07 Dec 2020

Freelancers & taxes: not for free?

As much as the rise of new technologies and novel business models has shown as inevitable in the past few decades, so has the payment of taxes.

Most taxpayers operating in the Republic of Serbia are aware of their obligation to pay taxes and contributions. However, questions arise for those who work and earn abroad through new and increasingly complex business models (although physically residing mostly in Serbia), and may not be aware that they have to pay taxes and contributions, and should report to the Tax Office.

The precipitous rise in the number of new types of creatives and entrepreneurs – freelancers, youtubers, online tutors, IT and other experts – who earn money from abroad, encouraged the Serbian Tax Administration to invite them to calculate and file taxes.

On October 13 2020, the Tax Administration issued an Announcement, in which it noted that the available data suggests that a great number of those who earn income from abroad do not fulfill their tax obligations. Instead of an automatic sanction or punishment, the Tax Administration decided to “give them all a second chance”. They are now invited to calculate and pay their overdue taxes and contributions, before they are subjected to tax audit and/or the Tax Administration files a request for initiating misdemeanor or criminal proceedings, if the amount of overdue taxes and contributions is large enough.

What happened in the meantime?

Unsurprisingly, the Announcement caused an avalanche of reactions by those who make a living through various internet platforms. Most expressed the view that the local entrepreneurial spirit is being quashed in this way and if they paid taxes, many would be left without any income. Others noted that they would become uncompetitive in the global market if they passed on the taxes and contributions to their clients, especially as their competitors from other countries do not have these obligations and can charge lower prices.

When considering “fairness” of this Announcement, it is necessary to question whether the non-payment of taxes by freelancers, YouTubers, and similar professionals, creates unequal treatment in comparison to those entrepreneurs and legal entities that work and earn in Serbia and regularly pay taxes. The officials noted that no new obligations have been introduced, but that the Tax Administration has only identified those who do not fulfill their obligations in accordance with the law. Assuming that freelancers intend to fulfill their tax obligations in accordance with law, the question is how they should calculate the taxes and contributions, for which period of time, and how complicated it is to determine the tax to be paid.

What does the Personal Income Tax Act say?

The natural persons, who earn income by working for legal or natural persons with no representative office or branch in Serbia, are obliged to calculate and pay taxes themselves. The amount of tax will depend on:

  •  the earned income;
  •  the revenue type codes;
  •  whether the natural person is insured or not;
  •  the types of contracts that a natural person concludes with a non-resident.

This type of income requires that for every payment from abroad, a tax file is submitted within 30 days.

Furthermore, the law stipulates that the calculation for the payment of taxes for natural persons differs depending on whether the natural person has an additional job or is unemployed. If a person is employed, he or she is insured based on an employment contract and therefore, does not have to pay additional health insurance. In the case when a natural person is not insured on any basis, i.e. he or she is unemployed, they have to pay compulsory state health insurance in addition to pension and disability insurance.

Material, misdemeanor and possible criminal liability loom over those who are not fulfilling their obligations

Serbian taxpayers are obliged to report and properly pay tax liabilities, as established in the Tax Procedure and Tax Administration Act. Therefore, tax evasion of any kind, i.e. non-declaration of acquired income, concealment of data, or other facts that affect the determination of tax liability, entails misdemeanor or even criminal liability (when the amount of the obligation whose payment is avoided exceeds one million dinars).

Given that these infractions carry a fine as well as a prison sentence, there is no overstating how important it is to know and abide by tax regulations.

What to expect?

As the Announcement of the Tax Administration provoked a great number of reactions, it seems inevitable that there will be changes in the business models for freelancers who earn their income from abroad.

It remains to be seen whether the Notice is a step towards correcting inequalities in the treatment of freelancers and other taxpayers who earn in Serbia, or it leads to restraining the entrepreneurial spirit and reducing the competitiveness of talented Serbian entrepreneurs working in the global market.

We invite you read our article about digital nomads and all the tax implications that these business activities bring along.

Authors: Danica Misojčić and Mina Kuzminac