Business planing with lump-sum taxation

“Pausal” is a term that refers to an entrepreneur who has chosen a lump sum taxation system, payment of taxes and social contributions. Unlike entrepreneurs who are “bookkeepers”, “Pausal” freelancers do not keep books, and the amount of taxes and contributions that an entrepreneur must pay regardless of his real income and expenses is determined by the Tax Administration.

For an entrepreneur to obtain the “Pausal” status, it is necessary to fulfill the conditions stipulated by Article 40 of the Law on Personal Income Tax (“Official Gazette of RS”, 4/2019), and the most important are:

  • performs the activity for which lump-sum taxation is envisaged;
  • that the annual turnover they generate in one calendar year does not exceed 6 million dinars;
  • that the turnover realized in the past 365 days does not exceed the limit of 8 million dinars (considering the correct determination of the turnover date).

So, when you register at APR, the next step is submitting a request for flat taxation to the Tax Administration within 15 days, or if you are already an entrepreneur by the 30th November of the current year for the following year. The Tax Administration should issue a Decision within 30 days.

However, there is a question if this form of taxation is profitable.

When you have all the legal requirements for performing activities in the form of lump-sum entrepreneurs fulfilled, and the Tax Administration approved you this type of taxation after examining the fulfillment of the conditions, you need to see how this will fit into your business.

Namely, there are certain advantages and disadvantages of a lump sum form of taxation, which vary depending on the situation. We will list some of the main ones:

Advantages:

  • Since lump sums do not keep business books other than the Revenue Book (the so-called KPO Book), therefore you will save the cost and time required to maintain them;
  • The entrepreneur will pay tax monthly which is determined in advance, it means that the amount of tax does not depend on profits, but on pre-determined criteria by the Tax Administration;
  • Under certain conditions, if higher income can be reasonably expected, this type of taxation is more cost-effective;
  • “Pausal” entrepreneurs are not subject to annual personal income tax, provided that the sole income of an individual is the income generated from the performance of a registered activity;
  • Ability to dispose of money from a business account at any time (Daily limit is 150,000 dinars).

Disadvantages:

  • The main disadvantage is that the tax liability remains the same, even if the entrepreneur operates with little profit or even loss, which means that it is very important to analyze in detail future operations and expected revenues so that the most profitable type of business can be determined with great certainty.

Therefore, when starting a business, it is necessary to define the business activity and determine whether there is a legal possibility for lump-sum taxation. It is then necessary to analyze the profit in the first year of business to determine whether it is a more cost-effective option to be a “Pausal” or “bookkeeper”.

In doing so, attention should be paid to the amount of lump-sum tax in the municipality where the business is planned, as this is a fact that significantly influences the determination of the type of entrepreneur. Whatever type of entrepreneurship you choose, there is certainly an opportunity to change the way you do business, with proper procedures before the Tax Administration.

If you need help deciding which option is best for you in terms of tax, you can write at tax@confida.rs.

Also, you can take a look of our page Startup support and see how we can help you.

2019-08-29T12:08:53+00:00 August 29th, 2019|

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