Terms of lump-sum taxpayers’ business operations to change, Task Force ignored – Full-time hiring by single employer no longer to be allowed

Source: eKapija Wednesday, 25.09.2019. 11:51
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The Government of Serbia has announced amendments to the Law on Personal Income Tax and the Law on Contributions for Mandatory Social Insurance, which will contain a test of independence of entrepreneurs that pay lump-sum taxes and a related set of tax exemptions. The plan is for the amendments to come into effect on January 1, 2020. These amendments will considerably change the terms of the business operations of entrepreneurs and entrepreneurs that pay lump-sum tax, and the Task Force for the upgrade of lump-sum taxation did not take part in formulating the proposed solutions, as one of its members, Djerdj Pap, told eKapija.

Serbian Finance Minister Sinisa Mali said that the test would be implemented with the amendment of Article 85 of the Law on Personal Income Tax, as employers hire entrepreneurs instead of employees for tax reasons, most frequently those that pay lump-sum taxes.

– This way, we want to determine whether someone is hired as a true entrepreneur or as a replacement for an employee – Mali said.

Although the said test and the criteria to be used have not been officially announced, Mali says that some of the criteria will be whether the majority of the income is made through a single client and related entities, whether it depends on the employer when the entrepreneur takes a vacation, whether the employer’s business premises and equipment are used in the entrepreneur’s operations and whether the employer organizes professional development training courses for the entrepreneur.

He says that, if it turns out that the entrepreneur meets most of these criteria, they count as a replacement for an employee, in which case taxes must be paid in line with the rules for other income, but without acknowledging the recognized expenses – tax (20%), contributions for pension and disability insurance (26%) and contributions for health insurance if the subject is not insured on another basis (10.3%).

– If it turns out that the person is hired as a true entrepreneur, the general regime of lump-sum taxation applies – it is said on the website of the Ministry of Finance.

This means that those who have lump sum tax agencies and who cooperate with several clients will not feel any changes. However, companies which employ workers as lump-sum taxpayers full-time will no longer be able to operate that way, but will be given a special opportunity of employing previously hired lump-sum taxpayers as regular workers, with tax exemptions, beginning with 2020.

The efforts to reform lump-sum taxation started in late 2018 with the formation of the Task Force, and the focus was on the digitization of the tax administration and the reduction of the necessary administrative procedures. The proposed new set of measures is not the result of the work of this Task Force, formed by the Government of Serbia, Djerdj Pap, one of its members, says for eKapija.


– I believe that, if something of this sort is adopted, it will have very negative consequences on the IT community, as people will find new ways of getting by if they are not provided this options. This will have a harmful effect on the state, from brain drain to the opening of companies abroad – Pap says for eKapija.

According to him, the Task Force did give certain recommendations, among which were those pertaining to who can be a lump-sum taxpayer.

– We believed that it was not just to have lawyers be lump-sum taxpayers, but not accountants and tax advisors, and we recommended that they too be included in the system of lump-sum taxation – Pap said.

According to the available data, in January 2019, there were 117,707 entrepreneurs that paid lump-sum tax. The most represented activities are taxi services – 11,322, lawyers – 10,064, computer programming – 8,071, hair and cosmetics salons – 6,964, and consulting activities related to operations and other management activities – 5,565.

I. Milovanovic

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