 130 business days continuously for the same client

However, despite the above criteria, there are still many unknowns, from whether this law will be indiscriminately applied, to how many entrepreneurs intend to take up employment under the new conditions at all. This area was unregulated in the sense that no one so far paid attention to the clients as far taxes and contributions were collected. It may have had to change, hoping that it will still benefit the largest number of entrepreneurs in the IT industry.